FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
(X)Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1998
OR
( )Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number 001-10109
BECKMAN COULTER, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-104-0600
(State of Incorporation) (I.R.S. Employer
Identification No.)
4300 N. Harbor Boulevard, Fullerton, California 92834-3100
(Address of principal executive offices) (Zip Code)
(714) 871-4848
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( ).
APPLICABLE ONLY TO CORPORATE ISSUERS:
Outstanding shares of common stock, $0.10 par value, as of
July 20, 1998: 28,539,871 shares.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Earnings for the three and six month periods
ended June 30, 1998 and 1997
Condensed Consolidated Balance Sheets
as of June 30, 1998 and December 31, 1997
Condensed Consolidated Statements of
Cash Flows for the six month periods
ended June 30, 1998 and 1997
Notes to Condensed Consolidated
Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes In Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of
Security-Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
BECKMAN COULTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in Millions, Except Amounts Per Share)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $434.7 $270.6 $834.1 $502.5
Operating costs and expenses:
Cost of sales 236.5 130.7 466.3 240.3
Marketing, general and 123.6 79.7 243.3 154.5
administrative
Research and development 42.2 28.6 83.8 52.6
----- ----- ----- -----
402.3 239.0 793.4 447.4
----- ----- ----- -----
Operating income 32.4 31.6 40.7 55.1
Nonoperating expense:
Interest income (4.0) (0.3) (7.1) (2.2)
Interest expense 22.9 4.3 49.1 7.1
Other, net (0.5) (2.1) (2.9) (1.8)
----- ----- ----- -----
18.4 1.9 39.1 3.1
----- ----- ----- -----
Earnings before income taxes 14.0 29.7 1.6 52.0
Income taxes 4.5 8.9 0.5 15.6
----- ----- ----- -----
Net earnings $ 9.5 $ 20.8 $ 1.1 $ 36.4
===== ===== ===== =====
Basic earnings per share $ 0.34 $ 0.75 $ 0.04 $ 1.31
Weighted average number of shares
outstanding - (in thousands) 27,892 27,600 27,801 27,751
Diluted earnings per share $ 0.32 $ 0.72 $ 0.04 $ 1.26
Weighted average number of shares
and dilutive shares outstanding
- (in thousands) 29,395 28,698 29,126 28,788
Dividends per share $ 0.15 $ 0.15 $ 0.30 $ 0.30
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
BECKMAN COULTER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Millions, Except Amounts per Share)
Unaudited
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 31.0 $ 33.5
Trade receivables and other 483.3 524.6
Inventories 330.9 332.3
Deferred income taxes 53.7 53.0
Other current assets 32.2 33.3
-------- --------
Total current assets 931.1 976.7
Property, plant and equipment, net 305.0 410.9
Intangibles, less accumulated amortization
of $16.2 in 1998 and $10.6 in 1997 439.8 444.9
Goodwill, less accumulated amortization of
$13.2 in 1998 and $6.0 in 1997 402.0 402.8
Other assets 88.2 95.7
-------- --------
Total assets $2,166.1 $2,331.0
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and current maturities of
long-term debt $ 78.3 $ 68.9
Accounts payable, accrued expenses and
other liabilities 577.5 756.4
Income taxes 60.7 69.6
-------- --------
Total current liabilities 716.5 894.9
Long-term debt, less current maturities 1,052.7 1,181.3
Other liabilities 322.5 173.0
-------- --------
Total liabilities 2,091.7 2,249.2
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 1998
and 1997; shares outstanding 28.0 at
1998 and 27.6 at 1997 2.9 2.9
Additional paid-in capital 127.0 126.6
Retained earnings 11.7 19.0
Accumulated other comprehensive loss (21.7) (13.8)
Treasury stock, at cost (45.5) (52.9)
-------- --------
(45.5) (52.9)
Total stockholders' equity 74.4 81.8
-------- --------
Total liabilities and stockholders'
equity $2,166.1 $2,331.0
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial
Statements.
<PAGE>
BECKMAN COULTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Millions)
Unaudited
[CAPTION]
<TABLE>
Six Months Ended
June 30,
1998 1997
<S> <C> <C>
Cash Flows from Operating Activities
Net earnings $ 1.1 $ 36.4
Adjustments to reconcile net earnings to
net cash (used) provided by operating
activities:
Depreciation and amortization 68.1 45.7
Net deferred income taxes (5.8) (1.0)
Proceeds from sale of sales type
lease receivables 36.8 -
Changes in assets and liabilities:
Trade receivables and other 25.3 (18.8)
Inventories (5.2) (4.0)
Accounts payable and accrued expenses (171.5) (21.2)
Restructuring reserve (5.0) (0.8)
Accrued income taxes (8.8) 16.2
Other (27.2) (27.6)
------ ------
Net cash (used) provided by operating
activities (92.2) 24.9
------ ------
Cash Flows from Investing Activities
Additions to property, plant and equipment (82.6) (42.6)
Net disposals of property, plant and
equipment 44.0 6.8
Investments and acquisitions 3.6 (27.1)
Proceeds from sale-leaseback of real estate 242.8 -
------ ------
Net cash provided (used) by investing
activities 207.8 (62.9)
------ ------
Cash Flows from Financing Activities
Dividends to stockholders (8.3) (8.4)
Proceeds from issuance of stock 7.5 11.6
Purchase of treasury stock - (40.6)
Notes payable (reductions) borrowings (0.6) 5.2
Long-term debt borrowings 553.2 52.5
Long-term debt reductions (670.8) -
------ ------
Net cash (used) provided by financing
activities (119.0) 20.3
------ ------
Effect of exchange rates on cash and
equivalents 0.9 0.4
------ ------
Decrease in cash and equivalents (2.5) (17.3)
Cash and equivalents - beginning of period 33.5 34.6
Cash and equivalents - end of period $ 31.0 $ 17.3
====== ======
Supplemental Disclosures of Cash Flow
Information
Cash paid during the period for:
Interest $ 50.7 $ 6.0
Income Taxes $ 9.4 $ 12.1
Noncash investing and financing activities:
Purchase of equipment under capital lease
obligation $ 4.0 $ 4.3
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
BECKMAN COULTER, INC.
Notes To Condensed Consolidated Financial Statements
June 30, 1998
Unaudited
1 Report by Management
In the opinion of Beckman Coulter, Inc. (formerly known as
Beckman Instruments, Inc. and hereafter referred to as "the
Company"), the accompanying Unaudited Condensed Consolidated
Financial Statements reflect all adjustments, consisting
only of normal recurring accruals, necessary for a fair
presentation of the results for the periods. The statements
are prepared in accordance with the requirements of Form 10-
Q. They do not include all disclosures required by
generally accepted accounting principles or those made in
the Annual Report of Beckman Instruments, Inc. on Form 10-
K/A for 1997 which is on file with the Securities and
Exchange Commission.
The results of operations for the period ended June 30, 1998
are not necessarily indicative of the results to be expected
for the year ending December 31, 1998.
2 Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the
financial statements, and the reported amounts of sales and
expenses during the reporting period. Actual results could
differ from those estimates.
3 Acquisition
On October 31, 1997, the Company acquired all of the outstanding
capital stock of Coulter Corporation ("Coulter") for $850.2
million, net of Coulter's cash on hand of $24.8 million at the
date of acquisition. Coulter is the leading manufacturer of in-
vitro diagnostic systems for blood cell analysis. Details of the
transaction and the accounting effects were disclosed in the
Company's annual report for the year ended December 31, 1997.
The first half 1998 results include only January through May
Coulter sales outside the United States as reporting of Coulter
international sales has been lagged by one month to be consistent
with the rest of the Company.
4 Comprehensive Income (Loss)
The Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130), in the
first quarter 1998. SFAS 130 establishes standards for the
reporting and display of comprehensive income. Components of
comprehensive income include net earnings (loss) and foreign
currency translation adjustments. As such, Accumulated Other
Comprehensive (Loss) in the Condensed Consolidated Balance Sheets
represents only cumulative foreign currency translation
adjustments. Comprehensive (loss) income was ($6.8) million and
$24.8 million for the six months ended June 30, 1998 and 1997,
respectively. The adoption of SFAS 130 required additional
disclosure but did not have a material effect on the Company's
financial position or results of operations.
5 Net Earnings Per Share
The Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" (SFAS 128) in the fourth quarter of
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. Earnings Per Share
for the three months and six months ended June 30, 1997, have
been restated in accordance with SFAS 128. The following table
summarizes the computation of EPS (in millions, except amounts
per share):
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
_______________________________________________________
Per Per
Net Share Net Share
Earnings Shares Amount Earnings Shares Amount
-------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net Earnings $ 1.1 27.8 $ 0.04 $ 36.4 27.8 $ 1.31
Effect of dilutive
stock options - 1.3 - - 1.0 (0.05)
------ ---- ------- ------ ---- -------
Diluted EPS
Net Earnings $ 1.1 29.1 $ 0.04 $ 36.4 28.8 $ 1.26
====== ==== ====== ====== ==== =======
</TABLE>
6 Sale-leaseback of Real Estate
On June 25, 1998, the Company completed a sale and leaseback of
four of its properties; Brea, California; Palo Alto, California;
Chaska, Minnesota; and Miami, Florida. The Miami, Florida property was
formerly owned by Coulter. The Palo Alto property is owned by Stanford
University and was leased to the Company under a long-term ground lease.
The Company sold its interest in the ground lease to the buyers. The
aggregate proceeds for the four properties, which were paid in cash at
closing, totaled approximately $243.0 million before closing
costs and transaction expenses. In connection with this
transaction, the Company recorded a deferred gain of
approximately $140.0 million, which is included in "Other liabilities."
The principal use of the proceeds was to reduce debt incurred in
financing the acquisition of Coulter. The purchasers of the properties
are not affiliated with the Company.
Concurrently with the sale of the properties, the Company entered
into long-term ground leases for the three properties it sold and
Coulter entered into a long-term ground lease for the property it
sold. The operations conducted at each of the properties consist
of administrative, research and development, and manufacturing
activities. The Company expects to continue conducting these
activities at the properties in substantially the same form as
prior to the sale. The initial term of each of the leases is
twenty years, with options to renew for up to an additional
thirty years. Annual rentals are approximately $21.5 million.
The Company entered into currency swap agreements which provide
for the rents to be paid in Japanese Yen. Coulter's rental payments
are guaranteed by the Company. The Company expects to pay the rents
as they come due out of cash generated by operations. In accordance
with sale-leaseback accounting, the gain on the sale of the properties
has been deferred and will be amortized over the initial lease term as
adjustments to rental expense.
7 Inventories
Inventories are comprised of the following (in millions):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Finished products $ 187.3 $ 206.5
Raw materials, parts and
assemblies 117.8 99.1
Work in process 25.8 26.7
------- -------
$ 330.9 $ 332.3
======= =======
</TABLE>
8 Provision for Restructuring Operations
The Company recorded a restructuring charge of $59.4 million in
the fourth quarter of 1997. This provision is for severance
related costs and facility consolidation. The following table
details the activity within the provision for the six months
ended June 30,1998 (in millions):
Facility
Consolidation
and
asset related
Personnel write-offs Total
--------- ------------- -----
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
----- ----- -----
Remaining Provision 29.5 17.1 46.6
1998 Activity through second
Quarter
Consolidation of sales, general
administrative and technical
functions 5.5 6.8 12.3
Changes in manufacturing
operations - - -
----- ----- -----
Total 1998 Activity through
Second Quarter 5.5 6.8 12.3
Balance at June 30, 1998
Consolidation of sales, general
administrative and technical
functions 21.0 6.4 27.4
Changes in manufacturing
operations 3.0 3.9 6.9
----- ----- -----
Balance at June 30, 1998 $24.0 $10.3 $34.3
===== ===== =====
</TABLE>
9 Guarantor Subsidiaries
In March 1998, the Company issued $160.0 million of 7.10% Senior
Notes due 2003 and $240.0 million of 7.45% Senior Notes due 2008
(the "Offering"). The net proceeds of $394.3 million were used
to pay down existing debt balances and for operating purposes.
In connection with the Offering, certain of the Company's
subsidiaries, (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 (in millions). 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 Condensed Consolidated Financial Statements.
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
Condensed
Consolidated
Balance Sheet
June 30, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Assets:
Cash and
equivalents $ 28.9 $ 1.7 $ 0.4 $ - $ 31.0
Trade receivables
and other 117.0 90.8 275.5 - 483.3
Inventories 124.8 98.1 130.3 (22.3) 330.9
Other current
assets 196.3 140.6 79.4 (330.4) 85.9
----- ----- ----- ------ -----
Total current
assets 467.0 331.2 485.6 (352.7) 931.1
Property, plant and
equipment, net 90.7 123.2 146.7 (55.6) 305.0
Intangibles, net 39.7 392.9 7.2 - 439.8
Goodwill, net 8.4 386.7 6.9 - 402.0
Other long-term
assets 1,205.0 249.2 85.8 (1,451.8) 88.2
-------- -------- ------ -------- --------
Total assets $1,810.8 $1,483.2 $732.2 $(1,860.1) $2,166.1
======== ======== ====== ========= ========
Liabilities:
Notes payable and
current
maturities of
long-term debt $ 5.5 $ 3.7 $ 69.1 $ - $ 78.3
Accounts payable
and accrued
expenses 230.3 242.5 104.7 - 577.5
Other current
liabilities 124.0 18.7 72.6 (154.6) 60.7
------- ------- ------ --------- --------
Total current
liabilities 359.8 264.9 246.4 (154.6) 716.5
Long-term debt,
less
current
maturities 1,000.9 58.3 50.1 (56.6) 1,052.7
current maturities
Other long-term
liabilities 375.7 415.0 168.6 (636.8) 322.5
------- ------- ------ --------- ---------
Total
liabilities 1,736.4 738.2 465.1 (848.0) 2,091.7
Total stockholders'
equity 74.4 745.0 267.1 (1,012.1) 74.4
------- ------- ------ --------- ---------
Total liabilities
and stockholders'
equity $1,810.8 $1,483.2 $ 732.2 $(1,860.1) $2,166.1
</TABLE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
Condensed
Consolidated
Statement of
Operations
Quarter ended
June 30, 1998
<S> <C> <C> <C> <C> <C>
Sales $ 190.2 $ 132.5 $ 203.1 $ (91.1) $ 434.7
Operating costs and
expenses
Cost of sales 117.8 77.1 132.7 (91.1) 236.5
Marketing,
general
and
administrative 40.3 33.3 50.0 - 123.6
Research and
development 24.9 16.0 1.3 - 42.2
Restructuring
charge (3.8) - 3.8 - -
----- ----- ----- ----- -----
Operating income 11.0 6.1 15.3 - 32.4
Nonoperating expense
(income) 19.9 (9.2) 7.7 - 18.4
----- ----- ----- ----- -----
(Loss) earnings
before income
taxes (8.9) 15.3 7.6 - 14.0
Income taxes (3.1) 5.5 1.4 0.7 4.5
----- ----- ----- ----- -----
Net (loss) earnings $(5.8) $ 9.8 $ 6.2 $ (0.7) $ 9.5
</TABLE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
Condensed
Consolidated
Statement of
Operations
Six Months ended
June 30,1998
<S> <C> <C> <C> <C> <C>
Sales $ 380.0 $ 273.6 $ 358.9 $ (178.4) $ 834.1
Operating costs and
expenses
Cost of sales 238.7 165.4 240.6 (178.4) 466.3
Marketing, general
and administrative 82.5 67.4 93.4 - 243.3
Research and
development 48.2 33.1 2.5 - 83.8
Restructuring
charge - - 4.4 (4.4) -
------ ------ ------ ------ ------
Operating income 10.6 7.7 18.0 4.4 40.7
Nonoperating expense
(income) 40.5 (17.3) 15.9 - 39.1
(Loss) earnings
before
income taxes (29.9) 25.0 2.1 4.4 1.6
Income taxes (10.4) 8.9 0.5 1.5 0.5
------ ------ ------ ------ ------
Net (loss) earnings $(19.5) $ 16.1 $ 1.6 $ 2.9 $ 1.1
</TABLE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
Condensed
Consolidated
Statement of Cash
Flows
Six Months ended
June 30,1998
<S> <C> <C> <C> <C> <C>
Net cash (used)
provided by
operating
activities $(42.7) $ (51.8) $ 2.3 $ - $ (92.2)
Cash flows from
investing
activities
Additions to
property, plant
and equipment (22.7) (9.2) (50.7) - (82.6)
Net disposals of
property,
plant
and
equipment 13.1 0.7 30.2 - 44.0
Investments and
acquisition 3.6 (0.4) 0.4 - 3.6
Proceeds from sale-
leaseback of real
estate 186.1 - - 56.7 242.8
------ ------ ------ ----- ------
Net cash provided
(used) by
investing
activities 180.1 (8.9) (20.1) 56.7 207.8
Cash flows from
financing
activities
Dividends to
stockholders (8.3) - - - (8.3)
Proceeds from
issuance
of stock 7.5 - - - 7.5
Notes payable
borrowings
(reductions) - (1.3) 0.7 - (0.6)
Long-term debt
(reductions)
borrowings (122.0) 56.4 4.7 (56.7) (117.6)
------ ----- ----- ----- -------
Net cash (used)
provided by
financing
activities (122.8) 55.1 5.4 (56.7) (119.0)
------ ----- ----- ----- -------
Effect of exchange
rates on
cash and
equivalents 0.4 - 0.5 - 0.9
------ ----- ----- ----- ------
(Decrease) increase
in cash
and equivalents 15.0 (5.6) (11.9) - (2.5)
Cash and equivalents
-beginning of
period 13.9 7.3 12.3 - 33.5
------ ----- ------ ------ ------
Cash and equivalents
-end of
period $ 28.9 $ 1.7 $ 0.4 $ - $ 31.0
====== ===== ====== ====== ======
</TABLE>
10 Contingencies
The Company and its subsidiaries are involved in a number of
lawsuits which the Company considers normal in view of its size
and the nature of its business. The Company does not believe
that any liability resulting from any such lawsuits, or the
matters described above, will have a material adverse effect on
its operations, financial position or liquidity.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
Beckman Coulter, Inc. (formerly known as Beckman Instruments,
Inc. and hereafter referred to as "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. On October 31, 1997, the Company
acquired Coulter Corporation ("Coulter"). The acquisition of
Coulter represented a significant milestone in accomplishing 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.
As previously discussed in some detail in the Company's 1997
Annual Report to Stockholders, incorporated by reference in the
Company's Annual Report on Form 10-K/A for the Fiscal Year Ended
December 31, 1997 under the heading "Management's Discussion and
Analysis" (the "10-K/A MD&A"), the acquisition of Coulter and the
related financing have had numerous consequences that affect the
comparability of the Company's results of operations and
financial position for periods prior to and after the
acquisition. In particular, the acquisition and related
financing are expected to lower the net earnings of the Company
through 1998 as a result of a substantial increase in interest
expense, amortization of intangible assets and goodwill and
various other adjustments resulting from purchase accounting.
As anticipated, the integration and consolidation of Coulter is
requiring 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.
Operations
Sales growth of 61%, 64% in constant currency, over the second
quarter of the prior year, resulted primarily from the addition
of Coulter operations. Currency negatively impacted sales growth
by 4% from year to year. As discussed in the 10-K/A MD&A, the
Company derives approximately 50% of its sales from sources outside
of the United States, and the appreciation of the U.S. dollar against
the Company's major trading currencies has a negative impact on the
Company's results of operations. The prevailing Asian Pacific market
conditions also negatively impacted Bioresearch sales by 14% in
constant currency. A planned reduction in dealer held inventories
and a shift in the mix of operating as opposed to sales type leases
were additional factors that negatively impacted sales growth.
Sales growth for the first six months of this year, compared to the
previous year was 66%, 70% in constant currency, primarily as a direct
result of the Coulter acquisition.
For the quarter, gross profit as a percentage of sales was lower
than prior year by 6 percentage points. This was primarily due
to lower margins for Coulter products, a hardware mix shift
associated with new product introductions and competitive pricing
pressures. An unfavorable change in foreign currency exchange
rates also negatively affected gross profit. For the six months,
gross profit as a percentage of sales was lower than prior year
by 8 percentage points, however the underlying trend is positive,
as evidenced by the 42.5% gross profit margin in the first
quarter and the 45.6% gross profit margin in the second quarter.
Marketing, general and administrative expenses as a percentage of
sales decreased to 28.4% from 29.5% for the second quarter of
1997. The improvement was achieved by leveraging a fixed expense
layer over higher sales volumes and through the early successes
of the Coulter integration objectives. As a result, for the six
month period the marketing, general and administrative expenses
are 29.2% of sales compared to 30.7% in 1997. Research and
development expenses as a percentage of sales decreased to 9.7%
from 10.6% for the second quarter of 1997. The reduction in
research and development was attributable to the elimination of
some Coulter projects which were outside the Company's planned
core businesses.
Operating income increased $0.8 million over the comparable
quarter in 1997 based primarily on the above discussed changes.
Net income for the second quarter was $9.5 million or $0.32 per
diluted share, compared to net earnings for the second quarter of
1997 of $20.8 million or $0.72 per diluted share. For the first
six months of 1998, net income was $1.6 million or $0.04 per
diluted share compared to $51.9 million or $1.26 per diluted
share in 1997. The decrease is largely due to increased interest
expense from the larger outstanding borrowings associated with
the funding of the Coulter acquisition.
Financial Condition
As discussed in greater detail in the 10-K/A MD&A, the Company is
highly leveraged, with a debt-to-capital ratio of 93.8% at June
30, 1998. Among other things, the Company's high level of debt
increases the Company's vulnerability to general adverse economic
and industry conditions, could limit the Company's ability to
obtain additional financing on favorable terms, exposes the
Company to the risk of increased interest rates and requires the
dedication of a substantial portion of the Company's cash flow
from operations to the payment of principal and interest on its
indebtedness. In addition, the Company's agreements with its
lenders contain a number of covenants that significantly restrict
the operations of the Company and require it to comply with
specified financial ratios and tests.
As also discussed in the 10-K/A MD&A, the Company is in the
process of executing a plan to reduce its debt and provide
additional funds for the integration of Coulter. As part of this
plan, during the second quarter of fiscal 1998, the Company
completed a sale and leaseback of four of its properties Brea,
California; Palo Alto, California; Chaska, Minnesota; and Miami, Florida.
The Miami, Florida property was formerly owned by Coulter.
The Palo Alto property is owned by Stanford University and was leased to
the Company under a long term ground lease. The Company sold its interest
in the ground lease to the buyers. The aggregate proceeds for the four
properties, which were paid in cash at closing, totaled approximately $243.0
million before closing costs and transaction expenses. The
principal use of the proceeds was to reduce debt incurred in
financing the acquisition of Coulter. The purchasers of the
properties are not affiliated with the Company.
Concurrently with the sale of the properties, the Company entered
into long-term ground leases for the four properties it sold.
The operations conducted at each of the properties consist
of administrative, research and development, and manufacturing
activities. The Company expects to continue conducting these
activities at the properties in substantially the same form as
prior to the sale. The initial term of each of the leases is
twenty years, with options to renew for up to an additional
thirty years. Annual rentals are approximately $21.5 million.
The Company entered into currency swap agreements which provide
for the rents to be paid in Japanese Yen. Coulter's rental payments
are guaranteed by the Company. The Company expects to pay the rents
as they come due out of cash generated by operations. In accordance
with sale-leaseback accounting, the gain on the sale of the properties
has been deferred and will be amortized over the initial lease term as
adjustments to rental expense.
The Company continues to evaluate opportunities to provide
additional cash flow by monetizing other assets during 1998 and
beyond, including sales of certain financial assets (primarily
consisting of equipment subject to customer leases and sales-type
lease receivables) and real estate assets. If these sales are
consummated as expected, the Company believes that they will
generate proceeds to the Company of approximately $30.0 million
in 1999, less any costs to complete the transactions. If
completed, 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.
Net cash used by operating activities for the first six months of
1998 increased $117.1 million from the comparable period in 1997
to $92.2 million. The primary reasons for this change were a
$35.3 million decrease in net earnings, reduction of trade
payables by $24.3 million and the payment of $112.2 million of
costs which were accrued as part of the purchase liability at
December 31, 1997. Net cash provided by investing activities
increased $270.7 million from the comparable period in 1997 to
$207.8 million. This increase was primarily due to proceeds of
$242.8 million from the sale-leaseback of real estate, as
discussed above. Net cash used by financing activities increased
by $139.3 million to $119.0 million. This was primarily the
result of a $200 million pay down in borrowings, partially offset
by additional borrowings.
The ratio of debt-to-capital at June 30, 1998 was 93.8% compared
to 93.9% at December 31, 1997. The change is due mainly to a net
decrease in borrowings and the net earnings reported for the
first half of 1998. The ratio of current assets to current
liabilities at June 30, 1998 of 1.3 is slightly improved from the
1.1 ratio at December 31, 1997. 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 will be adequate to meet its anticipated
requirements until the maturity of its 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.
On June 4, 1998, the Company paid a quarterly cash dividend of
$0.15 per share of common stock for a total of $4.0 million.
Business Climate
The Life Science market is showing signs of improvement,
stimulated by the general U.S. economy. The Diagnostic market is
under pressure from cost containment control efforts and the
overall restructuring of the industry.
The Asia Pacific market, including Japan, continues to be
affected by the prevailing economic conditions which are
suppressing investment in the research and development market
segments.
In general, the European diagnostics and life sciences markets
continue to be unfavorably impacted by cost containment
initiatives as part of governmental fiscal management policies.
These policies are driven by the requirements for the impending
European monetary union.
Forward Looking Statements
This 10-Q 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 and its plans to reduce indebtedness (iii) the Company's liquidity
requirements and capital resources; (iv) anticipated synergies; and
(v) future cost reductions. 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 failure in effectively integrating
worldwide operations; and (viii) other factors that cannot be
identified at this time.
Although the Company 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>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes In Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security-Holders
None.
Item 5. Other Information
Shareholder Proposals. The following information
regarding the date after which notice of a shareholder
proposal is considered untimely is provided pursuant to
SEC regulations adopted on May 28, 1998. The Company's
Certificate of Incorporation provides as follows:
"For a proposal to be properly brought before an
annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the
Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to, or mailed
and received at, the principal executive offices of the
corporation not less than 60 days prior to the
scheduled annual meeting, regardless of any
postponements, deferrals or adjournments of that
meeting to a later date; provided, however, that if
less than 70 days' notice or prior public disclosure of
the date of the scheduled annual meeting is given or
made, notice by the stockholder, to be timely, must be
so delivered or received not later than the close of
business on the tenth day following the earlier of the
day on which such notice of the date of the scheduled
annual meeting was mailed or the day on which such
public disclosure was made."
"The presiding officer of the annual meeting shall
determine and declare at the annual meeting whether the
stockholder proposal was made in accordance with the
terms of this Paragraph 15. If the presiding officer
determines that a stockholder proposal was not made in
accordance with the terms of this Paragraph 15, he or
she shall so declare at the annual meeting and any such
proposal shall not be acted upon at the annual meeting."
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
11. Statement re Computation of Per Share Earnings:
This information is set forth in Note 5, Net Earnings
(Loss) Per Share of the Condensed Consolidated Financial
Statements included in Part I herein.
15. Independent Accountants' Review Report, July 17, 1998
27. Summary Financial Information for the six month
period ended June 30, 1998
27.1 Restated Financial Data Schedule for the six month
period ended June 30, 1997
b) Reports on Form 8-K
1. Item 2 Acquisition or Disposition of Assets. Sale and
Leaseback of Certain Properties, June 25, 1998
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BECKMAN COULTER, INC.
(Registrant)
Date: July 23, 1998 by WILLIAM H. MAY
William H. May
Vice President, General
Counsel and Secretary
Date: July 23, 1998 by ANDRZEJ J. MATYCZYNSKI FOR JAMES T. GLOVER
James T. Glover
Vice President, Controller
<PAGE>
EXHIBIT INDEX
FORM 10-Q, SECOND QUARTER, 1998
Exhibit
Number Description
- ------- -----------
11. Statement re Computation of Per Share Earnings: This information is
set forth in Note 5, Net Earnings (Loss) Per Share, of the Condensed
Consolidated Financial Statements included in Part I herein.
15. Independent Accountants' Review Report, July 17, 1998
27. Summary Financial Information for the six month period ended June
30, 1998
27.1 Restated Financial Data Schedule for the six month period
ended June 30, 1997
Exhibit 15
KPMG Peat Marwick LLP
Certified Public Accountants
Orange County Office
Center Tower
650 Town Center Drive
Costa Mesa, CA 92626
Independent Accountants' Review Report
The Stockholders and Board of Directors
Beckman Coulter, Inc.:
We have reviewed the condensed consolidated balance sheet of
Beckman Coulter, Inc. and subsidiaries as of June 30, 1998, and
the related condensed consolidated statements of earnings and cash
flows for the three-month and six-month periods ended June 30,
1998 and 1997. These condensed consolidated financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Beckman
Coulter, Inc. and subsidiaries as of December 31, 1997, and
the related consolidated statements of operations, stockholders'
equity and cash flows for the year then ended (not presented
herein); and in our report dated January 23, 1998, except as to
note 16, which is as of March 4, 1998, we expressed an unqualified
opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1997, is fairly
stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
KPMG Peat Marwick LLP
Orange County, California
July 17, 1998
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