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FORM 10-K/A
(Amendment No. 1)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission File Number 001-10109
BECKMAN COULTER, INC.
4300 N. Harbor Boulevard, Fullerton, California 92834-3100
(714) 871-4848 (Principal Executive Offices)
State of Incorporation: Delaware
I.R.S. Employer Identification No.: 95-104-0600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Common Stock, $.10 par value
Name of each exchange on which registered: New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by X mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by X mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates of the registrant
as of January 26, 1998: $1,190,023,639.
Common Stock, $.10 par value, outstanding as of January 26, 1998: 28,460,954
shares.
Documents incorporated by reference in this report:
Documents incorporated Form 10-K part number
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Annual Report to stockholders for
the fiscal year ended December 31, 1997 Part I and Part II
Proxy Statement for the 1998 Annual
Meeting of Stockholders to be held on
April 2, 1998 Part III
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BECKMAN INSTRUMENTS, INC.
PART I
Item 1. Business
Overview
Beckman Coulter, Inc. (including its subsidiaries, the "Company") is a
world leader in providing systems that simplify and automate laboratory
processes. The Company designs, manufactures and services a broad range of
laboratory systems consisting of instruments, reagents and related products that
customers use to conduct basic scientific research, drug discovery research and
diagnostic analysis of patient samples. Approximately two-thirds of the
Company's 1997 sales were for clinical diagnostics applications, principally in
hospital laboratories, while the remaining sales were for life sciences and drug
discovery applications in universities, medical schools, and pharmaceutical and
biotechnology companies. The Company's diagnostic systems address over 75% of
the hospital laboratory test volume, including virtually all routine laboratory
tests. The Company believes that it is a worldwide market leader in its primary
markets, with well-recognized systems and a reputation for high-quality,
reliable service.
The Company's systems improve efficiency by integrating customer
laboratory operations. The design of these systems draws upon the Company's
extensive expertise in the chemical, biological, engineering and software
sciences. Products for the clinical diagnostics (In Vitro diagnostics ("IVD"))
market consist of systems (analytical instruments, reagents, accessories and
software) that are used to detect, quantify and classify various substances and
cells of clinical interest in human blood and other body fluids. Products for
the life sciences market include centrifuges, flow cytometers, high performance
liquid chromatographs, spectrophotometers, laboratory robotic workstations,
capillary electrophoresis systems, DNA sequencers and synthesizers, and the
reagents and supplies for their operation. The Company has an installed base of
approximately 75,000 systems in over 120 countries, which the Company believes
will provide a recurring stream of revenue and cash flows from the sale of
reagents, consumables and services after initial placement of the system ("After
Sales"). Approximately 67% of the Company's 1997 sales were derived from After
Sales, while the remaining 33% were derived from the direct placement of
systems.
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On October 31, 1997, Beckman Instruments, Inc. (the predecessor to the
Company, "Beckman") acquired Coulter Corporation ("Coulter") which became a
wholly owned subsidiary of Beckman. The acquisition of Coulter was a further
extension of the Company's strategy to solidify its position as a leading
provider of laboratory systems, adding Coulter's leading market position in
hematology and number two position in flow cytometry. Coulter is the world's
leading manufacturer of IVD systems for blood cell analysis (hematology), with a
market share in hematology approximately twice that of its next largest
competitor.
Beckman and Coulter serve substantially the same customer base but have
essentially no overlap in their product offerings. As a result, the Company
expects to be able to enhance the operating efficiency of the combined entities
through cross-selling and reduced operating costs. The Company intends to
capitalize on cross-selling opportunities primarily by marketing Beckman's
clinical chemistry products to existing Coulter customers and marketing
Coulter's hematology and flow cytometry products to Beckman's existing
customers.
Background
Beckman is one of the world's leading manufacturers of analytical
instrument systems and test kits, competing in the clinical diagnostics and life
sciences markets, with Company sales for 1997 of $1.2 billion, approximately
one-half from outside the United States. Founded by Dr. Arnold O. Beckman in
1934, Beckman entered the laboratory market by introducing the world's first pH
meter. In 1997, the Company generated approximately 67% of its sales through
After Sales revenue from an installed base of over 75,000 systems.
Beckman became a publicly-traded corporation in 1952. In 1968 Beckman
expanded its laboratory instrument focus to include healthcare applications in
clinical diagnostics. Beckman was acquired by SmithKline Corporation to form
SmithKline Beckman Corporation in 1982, and Beckman was operated as a subsidiary
of SmithKline Beckman until 1989 when it was divested. Since that time, Beckman
has operated as a fully independent, publicly-owned company. Beckman's principal
executive offices are located at 2500 Harbor Blvd., Fullerton, California 92834,
and its telephone number is (714) 871-4848.
Customers and Markets
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The two primary markets which the Company serves are the clinical
diagnostics and life sciences markets. The Company's clinical diagnostics
customers include hospital clinical laboratories, physicians' offices and group
practices and commercial reference laboratories (large central laboratories to
which hospitals and physicians refer tests); its life sciences customers include
universities conducting academic research, medical research laboratories,
pharmaceutical companies and biotechnology firms. The Company's customers are
continually searching for processes and systems that can perform tests faster,
more efficiently and at lower costs. The Company believes that its focus on
automated and high throughput systems position it to capitalize on this need.
Virtually all new analytical methods and tests originate in academic
research in universities and medical schools. If the utility of a new method or
test is demonstrated by fundamental research, it often will then be used by
pharmaceutical investigators, biotechnology companies, teaching hospitals or
specialized clinical laboratories in an investigatory mode. In some cases, these
new techniques eventually emerge in routine, high volume clinical testing at
hospitals and reference labs. Generally, instruments used at each stage from
research to routine clinical applications employ the same fundamental processes
but may differ in operating features such as number of tests performed per hour
and degree of automation. By serving several customer groups with differing
needs related through common science and technology, the Company has the
opportunity to broadly apply and leverage its expertise.
The clinical diagnostics and life sciences markets are each highly
competitive and the Company encounters significant competition in each market
from many manufacturers, both domestic and outside the United States. These
markets continue to be unfavorably impacted by the economic weakness in Europe
and Asia and cost containment initiatives in several European governmental and
healthcare systems. The life sciences market also continues to be affected by
consolidation of pharmaceutical companies and governmental constraints on
research and development spending.
Attempts to lower costs and increase efficiencies have led to consolidation
among healthcare providers in the United States, resulting in more powerful
provider groups that leverage their purchasing power with suppliers to contain
costs. Preferred supplier arrangements and combined purchases are becoming more
commonplace. Consequently, it has become essential for manufacturers to provide
cost-effective diagnostic systems to
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remain competitive. In addition, consolidation has put pressure on diagnostic
equipment manufacturers to broaden their product offerings to encompass a wider
range of testing capability, greater automation and higher volume capacity.
Manufacturers that have the ability to automate a wide variety of tests on
integrated workstations have a distinct competitive advantage. Broad testing
menus that include immunoassays and routine chemistry tests are highly
attractive to laboratories seeking to reduce the number of vendors they utilize.
Finally, consolidation has made it increasingly important for suppliers to
deploy a highly focused salesforce that is able to execute innovative marketing
approaches and to maintain a reliable after-sale service network.
The size and growth of the Company's markets are influenced by a number
of factors, including: technological innovation in bioanalytical practice;
government funding for basic and disease-related research (for example, heart
disease, AIDS and cancer); research and development spending by biotechnology
and pharmaceutical companies; and healthcare spending and physician practice.
The Company expects worldwide healthcare expenditures and diagnostic testing to
increase over the long-term, primarily as a result of the following three
factors: (1) growing demand for services generated by the aging of the world
population, (2) increasing expenditures on diseases requiring costly treatment
(for example, AIDS and cancer) and (3) expanding demand for improved healthcare
services in developing countries.
Products
Overview
The Company offers a wide range of instrument systems and related
products, including consumables, accessories, and support services, which can be
grouped into categories by type of application:
Clinical Diagnostics
Life Sciences Research and Drug Discovery
PRODUCT SALES AS A PERCENT OF TOTAL PRODUCT SALES
FOR CATEGORIES REPRESENTING
MORE THAN 10 PERCENT OF SALES
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<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Clinical Diagnostics 67 63 60
Life Sciences Research and Drug
Discovery 33 37 40
</TABLE>
Clinical Diagnostics
The clinical diagnostics industry encompasses the study and analysis of
disease by means of laboratory evaluation and analysis of bodily fluids and
other substances from patients. Due to its important role in the diagnosis and
treatment of patients, IVD testing is an integral part of overall patient care.
Additionally, IVD testing is increasingly valued as an effective method of
reducing healthcare costs by providing accurate, early detection of health
disorders and also reducing the length of hospital stays.
The major diagnostic fields that comprise the IVD industry include
clinical chemistry, immunochemistry, microbiology, hematology and blood banking.
The IVD industry market was estimated to be $19 billion in 1996 and is estimated
to grow at a 4% compound annual rate through the year 2001. The Company
primarily serves the hospital and reference laboratory customers of the IVD
market, which tend to use more precise, higher volume and more automated IVD
systems. Hospital and reference laboratory customers constitute approximately
$15.5 billion of the IVD market.
IVD systems are composed of instruments, reagents, consumables, service
and data management systems. Instruments typically have a five- to ten-year life
and serve to automate repetitive manual tasks, improve test accuracy and speed
the reporting of results. Reagents are substances that react with the patient
sample to produce measurable, objective results. The consumables vary across
application segments but are generally items such as sample containers,
adapters, pipette tips, etc., used during test procedures. Reagents,
accessories, consumables and services generate significant ongoing revenues for
suppliers. Sample handling and preparation devices as well as data management
systems are becoming increasingly important components of IVD systems. These
system additions further improve safety and reduce costs through automation. The
Company believes that the most important criteria customers use to evaluate IVD
systems are operating costs, reliability, reagent quality and service, and that
providing a fully integrated system that is cost
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effective, reliable and easy to use results in loyalty among customers who value
consistency and accuracy in test results.
Life Sciences Research and Drug Discovery
Life sciences research is the study of the characteristics, behavior and
structure of living organisms and their component systems. Life sciences
researchers utilize a variety of instruments and related biochemicals and
supplies in the study of life processes, drug discovery and biotechnology. The
Company estimates that in 1996 annual sales to the global life sciences industry
for instrumentation and related service and biochemicals totaled approximately
$6.4 billion.
The segments of this market on which the Company focuses are
centrifugation and other separation systems, biorobotics for drug screening,
electrophoresis for R&D and quality control uses, spectrophotometry, protein
purification, DNA synthesis and sequencing, and liquid scintillation, for which
the Company estimates 1996 industry wide sales totaled approximately $4.2
billion in the aggregate. Trends in the life sciences industry include the
growth in funding for drug discovery by the pharmaceutical and biotechnology
industries, driven principally by the desire to accelerate drug discovery and
development, and the demand for increased automation and efficiency at
pharmaceutical and biotechnology laboratories.
An important application of the Company's systems is for use as a part
of the drug discovery process. Pharmaceutical groups require the capability to
screen millions of potential drug leads against many new disease targets in
shorter time periods. Makers of bioanalytical instruments have addressed this
need and helped to make the new approach to drug discovery possible by combining
the detection capabilities of bioanalytical instruments with advances in high
throughput screening. "High throughput screening" is a general term that refers
to the automated systems and new instruments currently being used to accelerate
drug discovery.
Product Descriptions
Clinical Diagnostics Products
Clinical Chemistry Systems - Overview
Clinical chemistry systems use electrochemical detection or chemical
reactions with patient samples to detect and quantify
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substances of diagnostic interest or "analytes" in blood, urine or other body
fluids. Commonly performed tests include protein, glucose, cholesterol,
triglycerides and enzymes. The Company offers a range of automated clinical
chemistry systems to meet the testing requirements of varying size laboratories,
together with software that allows these systems to communicate with central
hospital computers. To save time and reduce errors, systems identify patient
samples through bar codes. Automated clinical chemistry systems are designed to
be available for testing on short notice 24 hours a day. The Company has
generally configured its systems for the work flow in medium and large
hospitals, but the systems also have application in regional reference labs.
Over 180 tests for individual analytes are offered for use with the Company's
clinical chemistry systems, which range in price from $60,000 to over $300,000.
Clinical Chemistry Systems for Automated General
Chemistry
SYNCHRON(R) Systems
The Company's SYNCHRON(R) line of automated general chemistry systems is
a family of modular automated diagnostic instruments and the reagents, standards
and other consumable products required to perform commonly requested diagnostic
tests. The SYNCHRON line was developed in response to changes in reimbursement
policies for hospital and clinical laboratories that required them to be more
efficient. The SYNCHRON systems have been designed as compatible modules which
may be used independently or in various combinations with each other to meet the
specific needs of individual customers.
The smallest of these modules, the SYNCHRON CX(R)3 [DELTA], introduced
in 1994, is an extension of the original CX(R)3 that adds computer enhanced
software features, including positive sample identification and up to nine
"on-board" chemistries.
The SYNCHRON CX4, CX5, and CX7 analyzers are random access systems
designed to perform routine chemistry profiles as well as some special chemistry
profiles. These models are industry leading, innovative systems that are
designed to enhance laboratory productivity. With an extensive menu of routine
chemistry, proteins, therapeutic drugs and drugs of abuse, the SYNCHRON systems
can perform over 85% of the laboratory's general chemistry testing requirements.
In 1997 the CX series was enhanced with additional menu and software designed to
simplify operator interface and throughput capabilities. These systems
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were featured at the American Association of Clinical Chemists (AACC) and
Medical trade shows as the SYNCHRON ALX and the SYNCHRON CX7 RTS. SYNCHRON CX
systems range in price from $49,000 to $185,000 and are sold principally based
on their ability to improve laboratory efficiency.
The launch in 1997 of the new SYNCRHON autochemistry analyzer, SYNCRHON
LX(TM)20, extends the product line into high volume laboratories. A completely
new system, the SYNCHRON LX20 has twice the throughput of the CX7 system as well
as options for additional detection capabilities that will increase opportunity
for test menu expansion. The SYNCHRON LX20 is also designed for improved sample
handling to minimize required operator interface. The SYNCHRON LX20, together
with the SYNCHRON CX product lines, provide product offerings for varying size
hospitals worldwide. Depending upon configuration and accessories, SYNCHRON LX20
systems range in price from $250,000 to $300,000.
Immunochemistry Systems - Overview
Immunochemistry systems, like clinical chemistry systems, use chemical
reactions to detect and quantify chemical substances of diagnostic interest in
blood, urine or other body fluids. The key difference is that immunochemistry
systems use antibodies harvested from living organisms as the central component
in analytical reactions. These antibodies are created by the organism's immune
system and when incorporated in test kits, provide the ability to detect and
quantify very low analyte concentrations. Commonly performed tests assess
thyroid function, screen and monitor for cancer and calibrate cardiac risk.
Immunochemistry systems have been constructed to meet the special requirements
of these reactions and to simplify lab processes. They are able to automatically
identify individual patient sample tubes and communicate with central computers.
The Company offers over 60 immunochemistry-based test kits for individual
analytes and a range of systems priced from $60,000 to $90,000.
Immunochemistry Systems and Tests For Automated
Immunoassay
The IMMAGE(R) immunochemistry system, released in 1997, represents an
improved technology, high throughput analyzer for specific proteins, various
immunologic markers and therapeutic drugs. This system provides automated random
access testing which allows the operator to mix samples at random, eliminating
the need
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to analyze in batches. The system is expected to sell for $70,000 to $90,000.
The IMMAGE system builds on the extensive installed base of our current
immunochemistry analyzer, the ARRAY(R) 360 protein and therapeutic drug
monitoring system. The ARRAY 360 was the world's first computer enhanced,
positive sample identification, bi-directional immunochemistry analyzer for
determination of specific proteins and therapeutic drugs.
In 1996 the Company acquired Hybritech Incorporated ("Hybritech"), a San
Diego based life sciences and diagnostics company. The acquisition expanded the
Company's capabilities for the development and manufacture of high sensitivity
immunoassays, including cancer tests. Chief among these products is a test for
prostate specific antigen (PSA), utilized as an aid in the detection (in
conjunction with digital rectal examination) and monitoring of prostate cancer.
Additionally, during 1996 the Company obtained clearance to use its OSTASE(R)
assay for the management of postmenopausal osteoporosis, making it the first
blood test cleared for such use.
In May of 1997, the Company acquired the ACCESS(R) immunoassay product
line from Sanofi Diagnostics Pasteur. This product line, manufactured in Chaska,
Minnesota, significantly expands the Company's menu of immunochemistry
diagnostic tests, particularly those that require high sensitivity. The ACCESS
system serves as a disease state management platform used to assist medical
professionals to detect and monitor critical parameters for thyroid function,
anemia, blood viruses, infectious disease, cancer, allergy, fertility, proteins,
therapeutic drugs, diabetes and cardiovascular and skeletal diseases. An ongoing
relationship was established with Sanofi Diagnostics Pasteur to research and
develop new tests, primarily in the area of infectious disease. The ACCESS
system sells for approximately $125,000.
Electrophoresis Systems For Clinical Diagnostics
The APPRAISE(R) densitometer and the Paragon(R) Electrophoresis Systems
allow the Company to offer a full range of electrophoresis products that provide
specialized protein analysis for clinical laboratories. Paragon reagent kits are
used in the diagnosis of diabetes, cardiac, liver and other diseases. The
Appraise densitometer can be used in conjunction with Paragon kits. It ranges in
price from $17,000 to $24,000.
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In 1995 the Company introduced the first capillary electrophoresis
system specifically designed for the clinical laboratory, the Paragon CZE(R)
2000. This system is designed to fully automate the manual and somewhat tedious
conventional electrophoresis analysis of serum protein electrophoresis (SPE) and
immunofixation electrophoresis (IFE). Positioned to complement the Paragon gels
and the APPRAISE, the Paragon CZE 2000 is targeted at high volume
electrophoresis labs worldwide and sells for approximately $95,000.
Point of Care - Rapid Test Products
The Company also produces single use self-contained diagnostic test kits
for use in physicians' offices, clinics, hospitals and other medical settings.
The Hemoccult(R) product line is used as an aid in screening for
gastrointestinal disease, most importantly colorectal cancer. In 1994 the
Company introduced the FlexSure(R) HP test kit, a test used as an aid in the
diagnosis of H pylori infection which is associated with several
gastrointestinal diseases, including peptic ulcers and gastric cancer. A
convenient whole blood version of the FlexSure(R) HP was launched in 1996. In
1997 the Company released the FlexSure(R) OBT immunochemical test that is
specific for human blood and can detect lower gastrointestinal diseases like
colorectal cancer more accurately than the Hemoccult(R) test. In addition,
through its SKD subsidiary, the Company markets the ICON(R) test kits featuring
a high sensitivity pregnancy test widely used by health care practitioners. In
1997, the Company acquired the rights to and introduced a user-friendly, next
generation product, ICON(R) Fx Strep A test kit that will replace the current
ICON Strep A test.
Cell Counting and Characterization Systems - Overview
The Company's blood cell systems use the principles of physics, optics,
electronics and chemistry to separate cells of diagnostic interest and then
quantify and characterize them. These systems fall into two categories:
hematology and cytometry. Hematology systems allow clinicians to study formed
elements in blood such as red and white cells and platelets. The most common
diagnostic result is a "CBC" or complete blood count, which provides five to
eight blood cell parameters. Flow cytometers can extend analysis beyond blood to
include bone marrow, tumors and other cells. The rise of the AIDS epidemic and
the need to monitor subclasses of white cells moved cytometry from largely a
research technique into general clinical practice. These systems
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are automated, use bar codes to identify samples and can communicate with
central computers.
Cell Counting and Characterization Systems For
Hematology
The Company's hematology product line reflects the clinical diagnostic
market's trend toward increasingly distinct high and low volume segments. The
Company currently manufactures eight primary systems; the first three systems
are designed for the high volume segment and the remaining five systems are
designed for the lower volume segment.
The systems in the higher volume segment utilize volume, conductivity
and light scatter (VCS) technology in addition to conventional, electrical
aperture-impedance (Coulter Principle) technology. Unlike other technologies,
the Coulter VCS method counts and characterizes white blood cells while
maintaining the native integrity of the white blood cells throughout the
analysis. The systems in the lower volume segment rely exclusively upon
electrical aperture-impedance technology.
High Volume Hematology Systems
COULTER (R) GEN-S(TM) hematology system - The COULTER GEN-S system,
introduced in 1996, is the Company's state-of-the-art automated hematology
system that provides walkaway, whole blood analysis for CBCs, five-part white
blood cell differential, red cell morphology and reticulocyte analysis with
automated slide-making from a single blood aspiration.
COULTER (R) STKS(TM) hematology system - The COULTER STKS is a
cost-effective system designed for high volume clinical laboratories. This
system is particularly well suited for commercial reference laboratories which
have minimal requirements for automated reticulocytes and slide-making
capabilities, but need the ability to measure aged specimens accurately. The
STKS hematology system provides a CBC and five-part white blood cell
differential, red cell morphology, and semi-automated reticulocyte analysis.
COULTER(R) MAXM(TM) hematology system - The COULTER MAXM hematology
system combines the computing power and many of the technology features of the
larger COULTER STKS hematology system within a compact, fully automated
bench-top design for moderate throughput. The COULTER MAXM hematology system
offers the same comprehensive white cell differential and reticulocyte results
as
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the COULTER STKS hematology system and makes Coulter's advanced VCS technology
affordable for moderate volume testing laboratories. The system is also an ideal
back-up instrument in high volume testing facilities.
High volume hematology systems sell in the $25,000 to $130,000 price
range.
Low Volume Hematology Systems
COULTER(R) ONYX(TM) hematology instruments - The COULTER ONYX analyzer
provides a cost-effective option for laboratories that require only a CBC and
three-part screening differential. The COULTER ONYX analyzer is available in
either a single-sample loading or autoloading configuration for walk-away
automation.
COULTER(R) MD(TM) hematology instruments - The COULTER MD instrument is
designed to meet the needs of the low volume and "stat" test market. The COULTER
MD analyzer is simple to operate and cost effective, making it ideal for the
hospital laboratory second and third shift. The recently introduced COULTER MDII
analyzer incorporates more fully-automated features to enhance productivity .
In response to the rapidly emerging Point-of-Care market, the COULTER
MDII analyzer integrates a unique software module (RALS, a Remote Access
Laboratory System developed in conjunction with the University of Virginia) that
enables remote operation of the instrument. These instruments are placed at
multiple locations amidst the patient population. A standard user interface
enables a central laboratory to communicate with the analyzer and control its
operation on-line. As a result, samples can be analyzed by untrained operators
under central laboratory supervision, thereby providing test result validation,
QA, and centralized data management at reduced cost.
COULTER(R) T Series (TM) hematology instruments - The COULTER T Series
is an established series of hematology analyzers that provide basic 5 to 8
parameter CBC testing with a two-part screening differential. This
simple-to-operate and fully automated system is ideal for a broad segment of
laboratories as a primary or back-up system. The COULTER T Series analyzers meet
the needs of many international customers who perform relatively high volumes of
testing but have limited operating budgets.
COULTER(R) A[superscript]c-T hematology instrument - The recently
introduced COULTER A[superscript]c-T 8 hematology analyzer is the first in a
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series of very low cost automated hematology systems designed to address the low
volume market. The COULTER A[superscript]c-T 8 is an eight parameter analyzer
with an icon-driven user interface. The Company has also introduced the COULTER
A[superscript]c-T 10, a platform extension that adds a two-part differential to
the test menu.
The low volume hematology systems typically sell in the price range of
$7,500 to $30,000.
Flow Cytometry Systems
Flow cytometry systems include an instrument, consumables and related
accessories to enable and enhance the performance of these instruments.
COULTER EPICS(R) Elite ESP(TM) flow cytometer - The COULTER EPICS Elite
ESP instrument is a state-of-the-art flow cytometer, for advanced diagnostics
and research. It is designed to perform sophisticated cell analysis and sorting
applications using the Company's extensive portfolio of reagents. The COULTER
EPICS Elite ESP instrument simultaneously performs complex multi-parameter
applications such as DNA analysis, physiologic measurements, chromosome
enumeration and the study of the hematopoetic process. The cell sorting
capability of the system allows for the rapid separation of very large numbers
of specific cell populations from a heterogeneous mixture. Coulter's Elite(TM)
systems typically sell for $150,000 to $400,000.
COULTER EPICS(R) XL(TM) Flow Cytometer with System II(TM) Software --
The COULTER EPICS XL cytometer with System II software is a state-of-the-art
benchtop flow cytometer used primarily to analyze white blood cells in clinical
and clinical research settings. Because the system is flexible and upgradeable
with varying sample preparation systems, it has proven successful in different
environments, from research labs to high and low volume hospital and commercial
labs. It features flexible networking options with other COULTER EPICS systems
and PC networks and incorporates an advanced data management system. XL(TM)
systems generally sell for $70,000 to $140,000.
Life Sciences Research and Drug Discovery Products
The Company offers a wide range of life sciences and drug discovery
systems that are used to advance basic understanding of life processes and in
the related activities of therapeutic development. Product categories include
centrifuges, flow cytometers, life sciences laboratory automation, DNA
synthesizers
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and sequencers, high performance liquid chromatography ("HPLC"), capillary
electrophoresis, spectrophotometry and liquid scintillation.
Centrifuges separate liquid samples based on the density of the
components. Samples are rotated at up to 120,000 revolutions per minute to
create forces that exceed 800,000 times the force of gravity. These forces
result in a nondestructive separation that allows proteins, DNA and other
cellular components to retain their biological activity. Centrifuges are offered
in a wide range of models priced from $2,000 to $150,000.
Flow cytometers rapidly count and categorize multiple types of cells in
suspension. Common research applications include blood, bone marrow and tumor
cells for the study of AIDS, leukemias and lymphomas. These systems are also
useful in clinical applications and sell in the $150,000 to $400,000 range.
Life sciences laboratory automation consists of integrated workstations
and robotics that automatically perform exacting and repetitive processes in
biotechnology and drug discovery laboratories. Operations include the
dispensing, measuring, dilution and mixing of samples and analysis of reactions.
A key application is for high throughput screening of candidate compounds in
drug discovery research. These systems become functional through sophisticated
scheduling and data handling software. Prices range from $50,000 to $500,000.
DNA synthesizers and sequencers allow researchers to assemble strands of
DNA molecules or to determine their component sequence through electrophoretic
separation. These techniques are central to biotechnology science and the
genetic understanding of life processes. Systems sell in the range of $12,000 to
$45,000.
HPLC uses high pressure (5,000 to 15,000 pounds per square inch) to
force liquid samples through dense columns of separating agents. This technique
is capable of separating very complex mixtures of both organic and inorganic
molecules. The Company focuses on biologically related applications, including
protein purification, with systems that range from $20,000 to $50,000. In
addition, the Company also provides specialized software that is capable of
recording, manipulating and archiving data from multiple HPLC systems. This type
of software is essential to the pharmaceutical development process and
installations can range from $20,000 to over $1,000,000.
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Capillary electrophoresis uses the electrical charge found on biological
molecules to separate mixtures into their component parts. Its chief advantages
are its ability to process very small sample volumes, separation speed and high
resolution. The technique is considered a complement to HPLC. The Company has
systems for basic research and pharmaceutical methods development and quality
control that sell in the range of $30,000 to $60,000.
Spectrophotometry is the optical measurement of compounds in liquid
mixtures. Among its applications is the ability to measure changes during
biological reactions. The Company's spectrophotometers are characterized by
adaptive software that allows users to control the time, temperature and
wavelength of light used for measurement while computing and recording
experimental results. Spectrophotometers sell in the $5,000 to $30,000 range.
Liquid scintillation techniques allow researchers to insert radioactive
"labeled" atoms into compounds that then are introduced into biological systems.
The compounds can be traced to a specific tissue or waste product by measuring
the amount of radioactive label that is present with a liquid scintillation
counter. Liquid scintillation systems sell in the $16,000 to $30,000 range.
Competition
The markets for the Company's products are highly competitive, with many
companies participating in one or more segments of the market. Competitors in
the clinical diagnostics market include Abbott Laboratories (Abbott Diagnostics
Division), Bayer Diagnostics, Dade Behring, Inc., Becton Dickinson and Company,
Johnson & Johnson (Ortho Diagnostics Division), Roche (Roche Boehringer Mannheim
Diagnostics Division) and Sysmex Corporation of America (a subsidiary of TOA
Medical Electronics Co. Ltd.). Competitors focused more directly in the life
sciences market include Amersham Pharmacia Biotech plc, Bio-Rad Laboratories,
Inc., Hewlett-Packard Company, Hitachi, Packard BioScience Company, The
Perkin-Elmer Corporation, Sorvall Products LP. and Waters Corporation.
Competitors include divisions or subsidiaries of corporations with substantial
resources. In addition, the Company competes with several companies that offer
reagents, consumables and service for laboratory instruments that are
manufactured by the Company and others.
The Company competes primarily on the basis of improved laboratory
productivity, product quality, products combining to
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<PAGE> 18
meet multiple instrument needs, technology, product reliability, service and
price. Management believes that its extensive installed instrument base provides
the Company with a competitive advantage in obtaining both follow-on instrument
sales and After Sales business.
Research and Development
The Company's new products originate from four sources: internal
research and development programs; external collaborative efforts with
individuals in academic institutions and technology companies; devices or
techniques that are generated in customers' laboratories; and business and
technology acquisitions. Development programs focus on production of new
generations of existing product lines as well as new product categories not
currently offered. Areas of pursuit include innovative approaches to cell
characterization, immunochemistry, molecular biology, advanced electrophoresis
technologies, automated sample processing and information technologies. The
Company's research and development teams are skilled in optics, chemistry,
electronics, software and mechanical and other engineering disciplines, in
addition to a broad range of biological and chemical sciences.
Both Beckman and Coulter historically have invested considerable capital
on research and development efforts, contributing to their leadership in their
respective markets and a consistent flow of new products. The Company's research
and development expenditures for Fiscal 1997, 1996, and 1995 were $123.6
million, $108.4 million and $91.7 million, respectively.
Sales and Service
The Company has sales in over 120 countries and maintains its own
marketing, service and sales forces throughout the world. Most of the Company's
products are distributed by the Company's sales groups; however the Company
employs independent distributors to serve those markets that are more
efficiently reached through such channels.
The Company's sales representatives are technically educated and trained
in the operation and application of the Company's products. The sales force is
supported by a staff of scientists and technical specialists in each product
line and in each major scientific discipline served by the Company's products.
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<PAGE> 19
In addition to direct sales of its instruments, the Company leases
certain instruments to its customers, principally those used for clinical
diagnostic applications in hospitals. This method of instrument placement is a
significant competitive factor for the clinical diagnostics market.
The Company's ability to provide immediate after sales service and
technical support are critical to customer satisfaction. This includes
capabilities to provide immediate technical support by phone and to deliver
parts or have a service engineer on site within hours. To have such capabilities
on a global basis requires a major investment in personnel, facilities, and
other resources. The Company's large, existing installed base of instruments
makes the required service and support infrastructure financially viable. The
Company considers its reputation for service responsiveness and competence and
its worldwide sales and service network to be important competitive assets.
Patents and Trademarks
To complement and protect the innovations created by the Company's R&D
efforts, the Company has an active patent protection program which includes
approximately 700 active U.S. patents and patent applications. The Company also
files important corresponding applications in principal foreign countries. The
Company has taken an aggressive posture in protecting its patent rights;
however, no one patent is considered essential to the success of the business.
The Company's primary trademarks are "Beckman" and "Coulter", with the
trade name also being Beckman or Beckman Instruments, Inc. The Company
vigorously protects its primary trademarks, which are used on the Company's
products and are recognized throughout the worldwide scientific and diagnostic
community. The Company owns and uses secondary trademarks on various products,
but none of these secondary trademarks is considered of primary importance to
the business.
Year 2000 Compliance
The Company is in the process of modifying, upgrading or replacing its
internal computer software applications and information systems. The Company is
also in the process of evaluating all currently marketed and leased products and
will upgrade those products that are intended for continued marketing and
leasing beyond the year 1999. The Company is currently
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<PAGE> 20
evaluating possible strategies to accommodate its installed analytical
instrument systems owned by its customers.
These tasks have been assigned to a senior executive of the Company who
has established three projects, each led by a project manager and staffed by
software experts, to perform the evaluation process: 1) product related matters,
2) mainframe management information systems and software, and 3) all other
systems (e.g. personal computers, office machines, and supplier systems).
Analysis and evaluation activities were begun in 1996 and are in varying stages
of completion at this time. The Company recently expended approximately $250,000
on new software that provides a suite of tools to assist in the year 2000
remediation process. Remediation activities have begun and are planned and
expected to be completed by the end of 1998. Testing and validation of the
remediated systems and any final revisions needed will be conducted in 1999.
The Company does not expect that the cost of its year 2000 compliance
program will be material to its business, financial condition or results of
operations. The Company believes that it will be able to achieve compliance by
the end of 1999 and does not currently anticipate any material disruption in its
operations as the result of any failure by the Company to be in compliance.
Although the impact on the Company caused by the failure of any of the Company's
significant suppliers or customers to achieve year 2000 compliance in a timely
or effective manner is uncertain, the Company's business and results of
operations could be materially adversely affected by such failure.
Government Regulations
Certain of the Company's products are subject to regulations of the U.S.
Food and Drug Administration (the "FDA") which require such products to be
manufactured in accordance with "good manufacturing practices". Such laws and
regulations also require that such products be safe and effective and that the
labeling of those products conform with specific requirements. Testing is
conducted to demonstrate performance claims and to provide other necessary
assurances. Clinical systems and reagents must be reviewed by the FDA before
sale and, in some instances, are subject to product standards, other special
controls or a formal FDA premarket approval process. New federal regulations
under the Clinical Laboratory Improvement Amendments of 1988 will, when fully
implemented, require regulatory review and approval of quality assurance
protocols for the Company's clinical reagent
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<PAGE> 21
products. While adding to the overall regulatory review process, this is not
expected to materially affect the sale of the Company's products. Certain of the
Company's products are subject to comparable regulations in other countries as
well.
In 1993 the member states of the European Union (EU) began
implementation of their plan for a new unified EU market with reduced trade
barriers and harmonized regulations. The EU adopted a significant international
quality standard, the International Organization for Standardization Series 9000
Quality Standards ("ISO 9000"). The Company's manufacturing operations in its
Brea, Carlsbad, Fullerton, Palo Alto, Porterville and San Diego, California;
Miami and Hialeah, Florida; Florence, Kentucky; Allendale, New Jersey; Sharon
Hill, Pennsylvania; Chaska, Minnesota; Naguabo, Puerto Rico; Galway, Ireland,
Australia, France, Germany, Hong Kong, South Africa and United Kingdom
facilities have been certified as complying with the requirements of ISO 9000.
Many of the Company's international sales and service subsidiaries have also
been certified, including those located in Australia, Austria, Canada, China,
France, Germany, Italy, The Netherlands, Poland, Singapore, South Africa, Spain,
Sweden, Switzerland and the United Kingdom.
The design of the Company's products and the potential market for their
use may be directly or indirectly affected by U.S. and foreign regulations
concerning reimbursement for clinical testing services. The configuration of new
products, such as the SYNCHRON(R) series of clinical analyzers, reflects the
Company's response to the changes in hospital capital spending patterns such as
those engendered by the U.S. Medicare Diagnostic Related Groups ("DRGs"). Under
the DRG system, a hospital is reimbursed a fixed sum for the services rendered
in treating a patient, regardless of the actual cost of the services provided.
Japan, France, Germany and Italy are among other countries that are in the
process of adopting reimbursement policies designed to lower the cost of
healthcare.
Medicare reimbursement of inpatient capital costs incurred by a hospital
(to the extent of Medicare utilization) is in a 10-year transition period begun
in 1991 from the "capital cost pass-through" payment methodology to a
"prospective capital" payment methodology based on DRGs. To date, the Company
has not experienced, and does not expect to experience in the future, any
material financial impact from the change in Medicare's payment for inpatient
capital costs.
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<PAGE> 22
The current health care reform efforts in the United States and in some
foreign countries are expected to further alter the methods and financial
aspects of doing business in the health care field. The Company is closely
following these developments so that it may position itself to take advantage of
them. However, the Company cannot predict the effect on its business of these
reforms should they occur nor of any other future government regulation.
Environmental Matters
The Company is subject to federal, state, local and foreign
environmental laws and regulations. Although the Company continues to make
expenditures for environmental protection, it does not anticipate any
significant expenditures in order to comply with such laws and regulations which
would have a material impact on the Company's operations or financial position.
The Company believes that its operations comply in all material respects with
applicable federal, state, and local environmental laws and regulations.
To address contingent environmental costs, the Company establishes
reserves when such costs are probable and can be reasonably estimated. The
Company believes that, based on current information and regulatory requirements
(and taking third party indemnities into consideration), the reserves
established by the Company for environmental expenditures are adequate. Based on
current knowledge, to the extent that additional costs may be incurred that
exceed the reserves, such amounts are not expected to have a material adverse
effect on the Company's operations or financial condition, although no assurance
can be given in this regard.
In 1983 the Company discovered organic chemicals in the groundwater near
a waste storage pond at its manufacturing facility in Porterville, California.
SmithKline Beckman, the Company's former controlling stockholder, agreed to
indemnify the Company with respect to this matter for any costs incurred in
excess of applicable insurance, eliminating any impact on the Company's earnings
or financial position. SmithKline Beecham p.l.c., the surviving entity of the
1989 merger between SmithKline Beckman and Beecham, assumed the obligations of
SmithKline Beckman in this respect.
In 1987 soil and groundwater contamination was discovered on property in
Irvine, California (the "property") formerly owned by the Company. In 1988 The
Prudential Insurance Company of America
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<PAGE> 23
("Prudential"), which purchased the property from the Company, filed suit
against the Company in U.S. District Court in California for recovery of costs
and other alleged damages with respect to the soil and groundwater
contamination. In 1990 the Company entered into an agreement with Prudential for
settlement of the lawsuit and for sharing current and future costs of
investigation, remediation and other claims.
Soil and groundwater remediation of the property have been in process
since 1988. During 1994 the County agency overseeing the site soil remediation
formally acknowledged completion of remediation of a major portion of the soil,
although there remain other areas of soil contamination that may require further
remediation. In July 1997 the California Regional Water Quality Control Board,
the agency overseeing the site groundwater remediation, issued a closure letter
for the upper water bearing unit. The Company and Prudential continued to
operate a groundwater treatment system throughout 1997 and expect to continue
its operation in 1998.
Investigations on the property are continuing and there can be no
assurance that further investigation will not reveal additional contamination or
result in additional costs. The Company believes that additional remediation
costs, if any, beyond those already provided for the contamination discovered by
the current investigations will not have a material adverse effect on the
Company's operations or financial position.
Employee Relations
As of December 31, 1997, the Company had approximately 7,600 employees
located in the United States and approximately 3,500 in international
operations. The Company believes its relations with its employees are good.
Geographic Area Information
Information with respect to the above-captioned item is incorporated by
reference to Note 14 Business Segment Information of the Consolidated Financial
Statements of the Company's Annual Report to Stockholders for the year ended
December 31, 1997.
Item 2. Properties
The Company's primary instrument assembly and manufacturing facilities
are located in Fullerton, Brea, and Palo Alto, California; Chaska, Minnesota;
and Hialeah, Opa Locka and Miami
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<PAGE> 24
Lakes, Florida. The Company recently announced the termination effective June,
1998 of manufacturing operations at a Coulter facility located in Luton,
England. Component manufacturing support facilities for parts and electronic
subassemblies are located in Fullerton and Porterville, California. An
additional manufacturing facility is located in Galway, Ireland. Reagents are
manufactured in Carlsbad, San Diego and Palo Alto, California; Chaska,
Minnesota; Naguabo, Puerto Rico; Florence, Kentucky; Galway, Ireland; Germany;
France; Japan; Brazil; Australia; Argentina and Hong Kong. The Company's
computer software products business is located in Allendale, New Jersey and its
facility for the production of Hemoccult(R) test kits and related products is
located in Sharon Hill, Pennsylvania. A portion of the Company's laboratory
robotics operations (Sagian) are conducted in leased facilities in Indianapolis,
Indiana and some of its DNA sequencing activities are performed in leased
facilities in Foster City, California.
All of the Company's U.S. manufacturing facilities, including land and
buildings, are owned, with the exception of Allendale, Foster City,
Indianapolis, San Diego, Sharon Hill, Opa Locka, Miami Lakes, eight of the
facilities in Hialeah and Florence which are leased facilities, and Palo Alto,
where the Company has built and owns its buildings on a long-term land lease
expiring in 2054. All manufacturing facilities outside the U.S. are leased with
the exception of Germany, France, Japan, Brazil and Australia. The component
production facilities for the Company also include plastics molding and machine
shop capabilities in Fullerton. This facility, in conjunction with electronic
subassembly work done in Porterville, supplies the primary parts and
subassemblies to the various instrument assembly locations in California. The
Company's principal distribution locations are in Brea and Fullerton,
California; Chaska, Minnesota; Somerset, New Jersey; Frankfurt, Germany; and
Paris, France. In 1994 the Company established a European Administration Center
at a facility in Nyon, Switzerland.
During the remainder of 1998, the Company expects to consummate several
sale leaseback transactions with respect to some of its real estate assets for
cash proceeds of approximately $240 million. The Company also intends to
consummate additional sale leaseback transactions in 1999 which the Company
expects will generate proceeds of approximately $30 million. The Company
believes that its production facilities meet applicable government
environmental, health and safety regulations, and industry standards for
maintenance, and that its facilities in general are adequate for its current
business.
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<PAGE> 25
Item 3. Legal Proceedings
In January 1996, Coulter, then unrelated to Beckman notified Hematronix,
a competitive reagent manufacturer, that Hematronix was selling certain reagents
and controls that infringed upon certain of Coulter's patents. In response, in
April 1996, Hematronix filed a complaint against Coulter in the United States
District Court of the Eastern District of California. The complaint sought a
declaratory judgment to invalidate the patents. The complaint also included
antitrust and related business tort claims directed at Coulter's business and
leasing activities, and seeks actual, treble and punitive damages in an
unspecified amount, as well as injunctive relief. Coulter answered the complaint
by denying violations of the antitrust laws and business tort claims and
counterclaimed that Hematronix willfully infringed the patents at issue. The
trial was scheduled for October 1998. In March 1998, the matter was resolved and
the lawsuit was dismissed without material adverse effect on the Company's
earnings or financial position.
Through its Hybritech acquisition the Company obtained a patent,
referred to as the Tandem Patent, that generates significant royalty income. The
Tandem Patent is involved in an interference action in the U.S. Patent and
Trademark Office with a patent application owned by La Jolla Cancer Research
Foundation (the "Foundation"). In May 1998, the Board of Patent Appeals and
Interferences ruled in Hybritech's favor. The Foundation has sixty days to
appeal this decision.
As previously reported, in 1991 Forest City Properties Corporation and
F.C. Irvine, Inc. (collectively, "Forest City"), filed suit against Prudential
Insurance Company in the California Superior Court for the County of Los Angeles
alleging breach of contract and damages caused by pollution of property that
Forest Cities had brought from Prudential. Although the Company was not a named
defendant in the Forest City action, it was obligated to contribute to any
resolution of that action pursuant to a 1990 settlement agreement with
Prudential. The trial of the matter was conducted in 1995, resulting in a jury
verdict in favor of Prudential. The Court granted Forest City's motion for a new
trial, which Prudential appealed. Prior to the Court's consideration of the
appeal, Prudential settled the lawsuit with Forest City and requested Beckman to
pay a portion of the settlement pursuant to the 1990 settlement agreement.
Beckman did not agree with Prudential's claims and negotiated a settlement for
an amount not material to the Company's earnings or financial position.
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<PAGE> 26
As previously reported, since 1992 six toxic tort lawsuits(1) have been
filed in Maricopa County Superior Court, Arizona by a number of residents of the
Phoenix/Scottsdale area against the Company (relating to a former Company
manufacturing site) and a number of other defendants, including Motorola, Inc.,
Siemens Corporation, the cities of Phoenix and Scottsdale, and others. In May
1998, the Company negotiated a settlement of these claims. A number of claims
for property damages remain outstanding. The Company is indemnified by
SmithKline Beecham p.l.c., the successor of its former controlling stockholder,
for any costs incurred in these matters in excess of applicable insurance.
SmithKline has agreed to pay all costs of defense and settlement amounts. Thus
the outcome of these litigations, even if unfavorable to the Company, should
have no material adverse effect on the Company's earnings or financial position.
As previously reported, local authorities in Palermo (Sicily), Italy are
investigating the activities of officials at a local government hospital and
laboratory as well as representatives of the principal worldwide companies
marketing diagnostic equipment in Italy, including the Company's Italian
subsidiary. The inquiry focuses on past leasing practices for placement of
diagnostic equipment which were common industrywide practices throughout Italy,
but now are alleged to be improper. The Company believes the evidence in the
case is weak and insufficient to support a criminal conviction against certain
identified employees (the subsidiary is not a defendant). The Court has
appointed economic experts to evaluate and present a comprehensive economic
report on the leasing practices of the industry. Although it is very difficult
to evaluate the political climate in Italy and the activities of the Italian
public prosecutors, the Company does not expect this matter to have a material
adverse effect on its earnings or financial position.
In addition, the Company and its subsidiaries are involved in a number
of lawsuits which the Company considers ordinary and routine in view of its size
and the nature of its business. The Company does not believe that any ultimate
liability resulting
- --------
(1)Baker v. Motorola, Inc. et al (filed February 1992), Lofgren v.
Motorola, Inc. et al (filed April 1993), Betancourt v. Motorola, Inc. et al
(filed July 1993), Ford v. Motorola, Inc. et al (filed June 1994), Wilkins v.
Motorola, Inc., et. al. (filed July 1995), and Dawson v. Motorola, Inc., et. al.
(filed August 1997).
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<PAGE> 27
from any such lawsuits will have a material adverse effect on its earnings or
financial position. However, no assurance can be given as to the ultimate
outcome with respect to such lawsuits. The resolution of such lawsuits could be
material to the Company's operating results for any particular period,
depending upon the level of income for such period. See also "Environmental
Matters" herein.
Item 6. Selected Financial Data
Information with respect to the above-captioned Item is incorporated
herein by reference to the section entitled "SELECTED FINANCIAL INFORMATION" of
Exhibit 13 to this Form 10-K/A.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Information with respect to the above-captioned Item is incorporated
herein by reference to the section entitled "FINANCIAL REVIEW" of Exhibit 13 to
this Form 10-K/A.
Item 8. Financial Statements and Supplementary Data
Information with respect to the above-captioned Item is incorporated
herein by reference to the CONSOLIDATED FINANCIAL STATEMENTS, including all the
notes thereto, and the sections entitled "REPORT BY MANAGEMENT", "INDEPENDENT
AUDITORS' REPORT" and "QUARTERLY INFORMATION (Unaudited)" of Exhibit 13 to this
Form 10-K/A.
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<PAGE> 28
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1), (a)(2) Financial Statements and Financial Statement Schedules
The financial statements and financial statement schedules filed as part
of the report are incorporated by reference in the "INDEX OF FINANCIAL
STATEMENTS AND SCHEDULES" following this Part IV.
(a)(3) Exhibits
Management contracts and compensatory plans or
arrangements are identified by *.
2.1 Stock Purchase Agreement among Coulter Corporation, The
Stockholders of Coulter Corporation and the Company,
dated as of August 29, 1997 (incorporated by reference
to Exhibit 2.1 of the Company's Report on Form 8-K dated
November 13, 1997, File No. 001-10109). [Note:
Confidential treatment has been obtained for portions of
this document.]
3.1 Third Restated Certificate of Incorporation of the
Company, June 5, 1992 (incorporated by reference to
Exhibit 3.1 of the Company's Annual Report to the
Securities and Exchange Commission on Form 10-K for the
fiscal year ended December 31, 1992, File No.
001-10109).
3.2 Amended and Restated By-Laws of the Company, as of
November 30, 1994 (incorporated by reference to Exhibit
3.2 of the Company's Annual Report to the Securities and
Exchange Commission on form 10-K for the fiscal year
ended December 31, 1994, File No. 001-10109).
4.1 Specimen Certificate of Common Stock (incorporated by
reference to Exhibit 4.1 of Amendment No. 1 to the
Company's Form S-1 registration statement, File No.
33-24572).
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<PAGE> 29
4.2 Rights Agreement between the Company and Morgan
Shareholder Services Trust Company, as Rights Agent,
dated as of March 28, 1989 (incorporated by reference to
Exhibit 4 of the Company's current report on Form 8-K
filed with the Securities and Exchange Commission on
April 25, 1989, File No. 1-10109).
4.3 First amendment to the Rights Agreement dated as of
March 28, 1989 between the Company and First Chicago
Trust Company of New York (formerly Morgan Shareholder
Services Trust Company), as Rights Agent, dated as of
June 24, 1992 (incorporated by reference to Exhibit 1 of
the Company's current report on Form 8-K filed with the
Securities and Exchange Commission on July 2, 1992, File
No. 001-10109).
4.4 Amendment 1993-1 to the Company's Savings and Investment
Plan, adopted November 3, 1993, filed in connection with
the Form S-8 Registration Statement filed with the
Securities and Exchange Commission on September 1, 1992,
File No. 33-51506 (incorporated by reference to Exhibit
4 of the Company's Quarterly Report to the Securities
and Exchange Commission on Form 10-Q for the quarterly
period ended March 31, 1994, File No. 001-10109).
4.5 Amendment 1995-1 to the Company's Savings and Investment
Plan, adopted December 20, 1995, filed in connection
with the Form S-8 Registration Statement filed with the
Securities and Exchange Commission on September 1, 1992
and Amendment No. 1 thereto filed December 17, 1992,
File No. 33-51506 (incorporated by reference to Exhibit
4.5 of the Company's Annual Report to the Securities and
Exchange Commission on Form 10-K for the fiscal year
ended December 31, 1995, File No. 001-10109).
4.6 Amendment 1996-1 to the Company's Savings and Investment
Plan, adopted December 5, 1996, filed in connection with
the Form S-8 Registration Statement filed with the
Securities and Exchange Commission on September 1, 1992
and Amendment No. 1 thereto filed December 17, 1992,
File No. 33-51506 (incorporated by reference to Exhibit
4.6 of the Company's Annual Report to the Securities and
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<PAGE> 30
Exchange Commission on Form 10-K for the fiscal year
ended December 31, 1996, File No. 001-10109).
4.7 Amendment 1996-2 to the Company's Savings and Investment
Plan, adopted effective December 3, 1996 (incorporated
by reference to Exhibit 4.1 of the Company's Quarterly
Report to the Securities and Exchange Commission on Form
10-Q for the quarterly period ended June 30, 1997, File
No. 001-10109).
4.8 Amendment 1997-1 to the Company's Savings and Investment
Plan, adopted June 9, 1997 (incorporated by reference to
Exhibit 4.2 of the Company's Quarterly Report to the
Securities and Exchange Commission on Form 10-Q for the
quarterly period ended June 30, 1997, File No.
001-10109).
4.9 Amendment 1997-2 to the Company's Savings and Investment
Plan, adopted June 9, 1997 (incorporated by reference to
Exhibit 4.3 of the Company's Quarterly Report to the
Securities and Exchange Commission on Form 10-Q for the
quarterly period ended June 30, 1997, File No.
001-10109).
**4.10 Amendment 1997-3 to the Company's Savings and Investment
Plan, adopted December 3, 1997, filed in connection with
the Form S-8 Registration Statement filed with the
Securities and Exchange Commission on September 1, 1992
and Amendment No. 1 thereto filed December 17, 1992,
File No. 33-51506.
**4.11 Amendment 1997-4 to the Company's Savings and Investment
Plan, adopted December 17, 1997, filed in connection
with the Form S-8 Registration Statement filed with the
Securities and Exchange Commission on September 1, 1992
and Amendment No. 1 thereto filed December 17, 1992,
File No. 33-51506.
4.12 Senior Indenture between the Company and The First
National Bank of Chicago as Trustee, dated as of May 15,
1996, filed in connection with the Form S-3 Registration
Statement filed with the Securities and Exchange
Commission on April 5, 1996, File No. 333-02317
(incorporated by reference to Exhibit
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<PAGE> 31
10.1 of the Company's Quarterly Report to the Securities
and Exchange Commission on Form 10-Q for the quarterly
period ended June 30, 1996, File No. 001-10109).
4.13 7.05% Debentures Due June 1, 2026, filed in connection
with the Form S-3 Registration Statement filed with the
Securities and Exchange Commission on April 5, 1996,
File No. 333-02317 (incorporated by reference to Exhibit
10.2 of the Company's Quarterly Report to the Securities
and Exchange Commission on Form 10-Q for the quarterly
period ended June 30, 1996, File No. 001-10109).
10.1 Credit Agreement dated as of October 31, 1997 among the
Company as Borrower, the Initial Lenders and the Initial
Issuing Banks named therein, and Citicorp USA, Inc. as
Agent (incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report to the Securities and
Exchange Commission on Form 10-Q for the quarterly
period ended September 30, 1997, File No. 001-10109).
10.2 Guaranty dated as of October 31, 1997 made by each
Guarantor Subsidiary (as defined in the Credit
Agreement, Exhibit 10.1 herein) of the Company, in favor
of the Lender Parties (as defined in the Credit
Agreement) (incorporated by reference to Exhibit 10.2 of
the Company's Quarterly Report to the Securities and
Exchange Commission on Form 10-Q for the quarterly
period ended September 30, 1997, File No. 001-10109).
10.3 Line of Credit Promissory Note in favor of Mellon Bank,
N.A., dated as of October 6, 1993 (incorporated by
reference to Exhibit 10.21 of the Company's Annual
Report to the Securities and Exchange Commission on Form
10-K for the fiscal year ended December 31, 1992, File
No. 001-10109).
10.4 Loan Agreement (Multiple Advance), dated September 30,
1993, between Beckman Instruments (Japan) Limited and
the Industrial Bank of Japan, Limited (English
translation, including certification as to accuracy;
original document executed in Japanese) (incorporated by
reference to Exhibit 10.21 of the Company's Annual
Report to the
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<PAGE> 32
Securities and Exchange Commission on Form 10-K for the
fiscal year ended December 31, 1993, File No.
001-10109).
10.5 Term Loan Agreement, dated as of September 30, 1993,
between Beckman Instruments (Japan) Limited and
Citibank, N.A., Tokyo Branch (incorporated by reference
to Exhibit 10.22 of the Company's Annual Report to the
Securities and Exchange Commission on Form 10-K for the
fiscal year ended December 31, 1993, File No.
001-10109).
10.6 Term Loan Agreement, dated as of December 9, 1993,
between Beckman Instruments (Japan) Limited and The
Dai-Ichi Kangyo Bank Limited (English translation,
including certification as to accuracy; original
document executed in Japanese) (incorporated by
reference to Exhibit 10.23 of the Company's Annual
Report to the Securities and Exchange Commission on Form
10-K for the fiscal year ended December 31, 1993, File
No. 001-10109).
**10.7 Benefit Equity Amended and Restated Trust Agreement
between the Company and Mellon Bank, N.A., as Trustee,
for assistance in meeting stock-based obligations of the
Company, dated as of February 10, 1997.
*10.8 The Company's Executive Incentive Plan, adopted by the
Company in 1996 (incorporated by reference to Exhibit 10
of the Company's Quarterly Report to the Securities and
Exchange Commission on Form 10-Q for the quarterly
period ended March 31, 1996, File No. 001-10109).
*10.9 Amendment No. 1 to the Company's Executive Incentive
Plan, adopted in 1996 (incorporated by reference to
Exhibit 10.9 of the Company's Annual Report to the
Securities and Exchange Commission on Form 10-K for the
fiscal year ended December 31, 1996, File No.
001-10109).
*10.10 The Company's Annual Incentive Plan for 1997, adopted by
the Company in 1997 (incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report to the
Securities and Exchange
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<PAGE> 33
Commission on Form 10-Q for the quarterly period ended
June 30, 1997, File No. 001-10109.
*10.11 The Company's Incentive Compensation Plan of 1990,
amended and restated April 4, 1997, with amendments
approved by stockholders April 3, 1997 and effective
January 1, 1997 (incorporated by reference to Exhibit 10
of the Company's Quarterly Report to the Securities and
Exchange Commission on Form 10-Q for the quarterly
period ended March 31, 1997, File No. 001-10109).
*10.12 Amendment to the Company's Incentive Compensation Plan
of 1990 adopted December 5, 1997 (incorporated by
reference to Exhibit 4.1 to Post-Effective Amendment No.
1 to the Form S-8 Registration Statement filed January
13, 1998, Registration No. 333-24851.
*10.13 The Company's Incentive Compensation Plan, as amended by
the Company's Board of Directors on October 26, 1988 and
as amended and restated by the Company's Board of
Directors on March 28, 1989 (incorporated by reference
to Exhibit 10.16 of the Company's Annual Report to the
Securities and Exchange Commission on Form 10-K for the
fiscal year ended December, 31 1989, File No.
001-10109).
*10.14 Amendment to the Company's Incentive Compensation Plan,
adopted December 5, 1997 (incorporated by reference to
Exhibit 4.2 to Post Effective Amendment No. 1 to the
Form S-8 Registration statement, filed January 13, 1998,
Registration No. 33-31573).
*10.15 Restricted Stock Agreement and Election (Cycle Two -
Economic Value Added Incentive Plan), adopted by the
Company in 1995 (incorporated by reference to Exhibit 10
of the Company's Quarterly Report to the Securities and
Exchange Commission on Form 10-Q for the quarterly
period ended September 30, 1995, File No. 001-10109).
*10.16 Restricted Stock Agreement and Election (Cycle Three -
Economic Value Added Incentive Plan), adopted by the
Company in 1996 (incorporated by reference to Exhibit
10.15 of the Company's Annual
32
<PAGE> 34
Report to the Securities and Exchange Commission on Form
10-K for the fiscal year period ended December 31, 1996,
File No. 001-10109).
*10.17 Form of Restricted Stock Agreement, dated as of January
3, 1997, between the Company and certain of its
Executive Officers and certain other key employees
(incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report to the Securities and
Exchange Commission on Form 10-Q for the quarterly
period ended June 30, 1997, File No. 001-10109).
*10.18 Beckman Instruments, Inc. Supplemental Pension Plan,
adopted by the Company October 24, 1990 (incorporated by
reference to Exhibit 10.4 of the Company's Annual Report
to the Securities and Exchange Commission on Form 10-K
for the fiscal year ended December, 31 1990, File No.
001-10109).
*10.19 Amendment 1995-1 to the Company's Supplemental Pension
Plan, adopted by the Company in 1995, effective as of
October 1, 1993 (incorporated by reference to Exhibit
10.17 of the Company's Annual Report to the Securities
and Exchange Commission on Form 10-K for the fiscal year
ended December 31, 1996, File No. 001-10109).
*10.20 Amendment 1996-1 to the Company's Supplemental Pension
Plan, dated as of December 9, 1996 (incorporated by
reference to Exhibit 10.18 of the Company's Annual
Report to the Securities and Exchange Commission on Form
10-K for the fiscal year ended December 31, 1996, File
No. 001-10109).
*10.21 Stock Option Plan for Non-Employee Directors (Amended
and Restated effective as of August 7, 1997),
incorporated by reference to Exhibit 4.1 of the
Company's Registration Statement on Form S-8 filed with
the Securities and Exchange Commission on October 8,
1997, Registration No. 333-37429.
*10.22 Form of Change in Control Agreement, dated as of May 1,
1989, between the Company, certain of its Executive
Officers and certain other key employees (incorporated
by reference to Exhibit 10.34 of the Company's Annual
Report to the Securities and
33
<PAGE> 35
Exchange Commission on Form 10-K for the fiscal year
ended December 31, 1989, File No. 001-10109).
*10.23 Agreement Regarding Retirement Benefits of Arthur A.
Torrellas, adopted December 1, 1993 and dated December
20, 1993, between the Company and Arthur A. Torrellas
(incorporated by reference to Exhibit 10.24 of the
Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year ended
December 31, 1993, File No. 001-10109).
*10.24 Amendment to the December 1, 1993 Agreement Regarding
Retirement Benefits of Arthur A. Torrellas, dated as of
May 30, 1995, between the Company and Arthur A.
Torrellas (incorporated by reference to Exhibit 10.2 of
the Company's Quarterly Report to the Securities and
Exchange Commission on Form 10-Q for the quarterly
period ended June 30, 1995, File No. 001-10109).
*/**10.25 Second Amendment to the December 1, 1993 Agreement
Regarding Retirement Benefits of Arthur A. Torrellas,
dated as of December 16, 1996, between the Company and
Arthur A. Torrellas (incorporated by reference to
Exhibit 10.24 of the Company's Annual Report to the
Securities and Exchange Commission on Form 10-K for the
fiscal year ended December 31, 1996, File No.
001-10109).
*10.26 Third Amendment to the December 1, 1993 Agreement
Regarding Retirement Benefits of Arthur A. Torrellas,
dated as of July 18, 1997, between the Company and
Arthur A. Torrellas (incorporated by reference to
Exhibit 10.26 of the Company's Annual Report to the
Securities and Exchange Commission on Form 10-K for the
fiscal year ended December 31, 1997, File No.
001-10109).
*10.27 Agreement Regarding Retirement Benefits of Albert
Ziegler, dated June 16, 1995, between the Company and
Albert Ziegler (incorporated by reference to exhibit
10.22 of the Company's Annual Report to the Securities
and Exchange Commission on Form 10-K/A for the fiscal
year ended December 31, 1995, File No. 001-10109).
*10.28 Agreement Regarding Retirement Benefits of Fidencio M.
Mares, adopted and dated April 30, 1996, between the
Company and Fidencio M. Mares (incorporated by reference
to Exhibit 10.3 of the
34
<PAGE> 36
Company's Quarterly Report to the Securities and
Exchange Commission on Form 10-Q for the quarterly
period ended June 30, 1996, File No. 001-10109).
10.29 Amendment 1997-1 to the Company's Employees' Stock
Purchase Plan, adopted effective January 1, 1998 and
dated October 20, 1997 (incorporated by reference to
Exhibit 10.3 of the Company's Quarterly Report to the
Securities and Exchange Commission on Form 10-Q for the
quarterly period ended September 30, 1997, File No.
001-10109).
*10.30 The Company's Executive Deferred Compensation Plan,
effective January 1, 1998, dated November 5, 1997
(incorporated by reference to Exhibit 10.4 of the
Company's Quarterly Report to the Securities and
Exchange Commission on Form 10-Q for the quarterly
period ended September 30, 1997, File No. 001-10109).
*10.31 The Company's Executive Restoration Plan, effective
January 1, 1998, dated November 5, 1997 (incorporated by
reference to Exhibit 10.5 of the Company's Quarterly
Report to the Securities and Exchange Commission on Form
10-Q for the quarterly period ended September 30, 1997,
File No. 001-10109).
*10.32 The Company's Amended and Restated Deferred Directors'
Fee Program, amended as of June 5, 1997 (incorporated by
reference to Exhibit 10.6 of the Company's Quarterly
Report to the Securities and Exchange Commission on Form
10-Q for the quarterly period ended September 30, 1997,
File No. 001-10109).
*10.33 Amendment 1997-2 to the Company's Supplemental Pension
Plan, adopted as of October 31, 1997 (incorporated by
reference to Exhibit 10.7 of the Company's Quarterly
Report to the Securities and Exchange Commission on Form
10-Q for the quarterly period ended September 30, 1997,
File No. 001-10109).
*10.34 Form of Restricted Stock Award Agreement between the
Company and its non-employee Directors, effective as of
October 3, 1997 (incorporated by
35
<PAGE> 37
reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-8 filed with the Securities and
Exchange Commission on October 8, 1997, Registration No.
333-37429).
*10.35 Form of Stock Option Grant for non-employee Directors
(incorporated by reference to Exhibit 4.3 of the
Company's Registration Statement on Form S-8 filed with
the Securities and Exchange Commission on October 8,
1997, Registration No. 333-37429).
10.36 The Company's Employees' Stock Purchase Plan, amended
and restated as of November 1, 1996, filed in connection
with the Form S-8 Registration Statement filed with the
Securities and Exchange Commission on December 19, 1995,
File No. 33-65155 (incorporated by reference to Exhibit
10.29 of the Company's Annual Report to the Securities
and Exchange Commission on Form 10-K for the fiscal year
ended December 31, 1997, File No. 001-10109).
*10.37 The Company's Option Gain Deferral Program, dated
January 14, 1998 (incorporated by reference to Exhibit
4.2 of Post-Effective Amendment No. 1 to the Form S-8
Registration Statement filed with the Securities and
Exchange Commission on January 13, 1998, Registration
No. 333-24851).
*/**10.38 Form of Coulter's Special Incentive Plan and Sharing
Bonus Plan, assumed by the Company October 31, 1997.
10.39 Distribution Agreement, dated as of April 11, 1989,
among SmithKline Beckman Corporation the Company and
Allergan, Inc. (incorporated by reference to Exhibit 3
to SmithKline Beckman Corporation's Current Report on
Form 8-K filed with the Securities and Exchange
Commission on April 14, 1989, File No. 1-4077).
10.40 Amendment to the Distribution Agreement effective as of
June 1, 1989 between SmithKline Beckman Corporation, the
Company and Allergan, Inc. (incorporated by reference to
Exhibit 10.26 of Amendment No. 2 to the Company's Form
S-1 registration statement, File No. 33-28853).
36
<PAGE> 38
10.41 Cross-Indemnification Agreement between the Company and
SmithKline Beckman Corporation (incorporated by
reference to Exhibit 10.1 of Amendment No. 1 to the
Company's Form S-1 registration statement, File No.
33-24572).
11. Statement regarding computation of per share earnings:
This information is incorporated by reference to Note 1
Summary of Significant Accounting Policies and Note 13
Earnings Per Share of the Consolidated Financial
Statements of the Company's Annual Report to
Stockholders for the year ended December 31, 1997.
13. WORDS ON NUMBERS
**21. Subsidiaries.
23. Consent of KPMG Peat Marwick LLP, June 9, 1998.
24. Power of Attorney (included herein on page 40).
**27. Financial Data Schedule.
- -------------
** Previously Filed
(b) Reports on Form 8-K During Fourth Quarter ended December
31, 1997.
The following reports on Form 8-K were filed during the quarter ended
December 31, 1997:
1. Item 5. Other Events. Beckman Instruments, Inc.
Announces Plans for Debt Offering, September 23, 1997.
2. Item 5. Other Events. Summary of the acquisition of
Coulter Corporation by Beckman Instruments, Inc. and the
related financing transactions, October 15, 1997.
Includes financial statements for Coulter Corporation
for its last three fiscal years and pro forma financial
statements for the most recent fiscal year.
3. Item 2. Acquisition of Assets. Beckman Consummates its
Acquisition of Coulter Corporation, November 13, 1997.
Includes pro
37
<PAGE> 39
forma financial statements for the year ended December
31, 1996 and for the six month period ended June 30,
1997.
38
<PAGE> 40
Beckman Coulter, Inc.
INDEX TO
FINANCIAL STATEMENTS AND SCHEDULES
The consolidated financial statements of the Company and the related report of
KPMG Peat Marwick LLP, dated January 23, 1998 are incorporated by reference to
the section entitled "WORDS ON NUMBERS" filed as Exhibit 13 to this Form 10-K/A.
The information required to be reported in the Supplementary Financial Schedule
entitled, VIII Allowance for Doubtful Accounts, for the three year period ended
December 31, 1997 is set forth in Note 15 Supplementary Information of the
"NOTES TO CONSOLIDATED FINANCIAL STATEMENTS" of the Company's Annual Report to
Stockholders for the year ended December 31, 1997. Schedules not included herein
have been omitted because they are not applicable, are no longer required or the
required information is presented in the consolidated financial statements or in
the notes to the consolidated financial statements.
39
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BECKMAN COULTER, INC.
Date: July 2, 1998 By LOUIS T. ROSSO
Louis T. Rosso
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below appoints Louis T. Rosso, John
P. Wareham, Dennis K. Wilson, William H. May, Paul Glyer and James T. Glover,
and each of them, as his or her true and lawful attorneys-in-fact and agents
with full power of substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and all capacities, to sign any or all
amendments to this Annual Report on Form 10-K/A, and to file the same, with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the foregoing, as fully to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them or their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chairman of the Board
and Chief Executive
Officer (Principal
LOUIS T. ROSSO Executive Officer)
Louis T. Rosso July 2, 1998
President,
Chief Operating Officer
JOHN P. WAREHAM and Director
John P. Wareham July 2, 1998
Vice President, Finance
and Chief Financial Officer
D. K. WILSON (Principal Financial Officer)
Dennis K. Wilson July 2, 1998
Vice President and
Controller (Principal
JAMES T. GLOVER Accounting Officer)
James T. Glover July 2, 1998
HUGH K. COBLE Director July 2, 1998
</TABLE>
40
<PAGE> 42
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Hugh K. Coble
CAROLYNE K. DAVIS Director July 2, 1998
Carolyne K. Davis, Ph.D.
</TABLE>
41
<PAGE> 43
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
PETER B. DERVAN Director July 2, 1998
Peter B. Dervan, Ph.D.
DENNIS C. FILL Director July 2, 1998
Dennis C. Fill
CHARLES A. HAGGERTY Director July 2, 1998
Charles A. Haggerty
GAVIN HERBERT Director July 2, 1998
Gavin S. Herbert
VAN B. HONEYCUTT Director July 2, 1998
Van B. Honeycutt
WILLIAM N. KELLEY Director July 2, 1998
William N. Kelley, M.D.
C. RODERICK O'NEIL Director July 2, 1998
C. Roderick O'Neil
BETTY WOODS Director July 2, 1998
Betty Woods
</TABLE>
42
<PAGE> 44
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------- -------
<S> <C>
13. WORDS ON NUMBERS
21. Subsidiaries
23. Consent of KPMG Peat Marwick LLP.
</TABLE>
43
<PAGE> 1
EXHIBIT 13
WORDS ON NUMBERS
TABLE OF CONENTS
Selected Financial Information
Financial Review
Management's Discussion and Analysis
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Quarterly Information
Report by Management
Independent Auditors' Report
Corporate Directory
Other Information
Bar Chart: Cash Provided by Operations (millions)
<TABLE>
<CAPTION>
Year 1993 1994 1995 1996 1997
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Cash Provided $53.3 $111.1 $ 60.2 $139.1 $137.8
</TABLE>
Bar Chart: Shares Outstanding (millions)
<TABLE>
<CAPTION>
Year 1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Shares
Outstanding 27.8 28.0 28.3 28.0 27.6
</TABLE>
<PAGE> 2
SELECTED FINANCIAL INFORMATION
Dollars in millions, except amounts per share
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Sales $ 1,198.0 $ 1,028.0 $ 930.1 $ 888.6 $ 875.7
Operating income (1) $ 104.4 $ 122.5 $ 110.8 $ 98.9 $ 85.6
Earnings before special and non
recurring charges, after
taxes $ 54.0 $ 74.7 $ 66.1 $ 56.9 $ 46.9
Special charges:
In-process research and
development (282.0) -- -- -- --
Restructuring charge, net of
tax benefit (36.4) -- (17.2) (9.6) (73.0)
Non-recurring charges:
Environmental charge, net of
tax benefit -- -- -- -- (7.5)
Changes in accounting
principles -- -- -- (5.1) (4.0)
---------- ---------- ---------- ---------- ----------
Net (loss) earnings $ (264.4) $ 74.7 $ 48.9 $ 42.2 $ (37.6)
========== ========== ========== ========== ==========
Diluted earnings per share
before special charges $ 1.88 $ 2.58 $ 2.29 $ 2.03 $ 1.69
Diluted (loss) earnings per
share $ (9.58) $ 2.58 $ 1.70 $ 1.50 $ (1.35)
Dividends paid per share of
common stock $ 0.60 $ 0.52 $ 0.44 $ 0.40 $ 0.36
Shares outstanding (millions) 27.6 28.0 28.3 28.0 27.8
Weighted average common shares and dilutive
common share equivalents (millions)(2)
27.6 28.9 28.8 28.1 27.8
Other Information
Total assets $ 2,331.0 $ 960.1 $ 907.8 $ 829.1 $ 820.0
Long-term debt, less current
maturities $ 1,181.3 $ 176.6 $ 162.7 $ 117.3 $ 113.7
Working capital $ 81.8 $ 300.1 $ 282.1 $ 243.2 $ 221.2
EBITDA before special charges(2)(3) $ 228.0 $ 217.4 $ 192.6 $ 161.4 $ 89.8
EBITDA(3) $ (113.4) $ 217.4 $ 164.9 $ 150.1 $ (24.9)
Cash flows from operating
activities 137.8 139.1 60.2 109.6 53.3
Cash flows from investing
activities (929.1) (114.6) (113.0) (59.1) (72.5)
Cash flows from
financing activities 790.6 (16.2) 34.8 (30.8) 18.1
Debt to EBITDA before special
charges(2)(3) 5.5 0.9 0.9 0.8 1.62
Capital expenditures $ 110.7 $ 117.4 $ 110.0 $ 98.7 $ 92.8
Depreciation and amortization
expense $ 109.1 $ 87.8 $ 79.1 $ 70.1 $ 63.5
Number of employees at
December 31, 11,171 6,079 5,702 5,963 6,689
</TABLE>
- ----------
(1) Excludes pretax special charges. Special charges include: 1) restructuring
charges of $59.4, $27.7, $11.3 and $114.7 in 1997, 1995, 1994 and 1993,
respectively, and 2) a one time write-off of $282.0 of acquired in-process
research and development relating to the Coulter acquisition in 1997.
Including these special charges, the Company reported operating (loss)
income of ($237.0), $83.1, $87.6 and ($29.1) in 1997, 1995, 1994 and 1993
respectively. The Company did not incur any special charges in 1996.
(2) Under generally accepted accounting principles, as the Company was in a net
loss position in the current year, 1.0 million common share equivalents were
not used to compute diluted loss per share, as the effect was antidilutive.
(3) EBITDA represents earnings before income taxes plus interest expense,
in-process research and development, restructuring charges, depreciation and
amortization. While EBITDA should not be construed as a substitute for
operating income or as a better indicator of liquidity than cash flows from
operating activities (both of which are determined in accordance with
generally accepted accounting principles) it is included herein to provide
additional information with respect to the ability of the Company to meet
its future debt service, capital expenditures and working capital
requirements. Additionally, EBITDA as calculated by the Company may not be
comparable to similarly titled measures reported by other companies. See
"Consolidated Statement of Cash Flows" for historical cash flows from
operating, investing and financing activities.
<PAGE> 3
Bar Chart: EBITDA Before Special Charges (millions)
<TABLE>
<CAPTION>
Year 1993 1994 1995 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
EBITDA $ 89.8 $161.4 $192.6 $217.4 $228.0
</TABLE>
Bar Chart: Dividends paid per Common Stock
<TABLE>
<CAPTION>
Year 1993 1994 1995 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Dividends Paid
($ per share) 0.36 0.40 0.44 0.52 0.60
</TABLE>
<PAGE> 4
FINANCIAL REVIEW
In millions, except amounts per share
Results Of Operations
The following table sets forth, for the periods indicated, the results of
operations as a percentage of sales and on a comparative basis:
<TABLE>
<CAPTION>
1997 1996
Years ended % of % of % of Compared Compared
December 31, 1997 Sales 1996 Sales 1995 Sales to 1996(2) to 1995(2)
--------- ------ --------- ------ -------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales
Diagnostics $ 802.4 67.0 $ 652.0 63.4 $ 558.5 60.0 $ 150.4 $ 93.5
Life sciences 395.6 33.0 376.0 36.6 371.6 40.0 19.6 4.4
--------- ------ --------- ------ -------- ------ --------- ---------
Total Sales $ 1,198.0 100.0 $ 1,028.0 100.0 $ 930.1 100.0 $ 170.0 $ 97.9
========= ====== ========= ====== ======== ====== ========= =========
Gross profit $ 588.3 49.1 $ 550.2 53.5 $ 502.9 54.1 $ 38.1 $ 47.3
Marketing, general
and administrative 360.3 30.1 319.3 31.1 300.4 32.3 41.0 18.9
Research and
development(1) 123.6 10.3 108.4 10.5 91.7 9.9 15.2 16.7
--------- ------ --------- ------ -------- ------ --------- ---------
Operating income(1) 104.4 8.7 122.5 11.9 110.8 11.9 (18.1) 11.7
Net nonoperating
expense 14.9 1.2 11.0 1.0 10.7 1.1 3.9 0.3
--------- ------ --------- ------ -------- ------ --------- ---------
Earnings before
income taxes 89.5 7.5 111.5 10.9 100.1 10.8 (22.0) 11.4
Income tax provision 35.5 3.0 36.8 3.6 34.0 3.7 (1.3) 2.8
--------- ------ --------- ------ -------- ------ --------- ---------
Earnings before
special charges,
after taxes $ 54.0 4.5 $ 74.7 7.3 $ 66.1 7.1 $ (20.7) $ 8.6
========= ====== ========= ====== ======== ====== ========= =========
Net (loss) earnings $ (264.4) $ 74.7 $ 48.9 $(339.1) $ 25.8
Diluted earnings per
share before
special charges $ 1.88 $ 2.58 $ 2.29 $ (0.70) $ 0.29
Diluted (loss)
earnings per share $ (9.58) $ 2.58 $ 1.70 $ (12.16) $ 0.88
--------- --------- -------- --------- ---------
Dividends paid per
share of common
stock $ 0.60 $ 0.52 $ 0.44 $ 0.08 $ 0.08
--------- ------ --------- ------ -------- ------ --------- ---------
</TABLE>
(1) Amounts exclude special charges. Special charges include: l) restructuring
charges of $59.4, 5.0% of sales, and $27.7, 3.0% of sales, in 1997 and 1995,
respectively, and 2) a one time write-off of $282.0, 23.5% of sales, of
acquired in-process research and development relating to the Coulter
acquisition in 1997. Including these special charges: 1) operating (loss)
income was $(237.0), (19.8%) of sales, and $83.1, 8.9% of sales, in 1997 and
1995, respectively, and 2) (loss) earnings before income taxes was $(251.9),
(21.0%) of sales, and $72.4, 7.8% of sales, in 1997 and 1995, respectively.
The Company did not incur any special charges in 1996.
(2) Decreases from the comparative period are designated by parentheses.
Bar Chart: MGA as a % of Sales
<TABLE>
<CAPTION>
Year 1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
MGA (% of Sales) 32.3 31.1 30.1
</TABLE>
Bar Chart: R&D Expenses Before Write-off of In-Process R&D (millions)
<TABLE>
<CAPTION>
Year 1995 1996 1997
----- ------ ------
<S> <C> <C> <C>
R&D Expenses $91.7 $108.4 $123.6
</TABLE>
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following review should be read in conjunction with the consolidated
financial statements and related notes included on pages 16 through 37.
Historical results and percentage relationships are not necessarily indicative
of operating results for any future periods.
Overview
Beckman Coulter, Inc. ("the Company") is a world leader in providing
systems that simplify and automate laboratory processes. The Company designs,
manufactures and services a broad range of laboratory systems consisting of
instruments, reagents and related products that customers use to conduct basic
scientific research, drug discovery research and diagnostic analysis of patient
samples. Approximately two-thirds of the Company's 1997 sales were for clinical
diagnostics applications, principally in hospital laboratories, while the
remaining sales were for life sciences and drug discovery applications in
universities, medical schools, and pharmaceutical and biotechnology companies.
The Company's diagnostics systems address over 75% of the hospital laboratory
test volume, including virtually all routine laboratory tests. The Company
believes that it is a worldwide market leader in its primary markets, with
well-recognized systems and a reputation for high-quality, reliable service.
1. Acquisition Activities
The primary focus of the acquisition strategy of Beckman Instruments, Inc.
(excluding Coulter, "Beckman") has been to broaden its product offerings.
Beckman significantly strengthened its diagnostic immunochemistry offerings,
including products for cancer diagnostics, through the acquisition of Hybritech
Incorporated in January 1996 and the Access immunoassay product line of Sanofi
Diagnostics Pasteur in April 1997. Beckman also acquired high throughput
screening and robotics technology for drug discovery from Sagian, Inc. in
December 1996 and DNA sequencing technology through the acquisition of Genomyx
Inc. in October 1996.
The acquisition of Coulter Corporation ("Coulter") in October 1997 (the
"Acquisition"), further extended Beckman's strategy to solidify its position as
a leading provider of laboratory systems, adding Coulter's leading market
position in hematology and number two position in flow cytometry. The purchase
price of the acquisition totaled $1,178.0 million, consisting of $875.0 million
in cash, assumed liabilities of $170.0 million and purchase liabilities of
$133.0 million. This acquisition and the related financing is expected to lower
the net earnings of the Company through 1998 as a result of a substantial
increase in interest expense, amortization of intangible assets and goodwill and
various other adjustments resulting from purchase accounting. A complete
discussion of the Company's acquisition activities is provided in Note 3
"Acquisitions" to the Consolidated Financial Statements.
2. Events Impacting Comparability
As anticipated, the integration and consolidation of Coulter requires
substantial management, financial and other resources. While the Company
believes the early results of this effort are encouraging, the acquisition of
Coulter necessarily involves a number of significant risks, including potential
difficulties in assimilating the technologies, services and products of Coulter
or in achieving the expected synergies and cost reductions, as well as other
unanticipated risks and uncertainties. As a result, there can be no assurance as
to the extent to which the anticipated benefits with respect to the Acquisition
will be realized, or the timing of any such realization.
Acquired Research and Development:
As a direct result of the Acquisition, the Company recorded a $282.0
million charge for purchased in-process research and development projects,
$220.0 million of which was allocated to projects in the hematology product
line. The Company utilized an independent third-party appraiser to assess and
allocate values to the in-process research and development. The values assigned
to these projects were determined by identifying projects that have economic
value but that had not yet reached technological feasibility and that had no
alternative future uses. These projects include development of next generation
versions of existing products as well as planned new products. Some of these
projects are expected to be combined with existing technology to produce
commercially viable products. These products had not been released to the market
as of the date of the Acquisition, but the features and functionality of the
products had been defined.
The values of these projects were determined by estimating the costs to
develop the technology into commercially viable products, estimating cash flows
resulting from the expected sales of such products, and discounting the net cash
flows back to their present value using a risk-adjusted discount rate. The
resulting values were expensed as of the date of the Acquisition in accordance
with generally accepted accounting principles. The estimates were based on the
following assumptions:
- - The estimated costs to be incurred to develop purchased in-process
technology into commercially viable products are approximately $68 million
in 1998, $60 million in 1999 and $31 million in 2000.
- - The estimated revenues assume average compound annual revenue growth rates
of 12% to 60% during 1998 - 2002 depending on the product line. Estimated
total revenues from the purchased in-process product areas peak in the year
2002 and decline in 2002 - 2006 as other new products are expected to be
introduced by the Company. These projections are based on management's
estimates of market size and growth, expected trends in technology and the
expected timing of new product introductions.
- - The estimated cost of sales as a percentage of revenues is expected to be
lower than Coulter's historical results primarily due to production
efficiencies expected to be achieved through economies of scale of the
combined operations. As a result of these savings, the estimated cost of
sales as a percentage of revenues is expected to decrease by approximately
4 percentage points from Coulter's historical percentage of about 52 %,
varying by product area.
- - The business enterprise is comprised of various types of assets, each
possessing different degrees of investment risk contributing to the
Company's overall weighted average cost of capital ("WACC"). Intangible
assets are assessed higher risk factors due to their lack of liquidity and
poor versatility for redeployment elsewhere in the business. In the Coulter
analysis, the implied WACC was 14% based on the purchase price paid,
assumed liabilities, projected cash flows, and Coulter's asset mix.
Reasonable returns on monetary and fixed assets were estimated based on
prevailing interest rates. The process for quantifying intangible asset
investment risk involved consideration of the uncertainty associated with
realizing discernable cash flows over the life of the asset. A discount
range of 14-15% was used for in-process research and development, as these
assets exhibit market risks similar to the overall company, as adjusted for
the uncertainty of completion. The uncertainty of completion is considered
minimal due to the fact that the majority of the projects are product line
extensions where the risk is not considered any greater than for the
overall company.
The Company believes that the foregoing assumptions used in determining
the estimates of the costs to develop Coulter's in-process research and
development into commercially viable products were reasonable at the time of the
Acquisition. No assurance can be given, however, that the underlying assumptions
used to estimate project costs, the ultimate costs to develop such projects, or
the events associated with such projects, will transpire as estimated.
Coulter's in-process research and development value is comprised of over
40 individual on-going projects, however, no one project accounts for more than
13% of the total value. Remaining development efforts for these projects include
various phases of design, development and testing. Anticipated completion dates
for each product line in-process range from three to 36 months at which dates
the Company expects to begin selling the developed products. Funding for such
projects is expected to be obtained from internally generated sources.
If none of these projects is successfully developed, the sales and
profitability of the combined company may be materially adversely affected in
future periods. The failure of any particular individual project in-process
would not materially impact the Company's financial condition, results of
operations or the attractiveness of the overall Coulter investment. Commercial
results will be subject to uncertain market events and risks, which are beyond
the Company's control, such as trends in technology, market size and growth, and
product introduction or other actions by competitors.
Goodwill and Intangible Assets:
As a result of the acquisition of Coulter, $404.0 million was recorded as
the fair value of patents, trademarks and other intangibles ("Intangible
Assets") and $374.4 million was recorded as the excess of purchase price,
purchase liabilities and liabilities assumed over the fair value of identifiable
net assets and in-process research and development projects acquired
("Goodwill"). Intangible Assets are amortized using the straight-line method
over their expected useful lives, ranging from 15 to 30 years. Goodwill is
amortized on a straight-line basis over 40 years. See further discussion at Note
3 "Acquisitions" to the Consolidated Financial Statements.
<PAGE> 6
Restructuring Charges:
The Company recorded a restructuring charge of $59.4 million, $36.4 million
after taxes, in the fourth quarter of 1997 under a restructuring plan which was
approved by management and for which the benefit arrangements were communicated
to employees prior to December 31, 1997. The work force reductions anticipated
under this plan, some of which occurred prior to year-end, total approximately
500 employees in Europe, Asia and North America in sales, general,
administrative and technical functions and approximately 100 employees in
production related areas. The charge included $37.3 million for severance
related costs. The $22.1 million for facility consolidation and asset related
write-offs included $2.5 million for lease termination payments, $12.2 million
for the write-off of machinery, equipment and tooling associated with those
functions to be consolidated, and $7.4 million for exiting non-core investment
activities. These changes are scheduled to be substantially completed by
December 1998. At December 31, 1997, the Company's remaining obligation related
to the restructuring charges was $46.6 million, which is included in "Other
Accrued Expenses." Of the original charge of $59.4 million, approximately $39.8
million requires cash payments and approximately $19.6 million represents
non-cash charges. Cash payments of $12.8 million were made in 1997. Management
estimates that the remaining liability of $46.6 million will require payments of
$25.0 million in 1998 and $2.0 million in 1999.
The restructuring charges recorded in 1995 and 1994 were for facility moves
and transition costs that were anticipated and directly associated with the
Company's 1993 restructuring plan, but which could not be recognized in the
establishment of the original restructuring reserve under generally accepted
accounting principles. A more detailed discussion of the restructuring charges
taken by the Company, is provided in Note 4 "Provision for Restructuring
Operations" to the Consolidated Financial Statements.
Sale of Assets:
Although the Company's outstanding indebtedness increased in the first
quarter of 1998 (primarily as a result of $77.7 million of bonus, severance and
related payments associated with the Acquisition which were made during the
first quarter of 1998 and which were financed through increased borrowings under
the Revolving Credit Facility), the Company expects to reduce its indebtedness
by approximately $200 million during the second quarter of 1998 and by at least
$50 million in each of 1999 and 2000. As a part of its plan to reduce debt and
provide funds for integration purposes, subsequent to the consummation of the
Acquisition, the Company has pursued sales of certain financial assets
(primarily consisting of lease receivables and equipment subject to customer
leases) and real estate assets. During December 1997, the Company sold financial
assets having a net book value of approximately $71 million and received
approximately $75 million in cash proceeds. During March 1998, the Company sold
financial assets having a net book value of approximately $31.9 million and
received approximately $31.5 million in cash proceeds. During the remainder of
1998, the Company expects to consummate several sale leaseback transactions with
respect to some of its real estate assets for cash proceeds of approximately
$240 million. The Company also intends to consummate additional sale leaseback
transactions in 1999 which the Company expects will generate proceeds of
approximately $30 million. These sales are expected to marginally reduce
operating income while decreasing nonoperating expenses, resulting in a slightly
negative impact on the Company's pretax results. See further discussion in Note
5 "Sale of Assets" to the Consolidated Financial Statements. The Company will
continue to evaluate opportunities to provide additional cash flow by monetizing
other assets during 1998 and beyond.
Tax Aspects:
As a result of expenses related to the acquisition of Coulter including
the Coulter bonus sharing plan payments, deductions for interest on indebtedness
and certain other expenses incurred in connection with the Coulter acquisition,
the Company does not expect that it will have to pay federal income taxes for
the next several years. The deferred income tax liability of $153.5 million,
which is related to the intangible assets acquired, will be reduced by the tax
effect of the amortization of the intangible assets, which is not deductible for
income tax purposes. The amortization of goodwill of $1.6 million is not
deductible for income tax purposes, which has the impact of increasing the
effective tax rate by approximately 0.2 percentage points for 1997.
Foreign Currency Exposure:
During the Company's fiscal year ended 1997 ("Fiscal 1997"), approximately
50% of the Company's sales were generated outside the United States. Revenues
from non-U.S. sales fluctuate with changes in foreign currency exchange rates.
U.S. dollar-denominated costs and expenses represent a much greater percentage
of the Company's operating costs and expenses than U.S. dollar-denominated sales
represent of total net sales. As a result, appreciation of the U.S. dollar
against the Company's major trading currencies has a negative impact on the
Company's results of operations, and depreciation of the U.S. dollar against
such currencies has a positive impact. The functional currencies used to measure
significant foreign operations include the German Deutchmark, French Franc,
British Pound Sterling, Swiss Franc, Italian Lira, Spanish Peseta, Japanese Yen
and Belgian Franc. Changes in exchange rates for the French Franc, Italian Lira,
Spanish Peseta, Japanese Yen and Belgian Franc all contributed significantly to
the change in the cumulative translation adjustment during Fiscal 1997. Since
the Company actively hedges its foreign currency exposure, the relative strength
or weakness of the U.S. dollar is not likely to have a material short-term
effect on the Company's business decisions. Long-term appreciation of the U.S.
dollar could have a material adverse effect on the Company's business, financial
condition or results of operations. The Company may adjust certain aspects of
its operations in the event of a sustained material change in such exchange
rates. Appreciation of the U.S. dollar over the last year has had a negative
impact on the Company's sales in comparison to its costs, which has adversely
affected gross profit. The Company monitors sales changes in terms of "constant
currency," a measure that eliminates the effects of foreign currency exchange
rate fluctuations from the comparable period and states what the change in sales
would have been in U.S. dollars (this measure does not adjust for inflation).
See further discussion of this topic in Note 7 "Derivatives" to the Consolidated
Financial Statements.
Other Nonoperating Income and Expenses:
Other nonoperating income and expenses for the Company are generally
comprised of five primary items: (i) interest expense, (ii) interest income,
(iii) foreign exchange gains or losses, (iv) investments that are non-core or
are accounted for as a minority interest and (v) nonoperating gains or losses.
Interest income typically includes income from sales-type leases and interest on
cash equivalents and other investments. Foreign exchange gains or losses are
primarily the result of the Company's hedging activities (net of revaluation)
and are recorded net of premiums paid. Other income, net as reported by Coulter
includes the results of operations of two investments, Coulter Pharmaceutical
and Coulter Cellular. Other nonoperating gains and losses are most frequently
the result of one-time items such as asset sales or other items.
3. Results of Operations
1997 Compared with 1996:
Sales for 1997 were $1,198.0 million, an increase of 16.5% over the
$1,028.0 million reported in 1996. The sales growth in constant currency over
the prior year was 20.2%. More than half of the growth resulted from the
previously mentioned acquisition of Coulter Corporation. Despite continuing
market-driven pricing pressures and adverse currency fluctuations, core
businesses grew in all geographic areas. As an example, the Company was able to
leverage its product offerings that reduce total laboratory cost, provide
workstation consolidation and progressive automation, into a $100.0 million,
five-year contract signed with AmeriNet, Inc., one of the largest healthcare
purchasing organizations in the United States. In addition, a new contract was
signed with University Healthsystem Consortium ("UHC"). The UHC agreement will
complement the existing agreement with Voluntary Hospitals of America ("VHA"),
which has recently acquired UHC. In 1997 as in 1996, international sales
accounted for approximately 50% of total sales.
<PAGE> 7
Gross profit at 49.1% of sales was 4.4 percentage points lower than the
1996 level of 53.5%. Cost of sales resulting from the inventory written-up to
market value in connection with the acquisition of Coulter accounted for $11.3
million or one percentage point of the reduction. Unfavorable foreign currency
fluctuations contributed another one percentage point. Lower margins for Coulter
products and competitive pricing pressures made up the balance of the percentage
reduction.
Marketing, general and administrative expenses at 30.1% of sales were one
percentage point lower than the 1996 level of 31.1%, despite the costs of
acquisition activities incurred during the year. Research and development
expenses remained at last year's levels, at just over 10% of sales.
As a result, operating income before pretax special charges was $104.4
million or 8.7% of sales in 1997, compared with operating income of $122.5
million and 11.9% in 1996. However, the 1997 operating income before pretax
special charges, unlike 1996 operating income, includes charges for inventory
recorded at fair value (mentioned previously) and on-going goodwill and
intangible amortization expenses arising out of the Coulter acquisition. Without
these items, the 1997 operating income margin would have been 10.0%.
One-time charges of $282.0 million for in-process research and development
expenses and restructure charges of $59.4 million (discussed previously in item
2 ) resulted in the reported operating loss of $237.0 million.
Incremental interest expense associated with the debt incurred by the
Company to fund the Coulter acquisition increased nonoperating expenses, but was
partially offset by gains due to hedging activities.
The net loss for the year was $264.4 million compared with net earnings of
$74.7 million in 1996. The current year net loss excludes any tax benefit for
the $282.0 million charge for in-process research and development as a result of
its ineligibility for income tax purposes.
<PAGE> 8
1996 Compared with 1995:
Sales growth of 11%, 13% in constant currency, over the prior year was
attributable to increased market share in diagnostics products, primarily in the
North American and European markets; increased market share in life sciences
products, primarily in non-European international markets; continued success
from the Company's SKD subsidiary's HEMOCCULT product; and, sales from Hybritech
products (Hybritech was acquired effective January 2, 1996). International sales
represented approximately 50% of total sales.
The gross profit percentage decrease resulted from changes in product mix,
unfavorable foreign currency fluctuations and competitive pricing pressures.
The increase in operating costs was due to a higher rate of investment in
research and development costs related to Hybritech products.
Earnings before income taxes for the year ended December 31, 1996 compared
to the same period of the prior year increased to $111.5 million from $72.4
million (1995 included a restructuring charge of $27.7 million).
Net earnings for the year ended December 31, 1996 were $74.7 million or
$2.58 per share, representing an increase of 53% and 52%, respectively, over the
prior year. Net earnings in 1995 included a $17.2 million after tax
restructuring charge which decreased net earnings per share by $0.59.
4. Financial Condition
Liquidity and Capital Resources:
General. The Company broadly defines liquidity as its ability to generate
sufficient cash flows from operating activities to meet its obligations and
commitments. In addition, liquidity includes the ability to obtain appropriate
financing and to convert into cash flows those assets that are no longer
required to meet existing strategic and financing objectives. Therefore,
liquidity cannot be considered separately from capital resources that consist of
current and potentially available funds for use in achieving long-range business
objectives and meeting debt service commitments.
Currently, the Company's liquidity needs arise primarily from debt service
on the substantial indebtedness incurred in connection with the Coulter
acquisition, and the funding of costs of integrating the operations of Beckman
and Coulter, as well as its working capital requirements and capital
expenditures.
Cash Flows. Operating activities generated $137.8 million of cash flows
compared with $139.1 million in 1996 and $60.2 million in 1995. The 1997 results
were primarily achieved through net results from operations, after adding back
the effects of depreciation, amortization and special charges, including the
write-off of acquired in-process research and development in
<PAGE> 9
connection with the acquisition of Coulter. Additionally, the Company received
$35.7 million in cash proceeds from the sale of sales-type lease receivables
(see Note 5 "Sale of Assets" to the Consolidated Financial Statements).
Investing activities used $929.1 million of cash. Investments and
acquisitions used $893.9 million primarily relating to the Coulter acquisition.
Capital expenditures used $100.9 million of cash which is consistent with
historical levels. An additional $39.6 million of cash proceeds was provided
through the sale and leaseback of instruments (see Note 5 "Sale of Assets" to
the Consolidated Financial Statements.)
Financing activities provided $790.6 million of cash. This was achieved
primarily through borrowing of $827.8 million, net of repayments, under short
term notes payable, long term debt and credit facilities. These proceeds were
primarily used to fund the acquisition of Coulter. Purchases of treasury stock
used $20.6 million, net of proceeds from sales of treasury stock, and dividends
to stockholders used $16.6 million.
Debt Service. During the fourth quarter of 1997 the Company secured a
new $1.3 billion credit facility (the "Credit Agreement") to finance the
acquisition of Coulter. The $1.3 billion credit facility consists of a $500.0
million senior unsecured term loan facility (the "Term Loan") and an $800.0
million senior unsecured revolving credit facility (the "Credit Facility"). See
a further discussion of the credit facility and borrowing availability
thereunder and under the Company's other borrowing facilities in Note 6 "Debt"
to the Consolidated Financial Statements. As of December 31, 1997, the
outstanding indebtedness of the Company was $1,250.2 million, primarily
consisting of $400.0 million in Term Loan borrowings under the $500.0 million
Term Loan and $600.0 million of revolving credit borrowings under the $800.0
million Credit Facility. In December 1997, the Company sold certain financial
assets (primarily consisting of equipment subject to customer leases and lease
receivables) for proceeds of approximately $75.0 million. These proceeds and
approximately $25.0 million of cash provided by operations were used to pay down
$100.0 million of then outstanding Term Loan borrowings. In January 1998, the
Company prepaid an additional $100.0 million of Term Loan borrowings by
borrowing an additional $100.0 million under the Credit Facility. Net proceeds
from the offering (the "Offering") of $160.0 million principal amount of 7.10%
Senior Notes due 2003 and $240.0 million principal amount of 7.45% Senior Notes
due 2008 (together, the "Initial Notes") of $300.0 million were used to prepay
all Term Loan borrowings, net proceeds of $80.0 million were used to repay a
portion of the Credit Facility and the remaining net proceeds of $14.3 million
were used for operating purposes. During the first quarter of 1998, the Company
paid approximately $77.7 million in bonus, severance and related costs which
were accrued as part of the purchase liability at year end. These payments were
financed through borrowings under the Revolving Credit Facility and were the
principal cause of the increase in outstanding indebtedness for such quarter.
Payment of balances accrued as part of the purchase liability are expected to
continue through 1998, 1999 and 2000. Although the Company's outstanding
indebtedness increased in the first quarter of 1998, the Company expects to
reduce its indebtedness by approximately $200 million during the second quarter
of 1998 and by at least $50 million in each of the years 1999 and 2000. As of
May 31, 1998, the outstanding indebtedness of the Company was $1,343.9 million,
which includes $680.0 million outstanding under the Revolving Credit Facility
and $400.0 million of Initial Notes. The aggregate maturities of total debt
subsequent to May 31, 1998 are $70.8 million for the seven months ended December
31, 1998, $26.9 million in 1999, $11.4 million in 2000, $9.0 million in 2001,
$699.3 million in 2002 and $526.5 million thereafter. The estimated interest
payments subsequent to May 31, 1998 associated with such total debt are $51.2
million for the seven months ended December 31, 1998, $84.3 million in 1999,
$83.1 million in 2000, $82.4 million in 2001, $74.7 million in 2002 and $261.5
million thereafter. The estimated interest payments were calculated with the
assumption that the debt balances outstanding at May 31, 1998 will be paid at
maturity, not earlier, and that the interest rates associated with such debt
balances will remain at current levels. The amount of interest payments will
fluctuate if interest rates change or if debt balances are paid prior to
maturity. Principal and interest payments under the Credit Agreement and
interest payments on the Notes represent significant liquidity requirements for
the Company. The Credit Agreement provides for mandatory prepayment of revolving
credit borrowings (and, to the extent provided, reductions in commitments)
thereunder from excess cash flow (as defined therein), and from proceeds of
certain equity or debt offerings, asset sales and extraordinary receipts. The
Credit Facility is not subject to any scheduled principal amortization and has a
five year term, maturing in October 2002, with all amounts then outstanding
becoming due.
The loans under the Credit Agreement bear interest at floating rates based
upon the interest rate option elected by the Company (except in the case of
competitive bid advances (as defined therein) which may bear interest at a fixed
rate of interest), and the Company is accordingly subject to fluctuations in
such interest rates, which could cause its interest expense to increase or
decrease in the future. The average floating rate of interest on the Credit
Agreement at March 31, 1998 was 6.22%. As a result of the substantial
indebtedness incurred in connection with the Acquisition, the Company's interest
expense will be higher and will have a much greater proportionate impact on net
earnings in comparison to pre-Acquisition periods.
Each holder of 7.05% Debentures due June 1, 2026 (the "Old Debentures") has
the right to require the Company to redeem such holder's Old Debentures in June
2006.
Certain Post-Acquisition Costs. The Company estimates, based upon current
exchange rates, that its cash funding requirements for the costs associated with
the Acquisition will amount to approximately $180.0 million from the
consummation of the Acquisition through the end of 1998, and approximately $50.0
million to $65.0 million in each of the following two years. This includes up to
$103.0 million of sharing bonus plan payments which will be made to Coulter's
employees.
Stock Repurchases and Dividends. The Company repurchased 1.0 shares of its
common stock during 1997 and 1.0 shares during 1996. The Company elected to
discontinue this stock repurchase program in connection with the Acquisition.
The Credit Agreement generally prohibits market repurchases of the Company's
stock.
Under the Company's dividend policy, the Company pays a regular quarterly
dividend to its stockholders which amounted to approximately $16.6 million in
1997 and approximately $14.7 million in 1996. In February of 1998, the Board of
Directors declared a quarterly dividend of $0.15 per share, which approximates
$4.1 million in total. This dividend was paid on April 2, 1998 to stockholders
of record on February 3, 1998. On April 2, 1998, the Board of Directors declared
a $0.15 per share dividend payable on June 4, 1998 to stockholders of record on
May 15, 1998. The Company anticipates that it will continue to pay dividends at
similar levels for the foreseeable future. The Credit Agreement and the
Indenture restrict (but, in each case, do not prohibit) the Company's ability to
pay dividends.
Future Financing Sources and Cash Flows. As of March 31, 1998, the
Company's remaining borrowing availability under the Credit Facility was $130.0
million. Undrawn amounts under the Credit Facility will be available to meet
future working capital and other business needs of the Company.
At March 31, 1998, no events of default existed under any of the then
existing debt agreements of the Company. The Company maintains working capital
facilities for its operations outside the United States. In June 1996, the
Company issued $100.0 million of Old Debentures ($100.0 million of which were
outstanding as of March 31, 1998). The net proceeds received of $98.5 million
were used to repay amounts then outstanding under the Company's commercial paper
program. The Company also has the ability to issue up to $100.0 million of
additional debt under a Form S-3 Registration Statement filed with the
Securities and Exchange Commission, which was declared effective on April 16,
1996.
The interest expense associated with the debt outstanding under the credit
facility creates an increased demand on future operating cash flows. Although
the Company believes that its consolidated operations will provide sufficient
cash flow in excess of anticipated operating requirements in order to service
the debt, a plan has been implemented to decrease the level of outstanding
borrowings more rapidly. This ultimately will provide savings on the associated
interest cost, which will be partially offset by increased rental expense as a
result of any sale leaseback transactions.
Although the Company's outstanding indebtedness increased in the first
quarter of 1998 (primarily as a result of $77.7 million of bonus, severance and
related payments associated with the Acquisition which were made during the
first quarter of 1998 and which were financed through increased borrowings under
the Revolving Credit Facility), the Company expects to reduce its indebtedness
by approximately $200 million during the second quarter of 1998 and by at least
$50 million in each of 1999 and 2000. As a part of its plan to reduce debt and
provide funds for integration purposes, subsequent to the consummation of the
Acquisition, the Company has pursued sales of certain financial assets
(primarily consisting of lease receivables and equipment subject to customer
leases) and real estate assets. During December 1997, the Company sold financial
assets having a net book value of approximately $71 million and received
approximately $75 million in cash proceeds. During March 1998, the Company sold
financial assets having a net book value of approximately $32 million and
received approximately $32 million in cash proceeds. During the remainder of
1998, the Company expects to consummate several sale leaseback transactions with
respect to some of its real estate assets for cash proceeds of approximately
$240 million. The Company also intends to consummate additional sale leaseback
transactions in 1999 which the Company expects will generate proceeds of
approximately $30 million. In addition to these asset sales, the Company's
capital expenditures include expenditures for customer leased equipment. Such
expenditures in the future may be reduced by increased reliance on third party
leasing arrangements, which would accordingly reduce the Company's liquidity
needs.
Based upon current levels of operations and anticipated cost savings and
future growth, the Company believes that its cash flow from operations, together
with available borrowings under the credit facility and its other sources of
liquidity (including leases, any other available financing sources, and the
proceeds of the planned asset sales discussed above), will be adequate to meet
its anticipated requirements for interest payments and other debt service
obligations, working capital, capital expenditures, lease payments and other
operating needs, until the maturity of the credit facility in 2002. There can be
no assurance, however, that the Company's business will continue to generate
cash flow at or above current levels or that estimated cost savings or growth
can be achieved. The Company's future operating performance and ability to
service or refinance its existing indebtedness, including the credit facility,
will be subject to future economic conditions and to financial business and
other factors, many of which are beyond the Company's control.
Financing Covenant Restrictions. The Credit Agreement imposes restrictions
on the Company's ability to make capital expenditures and both the Credit
Agreement and the indenture dated March 4, 1998 (the "Indenture") governing the
Initial Notes limit the Company's ability to incur additional indebtedness. In
addition, the Company is required to comply with specified financial ratios and
tests under the Credit Agreement, including minimum net worth, a minimum
interest coverage ratio and a maximum leverage ratio. Such restrictions,
together with the highly leveraged nature of the Company, could limit the
Company's ability to respond to market conditions, to provide for capital
investments or to take advantage of business opportunities. The covenants
contained in the Credit Agreement and the Indenture also impose restrictions on
the operation of the Company's businesses.
Inflation:
Inflation and the effects of changing prices are monitored continually by
the Company. Inflation increases the cost of goods and services used by the
Company. Competitive and regulatory conditions in many markets restrict the
Company's ability to fully recover the higher costs of acquired goods and
services through price increases. The Company attempts to mitigate the impact of
inflation by implementing continuous process improvement solutions to enhance
productivity and efficiency and, as a result, lower costs and operating
expenses. The effects of inflation have, in the Company's opinion, been managed
appropriately and as a result have not had a material impact on its operations
and resulting financial position.
Financial Instruments:
The Company pursues a currency hedging program which utilizes derivatives
in order to limit the impact of foreign currency exchange fluctuations on its
financial results. Under this program, the Company enters into forward exchange
and option contracts in the normal course of business to hedge certain foreign
currency denominated transactions. Realized and unrealized gains and losses on
these contracts are included in nonoperating (income) expense or other (income)
expense in the Company's consolidated statements of earnings. The discount or
premium on a forward exchange contract is included in the measurement of the
basis of the related foreign currency transaction when recorded. The premium on
an option contract is accounted for separately and amortized to nonoperating
(income) expense or other (income) expense over the term of the contract. These
instruments involve, to varying degrees, elements of market and credit risk in
excess of the amounts recognized in the consolidated balance sheets. The Company
does not hold or issue financial instruments for trading purposes. See Note 7 to
the Consolidated Financial Statements. In addition, the Company also selectively
enters into certain financial instruments to manage its exposure to interest
rate changes on its floating rate debt. These instruments are held for hedging
purposes only and include interest rate swap agreements.
Environmental Matters:
<PAGE> 10
The Company is subject to federal, state, local and foreign environmental
laws and regulations. Although the Company continues to make expenditures for
environmental protection, it does not anticipate any significant expenditures in
order to comply with such laws and regulations that would have a material impact
on the Company's operations or financial position. The Company believes that its
operations comply in all material respects with applicable federal, state, and
local environmental laws and regulations. To address contingent environmental
costs, the Company establishes reserves when such costs are probable and can be
reasonably estimated. The Company believes that, based on current information
and regulatory compliance (and taking third party indemnities into
consideration), the reserves established by the Company for environmental
expenditures are adequate. Based on current knowledge, to the extent that
additional costs may be incurred that exceed the reserves, such amounts are not
expected to have a material impact on the Company's operations or financial
condition, although no assurance can be given in this regard. See further
discussion in Note 12 "Commitments and Contingencies" to the Consolidated
Financial Statements.
Litigation:
In addition, the Company and its subsidiaries are involved in a number of
lawsuits which the Company considers ordinary and routine in view of its size
and the nature of its business. The Company does not believe that any ultimate
liability resulting from any such lawsuits will have a material adverse effect
on its earnings or financial position. However, no assurance can be given as to
the ultimate outcome with respect to such lawsuits. The resolution of such
lawsuits could be material to the Company's operating results for any particular
period, depending upon the level of income for such period. See further
discussion of these matters in Note 12 "Commitments and Contingencies" to the
Consolidated Financial Statements.
Year 2000:
The Company is in the process of modifying, upgrading or replacing its
internal computer software applications and information systems. The Company is
also in the process of evaluating all currently marketed and leased products and
will upgrade those products that are intended for continued marketing and
leasing beyond the year 1999. The Company is currently evaluating possible
strategies to accommodate its installed analytical instrument systems owned by
its customers.
These tasks have been assigned to a senior executive of the Company who has
established three projects, each led by a project manager and staffed by
software experts, to perform the evaluation process: 1) product related matters,
2) mainframe management information systems and software, and 3) all other
systems (e.g. personal computers, office machines, and supplier systems).
Analysis and evaluation activities were begun in 1996 and are in varying stages
of completion as of the date of this report. The Company recently expended
approximately $250,000 on new software that provides a suite of tools to assist
in the year 2000 remediation process. Remediation activities have begun and are
planned and expected to be completed by the end of 1998. Testing and validation
of the remediated systems and any final revisions needed will be conducted in
1999.
The Company does not expect that the cost of its year 2000 compliance
program will be material to its business, results of operations or financial
condition. The Company believes that it will be able to achieve compliance by
the end of 1999 and does not currently anticipate any material disruption of its
operations as the result of any failure by the Company to be in compliance.
Although the impact on the Company caused by the failure of the Company's
significant suppliers or customers to achieve year 2000 compliance in a timely
or effective manner is uncertain, the Company's business and results of
operations could be materially adversely affected by such failure.
<PAGE> 11
Recent Accounting Developments:
The Company intends to adopt Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130), and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information"(SFAS 131), in fiscal 1998. Both standards will require
additional disclosure, but will not have a material effect on the Company's
financial position or results of operations. SFAS 130 establishes standards for
the reporting and display of comprehensive income and is expected to first be
reflected in the Company's first quarter of 1998 interim financial statements.
Components of comprehensive income include items such as net earnings, foreign
currency translation adjustments and changes in value of available-for-sale
securities. SFAS 131 changes the way companies report segment information and
requires segments to be determined and reported based on how management measures
performance and makes decisions about allocating resources. SFAS 131 will first
be reflected in the Company's 1998 Annual Report.
5. Business Climate
The clinical diagnostics and life sciences markets are each highly
competitive and the Company encounters significant competition in each market
from many manufacturers, both domestic and outside the United States.
Competitive and regulatory conditions in many markets restrict the Company's
ability to fully recover through price increases any increase in higher costs of
acquired goods and services resulting from inflation. The Company historically
has been able to partially offset the adverse impact of these competitive
factors by improving productivity. These markets continue to be unfavorably
impacted by the economic weakness in Europe and Asia and cost containment
initiatives in several European governmental and healthcare systems. The life
sciences market also continues to be affected by consolidations of
pharmaceutical companies and governmental constraints on research and
development spending. In the United States, attempts to lower costs and to
increase productivity have led to further consolidation among healthcare
providers. This has resulted in more powerful provider groups that continue to
leverage their purchasing power with suppliers to contain costs. Cost
containment initiatives in the United States and in the European healthcare
systems will continue to be factors, which may affect the Company's ability to
maintain or increase sales. Future profitability may also be adversely affected
if the relationship of the U.S. dollar to certain currencies is maintained or
strengthened.
The Company intends to grow its business through increased internal
development efforts, and in part through collaborations that will help to expand
its technology base. The continuing consolidation trend among United States
healthcare providers, mentioned previously, has increased pressure on diagnostic
equipment manufacturers to broaden their product offerings to encompass a wider
range of testing capability, greater automation and higher volume capacity. The
Company's October 1997 acquisition of Coulter Corporation was a clear indicator
of the Company's resolve to complete a key initiative to become a broad-based
world leader in in-vitro diagnostic testing, by expanding its product offering.
Coulter is the world's leading manufacturer of hematology systems for the
clinical analysis of blood cells, where it has a market share twice the size of
its next largest competitor. In addition, Coulter is considered a technology
leader in cell counting and characterization and has a number two position in
flow cytometry, which is used for both research and clinical applications.
The size and growth of the Company's markets are influenced by a number of
factors, including: technological innovation in bioanalytical practice;
government funding for basic and disease-related research (for example, heart
disease, AIDS and cancer); research and development spending by biotechnology
and pharmaceutical companies; and healthcare spending and physician practice.
The Company expects worldwide healthcare expenditures and diagnostic testing to
increase over the long-term, primarily as a result of the following three
factors: (1) growing demand for services generated by the aging of the world
population; (2) increasing expenditures on diseases requiring costly treatment
(for example, AIDS and cancer) and (3) expanding demand for improved healthcare
services in developing countries.
With Coulter and the two earlier acquisitions in immunochemistry-based
diagnostics, Hybritech Incorporated and the Access immunoassay product business
of Sanofi Diagnostics Pasteur, the Company completed a major strategic
initiative intended to build on its leadership position in automated clinical
chemistry and create a broad based capability in routine clinical chemistry. The
Company will be able to offer hospital laboratories worldwide, a broad range of
automated systems that together can perform more than 75% of their test volume
and essentially all of the tests that are considered routine. This
<PAGE> 12
positions the Company to be able to provide significant value added benefits to
its customers, which the Company expects to further enhance through the
Company's expertise in simplifying and automating laboratory processes.
6. Taxes
The Company is subject to taxation in many jurisdictions throughout the
world. The Company's effective tax rate and tax liability will be affected by a
number of factors, such as the amount of taxable income in a particular
jurisdiction, the tax rate in such jurisdictions, tax treaties between
jurisdictions, the extent to which the Company transfers funds between
jurisdictions and income is repatriated, and future changes in the law.
Generally, the tax liability for each legal entity is determined either (i) on a
non-consolidated basis or (ii)on a consolidated basis only with other entities
incorporated in the same jurisdiction, in either case without regard to the
taxable losses of nonconsolidated affiliated entities. As a result, the Company
may pay income taxes in certain jurisdictions even though the Company on an
overall basis incurs a net loss for the period.
7. Forward Looking Statements
This annual report contains forward-looking statements, including
statements regarding, among other items, (i) the Company's business strategy;
(ii) anticipated trends in the Company's business; (iii) the Company's liquidity
requirements and capital resources; (iv) anticipated synergies; (v) future cost
reductions; (vi) in-process research and development; (vii) costs, estimates and
assumptions associated with the in-process research and development; and (viii)
the Company's debt reduction plan. These forward-looking statements are based
largely on the Company's expectations and are subject to a number of risks and
uncertainties, certain of which are beyond the Company's control. These risks
and uncertainties include, but are not limited to, (i) the complexity and
uncertainty regarding development of new high-technology products; (ii) the loss
of market share through aggressive competition in the clinical diagnostics and
life sciences markets; (iii) the Company's dependence on capital spending
policies and government funding; (iv) the effect of potential health-care
reforms; (v) fluctuations in foreign exchange rates and interest rates; (vi)
reliance on patents and other intellectual property; (vii) difficulties, delays
or failures in effectively integrating worldwide operations; (viii) achievement
of year 2000 compliance; and (ix) other factors that cannot be identified at
this time.
Although Beckman believes that it has the product offerings and resources
required to achieve its objectives, actual results could differ materially from
those anticipated by these forward-looking statements as there can be no
assurance that events anticipated by these forward-looking statements will in
fact transpire as anticipated.
<PAGE> 13
CONSOLIDATED BALANCE SHEETS
In millions, except amounts per share
<TABLE>
<CAPTION>
December 31, 1997 1996
-------- --------
<S> <C> <C>
Assets
Current assets
Cash and equivalents $ 33.1 $ 34.6
Short-term investments 0.4 8.1
Trade receivables and other 524.6 309.5
Inventories 332.3 190.4
Deferred income taxes 53.0 21.4
Other current assets 33.3 15.4
-------- ------
Total current assets 976.7 579.4
Property, plant and equipment, net 410.9 263.5
Intangibles, less accumulated amortization
of $10.6 in 1997 and $4.2 in 1996 444.9 34.1
Goodwill, less accumulated amortization of
$6.0 in 1997 and $3.1 in 1996 402.8 13.7
Deferred income taxes -- 50.8
Other assets 95.7 18.6
-------- ------
Total assets $2,331.0 $960.1
======== ======
Liabilities and Stockholders' Equity
Current liabilities
Notes payable $ 49.0 $ 15.1
Current maturities of long-term debt 19.9 4.3
Accounts payable 96.3 45.6
Accrued compensation 84.6 47.4
Other accrued expenses 575.5 115.2
Income taxes 69.6 51.7
-------- ------
Total current liabilities 894.9 279.3
Long-term debt, less current maturities 1,181.3 176.6
Deferred income taxes 40.3 --
Other liabilities 132.7 105.3
-------- ------
Total liabilities 2,249.2 561.2
Commitments and contingencies (Note 12)
Stockholders' equity
Preferred stock, $0.10 par value;
authorized 10.0 shares;
none issued -- --
Common stock, $0.10 par value;
authorized 75.0 shares; shares issued 29.1
at 1997 and 1996; shares outstanding 27.6
at 1997 and 28.0 at 1996 2.9 2.9
Additional paid-in capital 126.6 128.9
Foreign currency translation adjustment (13.8) 3.9
Retained earnings 19.0 300.0
Treasury stock, at cost (52.9) (36.8)
-------- ------
Total stockholders' equity 81.8 398.9
-------- ------
Total liabilities
and stockholders' equity $2,331.0 $960.1
======== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 14
CONSOLIDATED STATEMENTS OF OPERATIONS
In millions, except amounts per share
<TABLE>
<CAPTION>
Years ended December 31, 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Sales $1,198.0 $1,028.0 $930.1
Operating costs and expenses
Cost of sales 609.7 477.8 427.2
Marketing, general and administrative 360.3 319.3 300.4
Research and development 123.6 108.4 91.7
In-process research and development 282.0 -- --
Restructuring charge 59.4 -- 27.7
-------- -------- ------
1,435.0 905.5 847.0
-------- -------- ------
Operating (loss) income (237.0) 122.5 83.1
Nonoperating expense
Interest income (6.1) (5.8) (5.3)
Interest expense 29.4 18.1 13.4
Other, net (8.4) (1.3) 2.6
-------- -------- ------
14.9 11.0 10.7
-------- -------- ------
(Loss) earnings before income taxes (251.9) 111.5 72.4
Income taxes 12.5 36.8 23.5
-------- -------- ------
Net (loss) earnings $ (264.4) $ 74.7 $ 48.9
======== ======== ======
Basic (loss) earnings per share $ (9.58) $ 2.66 $ 1.74
======== ======== ======
Weighted average number of shares
outstanding 27.6 28.0 28.1
======== ======== ======
Diluted (loss) earnings per share $ (9.58) $ 2.58 $ 1.70
======== ======== ======
Weighted average number of shares
outstanding 27.6 28.9 28.8
======== ======== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 15
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
In millions, except amounts per share
<TABLE>
<CAPTION>
Foreign
Additional Currency Minimum
Common Paid-in Translation Retained Pension Treasury
Stock Capital Adjustment Earnings Liability Stock Total
-------- ----------- ----------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1994 $2.9 $130.0 $8.6 $203.4 -- $(27.9) $317.0
Net earnings 48.9 48.9
Foreign currency
translation adjustments (0.2) (0.2)
Dividends to
stockholders, $0.44 per
share (12.3) (12.3)
Purchases of treasury
stock (13.3) (13.3)
Vesting of restricted
stock 0.1 0.1
Employee stock purchases (1.1) 18.7 17.6
Minimum pension
liability (9.9) (9.9)
---- ------ ------ ----- ----- ------ -------
Balances, December 31,
1995 $2.9 $129.0 $8.4 $240.0 $(9.9) $(22.5) $347.9
Net earnings 74.7 74.7
Foreign currency
translation adjustments (4.5) (4.5)
Dividends to
stockholders, $0.52 per
share (14.7) (14.7)
Purchases of treasury
stock (35.9) (35.9)
Employee stock purchases (0.1) 21.6 21.5
Minimum pension
liability 9.9 9.9
---- ------ ------ ----- ----- ------ -------
Balances, December 31,
1996 $2.9 $128.9 $3.9 $300.0 -- $(36.8) $398.9
Net (loss) (264.4) (264.4)
Foreign currency
translation adjustments (17.7) (17.7)
Dividends to
stockholders, $0.60 per
share (16.6) (16.6)
Purchases of treasury
stock (43.7) (43.7)
Employee stock purchases (2.3) 27.6 25.3
---- ------ ------ ----- ----- ------ -------
Balances, December 31,
1997 $2.9 $126.6 $(13.8) $19.0 -- $(52.9) $81.8
==== ====== ====== ===== ===== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 16
CONSOLIDATED STATEMENTS OF CASH FLOWS
In millions
<TABLE>
<CAPTION>
Years ended December 31, 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net (loss) earnings $ (264.4) $ 74.7 $ 48.9
Adjustments to reconcile net (loss)
earnings to net cash provided by
operating activities
Depreciation and amortization 109.1 87.8 79.1
Net deferred income taxes (5.1) 11.3 10.2
Write-off of acquired in-process
research and development 282.0 -- --
Proceeds from sale of sales-type lease
receivables 35.7 -- --
Changes in assets and liabilities,
net of acquisitions
Trade receivables and other (53.1) (26.1) (23.7)
Inventories 18.2 (26.4) (15.7)
Accounts payable and accrued
expenses (3.4) 30.7 0.7
Accrued restructuring costs 44.4 (10.6) (12.9)
Accrued income taxes 1.0 7.0 (8.8)
Other (26.6) (9.3) (17.6)
-------- -------- --------
Net cash provided by operating
activities 137.8 139.1 60.2
-------- -------- --------
Cash Flows from Investing Activities
Additions to property, plant and
equipment (100.9) (110.5) (103.2)
Net disposals of property, plant and
equipment 18.4 18.7 13.2
Sales (purchases) of short-term
investments 7.7 0.2 (7.5)
Proceeds from sale-leaseback
transaction 39.6 -- --
Investments and acquisitions (893.9) (23.0) (15.5)
-------- -------- --------
Net cash used by investing
activities (929.1) (114.6) (113.0)
-------- -------- --------
Cash Flows from Financing Activities
Dividends to stockholders (16.6) (14.7) (12.3)
Proceeds from issuance of stock 23.1 21.5 17.6
Purchases of treasury stock (43.7) (35.9) (13.3)
Notes payable borrowings (reductions) 11.7 (2.4) 2.9
Long-term debt borrowings 1,164.2 128.3 43.4
Long-term debt reductions (348.1) (113.0) (3.5)
-------- -------- --------
Net cash provided (used) by
financing activities 790.6 (16.2) 34.8
-------- -------- --------
Effect of exchange rates on cash and
equivalents (0.8) 0.1 --
-------- -------- --------
(Decrease) increase in cash and
equivalents (1.5) 8.4 (18.0)
Cash and equivalents-beginning of year 34.6 26.2 44.2
-------- -------- --------
Cash and equivalents-end of year $ 33.1 $ 34.6 $ 26.2
======== ======== ========
Supplemental Disclosures of Cash Flow
Information
</TABLE>
<PAGE> 17
<TABLE>
<S> <C> <C> <C>
Cash payments for income taxes $ 12.9 $ 19.2 $ 22.0
Cash payments for interest 18.7 18.3 12.0
Noncash Investing and
Financing Activities
Conversion of notes receivable -- 8.1 --
Minimum pension liability -- (9.9) 9.9
Purchase of equipment under capital
lease obligation 9.8 6.9 6.8
Issuance of Restricted Stock as
employee compensation 2.2 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In millions, except amounts per share
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Beckman
Coulter, Inc. (the "Company"), and its wholly owned subsidiaries. The
consolidated entity is referred to as the Company in the accompanying
consolidated financial statements. All significant transactions among the
consolidated entities have been eliminated from the consolidated financial
statements. The accounts of many of the Company's non-U.S. subsidiaries are
included on the basis of their fiscal years ended November 30.
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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Financial Instruments
The carrying values of the Company's financial instruments approximate
their fair value at December 31, 1997 and 1996. Market value of cash and cash
equivalents, trade and other receivables, other current assets, investments,
notes payable, accounts payable, and amounts included in other accrued expenses
meeting the definition of a financial instrument are based upon management
estimates. Market values of the Company's debt and derivative instruments are
determined by quotes from financial institutions.
Foreign Currency Translation
Non-U.S. assets and liabilities are translated into U.S. dollars using
year-end exchange rates. Operating results are translated at exchange rates
prevailing during the year. The resulting translation adjustments are
accumulated as a separate component of stockholders' equity. Gains and losses
resulting from foreign currency hedging transactions and translation adjustments
relating to foreign entities deemed to be operating in U.S. dollar functional
currency or in highly inflationary economies are included in the Consolidated
Statements of Operations.
Derivatives
The Company utilizes derivative financial instruments to hedge foreign
currency and interest rate market exposures of underlying assets, liabilities
and other obligations and not for speculative or trading purposes. Gains and
losses on currency forward contracts, options and swaps that are designated as
hedges of existing transactions are recognized in income in the same period as
losses and gains on the underlying transactions are recognized and generally
offset. Gains and losses on currency forward contracts and options that are
designated as hedges of anticipated transactions for which a firm commitment has
been attained are deferred and recognized in income in the same period that the
underlying transactions are settled. Gains and losses on any instruments not
meeting the above criteria would be recognized in income in the current period.
Income or expense on interest rate swaps is accrued as an adjustment to the
yield of the related debt that they hedge.
Stock-Based Compensation
The Company implemented Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123) in 1996. As permitted
by SFAS 123, the Company continues to follow the guidance of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Consequently, compensation related to stock options is the difference between
the grant price and the fair market value of the underlying common
<PAGE> 19
shares at the grant date. Generally, the Company issues options to employees
with a grant price equal to the fair value of the Company's common stock.
Accordingly, no compensation expense has been recognized on the Company's stock
option or stock purchase plans. The Company discloses in Note 10 "Employee
Benefits" the effect on earnings if compensation costs were recorded at the
estimated fair value of the stock options granted, as prescribed by SFAS 123.
Cash and Equivalents
Cash and equivalents include cash in banks, time deposits and investments
having maturities of three months or less from the date of acquisition.
Short-Term Investments
Short-term investments are principally comprised of investments with final
maturities in excess of three months but less than one year from the date of
acquisition.
Investments
The Company periodically makes investments in unaffiliated companies
through debt and equity securities. The Company's investments are considered
available-for-sale and carried at current fair value with unrealized gains or
losses reported as a separate component of stockholders' equity, if necessary.
Inventories
Inventories are valued at the lower of cost or market using the first-in,
first-out method.
Property, Plant and Equipment and Depreciation
Land, buildings and machinery and equipment are carried at cost. The cost
of additions and improvements are capitalized, while maintenance and repairs are
expensed as incurred. Depreciation is computed generally on the straight-line
basis over the estimated useful lives of the related assets. Buildings are
depreciated over 20 to 40 years, machinery and equipment over 3 to 10 years and
instruments subject to lease over the lease terms but not in excess of 7 years.
Leasehold improvements are amortized over the lesser of the life of the asset or
the term of the lease but not in excess of 20 years.
Goodwill and Other Intangibles
Goodwill represents the excess of the purchase price of acquired companies
over the estimated fair value of the tangible and intangible net assets
acquired. Goodwill is amortized on a straight line basis over 40 years. Other
intangibles consist primarily of patents, trademarks and customer base arising
from business combinations. Intangibles are amortized on a straight line basis
over periods ranging from 15 to 30 years.
Accounting for Long-Lived Assets
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 1996. SFAS 121 establishes accounting standards
for the impairment of long-lived assets to be reviewed whenever events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable. In addition, SFAS 121 requires that certain long-lived assets be
reported at the lower of carrying value or the fair value less costs to sell.
Adopting SFAS 121 had no material impact on the Company's results of operations
and financial position for 1997 and 1996.
Environmental Expenditures
<PAGE> 20
The Company accrues for environmental expenses resulting from existing
conditions that relate to operations when the costs are probable and reasonable
to estimate.
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.
Research and Development
As a direct result of the Acquisition, the Company recorded a $282.0
million charge for purchased in-process research and development projects,
$220.0 million of which was allocated to projects in the hematology product
line. The Company utilized an independent third-party appraiser to assess and
allocate values to the in-process research and development. The values assigned
to these projects were determined by identifying projects that have economic
value but that had not yet reached technological feasibility and that had no
alternative future uses. These projects include development of next generation
versions of existing products as well as planned new products. Some of these
projects are expected to be combined with existing technology to produce
commercially viable products. These products had not been released to the market
as of the date of the Acquisition, but the features and functionality of the
products had been defined.
The values of these projects were determined by estimating the costs to
develop the technology into commercially viable products, estimating cash flows
resulting from the expected sales of such products, and discounting the net cash
flows back to their present value using a risk-adjusted discount rate. The
resulting values were expensed as of the date of the Acquisition in accordance
with generally accepted accounting principles. The estimates were based on the
following assumptions:
- - The estimated costs to be incurred to develop purchased in-process
technology into commercially viable products are approximately $68
million in 1998, $60 million in 1999 and $31 million in 2000.
- - The estimated revenues assume average compound annual revenue growth
rates of 12% to 60% during 1998 - 2002 depending on the product line.
Estimated total revenues from the purchased in-process product areas
peak in the year 2002 and decline in 2002 - 2006 as other new products
are expected to be introduced by the Company. These projections are
based on management's estimates of market size and growth, expected
trends in technology and the expected timing of new product
introductions.
- - The estimated cost of sales as a percentage of revenues is expected to
be lower than Coulter's historical results primarily due to production
efficiencies expected to be achieved through economies of scale of the
combined operations. As a result of these savings, the estimated cost of
sales as a percentage of revenues is expected to decrease by
approximately 4 percentage points from Coulter's historical percentage
of about 52 %, varying by product area.
- - The business enterprise is comprised of various types of assets, each
possessing different degrees of investment risk contributing to the
Company's overall weighted average cost of capital ("WACC"). Intangible
assets are assessed higher risk factors due to their lack of liquidity
and poor versatility for redeployment elsewhere in the business. In the
Coulter analysis, the implied WACC was 14% based on the purchase price
paid, assumed liabilities, projected cash flows, and Coulter's asset
mix. Reasonable returns on monetary and fixed assets were estimated
based on prevailing interest rates. The process for quantifying
intangible asset investment risk involved consideration of the
uncertainty associated with realizing discernable cash flows over the
life of the asset. A discount range of 14-15% was used for in-process
research and development, as these assets exhibit market risks similar
to the overall company, as adjusted for the uncertainty of completion.
The uncertainty of completion is considered minimal due to the fact that
the majority of the projects are product line extensions where the risk
is not considered any greater than for the overall company.
The Company believes that the foregoing assumptions used in determining
the estimates of the costs to develop Coulter's in-process research and
development into commercially viable products were reasonable at the time of the
Acquisition. No assurance can be given, however, that the underlying assumptions
used to estimate project costs, the ultimate costs to develop such projects, or
the events associated with such projects, will transpire as estimated.
Coulter's in-process research and development value is comprised of over
40 individual on-going projects, however, no one project accounts for more than
13% of the total value. Remaining development efforts for these projects include
various phases of design, development and testing. Anticipated completion dates
for each product line in-process range from three to 36 months at which dates
the Company expects to begin selling the developed products. Funding for such
projects is expected to be obtained from internally generated sources.
If none of these projects is successfully developed, the sales and
profitability of the combined company may be materially adversely affected in
future periods. The failure of any particular individual project in-process
would not materially impact the Company's financial condition, results of
operations or the attractiveness of the overall Coulter investment. Commercial
results will be subject to uncertain market events and risks, which are beyond
the Company's control, such as trends in technology, market size and growth, and
product introduction or other actions by competitors.
Other Nonoperating Income and Expenses
Other nonoperating income and expenses for the Company are generally
comprised of five primary items: (i) interest expense, (ii) interest income,
(iii) foreign exchange gains or losses, (iv) investments that are non-core or
are accounted for as a minority interest and (v) other nonoperating gains or
losses. Interest income typically includes income from sales-type leases and
interest on cash equivalents and other investments. Foreign exchange gains or
losses are primarily the result of the Company's hedging activities (net of
revaluation) and are recorded net of premiums paid. Other nonoperating gains and
losses are most frequently the result of one-time items such as asset sales or
other items.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.
Earnings (Loss) Per Share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS 128) in 1997. SFAS 128 simplifies the computation of
earnings per share ("EPS") previously required in Accounting Principles Board
(APB) Opinion No. 15, "Earnings Per Share," by replacing primary and fully
diluted EPS with basic and diluted EPS. Under SFAS 128, basic EPS is calculated
by dividing net earnings (loss) by the weighted-average common shares
outstanding during the period. Diluted EPS reflects the potential dilution to
basic EPS that could occur upon conversion or exercise of securities, options,
or other such items, to common shares using the treasury stock method based upon
the weighted-average fair value of the Company's common shares during the
period. SFAS 128 was required to be adopted by the Company in its year-end 1997
Annual Report, and earnings per share for prior periods have been restated in
accordance with SFAS 128. See Note 13 "Earnings Per Share" for computation of
EPS.
Recent Accounting Developments
The Company intends to adopt Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130), and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information"(SFAS 131), in 1998. Both standards will require additional
disclosure, but will not have a material effect on the Company's financial
position or results of operations. SFAS 130 establishes standards for the
reporting and display of comprehensive income and is expected to first be
reflected in the Company's first quarter of 1998 interim financial statements.
Components of
<PAGE> 21
comprehensive income include items such as net earnings, foreign currency
translation adjustments and changes in value of available-for-sale securities.
SFAS 131 changes the way companies report segment information and requires
segments to be determined and reported based on how management measures
performance and makes decisions about allocating resources. SFAS 131 will first
be reflected in the Company's 1998 Annual Report.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform
with the current year presentation.
2. Composition of Certain Financial Statement Captions
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Trade receivables and other
Trade receivables $ 488.5 $ 295.3
Other receivables 30.0 20.7
Current portion of lease receivables 23.5 3.1
Less allowance for doubtful receivables (17.4) (9.6)
-------- --------
$ 524.6 $ 309.5
======== ========
Inventories
Finished products $ 206.5 $ 123.8
Raw materials, parts and assemblies 99.1 53.0
Work in process 26.7 13.6
-------- --------
$ 332.3 $ 190.4
======== ========
Property, plant and equipment, net
Land $ 74.1 $ 9.1
Buildings 240.2 144.1
Machinery and equipment 382.9 239.1
Instruments subject to lease(a) 205.6 281.6
-------- --------
$ 902.8 $ 673.9
Less accumulated depreciation
Building, machinery and equipment (365.4) (236.4)
Instruments subject to lease(a) (126.5) (174.0)
-------- --------
$ 410.9 $ 263.5
======== ========
Other accrued expenses
Accrued restructuring costs 47.2 2.6
Unrealized service income 63.8 36.9
Insurance 27.2 23.1
Accrued warranty and installation costs 18.6 4.5
Severance and related costs 109.6 --
Closure of offices and manufacturing
facilities 23.0 --
Change in control payments 36.0 --
Contractual obligations of Coulter to its
employees 103.0 --
Other 147.1 48.1
-------- --------
$ 575.5 $ 115.2
======== ========
</TABLE>
(a) Includes instruments leased to customers under three to five year
cancelable operating leases.
3. Acquisitions
During 1997, 1996 and 1995, the Company made the following acquisitions,
all of which were accounted for using the purchase method of accounting. The
operating results of these
<PAGE> 22
acquired businesses have been included in the Consolidated Statements of
Operations from the dates of acquisition.
On October 31, 1997, the Company acquired all of the outstanding capital
stock of Coulter Corporation for $850.2, net of Coulter's cash on hand of $24.8
at the date of acquisition. Coulter is the leading manufacturer of in-vitro
diagnostics systems for blood cell analysis. The purchase of Coulter was
financed with the net proceeds from a new $1,300.0 credit facility (see Note 6
"Debt").
As a result of the acquisition, $374.4 in goodwill was recorded by the
Company. Goodwill reflects the excess of the purchase price, purchase
liabilities and liabilities assumed over the fair value of net identifiable
assets and in-process research and development projects acquired. Acquired
in-process research and development of $282.0 was charged to expense in the
fourth quarter in accordance with generally accepted accounting principles.
Purchase liabilities recorded included approximately $110.0 for severance and
related costs and $23.0 for costs associated with the closure of certain offices
and manufacturing facilities. The Company expects to complete its termination of
certain employees and closure of certain facilities in fiscal 1998. Assumed
liabilities recorded included approximately $103.0 of contractual obligations of
Coulter to its employees, $36.0 of change in control payments and $31.0 of other
assumed liabilities. The Company expects to pay for the above obligations
throughout fiscal 1998. At December 31, 1997 substantially all of the purchase
liabilities and $150.4 of the assumed liabilities remained on the balance sheet.
The Company does not believe that the final purchase price allocation will
differ significantly from the preliminary purchase price allocation recorded in
the current fiscal year.
The Company estimates, based upon current exchange rates, that its cash
funding requirements for the previously mentioned costs associated with the
Coulter acquisition will amount to approximately $180.0 from the consummation of
the Coulter acquisition through the end of 1998, and approximately $50.0 to
$65.0 in each of the following two years. This includes up to $103.0 of sharing
bonus plan payments which will be made to Coulter's employees.
As the Company's 1997 financial statements only include two months of
operations of Coulter, the following selected unaudited pro forma information is
being provided to present a summary of the combined results of Beckman and
Coulter as if the acquisition had occurred as of January 1, 1997 and 1996,
giving effect to purchase accounting adjustments. The pro forma data is for
informational purposes only and may not necessarily reflect the results of
operations of Beckman had Coulter operated as part of the Company for the years
ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
Pro Forma Years Ended
--------------------------------------
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Sales $1,790.1 $1,722.6
Net earnings $ 9.0 $ 28.9
Basic earnings per share $ 0.33 $ 1.03
Diluted earnings per share $ 0.31 $ 1.00
</TABLE>
The pro forma amounts reflect the results of operations for Beckman,
Coulter and the following purchase accounting adjustments for the periods
presented:
- Amortization of intangible assets and goodwill based on the purchase
price allocation for each period presented.
- Amortization of debt financing fees and expenses over the term of the
new credit facility.
- The addition of interest expense on debt incurred to finance the
acquisition offset by a reduction of historical interest expense as a
result of the elimination of Coulter's debt.
- Additional cost of sales expense as a result of a step-up in the basis
of inventory.
- Estimated income tax effect on the pro forma adjustments.
The pro forma statements do not include the $282.0 write-off of in-process
research and development and the $59.4 accrued restructuring costs, as they are
non-recurring charges.
<PAGE> 23
These charges are included in the Consolidated Statements of Operations of the
Company for 1997. The pro forma diluted net earnings per share is based on the
weighted average number of common shares and dilutive common share equivalents
of Beckman during 1997 and 1996.
In April 1997 the Company acquired the Access immunoassay product line and
related manufacturing facility from Sanofi Diagnostics Pasteur, Inc. ("Sanofi").
The acquisition also established an ongoing alliance in immunochemistry between
the Company and Sanofi. The Access product line, together with the earlier
acquisition of Hybritech Incorporated ("Hybritech") and the Company's own
immunochemistry/protein products, create a major presence for the Company in the
field of immunochemistry.
In December 1996 the Company acquired the assets and assumed the
liabilities of the laboratory robotics division of Sagian Inc. of Indianapolis,
Indiana. By combining Sagian's scheduling software and robotics with its own
biorobotics systems, the Company enhanced its ability to serve the
pharmaceutical industry's need for high-throughout screening (HTS) of candidate
compounds for new drugs.
In January 1996, the Company acquired the assets and assumed the
liabilities of Hybritech, a San Diego-based life sciences and diagnostic
company. The acquisition expanded the Company's ability to develop and
manufacture high sensitivity immunoassays, including cancer tests.
In May 1995, the Company agreed to acquire Genomyx Corporation of Foster
City, California. Genomyx is a developer and manufacturer of advanced DNA
sequencing products and complements the Company's biotechnology business. The
acquisition was completed on October 21, 1996.
With the exception of Coulter, the purchase prices of the acquisitions and
the effects on consolidated results of operations were not material to the
Company individually or in the aggregate.
4. Provision for Restructuring Operations
1997 Restructuring:
The Company recorded a restructuring charge of $59.4, $36.4 after taxes, in
the fourth quarter of 1997 under a restructuring plan which was approved by
management and for which the benefit arrangements were communicated to employees
prior to December 31, 1997. The work force reductions anticipated under this
plan, some of which occurred prior to year-end total approximately 500 employees
in Europe, Asia and North America in sales, general, administrative and
technical functions and approximately 100 employees in production related areas.
The charge included $37.3 for severance related costs. The $22.1 provided for
facility consolidation and asset related write-offs included $2.5 for lease
termination payments, $12.2 for the write-off of machinery, equipment and
tooling associated with those functions to be consolidated, and $7.4 for exiting
non-core investment activities. These changes are scheduled to be substantially
completed by December 1998. At December 31, 1997, the Company's remaining
obligation related to the restructuring charges was $46.6, which is included in
"Other Accrued Expenses." Of the original charge of $59.4, approximately $39.8
requires cash payments and approximately $19.6 represents non-cash charges. Cash
payments of $12.8 were made in 1997. Management estimates that the remaining
liability of $46.6 will require payments of $25.0 in 1998 and $2.0 in 1999.
The following table details the major components of the 1997 restructuring
provision:
<TABLE>
<CAPTION>
Facility
consolidation
and asset
related
Provision Personnel write-offs Total
- --------- --------- ------------- ------
<S> <C> <C> <C>
Consolidation of sales, general,
administrative and technical
functions $ 34.3 $ 18.2 $ 52.5
Changes in manufacturing
operations 3.0 3.9 6.9
------ ------ ------
Total provision 37.3 22.1 59.4
------ ------ ------
</TABLE>
<PAGE> 24
<TABLE>
<S> <C> <C> <C>
Fiscal 1997 Activity
Consolidation of sales, general,
administrative and technical
functions 7.8 5.0 12.8
Changes in manufacturing
operations -- -- --
------ ------ ------
Total 1997 activity 7.8 5.0 12.8
------ ------ ------
Balance at December 31, 1997
Consolidation of sales, general,
administrative and technical
functions 26.5 13.2 39.7
Changes in manufacturing
operations 3.0 3.9 6.9
------ ------ ------
Balance at December 31, 1997 $ 29.5 $ 17.1 $ 46.6
====== ====== ======
</TABLE>
Prior Years Restructuring:
The Company also recorded a restructuring charge of approximately $27.7 in
1995. This restructuring charge included costs for facility moves and transition
costs which were anticipated and directly associated with the 1993 restructuring
plan but could not be recognized in establishment of the original restructuring
reserve under generally accepted accounting principles. At December 31, 1997 and
1996, the Company's remaining obligation relating to this restructuring charge
was $0.4 and $2.6, respectively, and is included in "Other Accrued Expenses".
5. Sale of Assets
In December 1997, the Company sold $34.2 of Coulter's sales-type lease
receivables, net of $2.6 of allowances, for cash proceeds of $35.7. Under the
provisions of Statement of Financial Accounting Standards No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities" (SFAS 125), the transaction was accounted for as a sale and as a
result the related receivables have been excluded from the accompanying
Consolidated Balance Sheet. The sale is subject to certain recourse provisions
and as such the Company established a $1.5 reserve for potential losses.
Also in December 1997, the Company entered into an agreement for the sale
and leaseback of certain instruments which are subject to various three to five
year cancelable operating-type leases to customers. These instruments had a net
book value of $37.0 and were sold for cash proceeds of $39.6. The gain is being
deferred and credited to income, as a rent expense adjustment over the lease
term. Obligations under the operating lease agreement are included in the lease
commitments disclosure in Note 12 "Commitments and Contingencies".
Proceeds from the above transactions were used to reduce outstanding
borrowings under the new $1,300 credit facility (see Note 6 "Debt").
6. Debt
Notes payable consist primarily of short-term bank borrowings by the
Company's subsidiaries outside the U.S. under local lines of credit. The bank
borrowings are at rates which approximate current market rates; therefore, the
carrying value of the notes approximates the market value. At December 31, 1997
approximately $139.9 of unused short-term lines of credit were available to the
Company's subsidiaries outside the U.S. at various interest rates. Within the
U.S., the Company had available $18.0 in unused committed short-term lines of
credit at market rates. Compensating balances and commitment fees on these lines
of credit are not material and there are no withdrawal restrictions.
<PAGE> 25
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
Average
Rate of
Interest 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Credit Agreement -
Term loan facility 6.75% $ 400.0 $ --
Credit Agreement -
Revolving credit facility 6.47% 600.0 --
Debentures 7.05% 100.0 100.0
Senior notes, unsecured -- -- 50.0
Other long-term debt 6.39% 101.2 30.9
-------- -------- --------
1,201.2 180.9
Less current maturities 19.9 4.3
-------- --------
Long-term debt, less current
maturities $1,181.3 $ 176.6
======== ========
</TABLE>
In October 1997, in conjunction with the acquisition of Coulter, the
Company cancelled its $150.0 credit agreement and entered into a new credit
agreement (the "Credit Agreement") with a group of financial institutions. The
Credit Agreement provides up to a maximum aggregate amount of $1,300.0 through a
$500.0 senior unsecured term loan facility (the "Term Loan") and an $800.0
senior unsecured revolving credit facility (the "Credit Facility"). Borrowings
under the Credit Agreement generally bear interest at current market rates plus
a margin based upon the Company's senior unsecured debt rating or debt to
earnings ratio, whichever is more favorable to the Company, except in the case
of competitive bid advances (as defined in the Credit Agreement) which may bear
interest at a fixed rate. The Company is accordingly subject to fluctuations in
such interest rates, which could cause its interest expense to increase or
decrease in the future. As a result of the substantial indebtedness incurred in
connection with the Coulter acquisition, the Company's interest expense will be
higher and will have a much greater proportionate impact on net earnings in
comparison to pre-acquisition periods. The Company must also pay a quarterly
facility fee on the average Credit Facility commitment. In addition,
approximately $6.8 of fees paid to enter the Credit Agreement are being
amortized to interest expense over the term of the Credit Agreement. The Credit
Agreement provides for mandatory prepayment of the Term Loan and Credit Facility
borrowings (and, to the extent provided, reductions in commitments) thereunder
from excess cash flow (as defined in the Credit Agreement), and from proceeds of
certain equity or debt offerings, asset sales and extraordinary receipts. The
Credit Facility is not subject to any scheduled principal amortization.
Beginning in March 2000, the Company will be required to make scheduled
quarterly principal payments of $25.0 on the Term Loan borrowings with a final
maturity in October 2002. The Credit Facility matures on the same date as the
Term Loan. As of the date of this report, the Company's remaining borrowing
availability under the Credit Facility is $200.00. Undrawn amounts under the
Credit Facility will be available to meet future working capital and other
business needs of the Company.
In June 1996, the Company issued $100.0 of debentures bearing an interest
rate of 7.05% per annum due June 1, 2026. Interest is payable semi-annually in
June and December. The debentures were recorded net of discount and issuance
costs of approximately $1.5 which are being amortized to interest expense over
the term of the debentures. The debentures may be repaid on June 1, 2006 at the
option of the holders of the debentures, at 100% of their principal amount,
together with accrued interest to June 1, 2006, in accordance with the terms of
the debenture agreement. The debentures may be redeemed, in whole or in part, at
the option of the Company at any time after June 1, 2006 at a redemption price
equal to the greater of the principal amount of the debentures or the sum of the
present values of the remaining scheduled payments of principal and interest
thereon discounted to the redemption date on a semiannual basis at a comparable
treasury issue rate plus a margin.
The Company had $50.0 senior notes, comprised of Series A $20.0 and Series
B $30.0 notes, that were repaid with borrowings under the Credit Agreement in
October 1997. In addition, the Company paid a premium of approximately $2.0 to
redeem the notes.
Other long-term debt at December 31, 1997 consists principally of $76.6 of
notes used to fund the operations of the Company's international subsidiaries
and notes given as partial consideration for an acquisition. Some of the notes
issued by the Company's international subsidiaries are secured by their assets.
Notes used to fund the Company's international subsidiaries amounted to $22.1 in
1996. Capitalized leases of $24.6 in 1997 and $8.8 in 1996 are also included in
other long-term debt.
Certain of the Company's borrowing agreements contain covenants that the
Company must comply with, for example: minimum net worth, maximum capital
expenditures, a debt to
<PAGE> 26
earnings ratio, a minimum interest coverage ratio and a maximum amount of debt
incurrence. At December 31, 1997, the Company was in compliance with all such
covenants.
The aggregate maturities of long-term debt for the five years subsequent to
December 31, 1997 are $19.9 in 1998, $24.6 in 1999, $110.7 in 2000, $107.4 in
2001, $814.6 in 2002 and $124.0 thereafter.
7. Derivatives
The Company manufactures its products principally in the United States, but
generates approximately half of its revenues from sales made outside the U.S. by
its international subsidiaries. Sales generated by the international
subsidiaries generally utilize the subsidiary's local currency, thereby exposing
the Company to the risk of foreign currency fluctuations. Also, as the Company
is a net borrower, it is exposed to the risk of fluctuating interest rates. The
Company utilizes derivative instruments in an effort to mitigate these risks.
The Company's policy is not to speculate in derivative instruments to profit on
the foreign currency exchange or interest rate price fluctuation, nor to enter
trades for which there are no underlying exposures, nor enter into trades to
intentionally increase the underlying exposure. Instruments used as hedges must
be effective at reducing the risk associated with the exposure being hedged and
are designated as a hedge at the inception of the contract. Accordingly, changes
in market values of hedge instruments are highly correlated with changes in
market values of underlying hedged items both at the inception of the hedge and
over the life of the hedge contract.
Various foreign currency contracts are used to hedge firm commitments
denominated in foreign currencies and to mitigate the impact of changes in
foreign currency exchange rates on the Company's operations. The Company uses
forward contracts, purchased option contracts, and complex option contracts,
consisting of purchased and sold options, to hedge transactions with its foreign
customers. The hedge instruments mature at various dates with premiums and
resulting gains or losses recognized at the maturity date, which approximates to
the transaction date. The notional values of contracts afforded hedge accounting
treatment are summarized as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Forward Contracts $ 66.9 $ 63.6
Purchased Option Contracts 45.0 28.5
Complex Option Contracts 28.5 --
</TABLE>
When the Company uses foreign currency contracts and the dollar strengthens
against foreign currencies, the decline in the value of future foreign currency
cash flows is partially offset by the recognition of gains in the value of the
foreign currency contracts designated as hedges of the transactions. Conversely,
when the dollar weakens, the increase in the value of future foreign currency
cash flows is reduced by (i) the recognition of the net premium paid to acquire
option contracts; (ii) the recognition of any loss in the value of the forward
contracts designated as hedges of the transactions and (iii) the recognition of
any loss on sold options. Market value gains and losses and premiums on these
contracts are recognized in "Other, net nonoperating expense" when the hedged
transaction is recognized. The net premiums paid for purchased and complex
options are reported in current assets.
The Company held purchased foreign currency call option contracts totaling
$20.4 and $45.9 at December 31, 1997 and 1996, respectively, which did not
qualify for hedge accounting treatment. The call options were purchased to
create synthetic puts when combined with forward and complex option contracts,
thereby cost effectively reducing the Company's risk. The purchased call options
mature at various dates throughout 1998 with resulting gains recognized at
maturity. Premiums paid for these contracts are recognized immediately in
"Other, net nonoperating expense".
The Company also uses foreign currency swap contracts to hedge loans
between subsidiaries. At December 31, 1997, the Company had foreign currency
swap contracts totaling $103.7 expiring at various dates through February 1998.
At December 31, 1996, the
<PAGE> 27
Company had foreign currency swap contracts totaling $89.8. As monetary assets
and liabilities are marked to market and recorded in earnings, foreign currency
swap contracts designated as hedges of the monetary assets and liabilities are
also marked to market with the resulting gains and losses similarly recognized
in earnings. Gains and losses on foreign currency swap contracts are included
in "Other, net nonoperating expense" and offset losses and gains on the hedged
monetary assets and liabilities. The carrying value of foreign currency swap
contracts is reported in current assets and current liabilities.
The Company occasionally uses purchased foreign currency option contracts
to hedge the market risk of a subsidiary's net asset position. At December 31,
1997, the Company had no purchased foreign currency option contracts related to
net asset positions. At December 31, 1996 the Company had $3.5 purchased foreign
currency option contracts related to net asset positions. Purchased foreign
currency option contracts resulted in favorable foreign currency translation
adjustments of $1.5 and $1.2 at December 31, 1997 and 1996, respectively.
Purchased foreign currency option contracts to hedge the market risk of a
subsidiary's net asset position are recognized in "Foreign currency translation
adjustments" when the hedged transaction is recognized. The foreign currency
translation adjustments are only recognized in "Other, net nonoperating expense"
upon liquidation of the subsidiary.
The Company uses interest rate contracts on certain borrowing transactions
to hedge fluctuating interest rates. Interest rate contracts are intended to be
an integral part of borrowing transactions and, therefore, are not recognized at
fair value. Interest differentials paid or received under these contracts are
recognized as adjustments to the effective yield of the underlying financial
instruments hedged. Interest rate contracts would only be recognized at fair
value if the hedged relationship is terminated. Gains or losses accumulated
prior to termination of the hedged relationship would be amortized as a yield
adjustment over the shorter of the remaining life of the contract or the
remaining period to maturity of the underlying instrument hedged. If the
contract remained outstanding after termination of the hedged relationship,
subsequent changes in market value of the contract would be recognized in
"Interest expense".
In October 1997, the Company entered into interest rate contracts
associated with its $1,100.0 in borrowing arising from the acquisition of
Coulter. Specifically, the Company entered into $500.0 in interest rate swap
agreements in which the Company receives an average floating interest rate equal
to the three-month LIBOR (5.8% at December 31, 1997) and pays an average fixed
interest rate of 6.2%. The Company also entered into $400.0 in treasury rate
lock agreements to hedge the U.S. Treasury Note rate underlying an expected
refinancing. The interest rate swaps and the U.S. Treasury rate locks are
accounted for as hedges.
The Company is exposed to credit risk in the event of non-performance of
the counterparties to its foreign currency and interest rate contracts, which
the Company believes is remote. Nevertheless, the Company monitors its
counterparty credit risk and utilizes netting agreements and internal policies
to mitigate its risk. The disclosed derivatives are indicative of the volume and
types of instruments used throughout the year after giving consideration to the
increase in volume arising from the acquisition of Coulter. The market value of
all derivative instruments amounted to an unrecognized loss of $8.0 at
December 31, 1997.
8. Income Taxes
The components of (loss) earnings before income taxes were:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
U.S. $ (304.5) $ 42.5 $ 21.2
Non-U.S. 52.6 69.0 51.2
-------- -------- --------
$ (251.9) $ 111.5 $ 72.4
======== ======== ========
</TABLE>
<PAGE> 28
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current
U.S. federal $ 5.2 $ 9.6 $ 5.1
Non-U.S. 5.3 12.4 7.7
U.S. state and Puerto Rico 3.5 4.0 (0.6)
-------- -------- --------
Total current 14.0 26.0 12.2
Deferred
U.S. federal 0.7 9.0 4.3
Non-U.S. (2.2) 1.8 7.0
-------- -------- --------
Total deferred, net (1.5) 10.8 11.3
-------- -------- --------
Total $ 12.5 $ 36.8 $ 23.5
======== ======== ========
</TABLE>
The reconciliation of the U.S. federal statutory tax rate to the
consolidated effective tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Statutory tax rate (35.0)% 35.0% 35.0%
In-process research and
development 39.2 -- --
State taxes, net of U.S. tax
benefit 0.1 0.4 0.8
Ireland and Puerto Rico income (2.0) (6.8) (13.6)
Non-U.S. taxes 0.9 5.0 10.9
Foreign income taxed in the
U.S., net of credits 1.4 (2.8) 0.4
Other 0.4 2.2 (1.0)
-------- -------- --------
Effective tax rate 5.0% 33.0% 32.5%
======== ======== ========
</TABLE>
Certain income of subsidiaries operating in Puerto Rico and Ireland is
taxed at substantially lower income tax rates than the U.S. federal statutory
tax rate. The lower rates reduced expected income taxes by approximately $5.1 in
1997, $7.6 in 1996, and $9.8 in 1995. Since April 1990, earnings from
manufacturing operations in Ireland are subject to a 10% tax. The lower Puerto
Rico income tax rate expires in July 2003.
The components of the (benefit) provision for deferred income taxes are:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Restructuring costs $ (15.7) $ 3.0 $ 13.2
Compensation 18.7 -- --
Inventory (4.0) -- --
Net operating loss (2.6) -- --
International transactions 2.2 1.3 (4.7)
Accelerated depreciation (0.4) (0.5) 0.4
Accrued expenses (4.2) 3.3 (0.6)
Pension costs 8.9 6.9 1.7
Postretirement medical costs (1.7) (1.7) (0.5)
Other (2.7) (1.5) 1.8
-------- -------- --------
Total $ (1.5) $ 10.8 $ 11.3
======== ======== ========
</TABLE>
The tax effect of temporary differences which give rise to significant portions
of deferred tax assets and liabilities consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets
Inventories $ 9.8 $ 2.9
Capitalized expenses 0.7 1.0
International 22.7 --
Tax credits 23.8 --
Purchase and assumed liabilities
(see Note 3) 87.4 --
Pension costs -- 2.4
Accrued expenses 43.9 19.9
Restructuring costs 16.3 0.6
Environmental costs 4.8 5.0
Postretirement benefits 38.6 26.5
</TABLE>
<PAGE> 29
<TABLE>
<S> <C> <C>
Other 28.3 32.0
-------- --------
276.3 90.3
Less: Valuation allowance (42.4) (14.5)
-------- --------
Total deferred tax assets 233.9 75.8
Deferred tax liabilities
Depreciation 1.8 2.3
Pension costs 9.9 --
Intangible assets 140.4 --
Fixed assets 17.5 --
Leases 9.9 --
Deferred service contracts 3.2 --
International transactions 6.4 --
Other 32.1 1.3
-------- --------
Total deferred tax liabilities 221.2 3.6
-------- --------
Net deferred tax asset $ 12.7 $ 72.2
======== ========
</TABLE>
Based upon the Company's historical pretax earnings, adjusted for
significant items such as non-recurring charges, management believes it is more
likely than not that the Company will realize the benefit of the existing net
deferred tax asset at December 31, 1997. Management believes the existing net
deductible temporary differences will reverse during periods in which the
Company generates net taxable income. Certain tax planning or other strategies
will be implemented, if necessary, to supplement income from operations to fully
realize recorded tax benefits.
At December 31, 1997 and 1996 the Company recorded a valuation allowance of
$42.4 and $14.5 respectively, for certain deductible temporary differences for
which it is more likely than not that the Company will not receive future
benefits. The change in the valuation allowance was $27.9 and $0 for 1997 and
1996, respectively. The change in the valuation allowance was primarily due to
the acquisition of Coulter.
Non-U.S. withholding taxes and U.S. taxes have not been provided on
approximately $111.4 of unremitted earnings of certain non-U.S. subsidiaries
because such earnings are or will be reinvested in operations or will be offset
by credits for foreign income taxes paid.
All income tax liability issues between the Company and its former parent
SmithKline Beckman have been resolved in accordance with a tax agreement between
the two companies. Such resolution did not have a material effect on the
Company's consolidated financial position or operating results.
9. Stockholders' Equity
The Company had been authorized, through 1998, to acquire its common stock
to meet the needs of its existing stock-related employee benefit plans. Under
this program, the Company repurchased 1.0 shares of its common stock during 1997
and 1.0 shares during 1996. The Company elected to discontinue this stock
repurchase program in connection with the Coulter acquisition. The Credit
Agreement generaly prohibits market repurchase of the Company's stock. Treasury
shares have been, and are expected to continue to be, reissued to satisfy the
Company's obligations under existing stock-related employee benefit plans.
In January 1993 the Company created the Benefit Equity Fund ("BEF"), a
trust for prefunding future stock-related obligations of employee benefit plans.
The BEF does not change these plans or the amounts of stock expected to be
issued for these plans. The BEF is funded by existing shares in treasury as well
as from additional shares the Company purchases on the open market over time.
While shares in the BEF are not considered outstanding for the calculation of
earnings per share, the shares within the BEF are voted by the participants of
the Employee Stock Purchase Plan. At December 31, 1997, 1.4 shares remain in
treasury of which 0.7 are held by the BEF.
<PAGE> 30
10. Employee Benefits
Incentive Compensation Plans
In 1988, the Company adopted an Incentive Compensation Plan for its
officers and key employees, which provided for stock-based incentive awards
based upon several factors including Company performance. This plan expired on
December 31, 1990, but options outstanding on that date were not affected by
such termination. Pursuant to this plan, the Company granted options to purchase
approximately 0.8 shares, with an expiration date of ten years from the date of
grant.
The Company has also adopted the Incentive Compensation Plan of 1990. This
1990 plan reserves shares of the Company's common stock for grants of options
and restricted stock. Granted options typically vest over three years and expire
ten years from the date of grant. Subsequent to stockholder approval in 1992,
amendments were adopted to extend the expiration of the plan to 2001 and to
increase each year, commencing January 1, 1993, the number of shares available
under the plan by 1.5% of the number of shares common stock issued and
outstanding as of the prior December 31. As of January 1, 1998, 0.6 shares
remain available for grant under this plan.
The following is a summary of the Company's option activity, including
weighted average option information (in thousands, except per option
information):
<PAGE> 31
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- --------------------------
Exercise Exercise Exercise
Price Per Price Per Price Per
Options Option Options Option Options Option
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 2,672 $ 26.03 2,634 $ 22.83 2,689 $ 21.39
Granted 536 $ 40.49 447 $ 40.72 418 $ 29.33
Exercised (302) $ 26.77 (372) $ 19.97 (424) $ 19.57
Canceled (11) $ 33.38 (37) $ 37.12 (49) $ 27.20
-------- -------- -------- -------- -------- --------
Outstanding at end
of year 2,895 $ 28.60 2,672 $ 26.03 2,634 $ 22.83
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Outstanding at Exercise Remaining Exercisable at Exercise
Range of December 31, Price Contractual Life December 31, Price
Exercise Prices 1997 Per Option (Years) 1997(a) Per Option
- ---------------- -------------- ----------- ---------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
$16.50 to $22.50 1,049 $19.72 3.5 1,049 $19.72
$26.38 to $28.88 585 $26.43 6.2 585 $26.43
$29.25 to $35.13 369 $29.34 7.3 249 $29.34
$39.56 to $41.19 892 $40.16 8.7 151 $40.88
----- --- ----- ------
$16.50 to $41.19 2,895 $28.60 6.1 2,034 $24.40
===== =====
</TABLE>
(a) Options exercisable at December 31, 1996 and 1995 (in thousands) were
1,911 and 1,705, respectively.
The following represents pro forma information as if the Company recorded
compensation cost using the fair value of the issued compensation instrument
(the results may not be indicative of the actual effect on net income in future
years):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Net (loss) earnings as reported $ (264.4) $ 74.7
Assumed stock compensation cost 5.7 2.6
-------- --------
Pro forma net (loss) earnings $ (270.1) $ 72.1
======== ========
Diluted (loss) earnings per share as
reported $ (9.58) $ 2.58
Pro forma diluted (loss) earnings per share $ (9.79) $ 2.49
</TABLE>
<PAGE> 32
The Company uses the Black-Scholes valuation model for estimating the fair
value of its compensation instruments. The following represents the estimated
fair value of options granted and the assumptions used for calculation:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Weighted average estimated fair value
per option granted $ 15.73 $ 14.56
Average exercise price per option granted $ 40.49 $ 40.72
Stock volatility 22.0% 18.0%
Risk-free interest rate 5.9% 6.7%
Option term - years 10.0 10.0
Stock dividend yield 1.4% 1.5%
</TABLE>
Stock Purchase Plan
The Company's stock purchase plan allows all U.S. employees and employees
of certain subsidiaries outside of the U.S. to purchase the Company's common
stock at favorable prices and upon favorable terms. Employee purchases are
settled at six month intervals as of June 30 and December 31. The difference
between the purchase price and fair value is not material. Employees purchased
0.2 shares during 1997 and 1.1 shares remain available for use in the plan at
December 31, 1997.
Postemployment Benefits
Effective January 1, 1994 the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" (SFAS 112). This statement required the Company to recognize an
obligation for postemployment benefits provided to former or inactive employees,
their beneficiaries and covered dependents after employment but before
retirement. Additional accruals for postemployment benefits, subsequent to
adopting SFAS 112, were approximately $0.9 in 1997 and $0.8 in 1996 and 1995.
11. Retirement Benefits
Pension Plans
Beckman provides pension benefits covering substantially all of its
employees. Coulter provides similar benefits covering foreign employees.
Consolidated pension expense was $8.6 in 1997, $18.3 in 1996, and $13.3 in 1995.
Pension benefits for Beckman's domestic employees are based on age, years
of service and compensation rates. Components of combined pension expense
related to these plans were:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost $ 10.0 $ 10.8 $ 7.1
Interest cost 26.6 25.7 24.0
Actual return on plan assets (66.2) (23.2) (23.8)
Net amortization and deferral 35.9 1.0 1.2
-------- -------- --------
Total $ 6.3 $ 14.3 $ 8.5
-------- -------- --------
</TABLE>
Beckman's funding policy is to provide currently for accumulated benefits,
subject to federal regulations. Assets of the plans consist principally of
government fixed income securities and corporate stocks and bonds. The funded
status of the pension liabilities and assets and amounts recognized in the
consolidated financial statements with respect to Beckman's domestic plan were:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Vested benefit obligation $ 353.6 $ 312.2
Accumulated benefit obligation 356.2 314.2
Projected compensation increases 51.7 45.0
</TABLE>
<PAGE> 33
<TABLE>
<S> <C> <C>
Projected benefit obligation 407.9 359.2
Plan assets at fair market value (408.9) (314.1)
Projected benefit obligation (less
than) in excess of plan assets (1.0) 45.1
Unrecognized net (obligations)
at transition (1.4) (1.9)
Unrecognized net (loss) (15.2) (35.6)
Unrecognized prior service cost (6.4) (7.3)
(Prepaid) accrued pension cost (24.0) 0.3
Assumptions used in calculations
Expected long-term rate of return 9.8% 9.8%
Discount rate 7.0% 7.8%
Average rate of increase in
compensation 4.3% 4.3%
</TABLE>
Certain subsidiaries of Beckman and Coulter outside the U.S. have separate
pension plan arrangements which include both funded and unfunded plans. Unfunded
foreign pension obligations are recorded as a liability on the Company's
consolidated balance sheets. Pension expense for Beckman plans outside of the
U.S. was $4.5 in 1997, $4.0 in 1996, and $4.8 in 1995. Pension expenses for
Coulter plans were $0.5 for the two month period ended December 31, 1997.
Beckman and Coulter have separate defined contribution plans for their
respective domestic employees. Under each plan, eligible employees may
contribute a portion of their compensation. Employer contributions are primarily
based on a percentage of employee contributions. Additional Coulter
contributions to its plan are based on the age and salary levels of employees.
Beckman contributed $4.8 in 1997, $4.5 in 1996 and $3.6 in 1995. Coulter
contributed $2.0 for the two months ended December 31, 1997. Employees under
both plans generally become fully vested with respect to employer contributions
after three to five years of qualifying service as defined by each plan.
Health Care and Life Insurance Benefits
The Company and its subsidiaries presently provide certain health care and
life insurance benefits for retired U.S. employees and their dependents.
Eligibility for the plan and participant cost sharing is dependent upon the
participant's age at retirement, years of service and retirement date.
The postretirement benefits for both active and retired employees of
Coulter were continued after the acquisition. The amounts below reflect the
assumption of these additional liabilities and costs from November 1, 1997.
The net periodic cost for postretirement health care and life insurance
benefits includes the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost $ 1.2 $ 1.4 $ 1.0
Interest cost 3.3 3.3 3.7
Net amortization (1.2) (0.5) (0.7)
-------- -------- --------
Total $ 3.3 $ 4.2 $ 4.0
======== ======== ========
</TABLE>
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheet in "Other liabilities" at
December 31:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligations
Retirees $ 38.9 $ 27.2
Fully eligible active plan participants 7.1 2.2
Other active plan participants 27.1 17.3
-------- --------
Total obligation 73.1 46.7
Plan assets -- --
Accumulated postretirement benefit obligation
in excess of plan assets 73.1 46.7
Unrecognized prior service cost 1.1 --
Unrecognized net gain 20.8 17.8
-------- --------
Accrued postretirement benefit liability $ 95.0 $ 64.5
======== ========
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Assumptions used in calculations
Weighted average discount rate 7.2% 7.8% 7.0%
Calculation of obligation, excluding Coulter:
Healthcare cost trend rate 8.0% 8.0% 8.0%
Decreasing to ultimate rate by
the year 2004 5.5% 5.5% 5.5%
Calculation of Coulter obligation:
Healthcare cost trend rate 7.0% -- --
Decreasing to ultimate rate by
year 2002 5.0% -- --
</TABLE>
An assumed 1% increase in the healthcare cost trend rate for each year
would have resulted in an increase in the net periodic pension cost by $0.7 in
1997, $0.9 in 1996 and $0.7 in 1995 and in the accumulated post retirement
benefit obligation by $10.9 in 1997 and by $7.0 in 1996.
Employees outside the U.S. generally receive similar benefits from
government-sponsored plans.
12. Commitments and Contingencies
Environmental Matters
The Company is subject to federal, state, local and foreign environmental
laws and regulations. Although the Company continues to make expenditures for
environmental protection, it does not anticipate any significant expenditures in
order to comply with such laws and regulations which would have a material
impact on the Company's operations or financial position. The Company believes
that its operations comply in all material respects with applicable federal,
state and local environmental laws and regulations.
In 1983, the Company discovered organic chemicals in the groundwater near a
waste storage pond at its manufacturing facility in Porterville, California.
SmithKline Beckman, the Company's former controlling stockholder, agreed to
indemnify the Company with respect to this matter for any costs incurred in
excess of applicable insurance, eliminating any impact on the Company's earnings
or financial position. SmithKline Beecham p.l.c., the surviving entity of the
1989 merger between SmithKline Beckman and Beecham, assumed the obligation of
SmithKline Beckman in this respect.
In 1987 soil and groundwater contamination was discovered on property in
Irvine, California (the "property") formerly owned by the Company. In 1988 The
Prudential Insurance Company of America ("Prudential"), which purchased the
property from the Company, filed suit against the Company in U.S. District Court
in California for recovery of costs and other alleged damages with respect to
the soil and groundwater contamination. In 1990 the Company entered into an
agreement with Prudential for settlement of the lawsuit and for sharing current
and future costs of investigation, remediation and other claims.
Soil and groundwater remediation of the property have been in process since
1988. During 1994 the County agency overseeing the site soil remediation
formally acknowledged completion of remediation of a major portion of the soil,
although there remain other areas of soil contamination that may require further
remediation. In July 1997 the California Regional Water Quality Control Board,
the agency overseeing the site groundwater remediation, issued a closure letter
for the upper water bearing unit. The Company and Prudential continued to
operate a groundwater treatment system throughout 1997 and expect to continue
its operation in 1998.
Investigations on the property are continuing and there can be no assurance
that further investigation will not reveal additional contamination or result in
additional costs. The
<PAGE> 34
Company believes that additional remediation costs, if any, beyond those already
provided for the contamination discovered by the current investigation will not
have a material adverse effect on the Company's operations or financial
position.
Litigation
In January 1996, Coulter, then unrelated to Beckman notified Hematronix,
a competitive reagent manufacturer, that Hematronix was selling certain reagents
and controls that infringed upon certain of Coulter's patents. In response, in
April 1996, Hematronix filed a complaint against Coulter in the United States
District Court of the Eastern District of California. The complaint sought a
declaratory judgment to invalidate the patents. The complaint also included
antitrust and related business tort claims directed at Coulter's business and
leasing activities, and seeks actual, treble and punitive damages in an
unspecified amount, as well as injunctive relief. Coulter answered the complaint
by denying violations of the antitrust laws and business tort claims and
counterclaimed that Hematronix willfully infringed the patents at issue. The
trial was scheduled for October 1998. In March 1998, the matter was resolved and
the lawsuit was dismissed without material adverse effect on the Company's
earnings or financial position.
Through its Hybritech acquisition the Company obtained a patent,
referred to as the Tandem Patent, that generates significant royalty income. The
Tandem Patent is involved in an interference action in the U.S. Patent and
Trademark Office with a patent application owned by La Jolla Cancer Research
Foundation (the "Foundation"). In May 1998, the Board of Patent Appeals and
Interferences ruled in Hybritech's favor. The Foundation has sixty days to
appeal this decision.
As previously reported, in 1991 Forest City Properties Corporation and
F.C. Irvine, Inc. (collectively, "Forest City"), filed suit against Prudential
Insurance Company in the California Superior Court for the County of Los Angeles
alleging breach of contract and damages caused by pollution of property that
Forest Cities had brought from Prudential. Although the Company was not a named
defendant in the Forest City action, it was obligated to contribute to any
resolution of that action pursuant to a 1990 settlement agreement with
Prudential. The trial of the matter was conducted in 1995, resulting in a jury
verdict in favor of Prudential. The Court granted Forest City's motion for a new
trial, which Prudential appealed. Prior to the Court's consideration of the
appeal, Prudential settled the lawsuit with Forest City and requested Beckman to
pay a portion of the settlement pursuant to the 1990 settlement agreement.
Beckman did not agree with Prudential's claims and negotiated a settlement for
an amount not material to the Company's earnings or financial position.
<PAGE> 35
As previously reported, since 1992 six toxic tort lawsuits(1) have been
filed in Maricopa County Superior Court, Arizona by a number of residents of the
Phoenix/Scottsdale area against the Company (relating to a former Company
manufacturing site) and a number of other defendants, including Motorola, Inc.,
Siemens Corporation, the cities of Phoenix and Scottsdale, and others. In May
1998, the Company negotiated a settlement of these claims. A number of claims
for property damages remain outstanding. The Company is indemnified by
SmithKline Beecham p.l.c., the successor of its former controlling stockholder,
for any costs incurred in these matters in excess of applicable insurance.
SmithKline has agreed to pay all costs of defense and settlement amounts. Thus
the outcome of these litigations, even if unfavorable to the Company, should
have no material adverse effect on the Company's earnings or financial position.
As previously reported, local authorities in Palermo (Sicily), Italy are
investigating the activities of officials at a local government hospital and
laboratory as well as representatives of the principal worldwide companies
marketing diagnostic equipment in Italy, including the Company's Italian
subsidiary. The inquiry focuses on past leasing practices for placement of
diagnostic equipment which were common industrywide practices throughout Italy,
but now are alleged to be improper. The Company believes the evidence in the
case is weak and insufficient to support a criminal conviction against certain
identified employees (the subsidiary is not a defendant). The Court has
appointed economic experts to evaluate and present a comprehensive economic
report on the leasing practices of the industry. Although it is very difficult
to evaluate the political climate in Italy and the activities of the Italian
public prosecutors, the Company does not expect this matter to have a material
adverse effect on its earnings or financial position.
In addition, the Company and its subsidiaries are involved in a number
of lawsuits which the Company considers ordinary and routine in view of its size
and the nature of its business. The Company does not believe that any ultimate
liability resulting
- --------
(1) Baker v. Motorola, Inc. et al (filed February 1992), Lofgren v.
Motorola, Inc. et al (filed April 1993), Betancourt v. Motorola, Inc. et al
(filed July 1993), Ford v. Motorola, Inc. et al (filed June 1994), Wilkins v.
Motorola, Inc., et. al. (filed July 1995), and Dawson v. Motorola, Inc., et. al.
(filed August 1997).
<PAGE> 36
from any such lawsuits will have a material adverse effect on its earnings or
financial position. However, no assurance can be given as to the ultimate
outcome with respect to such lawsuits. The resolution of such lawsuits could be
material to the Company's operating results for any particular period, depending
upon the level of income for such period. See also "Environmental Matters"
herein.
Lease Commitments
The Company leases certain facilities, equipment and automobiles. Certain
of the leases provide for payment of taxes, insurance and other charges by the
lessee. Rent expense was $35.4 in 1997, $32.9 in 1996, and $32.4 in 1995.
As of December 31, 1997, minimum annual rentals payable under
non-cancelable operating leases aggregate $94.5, which is payable $30.1 in 1998,
$22.0 in 1999, $17.6 in 2000, $13.7 in 2001, $3.0 in 2002 and $8.1 thereafter.
Other
Under the Company's dividend policy, the Company pays a regular quarterly
dividend to its stockholders which amounted to $16.6 in 1997 and $14.7 in 1996.
In February of 1998, the Board of Directors declared a quarterly dividend of
$0.15 per share, which approximates $4.1 in total. This dividend is payable
April 2, 1998 to stockholders of record on February 3, 1998. The Credit Facility
restricts (but does not prohibit) the Company's ability to pay dividends.
<PAGE> 37
13. Earnings (loss) Per Share
In accordance with SFAS 128, the following is a reconciliation of the
numerators and denominators of the basic and diluted EPS computations.
<TABLE>
<CAPTION>
1997
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS
Net (loss) $(264.4) 27.6 $(9.58)
Effect of dilutive stock
options -- -- --
------ ------ ------
Diluted EPS (1)
Net (loss) $(264.4) 27.6 $(9.58)
====== ====== ======
</TABLE>
(1) Under generally accepted accounting principles, as the Company was in a net
loss position in the current year, 1.0 million common share equivalents
were not used to compute diluted loss per share, as the effect was
antidilutive.
<TABLE>
<CAPTION>
1996
----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS
Net earnings $ 74.7 28.0 $ 2.66
Effect of dilutive stock
options -- 0.9 (0.08)
------ ------ ------
Diluted EPS
Net earnings $ 74.7 28.9 $ 2.58
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS
Net earnings $ 48.9 28.1 $ 1.74
Effect of dilutive stock
options -- 0.7 (0.04)
------ ------ ------
Diluted EPS
Net earnings $ 48.9 28.8 $ 1.70
====== ====== ======
</TABLE>
14. Business Segment Information
Industry Segment
The Company is engaged primarily in the design, manufacture and sale of
laboratory instrument systems and related products.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Geographic areas
Sales
United States-domestic $ 889.2 $ 738.5 $ 606.1
United States-export 60.8 36.0 28.9
Europe 342.4 318.6 312.9
Asia and other areas 191.5 163.1 160.2
Transfers between areas (285.9) (228.2) (178.0)
-------- -------- --------
Total sales $1,198.0 $1,028.0 $ 930.1
======== ======== ========
</TABLE>
<PAGE> 38
<TABLE>
<S> <C> <C> <C>
Operating (loss) income
United States before
research and development $ 162.9 $ 180.1 $ 137.2
Research and development(a) (123.6) (108.4) (91.7)
In-process research and
development (282.0) -- --
-------- -------- --------
United States (242.7) 71.7 45.5
Europe 3.6 45.4 28.2
Asia and other areas 2.1 5.4 9.4
-------- -------- --------
Total operating (loss)
income(b) $ (237.0) $ 122.5 $ 83.1
======== ======== ========
Identifiable assets (c)
United States $ 857.4 $ 503.3 $ 446.3
Europe 444.3 243.1 228.8
Asia and other areas 218.5 94.0 89.4
Corporate 810.8 119.7 143.3
-------- -------- --------
Total assets $2,331.0 $ 960.1 $ 907.8
======== ======== ========
</TABLE>
(a) The Company's principal research and development efforts are performed in
the United States.
(b) Includes restructuring charges of $59.4 and $27.7 in 1997 and 1995
respectively. The Company did not incur restructuring charges in 1996.
(c) Identifiable assets are those assets used by the operations in each
geographic location. Corporate assets consist primarily of cash and
equivalents, short-term investments, deferred tax assets, lease
receivables, fixed assets of a corporate nature, intangible assets and
goodwill. Asia and other areas include, primarily, operations in Japan,
Canada and Latin America. Inter-area sales are made at terms that allow for
a reasonable profit to the seller. At December 31, 1997 trade receivables
and other by geographic area were United States $226.4, Europe $188.0 and
Asia and other areas $110.2. At December 31, 1996 trade receivables and
other by geographic area were United States $120.9, Europe $135.8 and Asia
and other areas $52.8.
<PAGE> 39
15. Supplementary Information
Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
Balance at Additions Balance
Beginning Charged to at End
of Period Cost and Expenses Deductions Other of Period
--------- ----------------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
December 31, 1997 $ 9.6 $ 2.4(a) $3.5(b) $9.4(d) $17.4
0.5(c)
December 31, 1996 9.1 2.2(a) 1.1(b) -- 9.6
0.6(c)
December 31, 1995 10.4 0.7(a) 2.8(b) -- 9.1
0.8(c)
</TABLE>
- ----------
(a) Provision charged to earnings.
(b) Accounts written-off.
(c) Adjustments from translating at current exchange rates.
(d) Allowance acquired as part of the Coulter acquisition.
<PAGE> 40
16. Subsequent Event
On March 4, 1998, the Company issued $400 of Initial Notes. The Company
used the proceeds from the Offering to pay down $300 of the Term Loan and $80 of
the Credit Facility under the Credit Agreement.
In connection with the Offering, the Guarantor Subsidiaries jointly, fully,
severally, and unconditionally guaranteed such notes. Supplemental condensed
financial information of the Company, Guarantor Subsidiaries and Non-Guarantor
Subsidiaries, each on a combined basis is presented below. This financial
information is prepared using the equity method of accounting for the Company's
investments in subsidiaries and the Guarantor Subsidiaries' investments in
Non-Guarantor Subsidiaries. This supplemental financial information should be
read in conjunction with the Consolidated Financial Statements.
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1997
Assets:
Cash and equivalents................ $ 13.9 $ 7.2 $ 12.4 $ 33.5
Trade receivables and other......... 131.7 95.4 297.5 524.6
Inventories......................... 127.8 98.7 136.5 $ (30.7) 332.3
Other current assets................ 163.9 165.1 94.4 (337.1) 86.3
-------- -------- -------- --------- --------
Total current assets........ 437.3 366.4 540.8 (367.8) 976.7
Property, plant and equipment,
net.............................. 133.8 125.1 152.0 410.9
Intangibles, net.................... 28.5 401.5 14.9 444.9
Goodwill, net....................... 5.7 397.0 0.1 402.8
Other long-term assets.............. 1,108.6 208.1 196.5 (1,417.5) 95.7
-------- -------- -------- --------- --------
Total assets................ $1,713.9 $1,498.1 $ 904.3 $(1,785.3) $2,331.0
======== ======== ======== ========= ========
Liabilities:
Notes payable and current maturities
of long-term debt................ $ 7.7 $ 7.3 $ 53.9 $ 68.9
Accounts payable and accrued
expenses......................... 207.8 408.1 140.5 756.4
Other current liabilities........... 114.0 2.7 81.4 $ (128.5) 69.6
-------- -------- -------- --------- --------
Total current liabilities... 329.5 418.1 275.8 (128.5) 894.9
Long-term debt, less current
maturities....................... 1,122.9 4.6 53.8 1,181.3
Other long-term liabilities......... 179.7 346.0 155.4 (508.1) 173.0
-------- -------- -------- --------- --------
Total liabilities........... 1,632.1 768.7 485.0 (636.6) 2,249.2
Stockholders' equity.................. 81.8 729.4 419.3 (1,148.7) 81.8
-------- -------- -------- --------- --------
Total liabilities and
stockholders' equity...... $1,713.9 $1,498.1 $ 904.3 $(1,785.3) $2,331.0
======== ======== ======== ========= ========
</TABLE>
<PAGE> 41
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1996
Assets:
Cash and equivalents................ $ 27.9 $ 10.3 $ 4.5 $ 42.7
Trade receivables and other......... 103.8 16.6 189.1 309.5
Inventories......................... 112.7 16.2 75.9 $ (14.4) 190.4
Other current assets................ 83.2 17.6 35.9 (99.9) 36.8
-------- -------- -------- --------- --------
Total current assets........ 327.6 60.7 305.4 (114.3) 579.4
Property, plant and equipment,
net.............................. 165.0 13.3 85.2 263.5
Intangibles, net.................... 33.5 0.4 0.2 34.1
Goodwill, net....................... 1.9 11.8 13.7
Other long-term assets.............. 378.2 39.5 131.8 (480.1) 69.4
-------- -------- -------- --------- --------
Total assets................ $ 906.2 $ 125.7 $ 522.6 $ (594.4) $ 960.1
======== ======== ======== ========= ========
Liabilities:
Notes payable and current maturities
of long-term debt................ $ 2.6 $ 0.2 $ 16.6 $ 19.4
Accounts payable and accrued
expenses......................... 114.9 17.6 75.7 208.2
Other current liabilities........... 74.0 9.8 60.0 $ (92.1) 51.7
-------- -------- -------- --------- --------
Total current liabilities... 191.5 27.6 152.3 (92.1) 279.3
Long-term debt, less current
maturities....................... 152.6 0.4 23.6 176.6
Other long-term liabilities......... 163.2 8.6 98.9 (165.4) 105.3
-------- -------- -------- --------- --------
Total liabilities........... 507.3 36.6 274.8 (257.5) 561.2
Stockholders' equity.................. 388.9 89.1 247.8 (336.9) 398.9
-------- -------- -------- --------- --------
Total liabilities and
stockholders' equity...... $ 906.2 $ 125.7 $ 522.6 $ (594.4) $ 960.1
======== ======== ======== ========= ========
CONDENSED CONSOLIDATING STATEMENT
OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
Sales................................. $ 513.9 $ 150.9 $1,069.5 $ (536.3) $1,198.0
Operating costs and expenses
Cost of sales....................... 214.2 106.3 798.5 (509.3) 609.7
Marketing, general, and
administrative................... 154.5 39.0 166.8 360.3
Research and development............ 87.6 33.8 2.2 123.6
In-process research and
development...................... 282.0 282.0
Restructuring charge................ 55.7 3.7 59.4
-------- -------- -------- --------- --------
Operating income (loss)............... 1.9 (310.2) 98.3 27.0 (237.0)
Nonoperating expense (income)......... 233.2 (8.8) (0.7) (208.8) 14.9
-------- -------- -------- --------- --------
Earnings (loss) before income taxes... (231.3) (301.4) 99.0 181.8 (251.9)
Income taxes.......................... 8.6 2.0 8.1 (6.2) 12.5
-------- -------- -------- --------- --------
Net (loss) earnings................... $ (239.9) $ (303.4) $ 90.9 $ 188.0 $ (264.4)
======== ======== ======== ========= ========
</TABLE>
<PAGE> 42
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CONDENSED CONSOLIDATING STATEMENT
OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
Sales................................. $ 457.4 $ 112.8 $ 772.7 $ (314.9) $1,028.0
Operating costs and expenses
Cost of sales....................... 184.9 33.7 569.3 (310.1) 477.8
Marketing, general, and
administrative................... 147.1 21.4 150.8 319.3
Research and development............ 91.1 17.1 0.2 108.4
Restructuring charge................ (1.7) (4.0) 5.7
-------- -------- -------- --------- --------
Operating income...................... 36.0 44.6 46.7 (4.8) 122.5
Nonoperating (income) expense......... (64.9) (1.8) 0.2 77.5 11.0
-------- -------- -------- --------- --------
Earnings before income taxes.......... 100.9 46.4 46.5 (82.3) 111.5
Income taxes.......................... 18.1 5.3 10.2 3.2 36.8
-------- -------- -------- --------- --------
Net earnings.......................... $ 82.8 $ 41.1 $ 36.3 $ (85.5) $ 74.7
======== ======== ======== ========= ========
CONDENSED CONSOLIDATING STATEMENT
OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
Sales................................. $ 581.1 $ 64.4 $ 533.7 $ (249.1) $ 930.1
Operating costs and expenses
Cost of sales....................... 316.8 18.3 339.0 (246.9) 427.2
Marketing, general, and
administrative................... 149.2 8.2 143.0 300.4
Research and development............ 83.4 8.3 91.7
Restructuring charge................ 1.5 26.2 27.7
-------- -------- -------- --------- --------
Operating income...................... 30.2 29.6 25.5 (2.2) 83.1
Nonoperating (income) expense......... (26.1) (0.7) (9.9) 47.4 10.7
-------- -------- -------- --------- --------
Earnings before income taxes.......... 56.3 30.3 35.4 (49.6) 72.4
Income taxes.......................... 3.1 4.1 14.0 2.3 23.5
-------- -------- -------- --------- --------
Net earnings.......................... $ 53.2 $ 26.2 $ 21.4 $ (51.9) $ 48.9
======== ======== ======== ========= ========
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
CONDENSED CONSOLIDATING STATEMENT
OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
Net cash provided (used) by operating
activities..................................... $ (32.2) $ 42.4 $127.6 $ 137.8
Cash flows from investing activities
Additions to property, plant and equipment..... (65.9) (11.6) (23.4) (100.9)
Net disposals of property, plant and
equipment................................... 12.0 5.4 1.0 18.4
Sales of short term investments................ 7.7 7.7
Proceeds from sale-leaseback transactions...... 39.6 39.6
Investments and acquisitions................... (897.3) 3.4 (893.9)
------- ------ ------ -------
Net cash (used) provided by investing
activities..................................... (911.6) 1.5 (19.0) (929.1)
Cash flows from financing activities
Dividends to stockholders...................... (16.6) (16.6)
Proceeds from issuance of stock................ 23.1 23.1
Purchases of treasury stock.................... (43.7) (43.7)
Notes payable borrowings (reductions).......... (3.5) 15.2 11.7
Long-term debt borrowings (reductions)......... 970.5 (39.1) (115.3) 816.1
------- ------ ------ -------
Net cash provided (used) by financing
activities..................................... 929.8 (39.1) (100.1) 790.6
Effect of exchange rates on cash and
equivalents.................................... (0.8) (0.8)
(Decrease) increase in cash and equivalents...... (14.0) 4.8 7.7 (1.5)
Cash and equivalents -- beginning of year........ 27.9 2.6 4.1 34.6
------- ------ ------ -------
Cash and equivalents -- end of year.............. $ 13.9 $ 7.4 $ 11.8 $ 33.1
======= ====== ====== =======
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CONDENSED CONSOLIDATING
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
Net cash provided (used) by
operating activities $124.7 $ (7.3) $ 21.7 $139.1
Cash flows from investing
activities
Additions to property, plant
and equipment (44.1) (9.7) (56.7) (110.5)
Net disposals of property,
plant and equipment 11.8 0.4 6.5 18.7
Sales of short term
investments 0.1 0.1 0.2
Investments and acquisitions (38.0) 15.0 (23.0)
------ ------ ------ ------
Net cash used by
investing activities (70.2) (9.3) (35.1) (114.6)
Cash flows from financing
activities
Dividends to stockholders (14.7) -- -- (14.7)
Proceeds from issuance
of stock 21.5 -- -- 21.5
Purchases of treasury stock (35.9) (35.9)
Notes payable borrowings
(reductions) (5.9) -- 3.5 (2.4)
Long-term debt borrowings
(reductions) 8.0 0.3 7.0 15.3
------ ------ ------ ------
Net cash (used) provided by
financing activities (27.0) 0.3 10.5 (16.2)
Effect of exchange rates on
cash and equivalents 0.1 0.1
(Decrease) increase in cash
and equivalents 27.5 (16.3) (2.8) 8.4
Cash and equivalents -
beginning of year 0.4 18.9 6.9 26.2
------ ------ ------ ------
Cash and equivalents -
end of year $ 27.9 $ 2.6 $ 4.1 $ 34.6
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CONDENSED CONSOLIDATING
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
Net cash provided (used) by
operating activities $ 66.8 $ 22.9 $(29.5) $ 60.2
Cash flows from investing
activities
Additions to property, plant
and equipment (65.5) (0.5) (37.2) (103.2)
Net disposals of property,
plant and equipment 7.3 5.9 13.2
Sales (purchases)of short
term investments (0.1) (7.9) 0.5 (7.5)
Investments and acquisitions (38.1) 22.6 (15.5)
------ ------ ------ -------
Net cash (used) by
investing activities (96.4) (8.4) (8.2) (113.0)
Cash flows from financing
activities
Dividends to stockholders (12.3) -- -- (12.3)
Proceeds from issuance
of stock 17.6 -- -- 17.6
Purchases of treasury stock (13.3) (13.3)
Notes payable borrowings
(reductions) (4.2) -- 7.1 2.9
Long-term debt borrowings
(reductions) 42.0 (2.1) 39.9
------ ------ ------ -------
Net cash provided by
financing activities 29.8 5.0 34.8
Effect of exchange rates on
cash and equivalents 0.2 (0.2)
(Decrease) increase in cash
and equivalents 0.4 14.5 (32.9) (18.0)
Cash and equivalents -
beginning of year 4.4 39.8 44.2
------ ------ ------ -------
Cash and equivalents -
end of year $ 0.4 $ 18.9 $ 6.9 $ 26.2
====== ====== ====== =======
</TABLE>
<PAGE> 45
0UARTERLY INFORMATION (Unaudited)
In millions, except amounts per share
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter
-------------------- -------------------- --------------------
1997 1996 1997 1996 1997 1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 231.9 $ 224.8 $ 270.6 $ 265.2 $ 271.6 $ 252.8
Cost of sales 109.6 104.9 130.7 123.6 132.1 117.8
Marketing,general
and administrative 74.8 73.7 79.7 83.3 82.9 77.7
Research and
development 24.0 24.7 28.6 27.3 27.7 26.1
In-process
research and
development -- -- -- -- -- --
Restructuring Charge -- -- -- -- -- --
Operating
income (loss) 23.5 21.5 31.6 31.0 28.9 31.2
Earnings (loss)
before income taxes 22.3 20.5 29.7 28.3 27.7 27.9
Net earnings (loss) $ 15.6 $ 13.7 $ 20.8 $ 19.0 $ 19.4 $ 18.7
Basic earnings (loss)
per share $ 0.56 $ 0.48 $ 0.75 $ 0.68 $ 0.71 $ 0.67
Diluted earnings
(loss) per share $ 0.54 $ 0.47 $ 0.72 $ 0.65 $ 0.68 $ 0.65
Dividends
per share $ 0.15 $ 0.13 $ 0.15 $ 0.13 $ 0.15 $ 0.13
Stock price - High $ 44 3/8 $ 39 1/8 $49 3/16 $ 41 1/8 $52 5/16 $ 39 7/8
Stock price - Low $ 37 7/8 $ 33 1/2 $ 40 3/8 $ 35 1/8 $ 39 3/4 $ 32
</TABLE>
<TABLE>
<CAPTION>
Fourth Quarter For the Year
--------------------- -------------------------
1997 1996 1997 1996
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 423.9 $ 285.2 $ 1,198.0 $ 1,028.0
Cost of sales 237.3 131.5 609.7 477.8
Marketing,general
and administrative 122.9 84.6 360.3 319.3
Research and
development 43.3 30.3 123.6 108.4
In-process
research and
development 282.0 -- 282.0 --
Restructuring Charge 59.4 -- 59.4 --
Operating
income (loss) (321.0) 38.8 (237.0) 122.5
Earnings (loss)
before income taxes (331.6) 34.8 (251.9) 111.5
Net earnings (loss) $ (320.2) $ 23.3 $ (264.4) $ 74.7
Basic earnings (loss)
per share $ (11.63) $ 0.83 $ (9.58) $ 2.66
Diluted earnings
(loss) per share $ (11.63) $ 0.81 $ (9.58) $ 2.58
Dividends
per share $ 0.15 $ 0.13 $ 0.60 $ 0.52
Stock price - High $ 44 1/2 $ 39 1/4 $ 52 5/16 $ 41 1/8
Stock price - Low $ 37 3/8 $ 35 $ 37 3/8 $ 32
</TABLE>
Bar Chart: Stock Price By Quarter 1997
<TABLE>
<CAPTION>
Quarter 1st 2nd 3rd 4th
- ------- ------ ------- ------- ------
$ Per Share
<S> <C> <C> <C> <C>
High 44 3/8 49 3/16 52 5/16 44 1/2
Low 37 7/8 40 3/8 39 3/4 37 3/8
</TABLE>
Bar Chart: Stock Price By Quarter 1996
<TABLE>
<CAPTION>
Quarter 1st 2nd 3rd 4th
- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C>
High 39 1/8 41 1/8 39 7/8 39 1/4
Low 33 1/2 35 1/8 32 35
</TABLE>
Bar Chart: Sales By Quarter 1997 (millions)
<TABLE>
<CAPTION>
Quarter 1st 2nd 3rd 4th
- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C>
Sales $231.9 $270.6 $271.6 $423.9
</TABLE>
Bar Chart: Sales By Quarter 1996 (millions)
<TABLE>
<CAPTION>
Quarter 1st 2nd 3rd 4th
- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C>
Sales $224.8 $265.2 $252.8 $285.2
</TABLE>
<PAGE> 46
REPORT BY MANAGEMENT
The consolidated financial statements and related information for the years
ended December 31, 1997, 1996 and 1995 were prepared by management in accordance
with generally accepted accounting principles. Financial data included in other
sections of this Annual Report are consistent with that in the consolidated
financial statements.
Management maintains a system of internal accounting controls which is
designed to provide reasonable assurance, at appropriate costs, that its
financial and related records fairly reflect transactions, that proper
accountability for assets exists, and that established policies and procedures
are followed. A professional staff of internal auditors reviews compliance with
corporate policies. Among these policies is an ethics policy, which requires
employees to maintain high standards in conducting the Company's affairs, and
requires management level employees to submit certificates of compliance
annually. Management continually monitors the system of internal accounting
controls for compliance and believes the system is appropriate to accomplish its
objectives.
The Company's independent auditors examine the Company's consolidated
financial statements in accordance with generally accepted auditing standards.
Their report expresses an independent opinion on the fairness of the Company's
reported operating results and financial position. In performing this audit, the
auditors consider the Company's internal control structure and perform such
other tests and auditing procedures as they deem necessary.
The Board of Directors, through its Audit Committee, reviews both
internal and external audit results and internal controls. The Audit Committee
consists of four outside Directors and meets periodically with management,
internal auditors and the independent auditors to review the scope and results
of their examinations. Both the independent auditors and the internal auditors
have free access to this Committee, with and without management being present,
to discuss the results of their audits.
LOUIS T. ROSSO D.K. WILSON
Louis T. Rosso Dennis K. Wilson
Chairman and Vice President, Finance
Chief Executive Officer and Chief Financial Officer
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
The following table lists current subsidiaries of the Company whose results are
included in the Company's combined financial statements. The list of
subsidiaries does not include certain subsidiaries which, when considered in
the aggregate, do not constitute a significant subsidiary of the Company.
<TABLE>
<CAPTION>
Jurisdiction
Name of Company of Incorporation
- --------------- -----------------
<S> <C>
Beckman Analytical S.p.A. Italy
Beckman Eurocenter S.A. Switzerland
Beckman Instruments (Australia) Pty. Ltd. Australia
Beckman Instruments (Canada) Inc. Canada
Beckman Instruments (Naguabo) Inc. California
Beckman Instruments Espana S.A. Spain
Beckman Instruments France S.A. France
Beckman Instruments G.m.b.H. Germany
Beckman Instruments (Hong Kong) Ltd. Hong Kong
Beckman Instruments (Ireland) Inc. Panama
Beckman Instruments (Japan) Ltd. Japan
Beckman Instruments (United Kingdom) Ltd. England
Beckman Instruments International S.A. Switzerland
Coulter Corporation Delaware
Coulter Electronics G.m.b.H. Germany
Coulter Electronics (H. K.) Ltd. Hong Kong
Coulter Electronics Industria E Comercia LTDA Brazil
Coulter Electronics Ltd. United Kingdom
Coulter Electronics of Canada, Ltd. Canada
Coultronics France S.A. France
Coulter K.K. Japan
Coulter de Mexico, S.A. de C.V. Mexico
Coulter Scientific, Inc. Illinois
Hybritech Incorporated California
SKD, Inc. Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23
The Board of Directors
Beckman Coulter, Inc.:
We consent to incorporation by reference in the registration statements (No.
333-02317) on Form S-3 and (Nos. 333-24851, 333-37429, 33-31573, 33-31862,
33-41519, 33-51506, 33-66990, 33-66988 and 33-65155) on Form S-8 of Beckman
Coulter, Inc. of our report dated January 23, 1998, except as to Note 16, which
is as of March 4, 1998, relating to the consolidated balance sheets of Beckman
Coulter, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1997, which report
appears in the December 31, 1997 annual report on Form 10-K of Beckman Coulter,
Inc.
KPMG PEAT MARWICK LLP
Orange County, California
June 26, 1998
