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 September 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
October 19, 1998: 28,594,020 shares.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Earnings for the three and nine month periods
ended September 30, 1998 and 1997
Condensed Consolidated Balance Sheets
as of September 30, 1998 and December 31, 1997
Condensed Consolidated Statements of
Cash Flows for the nine month periods
ended September 30, 1998 and 1997
Notes to Condensed Consolidated
Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
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 Share Data)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $400.8 $271.6 $1,234.9 $774.1
Cost of sales 207.0 132.1 673.3 372.4
----- ----- ------- -----
Gross profit 193.8 139.5 561.6 401.7
Operating expenses:
Marketing, general and
administrative 120.2 82.9 363.5 237.4
Research and development 41.2 27.7 125.0 80.3
----- ----- ------- -----
Total operating
expenses 161.4 110.6 488.5 317.7
Operating income 32.4 28.9 73.1 84.0
Nonoperating expenses:
Interest income (4.9) (0.7) (12.0) (2.9)
Interest expense 19.1 4.6 68.2 11.7
Other, net (2.2) (2.7) (5.0) (4.5)
----- ----- ------- -----
Total nonoperating
expenses 12.0 1.2 51.2 4.3
Earnings before income
taxes 20.4 27.7 21.9 79.7
Income taxes 6.5 8.3 7.0 23.9
----- ----- ------- -----
Net earnings $ 13.9 $ 19.4 $ 14.9 $ 55.8
===== ===== ======= =====
Basic earnings per share $ 0.49 $ 0.71 $ 0.53 $ 2.02
Weighted average number of
shares outstanding
(in thousands) 28,130 27,494 27,929 27,664
Diluted earnings per share $ 0.47 $ 0.68 $ 0.51 $ 1.94
Weighted average number of
shares and dilutive shares
outstanding (in thousands) 29,644 28,649 29,301 28,745
Dividends declared per
share $ 0.15 $ 0.15 $ 0.45 $ 0.45
</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>
September 30 December 31,
1998 1997
Assets ---- ----
<S> <C> <C>
Current assets:
Cash and equivalents $ 15.3 $ 33.5
Trade receivables and other 476.2 524.6
Inventories 322.2 332.3
Deferred income taxes 53.6 53.0
Other current assets 32.7 33.3
------- -------
Total current assets 900.0 976.7
Property, plant and equipment, net 306.5 410.9
Intangibles, less accumulated
amortization of
$22.3 in 1998 and $10.6 in 1997 423.9 444.9
Goodwill, less accumulated amortization
of $14.0 in 1998 and $6.0 in 1997 393.2 402.8
Other assets 106.3 95.7
------- -------
Total assets $2,129.9 $2,331.0
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and current maturities
of long-term debt $ 102.7 $ 68.9
Accounts payable, accrued expenses
and other liabilities 541.6 756.4
Income taxes payable 65.3 69.6
------- -------
Total current liabilities 709.6 894.9
Long-term debt, less current maturities 1,014.3 1,181.3
Other liabilities 319.5 173.0
------- -------
Total liabilities 2,043.4 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 28.2 at 1998 and
27.6 at 1997 2.9 2.9
Additional paid-in capital 127.2 126.6
Retained earnings 21.3 19.0
Accumulated other comprehensive loss (28.5) (13.8)
Treasury stock, at cost (36.4) (52.9)
------- -------
Total stockholders' equity 86.5 81.8
------- -------
Total liabilities and stockholders'
equity $2,129.9 $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
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
<S> <C> <C>
Cash Flows from Operating Activities
Net earnings $ 14.9 $ 55.8
Adjustments to reconcile net earnings to
net cash (used) provided by operating
activities:
Depreciation and amortization 115.0 70.7
Net deferred income taxes (3.4) (1.7)
Proceeds from sale of sales-type lease
receivables 40.1 -
Changes in assets and liabilities:
Trade receivables and other 30.6 (19.7)
Inventories 4.3 (15.4)
Accounts payable, accrued expenses and
other liabilities (213.3) (34.6)
Income taxes payable (4.3) 22.0
Other (30.1) (35.1)
----- -----
Net cash (used) provided by operating
activities (46.2) 42.0
----- -----
Cash Flows from Investing Activities
Additions to property, plant and equipment (129.3) (58.4)
Net disposals of property, plant and
equipment 39.5 11.1
Investments and acquisitions - (30.5)
Proceeds from sale-leaseback of real estate 242.8 -
----- -----
Net cash provided (used) by investing
activities 153.0 (77.8)
----- -----
Cash Flows from Financing Activities
Dividends to stockholders (12.6) (12.5)
Proceeds from issuance of stock 16.9 15.2
Purchase of treasury stock - (43.8)
Notes payable (reductions) borrowings 16.3 61.9
Long-term debt borrowings 573.0 96.0
Long-term debt reductions (719.2) (96.0)
----- -----
Net cash (used) provided by financing
activities (125.6) 20.8
----- -----
Effect of exchange rates on cash and
equivalents 0.6 0.4
----- -----
Decrease in cash and equivalents (18.2) (14.6)
Cash and equivalents - beginning of period 33.5 34.6
----- -----
Cash and equivalents - end of period $ 15.3 $ 20.0
===== =====
Supplemental Disclosures of Cash Flow
Information
Cash paid during the period for:
Interest $ 55.2 $ 8.2
Income Taxes $ 11.3 $ 15.3
Non-cash investing and financing activities:
Purchase of equipment under capital lease $ 5.6 $ 5.7
</TABLE>
See accompanying Notes to Condensed Consolidated Financial
Statements.
BECKMAN COULTER, INC.
Notes To Condensed Consolidated Financial Statements
September 30, 1998
Unaudited
1. Report by Management
We prepared the accompanying Condensed Consolidated Financial
Statements following the requirements of the Securities and
Exchange Commission (SEC) for interim reporting. As permitted
under those rules, certain footnotes or other financial
information that are normally required by generally accepted
accounting principles (GAAP) can be condensed or omitted. We
have reclassified certain prior year data to conform to the 1998
presentation.
The financial statements include all normal and recurring
adjustments that we consider necessary for the fair presentation
of our financial position and operating results. These are
condensed financial statements. To obtain a more detailed
understanding of our results, one should also read the financial
statements and notes in our Form 10-K/A for 1997, which is on
file with the SEC.
Revenues, expenses, assets and liabilities can vary during each
quarter of the year. Therefore, the results and trends in these
interim financial statements may not be the same as those for the
full year.
2. Use of Estimates
In preparing the financial statements conforming to GAAP, we have
made estimates and assumptions that affect the following:
- reported amounts of assets and liabilities at the date of
the financial statements;
- disclosure of contingent assets and liabilities at the
date of the financial statements; and
- reported amounts of sales and expenses during the
reporting period.
Actual results could differ from those estimates.
3. Acquisition
On October 31, 1997, we 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 acquisition
date. Coulter is the leading manufacturer of in-vitro diagnostic
systems for blood cell analysis. We discussed the details of
this transaction and the accounting effects in our annual report
for 1997. In April 1998, our shareholders approved the change of
our name to Beckman Coulter, Inc.
Our financial statements include the assets and liabilities and
the operating results of subsidiaries operating outside the U.S.
Balance sheet amounts for these subsidiaries are as of August 31,
1998 and November 30, 1997. The operating results for these
subsidiaries are for the three and nine month periods ending on
those dates. However, in order to be consistent with the way
Beckman Instruments Inc. reported its international results, the
reporting of Coulter's international results of operations
has been lagged by one month. Therefore, the results of the first
nine months in 1998 include only January through August sales and
expenses for Coulter outside the United States.
4. Comprehensive Income (Loss)
We adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130), in the first quarter
of 1998. SFAS 130 establishes standards for the reporting and
display of comprehensive income. Components of comprehensive
income include net earnings 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 income was $0.2 million for the nine months ended
September 30, 1998 and $39.7 million for the nine months ended
September 30, 1997. The adoption of SFAS 130 required additional
disclosures but did not have a material effect on our financial
position or results of operations.
5. Net Earnings Per Share
We 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),
where:
- "basic earnings per share" includes only actual weighted
average shares outstanding; and
- "diluted earnings per share" includes the effect of any
items that are dilutive, such as stock options.
We have restated EPS for the three months and nine months ended
September 30, 1997 in accordance with SFAS 128. The following
table summarizes the computation of EPS (in millions, except
amounts per share):
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1998 1997
---- ----
Per Per
Net Share Net Share
Earnings Shares Amount Earnings Shares Amount
-------- ------ ------ -------- ------ ------
Basic EPS:
<S> <C> <C> <C> <C> <C> <C>
Net earnings $ 14.9 27.9 $ 0.53 $ 55.8 27.6 $ 2.02
Effect of
dilutive
stock options - 1.4 (0.02) - 1.1 (0.08)
----- ----- ----- ----- ----- -----
Diluted EPS:
Net earnings $ 14.9 29.3 $ 0.51 $ 55.8 28.7 $ 1.94
===== ===== ===== ===== ===== =====
</TABLE>
6. Sale-leaseback of Real Estate
On June 25, 1998, we sold four of our properties: Brea, California; Palo
Alto, California; Chaska, Minnesota; and Miami, Florida. At the same time,
we entered into long-term ground leases for the California and Minnesota
properties and Coulter entered into a long-term ground lease for the Miami
property. At each of the properties (excluding Miami), we conduct
administrative, research and development, and manufacturing activities.
At the Miami property, we conduct administrative and research and
development activities. We expect to continue the same type of activities
at the properties as before 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. As provided by the leases, we pay the rents in Japanese Yen.
At the closing of the sale-leaseback transaction, we became guarantor of a
currency swap agreement between our landlord and its banks to convert the
Yen payments to U.S. dollars. As long as this swap agreement is in place,
our obligation is to pay the rents in Yen. If this agreement ceases to
exist, our obligation reverts to U.S. dollar payments. Coulter's rental
payments are quartanteed by us. We expect to pay the rents as they come due
out of cash generated by operations.
The aggregate proceeds from the sale of the four properties (paid
in cash at closing) totaled $242.8 million before
closing costs and transaction expenses. We used the cash from
this sale to reduce the debt incurred in financing the
acquisition of Coulter. In accordance with the accounting rules
for transactions in which a property is sold and immediately
leased back from the buyer (sale-leaseback), we have postponed
recognizing the gain of approximately $140.0 million in our
earnings and included it in "Other Liabilities". The gain will
be spread over the initial lease term of twenty years.
The Palo Alto property is owned by Stanford University and we had
leased it under a long-term ground lease. We sold our interest
in the ground lease to the buyers. The Miami, Florida property
was formerly owned by Coulter. The buyers of all of the
properties are not affiliated with us.
7. Inventories
Inventories consisted of the following (in millions):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Finished products $ 188.0 $ 206.5
Raw materials, parts and
assemblies 108.2 99.1
Work in process 26.0 26.7
------ ------
$ 322.2 $ 332.3
====== ======
</TABLE>
8. Provision for Restructuring Operations
We reduced our earnings for a restructuring provision 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 nine
months ended September 30,1998 (in millions):
<TABLE>
<CAPTION>
Facility
Consolidation
and
Asset related
Personnel Write-offs Total
--------- ---------- -----
<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/
production 3.0 3.9 6.9
---- ---- ----
Remaining provision included in
accrued expenses 29.5 17.1 46.6
1998 activity through third
quarter
Consolidation of sales, general
Administrative and technical
functions (7.9) (9.9) (17.8)
Changes in manufacturing/
production - - -
---- ---- ----
Total 1998 activity through
third quarter (7.9) (9.9) (17.8)
Balance at September 30, 1998
Consolidation of sales, general
administrative and technical
functions 18.6 3.3 21.9
Changes in manufacturing/
production 3.0 3.9 6.9
---- ---- ----
Balance at September 30, 1998 $21.6 $7.2 $28.8
==== ==== ====
</TABLE>
9. Debt Financing and Guarantor Subsidiaries
In March 1998, we issued $160.0 million of 7.10% Senior Notes due
2003 and $240.0 million of 7.45% Senior Notes due 2008 (the
"Offering"). We used the net proceeds of $394.3 million to
reduce borrowings and commitments under our bank facilities and
for operating purposes. In connection with the Offering, certain
of our subsidiaries (the "Guarantor Subsidiaries") jointly,
fully, severally, and unconditionally guaranteed such notes. We
present below the supplemental condensed financial information
(in millions) of the Company, Guarantor Subsidiaries and Non-
Guarantor Subsidiaries. Please note that in this footnote, we used
the equity method of accounting for our investments in
subsidiaries and the Guarantor Subsidiaries' investments in Non-
Guarantor Subsidiaries. You should read this supplemental
financial information in conjunction with the Condensed
Consolidated Financial Statements.
<TABLE>
<CAPTION>
Non-
Guarantor Gurantor
Subsi- Subsi- Elimina- Consoli-
Parent diaries diaries tions dated
------ ------- ------- ------- --------
Condensed
Consolidated
Balance Sheet
September 30, 1998
<S> <C> <C> <C> <C> <C>
Assets:
Cash and
equivalents $ 4.2 $ (1.7) $ 12.8 $ - $ 15.3
Trade receivables
and other 126.7 98.1 251.4 - 476.2
Inventories 125.8 93.6 122.6 (19.8) 322.2
Other current
assets 158.3 271.0 74.2 (417.2) 86.3
----- ----- ----- ----- -----
Total current
assets 415.0 461.0 461.0 (437.0) 900.0
Property, plant and
equipment, net 99.6 123.3 140.1 ( 56.5) 306.5
Intangibles, net 26.2 392.3 5.4 - 423.9
Goodwill, net 3.4 383.1 6.7 - 393.2
Other long-term 1,245.2 269.9 212.9 (1,621.7) 106.3
------- ------- ----- ------- -------
Total assets $1,789.4 $1,629.6 $826.1 $(2,115.2) $2,129.9
======= ======= ===== ======= =======
Liabilities:
Notes payable and
current maturities
of long-term
debt $ 31.4 $ 3.7 $ 67.6 $ - $ 102.7
Accounts payable
and
accrued expenses 173.3 286.7 81.6 - 541.6
Other current
liabilities 146.1 135.0 55.8 (271.6) 65.3
------ ------ ----- ------- ------
Total current
liabilities 350.8 425.4 205.0 (271.6) 709.6
Long-term debt,
less
current
maturities 970.1 1.1 43.1 - 1,014.3
Other long-term
liabilities 382.0 447.5 193.8 (703.8) 319.5
------ ------ ----- ------- ------
Total
liabilities 1,702.9 874.0 441.9 (975.4) 2,043.4
Total
stockholders'
equity 86.5 755.6 384.2 (1,139.8) 86.5
------ ------ ----- ------- ------
Total liabilities
and
stockholders'
equity $1,789.4 $1,629.6 $ 826.1 $(2,115.2) $2,129.9
======= ======= ===== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Elimina- Consoli-
Parent diaries diaries tions dated
------ ------- ------- -------- --------
Condensed
Consolidated
Statement of
Operations
Quarter ended
September 30,1998
<S> <C> <C> <C> <C> <C>
Sales $176.9 $132.6 $167.7 $(76.4) $400.8
Operating costs and
expenses:
Cost of sales 107.3 71.4 104.7 (76.4) 207.0
Marketing, general
and
administrative 34.7 30.1 55.4 - 120.2
Research and
development 24.6 16.6 - - 41.2
----- ----- ----- ----- -----
Operating income
(loss) 10.3 14.5 7.6 - 32.4
Nonoperating (income)
expense (6.1) (13.1) 0.6 30.6 12.0
----- ----- ----- ----- -----
Earnings (loss)
before
income taxes 16.4 27.6 7.0 (30.6) 20.4
Income taxes
(benefit) 5.8 9.9 1.3 (10.5) 6.5
----- ----- ----- ----- -----
Net earnings (loss) $10.6 $17.7 $ 5.7 $ (20.1) 13.9
===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Elimina- Consoli-
Parent diaries diaries tions dated
------ -------- --------- --------- --------
Condensed
Consolidated
Statement of
Operations
Nine Months ended
September 30,1998
<S> <C> <C> <C> <C> <C>
Sales $556.9 $406.2 $526.6 $(254.8) $1,234.9
Operating costs and
expenses:
Cost of sales 346.0 236.8 345.3 (254.8) 673.3
Marketing, general
and
administrative 117.2 97.5 148.8 - 363.5
Research and
development 72.8 49.7 2.5 - 125.0
----- ----- ----- ----- -----
Operating income 20.9 22.2 30.0 - 73.1
Nonoperating expense
(income) 4.7 (30.3) 2.4 74.4 51.2
----- ----- ----- ----- -----
Earnings (loss)
before
income taxes 16.2 52.5 27.6 (74.4) 21.9
Income taxes
(benefit) 5.7 18.9 5.2 (22.8) 7.0
----- ----- ----- ----- -----
Net earnings (loss) $ 10.5 $33.6 $22.4 $(51.6) $ 14.9
===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Elimina- Consoli-
Parent diaries diaries tions dated
Condensed
Consolidated
Statement of Cash
Flows
Nine Months ended
September 30,1998
<S> <C> <C> <C> <C> <C>
Net cash provided
(used) by operating
activities $32.5 $(66.2) $(12.5) $ - $ (46.2)
---- ----- ---- ----- -----
Cash flows from
investing
activities:
Additions to
property,
plant and
equipment (39.7) (10.7) (78.9) - (129.3)
Net disposals of
property,plant
and equipment 1.4 - 38.1 - 39.5
Proceeds from sale-
leaseback of real
estate 186.1 - - 56.7 242.8
----- ----- ----- ----- -----
Net cash provided
(used) by investing
activities 147.8 (10.7) (40.8) 56.7 153.0
----- ----- ----- ----- -----
Cash flows from
financing
Activities:
Dividends to
stockholders (12.6) - - - (12.6)
Proceeds from
issuance
of stock 16.9 - - - 16.9
Notes payable
borrowings
(reductions) 23.7 0.1 (7.5) - 16.3
Intercompany
(reductions)
borrowings ( 65.0) 70.0 51.7 (56.7) -
Long-term
(reductions)
borrowings (153.0) (2.2) 9.0 - (146.2)
----- ----- ----- ----- -----
Net cash (used)
provided by
financing
activities (190.0) 67.9 53.2 (56.7) (125.6)
----- ----- ----- ----- -----
Effect of exchange
rates on cash
and
equivalents - - 0.6 - 0.6
----- ----- ----- ----- -----
(Decrease) increase
in cash and
equivalents (9.7) (9.0) 0.5 - (18.2)
Cash and equivalents
- beginning
of period 13.9 7.3 12.3 - 33.5
----- ----- ----- ----- -----
Cash and equivalents
- end of period $ 4.2 $(1.7) $12.8 $ - $ 15.3
</TABLE>
10. Contingencies
We are involved in a number of lawsuits, which we consider normal
in view of our size and the nature of our business. We do not
believe that any liability resulting from any such lawsuits, or
the matters described above, will have a material adverse effect
on our operations, financial position or liquidity.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
- --------
We are Beckman Coulter, Inc. (formerly known as Beckman
Instruments, Inc. and hereafter referred to as "Beckman" or "the
Company"), a world leader in providing systems that simplify and
automate laboratory processes. We design, manufacture and
service 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. Our strategy is to
solidify our position as a leading provider of laboratory
systems. On October 31, 1997, we achieved a significant
milestone in accomplishing this strategy when we acquired Coulter
Corporation ("Coulter"). Through this acquisition we added
Coulter's leading market position in hematology and number two
position in flow cytometry to our existing market position.
As a result of recording the purchase of Coulter and the related
financing, the comparability of our financial statements for
periods before and after the acquisition has been affected. We
previously discussed the consequences of these transactions in
our 1997 Annual Report to Stockholders under the heading
"Management's Discussion and Analysis." In particular, we expect
the net earnings of the Company through 1998 to be lower when
compared to 1997, excluding the write-off of in-process research
and development and restructuring costs, due to:
- a substantial increase in interest expense;
- amortization of intangible assets and goodwill; and
- various other adjustments resulting from the purchase.
As anticipated, the integration and consolidation of Coulter is
requiring substantial management, financial and other resources.
While we believe the early results of this effort are
encouraging, we also recognize that the acquisition of Coulter
involves a number of significant risks. For example, potential
difficulties in assimilating the technologies, services and
products of Coulter may hinder our efforts to achieve the
expected synergies and cost reductions. Additionally, there may
be other unanticipated risks and uncertainties.
As a result, we cannot assure the extent to which we will realize
the anticipated benefits of the acquisition, or the timing of any
such realization.
Results of operations for the three months ended September 30, 1998
- -------------------------------------------------------------------
Sales grew 47.6% (51.2% excluding the effect of foreign currency
rate changes) in the third quarter of 1998 compared to the third
quarter of 1997, mainly due to the addition of Coulter
operations. Sales growth was negatively affected by the
following:
- currency exchange rates decreased sales by approximately 4% from year
to year;
- Asia Pacific market conditions decreased Bioresearch
sales by 4%;
- the planned reduction in inventories held by dealers;
- a change in the mix of operating leases and sales-type
leases; and
- changes in U.S. Government reimbursement for diagnostic test
panels.
For the quarter, gross profit as a percentage of sales was lower
than the same period in 1997 by 3.0 percentage points. This was
primarily due to
- lower margins for Coulter products;
- a change in the mix of hardware sales associated with new
product introductions;
- competitive pricing pressures; and
- unfavorable changes in foreign currency exchange rates.
Marketing, general and administrative expenses as a percentage of
sales decreased to 30.0% from 30.5% for the third quarter of
1997. We achieved this by spreading our fixed expenses over
higher sales volumes and through continuing progress with the
Coulter integration objectives.
Operating income increased $3.5 million compared to the same
quarter in 1997 primarily due to the changes discussed above.
However, the increase in operating income was offset by a higher
net interest expense resulting from the Coulter acquisition.
Net income for the third quarter of 1998 was $13.9 million or
$0.47 per diluted share, compared to $19.4 million or $0.68 per
diluted share in the third quarter of 1997.
Results of operations for the nine months ended September 30, 1998
- ------------------------------------------------------------------
Sales growth for the first nine months of 1998, compared to the
same period in 1997, was 59.5%, primarily as a direct result of
the Coulter acquisition. Without the effect of foreign currency
fluctuations, the change was 63.6% over the same period. Sales
growth was negatively affected by the same factors that affected
the quarter. In addition, the lagging of Coulter international
sales by one month, as discussed in Note 3 of the Notes to
Condensed Consolidated Financial Statements included in this
document, also impacted sales growth.
For the nine months ended September 30, gross profit as a
percentage of sales was 6.4% lower in 1998 than during the same
period in 1997. However, the trend in 1998 is positive as
evidenced by the 42.5% gross profit in the first quarter, the
45.6% gross profit in the second quarter and the 48.4% gross
profit in the third quarter.
Marketing, general and administrative expenses as a percentage of
sales decreased to 29.4% in 1998 from 30.7% in 1997. As with the
three-month results mentioned earlier, this was also due to
relatively flat fixed expenses spread over a higher sales volume
coupled with the continuing progress in the Coulter integration
objectives. Research and development expenses as a percentage of
sales were 10.1% in the first nine months of 1998 compared to
10.4% during the same period in 1997. Research and development expenses
were impacted by the elimination of some Coulter projects, which were
outside our core businesses.
For the first nine months of 1998, net income was $14.9 million
or $0.51 per diluted share compared to $55.8 million or $1.94 per
diluted share during the same period in 1997. The decrease was
largely due to increased interest expense resulting from larger
outstanding borrowings. These borrowings were necessary to fund
the Coulter acquisition.
Financial Condition
- -------------------
As discussed in greater detail in our 1997 annual report, Beckman
is highly leveraged, with a debt-to-capital ratio of 92.8% at
September 30, 1998. Among other things, our high level of debt:
- increases our vulnerability to general adverse economic
and industry conditions;
- could limit our ability to obtain additional financing on
favorable terms;
- requires the dedication of a substantial portion of our
cash flow from operations to the payment of principal and
interest on indebtedness.
In addition, our agreements with our lenders contain a number of
covenants that significantly restrict our operations and require
us to comply with specified financial ratios and tests.
As was also discussed in the annual report, we are in the process
of executing a plan to reduce our debt and provide additional
funds for the integration of Coulter. As part of this plan,
during the second quarter of 1998, we completed a sale of our
properties in Brea, California; Palo Alto, California; Chaska,
Minnesota and Miami, Florida, and leased them back from the
buyers. Please see the detailed discussion of this transaction
under Note 6 of the Notes to Condensed Consolidated Financial
Statements, "Sale-Leaseback of Real Estate", included in this
document.
We have and will continue 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, we believe they will generate proceeds
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
our pretax earnings.
Net cash used by operating activities for the first nine months
of 1998 increased $88.2 million from the comparable period in
1997 to $46.2 million. The primary reasons for this change were:
- net earnings decreased $40.9 million;
- trade receivables decreased $57.7 million;
- proceeds from sale of sales-type receivables increased $40.1
million;
- trade payables decreased $27.6 million; and
- $135.2 million of costs (which were part of the purchase
and assumed liabilities at December 31, 1997) were paid.
Net cash provided by investing activities increased $230.8
million from the comparable period in 1997 to $153.0 million.
This increase was primarily due to proceeds of $242.8 million
from the sale-leaseback of real estate, as discussed earlier,
offset by approximately $92.4 million in capital expenditure for
customer leased equipment.
Net cash used by financing activities increased by $146.4 million
to $125.6 million. This was primarily the result of a $150
million net pay down in borrowings.
The ratio of debt-to-capital at September 30, 1998 was 92.8%
compared to 93.9% at December 31, 1997. The improvement is
mainly due to a net decrease in borrowings partially offset by a
decline in the shareholders' equity arising from the strengthening
of the U.S. dollar. The ratio of current assets to current liabilities
at September 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, we believe that
our cash flow from operations, together with available borrowings
under the credit facility and other sources of liquidity will be
adequate to meet our anticipated requirements until the maturity
of the credit facility in 2002. However, we cannot give any
assurance that our business will continue to generate cash flow
at or above current levels or that estimated cost savings or
growth can be achieved. Our future operating performance and
ability to service or refinance our existing indebtedness,
including the credit facility, will be subject to future economic
conditions and to financial, business and other factors, many of
which are beyond our control.
On September 10, 1998, we paid a quarterly cash dividend of $0.15
per share of common stock for a total of $4.3 million. On
October 1, 1998, the Board of Directors declared a quarterly cash
dividend of $0.16 per share of common stock payable on December
3, 1998 to shareholders of record on November 13, 1998.
Year 2000
- ---------
We believe we have implemented a comprehensive Year 2000 program
that is on schedule for completion by the end of 1999, and that
there will be no material impact on our business, financial
conditions or results of operations as a result of Year 2000
issues. However, we cannot give any assurance to that effect.
Our Year 2000 program, implemented worldwide, is directed by our
senior management and includes six main projects:
1. products and services;
2. management information systems;
3. suppliers (materials and services);
4. engineering and manufacturing processes;
5. office equipment; and
6. facilities and utilities.
These projects generally include five phases:
1. inventory;
2. assessment;
3. remediation;
4. testing/validation; and
5. implementation.
The following table is a summary of our Year 2000 program
schedule target dates (1):
<TABLE>
<CAPTION>
Testing/ Implementa-
Inventory Assessment Remediation validation tion
--------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Products &
services Complete Complete Complete Q4 1998 Q1 1999
Management
information
systems Complete Complete Q4 1998 Q4 1999 Q4 1999
Suppliers
(materials
& services) Complete Complete Q1 1999 Q1 1999 Q1 1999
Engineering
&
manufactu-
ring
processes Q4 1998 Q1 1999 Q2 1999 Q3 1999 Q3 1999
Office
equipment Q4 1998 Q1 1999 Q2 1999 Q3 1999 Q3 1999
Facilities Q4 1998 Q2 1999 Q2 1999 Q3 1999 Q4 1999
and
utilities Q4 1998 Q2 1999 (2) (2) (2)
</TABLE>
Note:
(1) The target dates are the ends of the quarters referred to. For
example Q1 1999 refers to the end of the first quarter of 1999.
(2) These phases will not be performed for utilities, but will be
considered as part of the contingency planning.
A number of our products include computer hardware and software,
including substantial custom software. We believe there are no
significant Year 2000 product performance issues with respect to
products that we will continue to support after January 1, 2000.
We intend to make our product information available on our web
site during the fourth quarter 1998. Although we believe the
impact to our business based on Year 2000 product performance
issues or litigation related to those issues will not be
material, we cannot give any assurances to that effect.
We believe our Year 2000 program will be completed on schedule.
But the schedule is based on a number of factors and assumptions,
such as:
- the accuracy and completeness of responses to our inquiries;
and
- the availability of skilled personnel to complete the
program.
The program schedule could be adversely impacted if any of the
factors and assumptions is incorrect. We cannot give assurance
that our Year 2000 program will be completed on schedule or that
we will not uncover Year 2000 issues that could create a material
impact on our performance.
We do not believe that we have a material relationship with any
single third party supplier or customer. Although a significant
interruption in our suppliers' and customers' activities (due to
Year 2000 issues) is unlikely, we could experience a material
impact in our financial results if such an interruption occurs.
Also, a portion of our revenues is indirectly dependent upon our
customers' reimbursement from federal, state and municipal
government agencies, and the state of readiness of those
government agencies is of concern. A significant interruption
in the ability of one or more government agencies to reimburse
those customers could lead to a significant interruption in cash
received from the affected customers.
We do not expect that the cost of our Year 2000 program will be
material to our business, financial conditions or results of
operations. We anticipate that the total cost for our Year 2000
program through fiscal year 1999 will be approximately $9
million. To-date we have spent approximately $3.4 million on our
Year 2000 program. The majority of these costs are for the
remediation or replacement of management information systems.
Most of the funding for our Year 2000 program is separately
budgeted, but a portion of the funding is part of our management
information systems budget. Year 2000 program funding has
delayed the implementation of certain other management
information systems changes, but this delay will have only a
minor impact on managing the Company.
We intend to determine if contingency plans are needed for any
aspect of our business with respect to Year 2000 issues
(including most reasonably likely worst case Year 2000
scenarios), and to create those contingency plans by the end of
the first quarter of 1999.
Euro - the new European currency
- --------------------------------
The countries of the European Union are expected to adopt a
single currency known as the "Euro". The Euro will come into
existence on January 1, 1999, and is intended to become the lead
currency for Europe, with national currencies expressed as a
denomination of the Euro. During the three-and-a-half year
transition period following its introduction, countries will be
allowed to transact business both in the Euro and in their own
currencies. On July 1, 2002, the Euro will be the one and only
official currency in European Union countries.
We conduct business in more than 120 countries, generating
approximately 50% of revenues outside the United States. A
significant portion of our business is conducted in Europe. The
introduction of the Euro will require that we make modifications
to our internal operations as well as to our external business
arrangements. For example, we anticipate that product pricing
and sales proposals will need to be prepared in the Euro.
Similarly, accounts receivable and accounts payable, as well as
various accounting systems will need to be modified to reflect
the use of the Euro.
Early in 1997, we established a six-member task force reporting to
the chief financial officer to identify the issues related to the
introduction of the Euro and to develop and implement a plan to
address those issues. The task force has developed a detailed
plan for the Euro implementation addressing all areas of
operations, both internal and external. Some of the major
recommendations of the task force are:
- create a "Beckman Coulter Euro Info Center" to facilitate
worldwide communication related to the Euro;
- accommodate all of our customers' currency preferences
during the transition period;
- operate in a multi-currency environment (including the Euro,
local currency and the US dollar), during the transition period,
in all the European countries in which we do business; and
- set the target date for full implementation as December 1,
2001.
We do not expect the cost of this effort to have a material
effect on our business or results of operations. However, we
cannot guarantee that all problems will be foreseen and
corrected, or that no material disruption of our business will
occur. There is also likely to be competitive implications on
our pricing and marketing strategies related to the conversion to
the Euro; however, we do not know of any such impact at this
time.
Business Climate
- ----------------
In the U.S., the Life Sciences market is showing signs of improvement,
stimulated by the general economy. The Diagnostic market is
under pressure from significant cost containment efforts and the overall
restructuring of the industry. Growth in 1999 is projected to be in the
low single digits.
The Asia Pacific market, including Japan, continues to be
severely impacted by economic uncertainty. The two key factors
are:
1. the recession in Japan, which is limiting the release of
Bioresearch funding; and
2. the currency crisis which has affected most countries in
Southeast Asia.
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:
1. our business strategy;
2. anticipated trends in our business and plans to reduce
indebtedness;
3. our liquidity requirements and capital resources;
4. anticipated synergies;
5. future cost reductions; and
6. the impact of Year 2000 problems and the Euro conversion on
our operations.
These forward-looking statements are based on our expectations
and are subject to a number of risks and uncertainties, some of
which are beyond our control. These risks and uncertainties
include, but are not limited to:
1. complexity and uncertainty regarding development of new high-
technology products;
2. loss of market share through aggressive competition in the
clinical diagnostics and life sciences markets;
3. our dependence on capital spending policies and government
funding;
4. the effect of potential health-care reforms;
5. fluctuations in foreign exchange rates and interest rates;
6. reliance on patents and other intellectual property;
7. difficulties, delays or failure in effectively integrating
worldwide operations;
8. unanticipated Year 2000 or Euro problems; and
9. other factors that cannot be identified at this time.
Although we believe we have the product offerings and resources
required to achieve our objectives, actual results could differ
materially from those anticipated by these forward-looking
statements. There can be no assurance that events anticipated by
these forward-looking statements will in fact transpire as
expected.
<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
Rosso Retires As CEO
Louis T. Rosso, Chairman of the Board and the
Company's Chief Executive Officer has chosen to retire
at age 65. His retirement was effective September 1,
1998. John P. Wareham, the Company's President and
Chief Operating Officer since 1993, became the
President and Chief Executive Officer. Mr. Rosso will
continue as Chairman of the Board.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
11. Statement re Computation of Per Share Earnings:
This information is set forth in Note 5, Net Earnings
Per Share of the Condensed Consolidated Financial
Statements included in Part I herein.
15. Independent Accountants' Review Report, October 16, 1998
27. Financial Data Schedule for the nine month period
ended September 30, 1998
27.1 Restated Financial Data Schedule for the nine
month period ended September 30, 1997
b) Reports on Form 8-K
None.
<PAGE>
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: October 23, 1998 by JACK E. SOROKIN
Jack E. Sorokin
Counsel
Date: October 23, 1998 by PAUL GLYER
Paul Glyer
Treasurer
<PAGE>
EXHIBIT INDEX
FORM 10-Q, THIRD QUARTER, 1998
Exhibit
Number Description
- ------- -----------
11. Statement re Computation of Per Share Earnings: This
information is set forth in Note 5, Net Earnings Per Share, of the
Condensed Consolidated Financial Statements included in Part I
herein.
15. Independent Accountants' Review Report, October 16, 1998
27. Financial Data Schedule for the nine month period ended
September 30, 1998
27.1 Restated Financial Data Schedule for the nine month period
ended September 30, 1997
Exhibit 15
KPMG Peat Marwick LLP
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 September 30, 1998, and the related
condensed consolidated statements of earnings and cash flows for the
three-month and nine-month periods ended September 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
October 16, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet and the Condensed Consolidated Statement of
Earnings and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 15
<SECURITIES> 0
<RECEIVABLES> 494
<ALLOWANCES> 18
<INVENTORY> 322
<CURRENT-ASSETS> 900
<PP&E> 524
<DEPRECIATION> 322
<TOTAL-ASSETS> 2130
<CURRENT-LIABILITIES> 710
<BONDS> 1014
0
0
<COMMON> 3
<OTHER-SE> 84
<TOTAL-LIABILITY-AND-EQUITY> 2130
<SALES> 1235
<TOTAL-REVENUES> 1235
<CGS> 673
<TOTAL-COSTS> 673
<OTHER-EXPENSES> 489
<LOSS-PROVISION> 2
<INTEREST-EXPENSE> 68
<INCOME-PRETAX> 22
<INCOME-TAX> 7
<INCOME-CONTINUING> 15
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.51
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains restated summary financial information extracted from the
Condensed Consolidated Balance Sheet and the Condensed Consolidated Statement of
Earnings and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 20
<SECURITIES> 0
<RECEIVABLES> 339
<ALLOWANCES> 6
<INVENTORY> 223
<CURRENT-ASSETS> 619
<PP&E> 399
<DEPRECIATION> 238
<TOTAL-ASSETS> 1028
<CURRENT-LIABILITIES> 346
<BONDS> 197
0
0
<COMMON> 3
<OTHER-SE> 395
<TOTAL-LIABILITY-AND-EQUITY> 1028
<SALES> 774
<TOTAL-REVENUES> 774
<CGS> 372
<TOTAL-COSTS> 372
<OTHER-EXPENSES> 318
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> 80
<INCOME-TAX> 24
<INCOME-CONTINUING> 56
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56
<EPS-PRIMARY> 2.02
<EPS-DILUTED> 1.94
</TABLE>
