FORM 10-K
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, 1998
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 22, 1999: $1,505,218,255.00
Common Stock, $.10 par value, outstanding as of January 22, 1999:
28,636,732 shares.
Documents incorporated by reference in this report:
Documents incorporated Form 10-K part number
Annual Report to stockholders for
the fiscal year ended December 31, 1998 Part I and Part II
Proxy Statement for the 1998 Annual
Meeting of Stockholders to be held on
April 8, 1999 Part III
<PAGE>
BECKMAN COULTER, 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 80% of the
Company's 1998 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 clinical 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 automating 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 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 science research market include centrifuges, pH meters, flow
cytometers, high performance liquid chromatographs,
spectrophotometers, laboratory robotic workstations, capillary
electrophoresis systems, liquid scintillation 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. Approximately 67% of the
Company's 1998 sales were derived from these "after sales", while
the remaining sales were derived from the direct placement of
systems.
Beckman Coulter's principal executive offices are located at 4300
N. Harbor Blvd., Fullerton, California 92835. Its mailing address
is P. O. Box 3100, Fullerton, CA 92834-3100. The telephone number
is (714) 871-4848.
Background
The formation of Beckman Coulter began on October 31, 1997 when
what was then Beckman Instruments, Inc. acquired Coulter
Corporation. Coulter became a wholly owned subsidiary of Beckman
Instruments, Inc. Beckman Instruments, Inc. changed its name to
Beckman Coulter, Inc. on April 2, 1998.
The acquisition of Coulter was an 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 to Beckman's
established positions in clinical chemistry and life sciences.
Beckman and Coulter served substantially the same customer base
but had 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. To accomplish these objectives, the
Company initiated a program to streamline Coulter's operations
and then integrate the two companies. This program, which was
substantially completed in 1998, included a global evaluation of
all subsidiary structures, sales and service approaches, and
staffing levels. In particular, the Company's clinical
diagnostics commercial operations have been consolidated. These
customers now deal with a single sales force, a single sales
administration contact, and a single service organization.
Beckman Instruments, Inc. was founded by Dr. Arnold O. Beckman in
1934, and entered the laboratory market by introducing the
world's first pH meter. 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 was operated as
a subsidiary of SmithKline Beckman until 1989 when it was
divested. Since that time, Beckman, now Beckman Coulter, Inc. has
operated as a fully independent, publicly-owned company.
Coulter Corporation was founded by Wallace and Joseph Coulter in
1958. The company was formed to market the "Coulter Counter," an
instrument used to determine the distribution of red and white
cells in blood. This instrument was based on the "Coulter
Principle," which was developed by Wallace Coulter in 1948. The
Coulter Principle involved an electronic, automatic way of
counting and measuring the size of microscopic particles. Coulter
Corporation was a private company and remained under the control
of the Coulter family until it was acquired by Beckman in 1997.
Customers and Markets
The two primary segments which the Company serves are the
clinical diagnostics market and the life science research market.
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). The Company's
life science research 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, 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 the life science research 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 government cost containment initiatives in
Europe as well as health care cost containment generally. The
life science research market also continues to be affected by
consolidation of pharmaceutical companies and governmental
constraints on research and development spending, especially
outside of the United States.
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
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 sales force 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, such as 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. As a result of the cost containment pressures and other
factors described above, the Company expects growth in both
markets to be flat or grow in the low single digits over the
short term. 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, diabetes, 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. These can be grouped into the clinical diagnostics and
the life science research segments, by type of application. The
following table shows the breakdown of sales between the two
market segments.
PRODUCT SALES AS A PERCENT OF TOTAL PRODUCT SALES
FOR CATEGORIES REPRESENTING
MORE THAN 10 PERCENT OF SALES
1998 1997 1996
---- ---- ----
Clinical Diagnostics 78 68 63
Life Science Research 22 32 37
Products - Overview - Clinical Diagnostics
The clinical diagnostics market encompasses the detection and
monitoring of disease by means of laboratory evaluation and
analysis of bodily fluids and other substances from patients.
This type of testing is referred to as "in vitro diagnostic" or
"IVD" testing. Due to its important role in the diagnosis and
treatment of patients, IVD testing is an integral part of overall
management of patient care. Additionally, IVD testing is
increasingly valued as an effective method of reducing healthcare
costs by reducing the length of hospital stays through accurate,
early detection of health disorders and management of treatment.
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 $18 billion in 1998 and is estimated to grow at a
4% compound annual rate through the year 2002. 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, and pipette tips 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 enhancements further improve safety and
reduce customer 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 effective, reliable and easy to use results in loyalty among
customers who value consistency and accuracy in test results.
Products - Overview - Life Science Research
Life science research is the study of the characteristics,
behavior and structure of living organisms and their component
systems. Life science 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 1997 annual sales to the global life science
research market for instrumentation and related service and
biochemicals totaled approximately $7.4 billion.
The portions of this market on which the Company focuses are
centrifugation and other separation systems, biorobotics for drug
screening, electrophoresis for research and development and
quality control uses, spectrophotometry, DNA sequencing and
synthesis, and liquid scintillation. The Company estimates that
1998 industry wide sales of these portions totaled approximately
$5.5 billion in the aggregate. Trends in the life science
research 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 in 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
substances of diagnostic interest (referred to as "analytes") in
blood, urine or other body fluids. Commonly performed tests
include protein, glucose, cholesterol, triglycerides,
electrolytes, 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 barcodes. Automated clinical chemistry
systems are designed to be available for testing on short notice
twenty-four 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
$45,000 to over $300,000.
Clinical Chemistry Systems for Automated General Chemistry
SYNCHRON(R) Systems
The Company's SYNCHRON 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)
Analyzer, introduced in 1994, is an extension of the original
SYNCHRON CX(R)3 Analyzer that adds computer enhanced software
features, including sample identification using bar codes and up
to nine "on-board" chemistries.
The SYNCHRON CX(R)4, CX(R)5, and CX(R)7 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 improve
laboratory efficiency and 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 increase
throughput capabilities. These enhanced systems are designated
the SYNCHRON CX(R)9 ALX and the SYNCHRON CX(R)7 RTS. SYNCHRON CX
Systems range in price from $49,000 to $185,000.
The launch in 1997 of the SYNCHRON LX(R)20 Clinical System
extended the product line into high volume laboratories. 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 $150,000 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,
and screen and monitor for cancer and cardiac risk.
Immunochemistry systems have been designed 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 the laboratory's central computer. 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, is a 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 to analyze in batches. The IMMAGE
System builds on the extensive installed base of its predecessor
immunochemistry analyzer, the ARRAY(R) 360 Protein and
Therapeutic Drug Monitoring System. The ARRAY 360 was the
world's first computer enhanced, immunochemistry system offering
sample identification using bar codes and bidirectional
communication with a laboratory's central computer. The IMMAGE
System sells for $70,000 to $90,000.
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. Paramount among these products are 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. Another test is the OSTASE(R)
assay, which is used for the management of postmenopausal
osteoporosis, making it the first blood test cleared for such
use. During 1998, the Company obtained clearance for a test for
free PSA. This test is used in conjunction with the Company's PSA
test to assist in determining which patients require further
testing and evaluation.
In May of 1997, the Company acquired the Access(R) Immunoassay
System product line from Sanofi Diagnostics Pasteur. This product
line 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, 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 and blood viruses.
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, as well as cardiac, liver and other
diseases. The Appraise Densitometer can be used in conjunction
with Paragon reagent kits. It ranges in price from $17,000 to $24,000.
In 1995 the Company introduced the first capillary
electrophoresis system specifically designed for the clinical
laboratory, the Paragon CZE(R) 2000 System. This system is
designed to fully automate the manual and somewhat labor
intensive conventional electrophoresis analysis of serum protein
electrophoresis (SPE) and immunofixation electrophoresis (IFE).
Positioned to complement the Paragon gels and the APPRAISE
Densitometer, the Paragon CZE 2000 System is targeted at high volume
electrophoresis labs worldwide and sells for approximately $95,000.
Primary Care Diagnostics
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) occult blood test (OBT) 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. This test is 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
test was launched in 1996. In 1997, the Company released the
FlexSure(R) OBT immunochemical test. This test is specific for
human blood and can detect lower gastrointestinal diseases like
colorectal cancer more accurately than the Hemoccult(R) test. In
addition, 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.
The Company also recently began to introduce the COULTER(R)
Ac.T(TM) Hematology Analyzers. These products are low cost
automated hematology systems designed to address the low volume
market. Models of this system also offer features such as closed
tube sampling, which enhances bio-safe operation by reducing the
need to handle open sample tubes.
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 blood cells and platelets. The most common
diagnostic result is a "CBC" or complete blood count, which
provides eight to twenty-three 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 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
was introduced in 1996. It is the Company's state-of-the-art
automated hematology system, providing 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. The System automates
manual interpretation and result verification through its data
management workstation.
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, 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
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 $40,000 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) II Hematology Instruments - The COULTER MD II,
which was introduced in 1994, is designed to meet the needs of
the low volume and "stat" test market. The COULTER MD II
analyzer is simple to operate and cost effective, making it ideal
for the hospital laboratory second and third shift or by a
physician office or group practice. The COULTER MD II analyzer
interfaces with a unique software module (called the "Remote
Access Laboratory System" or "RALS"). The RALS 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, quality
assurance, and centralized data management at reduced cost.
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) ALTRA(TM) Cell Sorter/Flow Cytometer - The
COULTER EPICS ALTRA Cytometer is a state-of-the-art cell sorter
and 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 ALTRA 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. ALTRA
systems typically sell for $200,000 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. These systems generally
sell for $65,000 to $110,000.
COULTER TQ-Prep(TM) - The Coulter TQ-Prep was introduced in 1997.
This third generation product provides a consistent, standardized
method for preparing whole blood for flow cytometric analysis.
These products sell for $15,000 to $20,000.
Product Descriptions - Life Science Research Products
The Company offers a wide range of life science research
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 sequencers
and synthesizers, 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 130,000 revolutions per
minute to create forces that exceed 1,000,000 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 $250,000.
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 $70,000 to $400,000 range.
Life science research 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 sequencers and synthesizers allow researchers to determine
their component sequence through electrophoretic separation or to
assemble strands of DNA molecules. These techniques are central
to biotechnology science and the genetic understanding of life
processes. Systems sell in the range of $12,000 to $90,000.
HPLC uses pressurized solvents to mobilize sample mixtures
through columns packed with solid or gel phase 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.
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 parts of each
market segment. 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 science research
market include Amersham Pharmacia Biotech p.l.c., 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
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: (1)
internal research and development programs; (2) external
collaborative efforts with individuals in academic institutions
and technology companies; (3) devices or techniques that are
generated in customers' laboratories; and (4) 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 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 were $171.4 million in fiscal 1998, $123.6 million
in 1997, and $108.4 million in 1996.
Sales and Service
The Company has sales in over 120 countries and maintains its own
marketing, service and sales forces in major markets 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.
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 is 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 research and development efforts, the Company has an
active patent protection program which includes approximately 750
active U.S. patents and patent applications. Of this number,
approximately 280 relate to the life science research segment and
the remaining 470 relate to the clinical diagnostics segment. 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 being "Beckman Coulter". During 1998, the
Company also adopted a new logo. 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
Information with respect to this subject is incorporated by
reference to the section entitled "Management's Discussion and
Analysis" of the Company's Annual Report to Stockholders for the
year ended December 31, 1998.
Government Regulations
Certain of the Company's products are subject to regulations of
the U.S. Food and Drug Administration (the "FDA"). These laws
and regulations require products to be developed and manufactured
in accordance with "good manufacturing practices". The laws and
regulations also require the products to be safe and effective
and require the labeling of the products to 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, if fully implemented, require regulatory
review and approval of quality assurance protocols for the
Company's clinical reagent 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, and South Africa
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.
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 the 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, the amounts are not
expected to have a material adverse effect on the Company's
operations, financial condition, or liquidity, 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. Soil and groundwater
remediation have been underway at the site since 1983. In 1989,
the U.S. Environmental Protection Agency issued a final Record of
Decision specifying the soil and groundwater remediation
activities to be conducted at the site. The Company has
completed substantially all of the required work. 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 ("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 1998 and expect to
continue its operation in 1999.
Investigations on the property are continuing. During 1998, two
additional areas of soil requiring remediation were identified.
Work on one area was completed in 1998. Work on the second area
should be completed in 1999. 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, financial position, or liquidity. However,
there can be no assurance that further investigation will not reveal
additional soil or groundwater contamination or result in additional
costs.
Employee Relations
As of December 31, 1998, the Company had approximately 7,300
employees located in the United States and approximately 2,700
employees 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 16, "BUSINESS SEGMENT
INFORMATION" of the Consolidated Financial Statements of the
Company's Annual Report to Stockholders for the year ended
December 31, 1998.
Forward Looking Statements
This 10-K report and its exhibits contain forward-looking
statements, including among other items, statements regarding the
potential growth of the Company's markets, the position of the
Company's products in those markets, and the expected results of
the Company's marketing strategies. These forward-looking
statements are based on the Company's expectations and are
subject to a number of risks and uncertainties, some of which are
beyond the Company's control. Actual outcomes could differ from
those anticipated by these forward-looking statements as a result
of a number of factors, including, among other things, the impact
of economic conditions in Europe and Asia, government cost
containment initiatives, reduction in potential market as a
result of consolidation among customers, introduction of
competitive systems or products, and the actual extent and timing
of cost savings.
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
Lakes, Florida. 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; Mexico; Japan; Brazil; Australia; Argentina
Venezuela and Hong Kong.
Part of 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. The Company's principal
distribution locations are in Brea and Fullerton, California;
Chaska, Minnesota; Somerset, New Jersey; Frankfurt, Germany; and
Paris, France. The Company's European Administration Center is
located in Nyon, Switzerland.
The Company owns the facilities located in Carlsbad, Fullerton,
and Porterville, California; Naguabo, Puerto Rico; and some of
the facilities in Hialeah, Florida. All of the other facilities
are leased. All manufacturing facilities located outside of the
U.S. are leased with the exception of Germany, France, Japan,
Brazil and Australia. In October 1998, the Company announced
that it was relocating the reagent manufacturing operations
conducted in San Diego, California and Naguabo, Puerto Rico to
the Carlsbad, California and Chaska, Minnesota facilities. These
relocations are expected to be completed by the end of 1999.
The Brea and Palo Alto, California; Miami, Florida; and Chaska,
Minnesota facilities previously were owned by the Company. On
June 25, 1998, the Company sold the four properties. At the same
time, the Company 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. The initial term
of each of the leases is twenty years, with options to renew for
up to an additional thirty years. 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.
These proceeds were used to reduce the debt incurred in financing
the acquisition of Coulter.
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.
Item 3. Legal Proceedings
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 operations,
financial position, or liquidity. 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.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of stockholders during the
fourth quarter of 1998.
Executive Officers of the Company
The following is a list of the executive officers of the Company
as of February 4, 1999, showing their ages, present positions and
offices with the Company and their business experience during the
past five or more years. Officers are elected by the Board of
Directors and serve until the next annual Organization Meeting of
the Board. Officers may be removed by the Board at will. There
are no family relationships among any of the named individuals,
and no individual was selected as an officer pursuant to any
arrangement or understanding with any other person.
John P. Wareham, 57, Chairman of the Board, President and
Chief Executive Officer
Mr. Wareham has been Chairman of the Board since February, 1999,
Chief Executive Officer since September 1998, and President of the
Company since 1993. He served as the Company's Chief Operating
Officer from 1993 to September 1998 and as Vice President,
Diagnostic Systems Group from 1984 to 1993. Prior thereto, he
had been President of Norden Laboratories, Inc., a wholly owned
subsidiary of SmithKline Beckman engaged in developing, manufacturing
and marketing veterinary pharmaceuticals and vaccines. Mr. Wareham
first joined SmithKline Corporation, a predecessor of SmithKline Beckman,
in 1968. He is a director of the Health Industry Manufacturers Association.
Mr. Wareham has been a director of the Company since 1993.
Albert R. Ziegler, 60, Senior Vice President, Diagnostics Commercial
Operations
Mr. Ziegler was named Senior Vice President, Diagnostics
Commercial Operations in January, 1999. He had been Vice
President, Clinical Chemistry Division since October 1997 and
Vice President, Diagnostics Development Center since 1994. He
joined the Company in 1986 as Vice President, North America
Operations for the Diagnostic Systems Group. Prior thereto, he
had been President of Branson Ultrasonics Corporation, a
manufacturer of industrial ultrasound instruments and a
subsidiary of SmithKline Beckman until the divestiture of
SmithKline Beckman's industrial instruments businesses in 1984.
Mr. Ziegler first joined SmithKline Beckman in 1971.
Edgar E. Vivanco, 55, Senior Vice President, Diagnostics Development and
Corporate Manufacturing
Mr. Vivanco was named Senior Vice President, Diagnostics
Development and Corporate Manufacturing in January, 1999. He had
been President of Coulter Corporation and Vice President of the
Cellular Analysis Division since November 1997, and previously
was Vice President of the Biotechnology Development Center. Mr.
Vivanco joined Beckman in 1971 as a microbiologist at the
Microbics Operations in La Habra, California. In 1973, he moved
to Carlsbad as a Development Microbiologist and became Production
Manager in 1975, Manufacturing Manager in 1978, and Site Manager
in 1986. In 1987, he became Technical Operations Manager for the
Diagnostics Operations and in 1990, became Director of Worldwide
Reagents and Chemical Processing.
Dennis K. Wilson, 63, Vice President, Finance and Chief Financial Officer
Mr. Wilson has been Vice President, Finance and Chief Financial
Officer of the Company since 1993. He served as Vice President,
Treasurer of the Company from 1989 until his current appointment.
Prior thereto, he had been Vice President, Corporate Accounting
and Assistant Controller of SmithKline Beckman since 1984. Mr.
Wilson first joined the Company in 1969.
Jack Finney, 60, Vice President, Bioresearch Division
Mr. Finney has been Vice President, Bioresearch Division since
1997. He first joined the Company in 1962 as a customer service
specialist, became product line manager in 1965 and marketing
manager in 1971 at Beckman's Spinco Division in Palo Alto,
California. He became Manager in 1981 of Altex Scientific
Operations in Berkeley, California and in 1985 Vice President and
Manager of the Altex Division in San Ramon, California. In 1991,
he was named Vice President of Product Development for the Spinco
Business Unit, and in 1994, was assigned overall responsibility
for the centrifuge business.
James T. Glover, 48, Vice President and Controller
Mr. Glover has been Vice President and Controller of the Company
since 1993. From 1989 until assuming his current position, he
was Vice President, Controller - Diagnostic Systems Group. Mr.
Glover joined the Company in 1983, serving in several management
positions, including a two-year term at Allergan, Inc., then a
Company affiliate. Prior to 1983, he held management positions
with KPMG LLP and another Fortune 500 Company.
William H. May, 56, Vice President, General Counsel and Secretary
Mr. May has been Vice President, General Counsel and Secretary of
the Company since 1985 and has been General Counsel and Secretary
of the Company since 1984. Mr. May first joined the Company in 1976.
Fidencio Mares, 52, Vice President, Human Resources and Corporate
Communications
Mr. Mares was named Vice President, Human Resources and Corporate
Communications of the Company in 1995. Prior thereto he had been
President of The Gas Company of Hawaii. Before that he was
Senior Vice President of Administration and Human Resources for
Pacific Resources, Inc., Corporate Wage and Salary Manager and
Corporate Human Resources Services Manager for Getty Oil
Company/Texaco, Inc., and held various human resources managerial
positions at Southern California Edison.
Paul Glyer, 42, Treasurer
Mr. Glyer has been Treasurer of the Company since 1993. From 1995
to 1998 he additionally assumed the position of Director, Corporate
Business Development and Licensing. He served as Assistant
Treasurer since 1989 when he first joined the Company.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
As of January 22, 1999 there were approximately 7,614 holders of record of
the Company's common stock. During 1998 the Company paid three consecutive
quarterly dividends of fifteen cents per share of common stock, and one
dividend of sixteen cents per share, for a total of sixty-one
cents per share for the year. During 1997, the Company paid four
consecutive quarterly dividends of fifteen cents per share of
common stock, for a total of sixty cents per share for the year.
Under the terms of the Company's principal credit agreement,
which expires on October 31, 2002, dividend payments are limited
but not prohibited. To date this limitation has not had an
impact on the Company's dividends and is not expected to have an
impact in the foreseeable future. Additional information with respect
to the above-captioned item is incorporated herein by reference to the
section entitled "QUARTERLY INFORMATION (UNAUDITED)" of the
company's annual report to stockholders for the year ended December
31, 1998.
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 the Company's Annual Report
to Stockholders for the year ended December 31, 1998.
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
"MANAGEMENT'S DISCUSSION AND ANALYSIS" of the Company's Annual
Report to Stockholders for the year ended December 31, 1998.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information with respect to the above-captioned Item is
incorporated by reference to the section entitled "FINANCIAL RISK
MANAGEMENT" of the Company's Annual Report to Stockholders for
the year ended December 31, 1998.
Item 8. Financial Statements and Supplementary Data
Information with respect to the above-captioned Item is
incorporated by reference to the sections entitled "FINANCIAL
REVIEW", "CONSOLIDATED BALANCE SHEETS", "CONSOLIDATED STATEMENTS
OF OPERATIONS", "CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY", "CONSOLIDATED STATEMENTS OF CASH FLOWS", "QUARTERLY
INFORMATION", "INDEPENDENT AUDITORS' REPORT" and the notes to
these sections of the Company's Annual Report to Stockholders for
the year ended December 31, 1998.
Item 9. Changes In and Disagreements With Accountants On Accounting and
Financial Disclosures
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors - the information with respect to directors required by
this Item is incorporated herein by reference to those parts of
the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held April 8, 1999 entitled "ELECTION OF
DIRECTORS" and "ADDITIONAL INFORMATION ABOUT BOARD OF DIRECTORS."
Executive Officers - The information with respect to executive
officers required by this Item is set forth in Part I of this report.
Item 11. Executive Compensation
The information with respect to executive compensation required
by this item is incorporated by reference to that part of the
Company's Proxy Statement for the Annual Meeting of Stockholders
to be held April 8, 1999 entitled "EXECUTIVE COMPENSATION",
excluding those sections entitled "Organization and Compensation
Committee Report on Executive Compensation" and "Performance Graph".
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information with respect to security ownership required by
this Item is incorporated by reference to that part of the
Company's Proxy Statement for the Annual Meeting of Stockholders
to be held April 8, 1999 entitled "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT."
Item 13. Certain Relationships and Related Transactions
The information with respect to certain relationships and related
transactions required by this Item is incorporated by reference
to that part of the Company's Proxy Statement for the Annual
Meeting of Stockholders to be held April 8, 1999 entitled "BOARD
OF DIRECTORS INFORMATION, Compensation Committee Interlocks and
Insider Participation."
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).
3.3 Fourth Restated Certificate of Incorporation dated April 2,
1998 (incorporated by reference to Exhibit 3 of the
Company's Quarterly Report to the Securities and Exchange
Commission on Form 10-Q for the quarter ended March 31,
1998, 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).
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 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 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).
4.5 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).
4.6 Amendment 1998-1 to the Company's Employees' Stock Purchase
Plan dated December 9, 1998.
4.7 Stockholder Protection Rights Agreement dated as of February
4, 1999 (incorporated by reference to Exhibit 4 of the
Company's Form 8-K filed with the Securities and Exchange
Commission on February 8, 1999, File No. 99523266).
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 Agreement dated as of June 26, 1998 and Line
of Credit Promissory Note in favor of Mellon Bank, N.A.,
dated as of March 25, 1998.
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
10.31 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).
10.5 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 (incorporated by
reference to Exhibit 10.7 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).
* 10.8 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 Commission on Form 10-Q for the quarterly period
ended June 30, 1997, File No. 001-10109.
* 10.9 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).
* 10.10 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.
* 10.11 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).
* 10.12 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).
* 10.13 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 Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year period ended
December 31, 1996, File No. 001-10109).
* 10.14 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).
* 10.15 The Company's 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).
* 10.16 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).
* 10.17 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).
* 10.18 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.
* 10.19 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 Exchange Commission
on Form 10-K for the fiscal year ended December
31, 1989, File No. 001-10109).
* 10.20 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 for the fiscal year ended December 31, 1995, File
No. 001-10109).
* 10.21 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 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).
10.22 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).
* 10.23 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).
* 10.24 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).
* 10.25 Form of Restricted Stock Award Agreement between the Company
and its non-employee Directors, effective as of October 3,
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).
* 10.26 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).
* 10.27 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).
* 10.28 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).
* 10.29 Form of Coulter's Special Incentive Plan and Sharing Bonus
Plan, assumed by the Company October 31, 1997 (incorporated
by reference to Exhibit 10.38 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).
10.30 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).
10.31 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).
10.32 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).
10.33 Amendment No. 1 dated April 3, 1998 to the Credit Agreement
by and among the Company, as borrower, the Initial Lenders
and the Issuing Banks named therein, and Citicorp USA, Inc.
as Agent dated October 31, 1997 (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
quarter ended March 31, 1998, File No. 001-10109).
* 10.34 Amendment No. 1998-1, adopted and effective as of April 2,
1998 to the Company's 1998 Incentive Compensation Plan
(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 quarter ended March 31, 1998, File No.
001-10109).
* 10.35 1998 Annual Incentive Plan (AIP) (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
quarter ended March 31, 1998, File No. 001-10109).
10.36 Lease Agreement made as of June 25, 1998 among Beckman
Coulter, Inc., NPDC-EY Brea Trust, and NPDC-RI Brea Trust
(incorporated by reference to Exhibit 2.5 of the Company's
current report on Form 8-K filed with the Securities and
Exchange Commission on July 9, 1998, File No. 001-10109).
10.37 Lease Agreement made as of June 25, 1998 between Beckman
Coulter, Inc., and Cardbeck Chaska Trust (incorporated by
reference to Exhibit 2.6 of the Company's current report on
Form 8-K filed with the Securities and Exchange Commission
on July 9, 1998, File No. 001-10109).
10.38 Lease Agreement made as of June 25, 1998 between Coulter
Corporation and Cardbeck Miami Trust (incorporated by
reference to Exhibit 2.7 of the Company's current report on
Form 8-K filed with the Securities and Exchange Commission
on July 9, 1998, File No. 001-10109).
10.39 Lease Agreement made as of June 25, 1998 among Beckman
Coulter, Inc., NPDC-EY Palo Alto Trust, and NPDC-RI Palo
Alto Trust (incorporated by reference to Exhibit 2.8 of the
Company's current report on Form 8-K filed with the
Securities and Exchange Commission on July 9, 1998, File No.
001-10109).
10.40 Lease Modification Agreement made as of June 25, 1998 among
Beckman Coulter, Inc., NPDC-EY Brea Trust, and NPDC-RI Brea
Trust (incorporated by reference to Exhibit 2.9 of the
Company's current report on Form 8-K filed with the
Securities and Exchange Commission on July 9, 1998, File No.
001-10109).
10.41 Lease Modification Agreement made as of June 25, 1998 among
Beckman Coulter, Inc. and Cardbeck Chaska Trust
(incorporated by reference to Exhibit 2.10 of the Company's
current report on Form 8-K filed with the Securities and
Exchange Commission on July 9, 1998, File No. 001-10109).
10.42 Lease Modification Agreement made as of June 25, 1998 among
Coulter Corporation and Cardbeck Miami Trust (incorporated
by reference to Exhibit 2.11 of the Company's current report
on Form 8-K filed with the Securities and Exchange
Commission on July 9, 1998, File No. 001-10109).
10.43 Lease Modification Agreement made as of June 25, 1998 among
Beckman Coulter, Inc., NPDC-EY Palo Alto Trust, and NPDC-RI
Palo Alto Trust (incorporated by reference to Exhibit 2.12
of the Company's current report on Form 8-K filed with the
Securities and Exchange Commission on July 9, 1998, File No.
001-10109).
10.44 Guaranty of Lease, executed as of June 25, 1998, by Beckman
Coulter, Inc. for the benefit of Cardbeck Miami Trust
(incorporated by reference to Exhibit 2.13 of the Company's
current report on Form 8-K filed with the Securities and
Exchange Commission on July 9, 1998, File No. 001-10109).
* 10.45 The Company's Amended and Restated Executive Deferred
Compensation Plan dated October 28, 1998, effective as of
September 1, 1998 (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 December 18,
1998, Registration No. 333-69249).
* 10.46 The Company's Amended and Restated Executive Restoration
Plan dated October 28, 1998, effective as of September 1,
1998 (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 December 18,1998,
Registration No. 333-69251).
* 10.47 The Company's Amended and Restated Savings Plan dated
December 24, 1998, effective as of September 1998
(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 February 10, 1999, Registration
No. 333-72081).
* 10.48 Amendment 1998-1, adopted and effective as of April 2, 1998
to the Company's 1998 Incentive Compensation Plan
(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 March 31, 1998,
File No. 001-10109)
11. Statement regarding computation of per share earnings: This
information is incorporated by reference to the discussions
of "Earnings (Loss) Per Share" located in Notes 1 and 15 of
the Consolidated Financial Statements of the Company's
Annual Report to Stockholders for the year ended December
31, 1998.
13. WORDS ON NUMBERS
21. Subsidiaries.
23. Consent of KPMG LLP
24. Power of Attorney (included herein on the signature page).
27. Financial Data Schedule.
(b) Reports on Form 8-K During Fourth Quarter ended December 31, 1998.
The following reports on Form 8-K were filed since September 30,
1998
Item 5. Other Events. Stockholder Protection Rights Agreement
dated as of February 4, 1999 filed February 8, 1999
<PAGE>
Beckman Coulter, Inc.
INDEX TO
FINANCIAL STATEMENTS AND SCHEDULES
The consolidated financial statements of the Company and the
related report of KPMG LLP, dated January 22, 1999 are
incorporated by reference to the section entitled "WORDS ON
NUMBERS" filed as Exhibit 13 to this Form 10-K.
The information required to be reported in the Supplementary
Financial Schedule entitled, II Valuation and Qualifying Accounts
Accounts, for the three year period ended December 31, 1998 is
set forth in Note 17 Supplementary Information of the "NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS" of the Company's Annual Report
to Stockholders for the year ended December 31, 1998. 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.
<PAGE>
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.
By JOHN P. WAREHAM
John P. Wareham
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below appoints 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, 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.
Signature Title Date
- --------- ----- ----
JOHN P. WAREHAM Chairman of the Board, President February 4, 1999
John P. Wareham and Chief Executive Officer
D. K. WILSON Vice President, Finance and Chief February 4, 1999
Dennis K. Wilson Financial Officer
(Principal Financial Officer)
JAMES T. GLOVER Vice President and Controller February 4, 1999
James T. Glover (Principal Accounting Officer)
HUGH K. COBLE Director February 4, 1999
Hugh K. Coble
CAROLYN K. DAVIS Director February 4, 1999
Carolyne K. Davis, Ph.D.
<PAGE>
Signature Title Date
- --------- ----- ----
PETER B. DERVAN Director February 4, 1999
Peter B. Dervan, Ph.D.
RONALD W. DOLLENS Director February 4, 1999
Ronald W. Dollens
CHARLES A. HAGGERTY Director February 4, 1999
Charles A. Haggerty
GAVIN HERBERT Director February 4, 1999
Gavin S. Herbert
VAN B. HONEYCUTT Director February 4, 1999
Van B. Honeycutt
WILLIAM N. KELLEY Director February 4, 1999
William N. Kelley, M.D.
C. RODERICK O'NEIL Director February 4, 1999
C. Roderick O'Neil
BETTY WOODS Director February 4, 1999
Betty Woods
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------ -------
4.6 Amendment 1998-1 to the Company's Employees' Stock Purchase Plan
dated December 9, 1998.
10.3 Line of Credit Agreement dated as of June 26, 1998 and Line of
Credit Promissory Note in favor of Mellon Bank, N.A., dated as of
March 25, 1998
13. WORDS ON NUMBERS
21. Subsidiaries
23. Consent of KPMG Peat Marwick LLP
27. Financial Data Schedule
EXHIBIT 4.6
AMENDMENT 1998-1
BECKMAN INSTRUMENTS, INC.
EMPLOYEES' STOCK PURCHASE PLAN
WHEREAS, Beckman Coulter, Inc., formerly Beckman
Instruments, Inc. (the "Company") maintains the Beckman
Instruments, Inc. Employees' Stock Purchase Plan (the "Plan");
and
WHEREAS, the Company has the right to amend the Plan, and
the Company desires to amend the Plan to reflect resolutions
adopted by the Company's Board of Directors to reflect the new
corporate name and to revise eligibility requirements;
NOW, THEREFORE, the Plan is amended as follows:
1. All references to "Beckman Instruments, Inc." are
changed to "Beckman Coulter, Inc." and the name of
the Plan is changed to the "Beckman Coulter, Inc.
Employees' Stock Purchase Plan" in order to reflect
to the new corporate name approved April 2, 1998 by
the Company's stockholders.
2. The word "full-time" in reference to regular employees
is deleted from Sections 2(a), 2(b), and 2(c) and the
second sentence in Section 2(c) is deleted, effective
for the second option period in 1998.
IN WITNESS WHEREOF, the Company has caused its duly
authorized officer to execute this Amendment to the Plan on
December 9, 1998.
BECKMAN COULTER, INC.
By: FIDENCIO M. MARES
Fidencio M. Mares
Its: Vice President - Human Resources
EXHIBIT 10.3
Mellon Bank Western Region
Representative Office
Global Corporate Banking
400 South Hope Street
June 26, 1998 Fifth Floor
Los Angeles, CA 90071-2806
(213)553-9500 Office
Mr. Eugene A. Blaho, CPA, CCM (213)629-0492 Fax
Assistant Treasurer
Beckman Coulter, Inc.
2500 Harbor Blvd.
P.O. Box 3100
Fullerton, CA 92634
Dear Gene:
This letter reaffirms that Mellon Bank, N.A. ("Mellon") extends
to Beckman Coulter, Inc. ("Beckman") a line of credit in the
amount of $30,000,000 to be used in conjunction with our
Automated Borrowing Service as described in the Agreement Letter
dated and signed August 18, 1989. Beckman can automatically
access this line daily on an as needed basis in order to balance
its daily cash position at Mellon. Such borrowings will continue
to be priced at the Libor rate plus 100 basis points. Libor will
be calculated based on the 30-day rate published by the Federal
Reserve Bank of New York. There is no per annum fee associated
with this service.
This line will remain in effect until June 25, 1999 ("Expiration
Date") subject to the extension provisions in a Promissory Note
dated March 25, 1998 (executed copy attached). After the
Expiration Date, unless Mellon and Beckman agree to extend the
interest rate stated above or negotiate another mutually
acceptable interest rate, the interest rate for all future
borrowings will revert to our Prime rate plus 200 basis points.
Please have the appropriate officer sign this letter and return
it to my attention. Upon our receipt of this executed letter, a
copy will be attached as an additional document (as part of
Exhibit A) to the Letter Agreement dated and signed August 18, 1989.
We appreciate the continued confidence which Beckman places in
Mellon Bank and we look forward to continuing to service your
financial needs in the months ahead.
Sincerely,
GILL S. REALON
Gill S. Realon
Vice President
Confirmed: D. K. WILSON
Title: V.P., Finance and CFO
<PAGE>
Beckman Instruments, Inc.
Line of Credit
Promissory Note
(for Automated Borrowing Service Borrowings)
$30,000,000 Pittsburgh, Pennsylvania
March 25, 1998
FOR VALUE RECEIVED, the undersigned, Beckman Instruments Inc.
(the "Borrower"), promises to pay to the order of Mellon Bank,
N.A. (the "Bank") on or before June 26, 1998 (the "Expiration
Date") the lesser of (i) the principal sum of $30,000,000, or
(ii) the aggregate unpaid principal amount of all loans made by
the Bank to the Borrower pursuant to our Line of Credit. The
Borrower further promises to pay to the order of the Bank
interest due on the last Friday of each month and on December 31.
This promissory note shall be automatically extended without
amendment for a period of 364 days on the Expiration Date and on
each successive Expiration Date thereafter, provided that the
Agreement Letter dated and signed August 18, 1989 for the
Automated Borrowing Service is in effect on such Expiration Date.
All payments of principal and interest hereunder shall be due and
payable on or before 4:00 p.m., Pittsburgh time, on the day when
due and shall be direct debited from the designated account of
the Borrower at the Bank. If such principal and interest is not
direct debited such payments shall be made to the Bank at its
office in Dollars in immediately available funds without setoff,
counterclaim or other deductions of any nature or automatically
debited from the account of the Borrower at the Bank.
Except as otherwise agreed to by the Bank and Borrower, if any
payment of principal or interest hereunder shall be due on a day
which is not a business day, such payment shall be made on the
next following business day and such extension of time shall be
included in computing interest in connection with such payment.
The Borrower hereby expressly waives presentment, demand, notice,
protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this
Promissory Note, and any action for amounts due hereunder or
thereunder shall immediately accrue.
This Promissory Note shall be governed by, construed and enforced
in accordance with the laws of the Commonwealth of Pennsylvania.
Beckman Instruments, Inc.
By: D. K. WILSON
Title: V.P., Finance and Chief Financial Officer
EXHIBIT 13
WORDS ON NUMBERS
Section of our
Annual Report to Stockholders
For the Year Ended
December 31, 1998
TABLE OF CONTENTS
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
Board of Directors
Other Information
Bar Chart: Income from Operations Before Special Charges* (millions)
Year 1994 1995 1996 1997 1998
Income from Operations $98.9 $ 110.8 $122.5 $104.4 $133.9
Bar Chart: EBITDA Before Special Charges* (millions)
Year 1994 1995 1996 1997 1998
EBITDA $161.4 $192.6 $217.4 $228.0 $305.9
*Excludes pre-tax special charges in 1994, 1995, 1997 and 1998.
Bar Chart: Dividends Paid Per Common Stock
Year 1994 1995 1996 1997 1998
Dividends Paid
($ Per Share) $0.40 $0.44 $0.52 $0.60 $0.61
<PAGE>
SELECTED FINANCIAL INFORMATION
Dollars in millions, except amounts per share
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Summary of Operations
Sales $1,718.2 $1,198.0 $1,028.0 $ 930.1 $888.6
Operating income before
special charges (1) $ 133.9 $ 104.4 $ 122.5 $ 110.8 $ 98.9
Earnings before special
and non-recurring
charges, after taxes $ 44.7 $ 54.0 $ 74.7 $ 66.1 $ 56.9
Special charges:
In-process research and
development - (282.0) - - -
Restructuring charge,
net of tax benefit (11.2) ( 36.4) - (17.2) (9.6)
Non-recurring charges:
Changes in accounting
principles - - - - (5.1)
--------------------------------------------
Net earnings (loss) $ 33.5 $(264.4) $ 74.7 $ 48.9 $ 42.2
======== ======== ======= ======= ======
Diluted earnings per
share before
special charges $ 1.52 $ 1.88 $ 2.58 $ 2.29 $ 2.03
Diluted earnings (loss)
per share $ 1.14 $ (9.58) $ 2.58 $ 1.70 $ 1.50
Dividends paid per share
of common stock $ 0.61 $ 0.60 $ 0.52 $ 0.44 $ 0.40
Shares outstanding
(millions) 28.4 27.6 28.0 28.3 28.0
Weighted average common
shares and dilutive
common share equivalents
(millions) (2) 29.3 27.6 28.9 28.8 28.1
Other Information
Total assets $2,133.3 $2,331.0 $ 960.1 $ 907.8 $829.1
Long-term debt,
less current
maturities $ 982.2 $1,181.3 $ 176.6 $ 162.7 $117.3
Working capital $ 237.3 $ 81.8 $ 300.1 $ 282.1 $243.2
EBIT before special
charges(1)(3) $ 153.5 $ 118.9 $ 129.6 $ 113.5 $ 91.3
Depreciation and
amortization
expense $ 152.4 $ 109.1 $ 87.8 $ 79.1 $ 70.1
EBITDA before special
charges(1)(3) $ 305.9 $ 228.0 $ 217.4 $ 192.6 $161.4
EBITDA(3) $ 286.8 $ (113.4) $ 217.4 $ 164.9 $150.1
Debt to EBITDA before
special charges(1) 3.7 5.5 0.9 0.9 0.8
Capital expenditures $ 174.9 $ 110.7 $ 117.4 $ 110.0 $ 98.7
Number of employees at
December 31, 10,064 11,171 6,079 5,702 5,963
</TABLE>
(1)Excludes pretax special charges. Special charges include: 1)
restructuring charges of $19.1, $59.4, $27.7 and $11.3 in 1998, 1997,
1995 and 1994, 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 income (loss) of $114.8, ($237.0), $83.1 and $87.6
in 1998, 1997, 1995 and 1994 respectively. The Company did not incur
any special charges in 1996.
(2)Under Generally Accepted Accounting Principles ("GAAP"), as the
Company was in a net loss position in 1997, 1.0 million common share
equivalents were not used to compute diluted loss per share, as the
effect was antidilutive.
(3)EBIT is earnings before interest expense and taxes; EBITDA is EBIT
before depreciation and amortization.
FINANCIAL REVIEW
Dollars 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>
1998 1997
Compared Compared
Years ended % of % of % of to to
December 31, 1998 Sales 1997 Sales 1996 Sales 1997 (2) 1996 (2)
---- ----- ---- ----- ---- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales:
Clinical
diagnostics $1,342.5 78.1 $ 815.2 68.0 $ 652.0 63.4 $ 527.3 $ 163.2
Life science
research 375.7 21.9 382.8 32.0 376.0 36.6 (7.1) 6.8
-------- ----- -------- ----- -------- ----- ------- -------
Total sales $1,718.2 100.0 $1,198.0 100.0 $1,028.0 100.0 $ 520.2 $ 170.0
======== ===== ======== ===== ======== ===== ======= ========
Cost of sales 920.6 53.6 609.7 50.9 477.8 46.5 310.9 131.9
-------- ----- -------- ----- -------- ----- ------- --------
Gross profit 797.6 46.4 588.3 49.1 550.2 53.5 209.3 38.1
Selling,
general &
administra-
tive 492.3 28.7 360.3 30.1 319.3 31.1 132.0 41.0
Research &
development 171.4 10.0 123.6 10.3 108.4 10.5 47.8 15.2
-------- ----- -------- ------ -------- ----- ------ -------
Operating
income(1) 133.9 7.8 104.4 8.7 122.5 11.9 29.5 (18.1)
Net
nonoperating
expense 68.2 4.0 14.9 1.2 11.0 1.0 53.3 3.9
-------- ----- -------- ------ -------- ----- ------ -------
Earnings
before
income
taxes (1) 65.7 3.8 89.5 7.5 111.5 10.9 (23.8) (22.0)
Income tax
provision
(1) 21.0 1.2 35.5 3.0 36.8 3.6 (14.5) (1.3)
-------- ----- -------- ------ -------- ----- ------ -------
Earnings
before
special
charges,
after
taxes(1) $ 44.7 2.6 $ 54.0 4.5 $ 74.7 7.3 $ (9.3) $(20.7)
Net earnings
(loss) $ 33.5 1.9 $(264.4) (22.1) $ 74.7 7.3 $ 297.9 $(339.1)
-------- ----- -------- ------ -------- ----- ------- -------
Diluted
earnings
per share
before
special
charges $ 1.52 $ 1.88 $ 2.58 $ (0.36)$(0.70)
Diluted
earnings
(loss)per
share $ 1.14 $ (9.58) $ 2.58 $ 10.72 $(12.16)
Dividends
paid per
share of
common
stock $ 0.61 $ 0.60 $ 0.52 $ 0.01 $ 0.08
======= ======= ======= ======= ======
</TABLE>
(1) Amounts exclude special charges. Special charges include: l)
restructuring charges of $19.1, 1.1% of sales and $59.4, 5.0% of sales in
1998 and 1997, 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
income (loss) was $114.8, 6.7% of sales and $(237.0), (19.8%) of sales in
1998 and 1997, respectively, and 2) earnings (loss) before income taxes was
$46.6, 2.7% of sales and $(251.9), (21.0%) of sales, in 1998 and 1997,
respectively. The Company did not incur any special charges in 1996.
(2) Parentheses indicate decreases from the comparative period.
Bar Chart: SG&A as a % of Sales
Year 1996 1997 1998
SG&A (% of Sales) 31.1 30.1 28.7
Bar Chart: R&D Expenses Before Write-off of In-Process R&D (millions)
Year 1996 1997 1998
R&D Expenses $108.4 $123.6 $171.4
<PAGE>
Management's Discussion and Analysis
The following review should be read in conjunction with the
consolidated financial statements and related notes included on pages 26
through 53. Note that historical results and percentage relationships are
not necessarily indicative of operating results for any future periods.
Overview
Beckman Coulter, Inc. is 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. Approximately 80% of our 1998 sales were for clinical
diagnostics applications, principally in hospital laboratories, while the
remaining sales were for life science research applications (including drug
discovery) in universities, medical schools, and pharmaceutical and
biotechnology companies. Our diagnostics systems address over 75% of the
hospital laboratory test volume, including virtually all of the routine
laboratory tests. We believe we are a worldwide market leader in our
primary markets, with well-recognized systems and a reputation for high-
quality, reliable service.
1. Acquisition Activities
The primary focus of our acquisition strategy has been to broaden our
product offerings. The following table lists some of our recent
acquisitions:
Product/technology
Company acquired Acquisition date
------- -------- ----------------
Coulter Corporation Hematology & flow October 1997
cytometry
Sanofi Diagnostics Access(R) Immunoassay April 1997
Pasteur product line
("Sanofi")*
Sagian, High throughput December 1996
Inc.("Sagian")** screening &
robotics technology
Genomyx, Inc. DNA sequencing October 1996
technology
Hybritech Incorporated Immunoassays & cancer January 1996
("Hybritech") diagnostics
- ---------------------- --------------------- ------------
* Only the Access(R) Immunoassay product line of Sanofi was acquired.
** Only the Laboratory Robotics Division of Sagian was acquired.
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. This acquisition and the related financing lowered
our net earnings in 1998 and 1997 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 our acquisition activities is provided in Note 3
"Acquisitions" of the Notes to Consolidated Financial Statements. In April
1998, our stockholders approved the change of our name to Beckman Coulter,
Inc.
2. Events Impacting Comparability
Operating periods reported:
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 November 30, 1998 and November 30,
1997. The operating results for these subsidiaries are for twelve-month
periods ending on those dates, except as noted below. Note that, in order
to be consistent with the way we have historically reported our
international results, the reporting of Coulter's international results of
operations has been lagged by one month in 1998. Therefore, the results for
the year 1998 include only January through November sales and expenses for
Coulter outside the United States. The exclusion of one month's results for
Coulter international subsidiaries was not significant.
Acquired Research and Development:
In 1997, the results of operations included a $282.0 million charge
for purchased in-process research and development. This charge was a
direct result of the acquisition of Coulter and was related to projects
which have economic value but could not be capitalized under GAAP.
Goodwill and Intangible Assets:
As a result of the acquisition of Coulter in 1997, we recorded $404.0
million as the fair market value of patents, trademarks and other
intangibles ("Intangible Assets") and $374.4 million as the excess of
purchase price and purchase and assumed liabilities over the fair market
value of identifiable net assets and in-process research and development
projects acquired ("Goodwill"). Upon finalization of purchase accounting
in the fourth quarter of 1998, certain adjustments were made to the values
of assets and liabilities recorded, which resulted in a reduction of
recorded Goodwill in the amount of $35.7 million. 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 in Note 3 "Acquisitions" of
the Notes to Consolidated Financial Statements.
Restructuring Charges:
As a result of revisions to the plans initiated in 1997 for Company
reorganization, in the fourth quarter of 1998, we recorded a restructuring
charge of $19.1 million. This charge was in addition to the $59.4 million
restructuring charge recorded in 1997. On an after-tax basis, the
restructuring charges were $11.2 million or $0.38 per share in 1998 and
$36.4 million or $1.32 per share in 1997. A more detailed discussion of the
restructuring charges is provided in Note 4 "Provision for Restructuring
Operations" of the Notes to Consolidated Financial Statements.
Sale-leaseback of Real Estate:
During the second quarter of 1998, we sold our interest in properties
in Brea, California; Palo Alto, California; Chaska, Minnesota; and Miami,
Florida and leased them back from the buyers. The aggregate proceeds from
the sale of the four properties totaled $242.8 million before closing costs
and transaction expenses. We used the cash from this sale primarily to
reduce the debt incurred in financing the acquisition of Coulter. Refer to
the detailed discussion of this transaction under Note 6 "Sale-leaseback of
Real Estate" of the Notes to Consolidated Financial Statements.
Sale of Assets:
During 1998, we sold certain financial assets (primarily consisting of
customer lease receivables) as part of our plan to reduce debt and provide
funds for integration purposes. The net book value of financial assets
sold was $67.7 million for which we received approximately $68.9 million in
cash proceeds. In 1997, we sold similar assets with a net book value of
$34.2 million for cash proceeds of $35.7 million.
In December 1997, we 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 million and were sold for cash proceeds of
$39.6 million. The gain is being deferred and credited to income as an
adjustment to rent expense over the lease term. Obligations under the
operating lease agreement are included in Note 14 "Commitments and
Contingencies" of the Notes to Consolidated Financial Statements.
We have and will continue to evaluate opportunities to provide
additional cash flow by monetizing other assets during 1999 and beyond.
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. See further discussion in Note 5 "Sales of
Asssets" of the Notes to Consolidated Financial Statements.
Tax Aspects:
We do not expect that we will have to pay federal income taxes for our
consolidated U.S. federal income tax group over the next several years
primarily as a result of expenses related to the acquisition of Coulter.
These expenses include the Coulter bonus sharing plan payments, interest on
indebtedness and certain other expenses incurred in connection with the
Coulter acquisition. The deferred income tax liability of $153.5 million,
which is related to the Coulter 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.
3.Results of Operations
1998 Compared with 1997:
Sales for 1998 were $1,718.2 million, an increase of 43.4% over the
$1,198.0 million reported in 1997. The increase in sales is primarily
attributable to the inclusion in 1998 of a full year of sales from the
Coulter operations compared to two months in 1997. In 1998 as in 1997,
international sales accounted for approximately half of total sales.
Foreign exchange rates negatively impacted sales growth by about 3.0
percentage points. Despite continuing market-driven pricing pressures and
adverse currency fluctuations, our core businesses remained strong. For
example, in 1998 the Company signed a multi-year agreement with Kaiser
Permanente, the nation's largest non-profit health maintenance organization,
to provide clinical and hematology analyzers, along with related reagents,
supplies and service, for use in Kaiser Permanente medical centers, medical
office laboratories and clinics throughout the United States. We also
obtained significant new business with Ohio State University, University of
Washington and Emory University/Crawford Long Hospital in Georgia.
Gross profit at 46.4% of sales was 2.7 percentage points lower than
the 1997 level of 49.1%. Unfavorable foreign currency fluctuations, lower
margins for Coulter products and competitive pricing pressures contributed
to the decline in gross profit percentage. Additionally, both the 1998 and
1997 gross profit included increased cost of sales for inventory recorded
at fair value as part of the Coulter acquisition. Although gross profit
for the year declined in comparison to the prior year, gross profit in each
quarter of the current year showed a positive trend increasing from 42.5%
in the first quarter to 48.8% in the fourth quarter. We believe this trend
is the result of the synergies obtained from the continuing consolidation
and integration of the Beckman and Coulter organizations. Although we
believe this positive trend will continue, we cannot guarantee that it will
or that the future rate of increase will be comparable to that in 1998.
Selling, general and administrative expenses ("SG&A") at 28.7% of
sales were 1.4 percentage points lower than the 1997 level of 30.1%.
Research and development ("R&D") expenses were 10.0% as compared to 10.3%
of sales in 1997. SG&A and R&D expenses were lower in 1998 compared to the
prior year as a percentage of sales, primarily due to the implementation of
integration activities. SG&A expenses include goodwill and intangible
amortization expenses arising out of the Coulter acquisition of $24.7
million or 1.4% of sales in 1998 compared to $4.3 million or 0.3% of sales
in 1997.
As a result, operating income before pretax special charges was $133.9
million or 7.8% of sales in 1998, compared with $104.4 million and 8.7% in
1997. Although the trend in operating income before pretax special charges
during the four quarters in 1998 was favorable increasing from 2.1% in the
first quarter to 12.6% in the fourth quarter, we cannot guarantee the trend
will continue into the future. Both the 1998 and 1997 operating income
before pretax special charges included increased cost of sales for
inventory recorded at fair value and on-going goodwill and intangible
amortization expenses arising out of the Coulter acquisition. Without
these items, the operating margin would have been 9.6% in 1998 compared to
10.0% in 1997.
As integration work progressed during 1998, acquisition-related costs
were lower than those originally anticipated at the end of 1997, while
plans to restructure pre-acquisition Beckman operations were expanded. The
final purchase accounting entries resulted in a one-time reduction of $35.7
million in goodwill while a $19.1 million charge was recorded in the fourth
quarter to reflect the updated restructure plans. This charge reduced the
reported operating income to $114.8 million for 1998. In 1997 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 and reduced foreign exchange gains
increased net nonoperating expenses. These were partially offset by gains
due to increased interest income from leases (some of which was
attributable to Coulter).
The net earnings for 1998 were $33.5 million compared with a net loss
of $264.4 million in 1997. The net loss in 1997 excluded any tax benefit
for the $282.0 million charge for in-process research and development since
it was not deductible for income tax purposes.
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"), complementing the existing agreement with
Voluntary Hospitals of America ("VHA"), which acquired UHC. In 1997 as in
1996, international sales accounted for approximately 50% of total sales.
Gross profit at 49.1% of sales was 4.4 percentage points lower than
the 1996 level of 53.5%. Increased 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.
At 30.1% of sales, SG&A expenses were one percentage point lower than
the 1996 level of 31.1%, despite the costs of acquisition activities
incurred during the year. R&D expenses remained at 1996 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, included increased
cost of sales related to inventory recorded at fair value 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 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 1997 net loss excluded any tax
benefit for the $282.0 million charge for in-process research and
development since it did not qualify as a deduction for income tax
purposes.
4. Financial Condition
Liquidity and Capital Resources:
Liquidity is our ability to generate sufficient cash flows from
operating activities to meet our obligations and commitments. In addition,
liquidity includes the ability to obtain appropriate financing and to
convert those assets that are no longer required to meet existing strategic
and financing objectives into cash flows. 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, our liquidity needs arise primarily from:
- debt service on the substantial indebtedness we incurred in connection
with the Coulter acquisition;
- funding the costs of integrating the operations of Beckman and
Coulter;
- working capital requirements; and
- capital expenditures.
In 1998 cash used in operations was $1.8 million compared to cash
provided by operations of $137.8 million in 1997 and $139.1 million in
1996. The decrease is largely the result of a decrease of $191.0 million in
accounts payable and accrued liabilities. This change primarily relates to
payments towards the purchase and assumed liabilities recorded as part of
the Coulter acquisition. Additional cash outflow resulted from a $24.1
million reduction in the 1997 restructure reserve partially offset by a
$19.1 million restructuring charge recorded in 1998. These decreases were
partially offset by an increase in net earnings, after adding back the effects
of depreciation, amortization and special charges. Additionally, the 1998
results included $68.9 million in cash proceeds from the sale of sales-type
lease receivables compared to $35.7 million in 1997. See Note 5 "Sale of
Assets" of the Notes to Consolidated Financial Statements.
Investing activities provided $123.4 million of cash inflow. Cash
used by investing activities was $929.1 million in 1997 and $114.6 million
in 1996. In 1998 we received cash proceeds of $242.8 million from the sale-
leaseback of four real estate properties. Excluding this, 1998 cash used
in investing activities was $119.4 million, which primarily reflects
capital expenditures, net of proceeds from disposal of property, plant and
equipment. This amount is slightly larger than in previous years due to the
addition of Coulter expenditures for a full year. In 1997 investments and
acquisitions used $893.9 million primarily relating to the acquisition of
Coulter. An additional $39.6 million of cash proceeds were provided in 1997
through the sale and leaseback of instruments. See Note 5 "Sale of Assets"
of the Notes to Consolidated Financial Statements.
Financing activities used $130.0 million of cash flows as total debt
(including notes payable) was reduced $141.5 million. This reflects a
substantial change from financing activity in 1997 when we reported a net
increase of $827.8 million in debt. The increase in 1997 primarily
reflected the $1.2 billion borrowed to finance the Coulter acquisition, net
of any repayments. Another significant change reflected in financing
activities is related to treasury stock purchases. In 1997 and 1996 we
used $43.7 million and $35.9 million, respectively, to purchase treasury
stock. In 1998, due to the level of outstanding debt and our efforts to
reduce those liabilities, we decided not to purchase any treasury stock.
Proceeds from sales of treasury stock and dividends to stockholders
increased slightly over the previous years.
During the fourth quarter of 1997, we secured a new $1.3 billion
credit facility to finance the acquisition of Coulter. See further
discussion of the credit facility and borrowing availability thereunder
and under the Company's other borrowing facilities in Note 7
"Debt Financing" of the Notes to Consolidated Financial Statements.
The interest expense associated with the debt outstanding under the credit
facility creates an increased demand on future operating cash flows.
Although we believe our consolidated operations will provide sufficient
cash flow in excess of anticipated operating requirements in order to
service the debt, we have implemented a plan to decrease the level of
outstanding borrowings more rapidly. This ultimately is expected to
provide savings on the associated interest cost, partially offset by
increased rental expense as a result of any sale-leaseback transactions.
Based upon current levels of operations and anticipated cost savings
and future growth, we believe our cash flow from operations, together with
available borrowings under the credit facility ($120.0 million as of
December 31, 1998) and other sources of liquidity (including leases, any
other available financing sources, and the proceeds of the planned asset
sales discussed previously), will be adequate to meet our 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 our business will continue to generate cash flow
at or above current levels or that estimated cost savings or growth can be
achieved. Future operating performance and ability to service or refinance
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.
Financial Risk Management:
Our risk management program developed by senior management and
approved by the board, seeks to minimize the potential negative effects of
changes in foreign exchange rates and interest rates on the results of our
operations. Our primary exposures to market risk are due to foreign
exchange risk and interest rate risk.
Foreign exchange risk arises from our exposure to fluctuations in
foreign currency exchange rates because our reporting currency is the U.S.
dollar and we derive approximately 50% of our sales by transacting business
in various foreign currencies. U.S. dollar-denominated costs and expenses
as a percentage of total operating costs and expenses are much greater
compared to U.S. dollar-denominated sales as a percentage of total net
sales. As a result, appreciation of the U.S. dollar against our major
trading currencies has a negative impact on our results of operations, and
depreciation of the U.S. dollar against such currencies has a positive
impact.
We seek to minimize the exposure to foreign currency fluctuations
through natural internal offsets to the fullest extent possible. When
opportunities for natural internal offsets to our currency risk (arising
from both cash inflows and outflows denominated in the same currency) are
exhausted, we use derivative financial instruments to function as "hedges".
We use forward contracts, purchased option contracts, and complex option
contracts (consisting of purchased and sold options), to hedge transactions
with our foreign customers. Our policies do not permit us to use these
instruments for speculative or trading purposes.
On January 1, 1999, the countries of the European Union adopted a
single currency known as the "euro". The euro will, after January 1, 2002,
be the only official currency in the European Union countries. Although
the effect of this conversion on the results of our operations may be
significant from a foreign currency or product pricing perspective, we are
unable to measure such impact at this time. See details on the euro
conversion under "Euro - the new European currency".
Our exposure to interest rate risk arises out of our long-term debt
obligations. We do not use derivative instruments to hedge our investment
portfolio, which consists of short-term investments (maturity of less than
a year). Under the guidance of our risk management policies, we use
interest rate swap contracts on certain borrowing transactions. With the
aid of these contracts, we seek to reduce the interest rate risk by
changing the character of the interest rate on our long-term debt,
converting a variable rate to a fixed rate and vice versa.
The Securities and Exchange Commission requires that registrants
include information about potential effects of changes in currency exchange
and interest rates in their financial statements. Several alternatives,
all with some limitations, have been offered. The following discussion is
based on sensitivity analysis, which models the effects of fluctuations in
currency exchange rates and interest rates. This analysis is constrained
by several factors, including the following:
- the analysis is based on a single point in time; and
- the analysis does not include the effects of other complex market
reactions that would arise from the changes modeled.
Although the results of the analysis may be useful as a benchmark, they
should not be viewed as forecasts.
We estimated the sensitivity of the fair value of all derivative
foreign exchange contracts to hypothetical 10% strengthening and 10%
weakening of the spot exchange rates for the U.S. dollar against the
foreign currencies at December 31, 1998. The analysis showed that a 10%
strengthening of the U.S. dollar would result in a gain in fair value of
$30.5 million and a 10% weakening of the U.S. dollar would result in a loss
in fair value of $27.4 million in these instruments. Losses and gains on
the underlying transactions being hedged would largely offset any gains and
losses on the fair value of derivative contracts. These offsetting gains
and losses are not reflected in the above analysis.
Similarly, we performed sensitivity analysis on the interest rate
sensitive instruments. A one percentage point increase or decrease in
interest rates was estimated to decrease or increase next year's pre-tax
earnings by $4.9 million.
For accounting treatments of these various hedge instruments, see
discussion under "Significant Accounting Policies". For further discussion
of this topic, see Note 9 "Derivatives" of the Notes to Consolidated
Financial Statements.
Inflation:
We continually monitor inflation and the effects of changing prices.
Inflation increases the cost of goods and services used. Competitive and
regulatory conditions in many markets restrict our ability to fully recover
the higher costs of acquired goods and services through price increases. We
attempt 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 our opinion, been managed appropriately and as a result have not
had a material impact on our operations and the resulting financial
position.
Environmental Matters:
We are subject to federal, state, local and foreign environmental laws
and regulations. Although we continue to make expenditures for
environmental protection, we do not anticipate any significant expenditure
to comply with such laws and regulations that would have a material impact
on our results of operations, financial position or liquidity. We believe
our operations comply in all material respects with applicable federal,
state, and local environmental laws and regulations.
To address contingent environmental costs, we establish reserves when
such costs are probable and can be reasonably estimated. Based on current
information and regulatory compliance (taking third party indemnities into
consideration), we believe we have established adequate reserves for
environmental expenditures. We may incur additional costs that exceed the
reserves. But based on current knowledge, we do not expect such amounts to
have a material impact on our results of operations, financial position, or
liquidity, although we do not give any assurance in this regard. See
further discussion in Note 14 "Commitments and Contingencies" of the Notes
to Consolidated Financial Statements.
Litigation:
We are currently, and are from time to time, subject to claims and
lawsuits arising in the ordinary course of our business, including those
relating to:
- intellectual property;
- contractual obligations;
- competition; and
- employment matters.
In certain such actions, the plaintiffs may request punitive or other
damages or nonmonetary relief, which may not be covered by insurance. If
granted, nonmonetary relief could materially affect the conduct of our
business. We accrue for potential liabilities involved in these matters as
they become known and can be reasonably estimated. In our opinion (taking
third party indemnities into consideration), the various asserted claims
and litigation in which we are currently involved are not reasonably likely
to have a material adverse effect on our business, results of operations,
financial position or liquidity. However, we do not give any assurance as
to the ultimate outcome of such claims and litigation. The resolution of
such claims and litigation could be material to our operating results for
any particular period, depending on the level of income for such period.
See further discussion of these matters in Note 14 "Commitments and
Contingencies" of the Notes to Consolidated Financial Statements.
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, results of operations, financial position
or liquidity as a result of Year 2000 issues.
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/ Implement-
Inventory Assessment Remediation Validation ation
--------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Products &
services Complete Complete Complete Complete Q1 1999
Management
information
systems Complete Complete Q1 1999(3) Q2 1999(3) Q2 1999(3)
Suppliers
(materials
& services) Complete Complete Q1 1999 Q1 1999 Q1 1999
Engineering
&
manufacturing Complete Q1 1999 Q2 1999 Q3 1999 Q3 1999
Office
equipment Complete Q1 1999 Q2 1999 Q2 1999(3) Q2 1999(3)
Facilities Complete Q2 1999 Q2 1999 Q3 1999 Q3 1999(3)
and
Utilities Complete Q2 1999 (2) (2) (2)
</TABLE>
(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.
(3) Revised target date.
A number of our products include computer hardware and software,
including substantial custom software. During 1998, we began providing our
customers information about the Year 2000 status of our products. 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 believe the impact to our business based on Year 2000 product
performance issues or litigation related to those issues will not be
material. However, we cannot give any assurances to that effect until our
entire inventory, assessment, and remediation activities are completed.
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, municipal
and foreign government agencies, and the state of readiness of those
government agencies is of concern. At this time we believe the most
reasonably likely worst case scenario involves a significant interruption
in the ability of one or more government agencies to reimburse those
customers, which could lead to a significant interruption in cash received
from affected customers. We are unable to estimate either the likelihood
or the potential cost of such an occurrence.
We do not expect that the cost of our Year 2000 program will be
material to our business, results of operations, financial position or
liquidity. We anticipate that the total cost for our Year 2000 program
through 1999 will be approximately $9.0 million. Through December 31, 1998
we have spent approximately $3.8 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 are currently determining the extent to which contingency plans are
necessary for each aspect of our business with respect to Year 2000 issues
(including most reasonably likely worst case Year 2000 scenarios), and
intend to determine those contingency plans by the end of the first quarter
of 1999.
Euro - the new European currency:
The countries of the European Union have adopted a single currency
known as the "euro". The euro came into existence on January 1, 1999, and
is the official currency for the countries of the Economic and Monetary
Union (Austria, Belgium, Finland, France, Germany, Holland, Ireland, Italy,
Luxembourg, Portugal and Spain), with national currencies expressed as a
denomination (national currency units) of the euro. During the three-year
transition period following its introduction, countries will be allowed to
transact business both in the euro and in their own currencies at fixed
exchange rates. On January 1, 2002, the euro will be the only currency in
Economic and Monetary 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 requires that we make modifications to our internal operations as well
as to our external business arrangements. For example, product pricing and
sales proposals are now available in the euro. Similarly, our billing and
disbursement functions have been 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. Major
initiatives resulting from the recommendations of the task force are:
- create a "Beckman Coulter Euro Information Center" to facilitate
worldwide communication related to the euro;
- accommodate our customers' preferences for their national currency or
the euro during the transition period;
- operate in a multi-currency environment (including the euro, national
currency and the U.S. dollar), during the transition period, in
all the European countries in which we do business; and
- adopt use of the euro for internal systems and reporting as of
December 1, 2001.
We do not expect the cost of this effort to have a material effect on
our business, results of operations, financial position or liquidity.
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 the effects of any such impact at this time.
Recent Accounting Developments:
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The provisions of the
statement require the recognition of all derivatives as either assets or
liabilities in the consolidated balance sheet and the measurement of those
instruments at fair value. The accounting for changes in the fair value of
a derivative depends on the intended use of the derivative and the
resulting designation. This statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. We are required to adopt
the statement in the first quarter of 2000. We are studying the impact of
this pronouncement on our financial statements. We have not yet determined
the impact on our results of operations.
In 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", which provides
guidance concerning recognition and measurement of costs associated with
developing or acquiring software for internal use. In 1998, the AICPA also
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities", which provides guidance concerning the costs of start-up
activities. For accounting purposes start-up activities are defined as one-
time activities related to opening a new facility, introducing a new
product or service, conducting business in a new territory or with a new
class of customer, initiating a new process in an existing facility, or
commencing some new operation. Both pronouncements are effective for
financial statements of years beginning after December 15, 1998, with
earlier application encouraged. We do not believe that adoption of these
pronouncements will have a material impact on our financial statements.
5. Business Climate
The clinical diagnostics and life science research markets are each
highly competitive and we encounter 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 government cost containment initiatives in Europe as
well as healthcare cost containment in general. The life science research
market also continues to be affected by consolidations of pharmaceutical
companies and governmental constraints on research and development
spending, especially outside the United States.
In the clinical diagnostics market, attempts to lower costs and to
increase productivity have led to further consolidation among healthcare
providers in the United States, resulting in more powerful provider groups
that continue to 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 remain competitive. Cost
containment initiatives in the United States and in the European healthcare
systems will continue to be factors, which may affect our 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 at the current levels or strengthened.
Our new products originate from four sources:
- internal research and development programs;
- external collaborative efforts with individuals in academic
institutions and technology companies;
- devices and techniques that are generated in customers' laboratories;
and
- business and technology acquisitions.
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. Our acquisition of Coulter was a clear indicator of our resolve
to become a broad-based world leader in in-vitro diagnostic testing by
expanding our product offering. Beckman Coulter is now 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, Beckman 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 our markets are influenced by a number of factors,
including:
- technological innovation in bio-analytical 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;
- healthcare spending; and
- physician practice.
We expect worldwide healthcare expenditures and diagnostic testing to
increase over the long-term, primarily as a result of the following:
- growing demand for services generated by the aging of the world
population;
- increasing expenditures on diseases requiring costly treatment (for
example, AIDS and cancer); and
- expanding demand for improved healthcare services in developing
countries.
With Coulter and the two earlier acquisitions in immunochemistry-based
diagnostics, Hybritech, and the Access (Registered) immunoassay product line
of Sanofi, we completed a major strategic initiative intended to build on our
leadership position in automated clinical chemistry and create a broad
based capability in routine clinical chemistry. We are 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. We believe we are able to
provide significant value added benefits, enhanced through our expertise in
simplifying and automating laboratory processes, to our customers.
6. Taxes
We are subject to taxation in many jurisdictions throughout the world.
Our effective tax rate and tax liability will be affected by a number of
factors, such as:
- the amount of taxable income in particular jurisdictions;
- the tax rate in such jurisdictions;
- tax treaties between jurisdictions;
- the extent to which income is repatriated; and
- future changes in the law.
Generally, our tax liability in a particular jurisdiction is
determined either on an entity-by-entity (non-consolidated) basis or on a
consolidated basis including only those entities incorporated in the same
jurisdiction. In those jurisdictions where consolidated tax reporting is
not permitted, we may pay income taxes even though on an overall basis we
may have incurred a net loss for the period.
7. Forward Looking Statements
This annual report contains forward-looking statements, including
statements regarding, among other items:
- our business strategy;
- anticipated trends in our business and plans to reduce indebtedness;
- our liquidity requirements and capital resources;
- anticipated proceeds from sales of assets; and
- the impact of Year 2000 issues, the euro conversion and inflation 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:
- complexity and uncertainty regarding development of new high-
technology products;
- loss of market share through aggressive competition in the clinical
diagnostics and life science research markets;
- our dependence on capital spending policies and government funding;
- the effect of potential health-care reforms;
- fluctuations in foreign exchange rates and interest rates;
- reliance on patents and other intellectual property;
- unanticipated reductions in cash flows and difficulty in sales of
assets;
- unanticipated Year 2000 or euro problems; and
- 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>
BECKMAN COULTER, INC.
Consolidated Balance Sheets
In millions, except amounts per share
December 31,
1998 1997
---- ----
<TABLE>
<CAPTION>
<S> <C> <C>
Assets
Current assets
Cash and equivalents $ 24.7 $ 33.1
Short-term investments - 0.4
Trade and other receivables 540.2 524.6
Inventories 302.8 332.3
Deferred income taxes 60.5 53.0
Other current assets 28.4 33.3
------ ------
Total current assets 956.6 976.7
Property, plant and equipment, net 309.4 410.9
Intangibles, less accumulated
amortization
of $24.6 in 1998 and $10.6 in 1997 419.1 444.9
Goodwill, less accumulated
amortization of
$14.9 in 1998 and $6.0 in 1997 356.1 402.8
Other assets 92.1 95.7
-------- --------
Total assets $2,133.3 $2,331.0
======== ========
Liabilities and Stockholders' Equity
Current liabilities
Notes payable $ 111.2 $ 49.0
Current maturities of long-term debt 23.9 19.9
Accounts payable 84.7 96.3
Accrued compensation 70.0 84.6
Other accrued expenses 368.3 575.5
Income taxes 61.2 69.6
-------- --------
Total current liabilities 719.3 894.9
Long-term debt, less current
maturities 982.2 1,181.3
Deferred income taxes 42.8 40.3
Other liabilities 262.1 132.7
-------- -------
Total liabilities 2,006.4 2,249.2
Commitments and contingencies (see
Note 14)
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
28.4 at 1998 and
27.6 at 1997 2.9 2.9
Additional paid-in capital 131.9 126.6
Retained earnings 35.4 19.0
Accumulated other comprehensive loss:
Cumulative foreign currency
translation adjustments (13.9) (13.8)
Treasury stock, at cost (29.4) (52.9)
-------- --------
Total stockholders' equity 126.9 81.8
-------- --------
Total liabilities
and stockholders' equity $2,133.3 $2,331.0
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BECKMAN COULTER, INC.
Consolidated Statements of Operations
In millions, except amounts per share
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales $1,718.2 $1,198.0 $1,028.0
Cost of sales 920.6 609.7 477.8
-------- -------- --------
Gross profit 797.6 588.3 550.2
-------- -------- --------
Operating costs and expenses
Selling, general and
administrative 492.3 360.3 319.3
Research and development 171.4 123.6 108.4
In-process research and
development - 282.0 -
Restructuring charge 19.1 59.4 -
------ ------ ------
682.8 825.3 427.7
------ ------ ------
Operating income (loss) 114.8 (237.0) 122.5
Nonoperating expense
Interest income (13.4) (6.1) (5.8)
Interest expense 87.8 29.4 18.1
Other, net (6.2) (8.4) (1.3)
------ ------ ------
68.2 14.9 11.0
------ ------ ------
Earnings (loss) before
income taxes 46.6 (251.9) 111.5
Income taxes 13.1 12.5 36.8
------ ------ ------
Net earnings (loss) $ 33.5 $(264.4) $ 74.7
======= ======= =======
Basic earnings (loss) per share $ 1.19 $ (9.58) $ 2.66
======= ======= =======
Weighted average number
of shares outstanding 28.0 27.6 28.0
======= ======= =======
Diluted earnings (loss) per share $ 1.14 $ (9.58) $ 2.58
======= ======= =======
Weighted average number of shares
and dilutive
securities outstanding 29.3 27.6 28.9
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BECKMAN COULTER, INC.
Consolidated Statements of Stockholders' Equity
In millions, except amounts per share
<TABLE>
<CAPTION>
Accumula-
Addi- ted Other Total
tional Compre- Total Compre-
Paid- hensive Stock- hensive
Common in Retained (Loss) Treasury holders'Income
Stock Capital Earnings Income Stock Equity (Loss)
----- ------- -------- ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Stockholders'
equity at
December
31, 1995 $ 2.9 $ 129.0 $240.0 $ (1.5) $(22.5) $347.9
=========================================================
Net earnings - - 74.7 - - 74.7 $74.7
Foreign currency
translation
adjustments - - - (4.5) - (4.5) (4.5)
Minimum pension
liability - - - 9.9 - 9.9 9.9
---------------------------------------------------------
Comprehensive
income for
the year ended
December 31,
1996 - - 74.7 5.4 - - $80.1
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
-----------------------------------------------------------
Stockholders'
equity at
December
31, 1996 $ 2.9 $ 128.9 $ 300.0 $ 3.9 $(36.8) $398.9
===========================================================
Net loss - - (264.4) - - (264.4) $(264.4)
Foreign currency
translation
adjustments - - - (17.7) - (17.7) (17.7)
Comprehensive
loss for
the year ended
December 31,
1997 - - (264.4) (17.7) - - $(282.1)
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
----------------------------------------------------------
Stockholders'
equity at
December 31,
1997 $ 2.9 $126.6 $ 19.0 $(13.8) $(52.9) $ 81.8
==========================================================
Net earnings - - 33.5 - - 33.5 $33.5
Foreign currency
translation
adjustments - - - (0.1) - (0.1) (0.1)
----------------------------------------------------------
Comprehensive
income for
the year ended
December 31,
1998 - - 33.5 (0.1) - - $33.4
Dividends to
stockholders,
$0.61 per share - - (17.1) - - (17.1)
Employee stock
purchases - 5.3 - - 23.5 28.8
---------------------------------------------------------
Stockholders'
equity at
December 31,
1998 $ 2.9 $131.9 $ 35.4 $(13.9) $(29.4) $126.9
========================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BECKMAN COULTER, INC.
Consolidated Statements of Cash Flows
In millions
Years ended December 31,
1998 1997 1996
---- ---- ----
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings (loss) $33.5 $(264.4) $ 74.7
Adjustments to reconcile net earnings (loss)
to net cash (used) provided by operating
activities
Depreciation and amortization 152.4 109.1 87.8
Net deferred income taxes (5.0) (5.1) 11.3
Write-off of acquired in-process
research and development - 282.0 -
Proceeds from sale of sales-type
lease receivables 68.9 35.7 -
Changes in assets and liabilities,
net of acquisitions
Trade and other receivables (58.3) (53.1) (26.1)
Inventories 23.9 18.2 (26.4)
Accounts payable and accrued
expenses (191.0) (3.4) 30.7
Accrued restructuring costs (5.4) 44.4 (10.6)
Accrued income taxes (8.4) 1.0 7.0
Other (12.4) (26.6) (9.3)
------ ------ ------
Net cash (used) provided by
operating activities (1.8) 137.8 139.1
------ ------ ------
Cash Flows from Investing Activities
Additions to property, plant and
equipment (165.2) (100.9) (110.5)
Proceeds from sale-leaseback of
instruments
subject to customer leases - 39.6 -
Proceeds from sale-leaseback of
real estate 242.8 - -
Net disposals of property,
plant and equipment 45.4 18.4 18.7
Sales of short-term investments 0.4 7.7 0.2
Investments and acquisitions - (893.9) (23.0)
------ ------ ------
Net cash provided (used) by
investing activites 123.4 (929.1) (114.6)
------ ------ ------
Cash Flows from Financing Activities
Dividends to stockholders (17.1) (16.6) (14.7)
Proceeds from issuance of stock 28.6 23.1 21.5
Purchases of treasury stock - (43.7) (35.9)
Net notes payable borrowings
(reductions) 56.6 11.7 (2.4)
Long-term debt borrowings 411.0 1,164.2 128.3
Long-term debt reductions (609.1) (348.1) (113.0)
------ ------- ------
Net cash (used) provided by
financing activities (130.0) 790.6 (16.2)
------ ------- ------
Effect of exchange rates on cash and
equivalents - (0.8) 0.1
------ ------- ------
(Decrease) increase in cash and
equivalents (8.4) (1.5) 8.4
Cash and equivalents-beginning of
year 33.1 34.6 26.2
------ ------- ------
Cash and equivalents-end of year $ 24.7 $ 33.1 $ 34.6
====== ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
In millions
Years ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Supplemental Disclosures of Cash Flow
Information
Cash payments for interest $ 88.4 $ 18.7 $ 18.3
Cash payments for income taxes 21.5 12.9 19.2
Noncash Investing and
Financing Activities
Conversion of notes receivable - - 8.1
Minimum pension liability - - (9.9)
Purchase of equipment under capital
lease obligation 9.7 9.8 6.9
Issuance of Restricted Stock as
employee compensation 0.3 2.2 -
----- ----- -----
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BECKMAN COULTER, INC.
Notes to Consolidated Financial Statements
Tabular dollar amounts in millions, except amounts per share
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business
Beckman Coulter, Inc. is 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. Approximately 80% of our 1998 sales were for clinical
diagnostics applications, principally in hospital laboratories, while the
remaining sales were for life science research applications (including drug
discovery) in universities, medical schools, and pharmaceutical and
biotechnology companies.
Principles of Consolidation
The consolidated financial statements include the accounts of Beckman
Coulter, Inc., and its wholly owned subsidiaries. The consolidated entity
is sometimes 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 financial statements include the assets and liabilities and the
operating results of all subsidiaries operating outside the U.S. Balance
sheet amounts for these subsidiaries are as of November 30, 1998 and
November 30, 1997. The operating results for the international
subsidiaries are for the twelve-month periods ending on those dates, except
as follows. Coulter Corporation ("Coulter") was acquired October 31, 1997
and its results are included subsequent to that date. However, in order to
be consistent with the way the Company reports its international results,
the reporting of Coulter's international results of operations has been
lagged by one month in 1998. Therefore, the results of 1998 include only
January through November sales and expenses for Coulter operations outside
the United States. The exclusion of one month's results for Coulter
international subsidiaries was not significant.
Use of Estimates
In preparing the financial statements conforming to Generally Accepted
Accounting Principles ("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 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, 1998 and 1997. The 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
We use derivative financial instruments to hedge only foreign currency
and interest rate market exposures of underlying assets, liabilities and
other obligations. Our policy is:
- not to speculate in derivative instruments in order to profit from
foreign currency exchange or interest rate fluctuations; and
- not to enter trades for which there are no underlying exposures.
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. See Note 9 "Derivatives" for accounting
treatment of derivative financial instruments.
Stock-Based Compensation
In 1996 we implemented Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). As
permitted by SFAS 123, we continue 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 shares at the grant date. Generally, we issue options
to employees with a grant price equal to the market value of our common
stock on the grant date. Accordingly, we have recognized no compensation
expense on our stock option plans. We also do not recognize compensation
expense on stock issued to employees under our stock purchase plan, where
the discount from the market value is not material. As required by SFAS
123, we disclose in Note 12 "Employee Benefits", the pro forma effect on
earnings, as if compensation costs were recorded at the estimated fair
value of the stock options granted.
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.
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
We 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.
Environmental Expenditures
We accrue 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. Credit
is extended based upon the evaluation of the customer's financial condition
and generally does not require collateral. 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
Research and development costs are charged to operations as incurred.
In-process research and development is charged to operations in the period
acquired.
Nonoperating Income and Expenses
Our nonoperating income and expenses are generally comprised of five
primary items: (i) interest expense, (ii) interest income, (iii) foreign
exchange gains or losses, (iv) income (loss) from 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 our 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
We use 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
We 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 Opinion No. 15, "Earnings Per Share," ("APB 15") 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 our common shares during the period. Earnings per
share amounts for 1996 have been restated in accordance with SFAS 128. See
Note 15 "Earnings (Loss) Per Share" for computation of EPS.
Comprehensive Income
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 (loss), foreign currency translation adjustments and changes in
minimum pension liability. The adoption of SFAS 130 required additional
disclosures but did not have a material effect on our financial position,
results of operations or liquidity.
Recent Accounting Developments
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The provisions of the
statement require the recognition of all derivatives as either assets or
liabilities in the Consolidated Balance Sheet and the measurement of those
instruments at fair value. The accounting for changes in the fair value of
a derivative depends on the intended use of the derivative and the
resulting designation. This statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. We are required to adopt
the statement in the first quarter of the year 2000. We are studying the
impact of this pronouncement on our financial statements. We have not yet
determined the impact on our results of operations.
In 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", which provides
guidance concerning recognition and measurement of costs associated with
developing or acquiring software for internal use. In 1998, the AICPA also
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities", which provides guidance concerning the costs of start-up
activities. For accounting purposes start-up activities are defined as one-
time activities related to opening a new facility, introducing a new
product or service, conducting business in a new territory or with a new
class of customer, initiating a new process in an existing facility, or
commencing some new operation. Both pronouncements are effective for
financial statements of years beginning after December 15, 1998, with
earlier application encouraged. We do not believe that adoption of these
pronouncements will have a material impact on our financial statements.
Reclassifications
We made certain reclassifications to prior year amounts to conform to
the current year presentation.
2. Composition of Certain Financial Statement Captions
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Trade and other receivables
Trade receivables $ 488.9 $ 488.5
Other receivables 50.2 30.0
Current portion of lease receivables 21.8 23.5
Less allowance for doubtful
receivables (20.7) (17.4)
-------- --------
$ 540.2 $ 524.6
======== ========
Inventories
Finished products $ 183.2 $ 206.5
Raw materials, parts and assemblies 95.1 99.1
Work in process 24.5 26.7
-------- --------
$ 302.8 $ 332.3
======== ========
</TABLE>
2. Composition of Certain Financial Statement Captions (continuation from
previous page)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Property, plant and equipment, net
Land $ 17.3 $ 74.1
Buildings 142.7 240.2
Machinery and equipment 371.7 382.9
Instruments subject to lease(a) 286.7 205.6
-------- --------
818.4 902.8
-------- --------
Less accumulated depreciation
Building, machinery and equipment (330.7) (365.4)
Instruments subject to lease(a) (178.3) (126.5)
-------- --------
$ 309.4 $ 410.9
======== ========
Other accrued expenses
Accrued restructuring costs $ 41.6 $ 47.0
Unrealized service income 68.1 63.8
Insurance 18.9 27.2
Accrued warranty and
installation costs 16.4 18.6
Severance and related costs 58.0 109.6
Closure of offices and manufacturing
facilities 7.7 23.0
Change in control payments 10.0 36.0
Contractual obligations of Coulter 2.4 103.0
Other 145.2 147.3
-------- --------
$ 368.3 $ 575.5
======== ========
</TABLE>
(a) Includes instruments leased to customers under three- to five-year
cancelable operating leases.
3. Acquisitions
We made no acquisitions in 1998. During 1997 and 1996, we made
several acquisitions as discussed below, all of which were accounted for
using the purchase method of accounting. The operating results of these
acquired businesses have been included in the Consolidated Statements of
Operations from the dates of acquisition.
On October 31, 1997, we acquired all of the outstanding capital stock
of Coulter Corporation 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 diagnostics systems for blood cell analysis. The
purchase of Coulter was financed with the net proceeds from a new $1,300.0
million credit facility. See Note 7 "Debt Financing".
As a result of the acquisition, we originally recorded $374.4 million
in goodwill. Goodwill reflects the excess of the purchase price and
purchase and assumed liabilities over the fair value of net identifiable
assets and in-process research and development projects acquired. After
the final entries for purchase accounting were made in the fourth quarter
of 1998, we had reduced recorded goodwill by $35.7 million. This reflects
changes in estimated purchase and assumed liabilities as well as changes in
values of acquired assets upon receipt of the final valuation analyses.
Other acquired intangibles amounted to $404.0 million, including $170.0
million attributable to the installed customer base acquired and $116.0
million of developed technology acquired. Acquired in-process research and
development of $282.0 million was charged to expense in the fourth quarter
of 1997 in accordance with GAAP. Purchase and assumed liabilities recorded
in 1997 totaled approximately $303.1 million. These liabilities were
reduced by a net $17.1 million as a result of the finalization of purchase
accounting in 1998.
Details of total purchase and assumed liabilities recorded and
activity in these accounts through December 31, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at October 31, 1997 $303.1
======
1997 activity:
Personnel (14.6)
Cancellations & dealer
penalties (2.6)
-----
Total 1997 activity (17.2)
======
Balance at December 31,
1997:
Personnel 195.4
Facility consolidations 14.0
Cancellations & dealer
penalties 11.8
Tax issues 16.6
Other 48.1
-----
Balance at December 31, 1997 285.9
=====
1998 activity(1) :
Personnel (125.0)
Facility consolidations (6.3)
Cancellations & dealer
penalties (1.7)
Other (42.9)
-----
Total 1998 activity (175.9)
=====
Balance at December 31,
1998:
Personnel 70.4
Facility consolidations 7.7
Cancellations & dealer
penalties 10.1
Tax issues 16.6
Other 5.2
------
Balance at December 31, 1998 $110.0
======
</TABLE>
(1)1998 activity includes a reduction of $17.1 million, a result of the
finalization of purchase accounting entries.
As our 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, 1996, giving
effect to purchase accounting adjustments. The unaudited 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 $ 9.9 $ 29.8
Basic earnings per share $ 0.36 $ 1.06
Diluted earnings per share $ 0.34 $ 1.03
--------- ----------
</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; and
- estimated income tax effect on the pro forma adjustments.
The pro forma statements do not include the $282.0 million write-off
of in-process research and development and the $59.4 million accrued
restructuring costs, as they are non-recurring charges. 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 our weighted
average number of common shares and dilutive common share equivalents during
1997 and 1996.
In April 1997 we acquired the Access(R) immunoassay product line and
related manufacturing facility from Sanofi. The acquisition also
established an ongoing alliance in immunochemistry between our Company and
Sanofi. The Access(R) product line, together with the earlier acquisition of
Hybritech and our own immunochemistry/protein products, creates a major
presence for us in the field of immunochemistry.
In December 1996 we 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 our own bio-
robotics systems, we enhanced our ability to serve the pharmaceutical
industry's need for high-throughput screening ("HTS") of candidate
compounds for new drugs.
In January 1996, we also acquired the assets and assumed the
liabilities of Hybritech, a San Diego-based life sciences and diagnostic
company. The acquisition expanded our ability to develop and manufacture
high sensitivity immunoassays, including cancer tests.
In May 1995, we initiated our acquisition of Genomyx Corporation of
Foster City, California. Genomyx is a developer and manufacturer of
advanced DNA sequencing products and complements our 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
1998 Restructuring:
We recorded a restructuring charge of $19.1 million, $11.2 million
after taxes, in the fourth quarter of 1998. This charge includes $13.3
million for personnel related and dealer termination costs. The work force
reductions anticipated under this plan, total approximately 75 positions in
Europe, Asia and North America in selling, general, administrative ("SG&A")
and technical functions and production related areas. The $5.8 million
provided for facility consolidation and asset related write-offs includes
$2.4 million for lease termination payments, and $3.4 million for the write-
off of machinery, equipment and tooling associated with those functions to
be consolidated. The liability is included in "Other Accrued Expenses."
<TABLE>
<CAPTION>
Facility
consolida-
tion
Personnel and asset
& Other related Total
write-offs
--------- ---------- -----
<S> <C> <C> <C>
Provision
Consolidation of SG&A and
technical functions $ 10.1 $ - $ 10.1
Changes in manufacturing
operations 3.2 5.8 9.0
------ ------ ------
Balance at December 31, 1998 $ 13.3 $ 5.8 $ 19.1
====== ====== ======
Prior Restructurings:
In the fourth quarter of 1997 we recorded a restructuring charge of
$59.4 million, $36.4 million after taxes. This charge included $37.3
million for personnel related costs. The work force reductions anticipated
under this plan, some of which occurred prior to the 1997 year-end totaled
approximately 500 positions in Europe, Asia and North America in selling,
general, administrative and technical functions and approximately 100
positions in production related areas. The $22.1 million provided 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.
At December 31, 1998, our remaining obligation related to the prior
restructuring charges was $22.5 million, which is included in "Other
Accrued Expenses."
The following table details the major components of the 1997
restructuring provision:
</TABLE>
<TABLE>
<CAPTION>
Facility
consolida-
tion
Personnel and asset
& Other related Total
write-offs
--------- ---------- -----
<S> <C> <C> <C>
Provision
Consolidation of SG&A 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
====== ====== ======
1997 activity
Consolidation of SG&A 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 SG&A 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
====== ====== ======
1998 Activity
Consolidation of SG&A and
technical functions (13.7) (9.3) (23.0)
Changes in manufacturing
operations (1.1) - (1.1)
------ ------ ------
Total 1998 activity (14.8) (9.3) (24.1)
====== ====== ======
Balance at December 31, 1998
Consolidation of SG&A and
technical functions 12.8 3.9 16.7
Changes in manufacturing
operations 1.9 3.9 5.8
------ ------ ------
Balance at December 31, 1998 $ 14.7 $ 7.8 $ 22.5
====== ====== ======
</TABLE>
In 1995, we also recorded a restructuring charge of approximately
$27.7 million. 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, our remaining obligation relating to
this restructuring charge was $0.4 million, which was utilized in 1998.
5. Sale of Assets
During 1998, we sold certain financial assets (primarily consisting of
customer lease receivables) as part of our plan to reduce debt and provide
funds for integration purposes. The net book value of financial assets
sold was $67.7 million for which we received approximately $68.9 million in
cash proceeds.
In December 1997, we sold $34.2 million of Coulter's sales-type lease
receivables, net of allowances, for cash proceeds of $35.7 million. 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 1998 and 1997 transactions
were accounted for as sales and as a result the related receivables have
been excluded from the accompanying Consolidated Balance Sheets. The sales
are subject to certain recourse and servicing provisions and as such we
have established reserves for these potential exposures.
Also in December 1997, we 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 million and were sold for cash proceeds of
$39.6 million. The gain is being deferred and credited to income, as a
rent expense adjustment over the lease term. Obligations under the
operating lease agreements are included in Note 14 "Commitments and
Contingencies".
6. Sale-leaseback of Real Estate
On June 25, 1998, we sold our interest in 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. As provided by the leases,
we pay the rents in Japanese Yen. Annual rentals are approximately $17.9
million at current year-end rates. 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 guaranteed by the Company.
We expect to pay the rents as they come due out of cash generated by
operations. Obligations under the operating lease agreements are included in
Note 14 "Commitments and Contingencies".
The Palo Alto property is owned by Stanford University and we had
leased it under a long-term ground lease. The Miami, Florida property was
formerly owned by Coulter. The buyers of all of the properties are not
affiliated with us.
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. 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 gains from
this transaction in our earnings and included it in "Other Liabilities".
The gain is being spread over the initial lease term of twenty years.
The remaining unrecognized gain was $130.1 million at December 31, 1998.
Proceeds from the above transaction were used primarily to reduce
outstanding borrowings under the $1,300.0 million credit facility. See
Note 7 "Debt Financing".
7. Debt Financing
Notes payable consists primarily of short-term bank borrowings by our
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, 1998 approximately $65.7 million of unused uncommitted short-term lines
of credit were available to our subsidiaries outside the U.S. at various
interest rates. Within the U.S., $16.8 million in unused committed short-
term lines of credit at market rates were available. Compensating balances
and commitment fees on these lines of credit are not material and there are
no withdrawal restrictions.
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
Average Rate
of
Interest 1998 1997
-------- ---- ----
<S> <C> <C> <C>
Senior Notes, unsecured,
due 2003 7.10% $ 160.0 $ -
Senior Notes, unsecured,
due 2008 7.45% 240.0 -
Credit Agreement -
Term loan facility - - 400.0
Credit Agreement -
Revolving credit facility 5.90% 430.0 600.0
Debentures 7.05% 100.0 100.0
Other long-term debt 5.33% 76.1 101.2
----- ----- -----
1,006.1 1,201.2
Less current maturities 23.9 19.9
------- -------
Long-term debt, less current
maturities $ 982.2 $1,181.3
======= ========
</TABLE>
In March 1998, we issued $160.0 million of 7.10% and $240.0 million of
7.45% unsecured Senior Notes due March 4, 2003 and 2008 (the "Senior
Notes"), respectively. We used the net proceeds of $394.3 million to
reduce borrowings and commitments under our Credit Agreement. Interest is
payable semi-annually in March and September. Discount and issuance costs
approximated $6.7 million which are being amortized to interest expense
over the term of the Senior Notes. The Senior Notes may be redeemed in
whole or in part, at our option at any time at a redemption price equal to
the greater of:
- the principal amount of the Senior Notes; or
- the sum of the present values of the remaining scheduled payments of
principal and interest thereon discounted to the redemption date on a
semi-annual basis at a comparable treasury issue rate plus a margin
of 0.25% for Senior Notes due 2003 and 0.375% for Senior Notes due 2008.
In connection with the issuance of the Senior Notes, certain of our
subsidiaries (the "Guarantor Subsidiaries") guaranteed such notes. See Note
8 "Guarantor Subsidiaries".
In October 1997, in conjunction with the acquisition of Coulter, we
cancelled our $150.0 million 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
million through 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"). Borrowings under the Credit Agreement
generally bear interest at current market rates plus a margin based upon
our senior unsecured debt rating or debt to earnings ratio, whichever is
more favorable. We are, therefore, subject to fluctuations in such
interest rates, which could cause our interest expense to increase or
decrease in the future. As a result of the substantial indebtedness
incurred in connection with the Coulter acquisition, our interest expense
will be higher and will have a much greater proportionate impact on net
earnings in comparison to pre-acquisition periods. We must also pay a
quarterly facility fee of 0.25% per annum at December 31, 1998 on the
average Credit Facility commitment. The Credit Agreement requires 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, which matures in October 2002, is not subject to any
scheduled principal amortization. In addition, approximately $6.8 million
of fees paid to enter the Credit Agreement are being amortized to interest
expense over the term of the Credit Agreement. In March 1998, the Term Loan
was paid using the proceeds from the issuance of the Senior Notes and, in
June 1998, the Credit Facility was reduced using the proceeds obtained from
the sale-leaseback of real estate. See Note 6 "Sale-leaseback of Real
Estate". In conjunction with these reductions in debt, we reduced the
Credit Agreement commitment from $1,300.0 million to $550.0 million by June
1998. As required by GAAP, the write-off of the fees paid to enter the
Credit Agreement has been accelerated. The unamortized fees at December
31, 1998 are $2.3 million. As of December 31, 1998, the Company's remaining
borrowing availability under the Credit Facility is $120.0 million.
Amounts not drawn under the Credit Facility will be available to meet future
working capital and other business needs of the Company.
In June 1996, we issued $100.0 million of debentures bearing an
interest rate of 7.05% per annum due June 1, 2026. Interest is payable
semi-annually in June and December. Discount and issuance costs of
approximately $1.5 million 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. In March 1998, the debenture
agreement was amended to increase the June 1, 2006 redemption price to
103.9% of the principal amount, together with accrued interest to June 1,
2006. The debentures may be redeemed, in whole or in part, at our option
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 semi-annual basis at a comparable treasury issue rate plus
a margin of 0.1%.
Other long-term debt at December 31, 1998 consists principally of
$58.9 million of notes used to fund the operations of our international
subsidiaries and notes given as partial consideration for an acquisition.
Some of the notes issued by our international subsidiaries are secured by
their assets. Notes used to fund our international subsidiaries amounted
to $76.6 million at December 31, 1997. Capitalized leases of $17.2 million
in 1998 and $24.6 million in 1997 are also included in other long-term
debt.
Certain of our borrowing agreements contain covenants that we must
comply with, for example: minimum net worth, maximum capital expenditures,
a debt to earnings ratio, a minimum interest coverage ratio and a maximum
amount of debt incurrence. At December 31, 1998, the Company was in
compliance with all such covenants.
The aggregate maturities of long-term debt for the five years
subsequent to December 31, 1998 are $23.9 million in 1999, $13.7 million in
2000, $8.6 million in 2001, $435.5 million in 2002, $173.7 million in 2003
and $350.7 million thereafter.
8. Guarantor Subsidiaries
We present below the supplemental condensed financial information 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. This supplemental financial information should
be read in conjunction with the Consolidated Financial Statements.
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Elimina- Consoli-
Parent diaries diaries tions dated
------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Condensed Consolidated
Balance Sheet
December 31, 1998
Assets:
Cash and equivalents $ 4.2 $ (0.1) $ 20.6 $ - $ 24.7
Trade and
other receivables 199.9 50.4 289.9 - 540.2
Inventories 146.5 52.6 134.6 (30.9) 302.8
Other current assets 149.0 396.4 86.7 (543.2) 88.9
----- ----- ----- ----- -----
Total current
assets 499.6 499.3 531.8 (574.1) 956.6
Property, plant and
equipment, net 120.7 89.1 156.3 (56.7) 309.4
Intangibles, net 33.0 384.8 1.3 - 419.1
Goodwill, net 15.0 329.5 11.6 - 356.1
Other long-term
assets 1,357.1 176.0 253.2 (1,694.2) 92.1
------- ------ ------- -------- -------
Total assets $2,025.4 $1,478.7 $ 954.2 $(2,325.0) $2,133.3
Liabilities:
Notes payable and
Current maturities
of long-term debt $ 19.6 $ 2.6 $ 112.9 $ - $ 135.1
Accounts payable
and
Accrued expenses 219.5 199.7 103.8 - 523.0
Other current
Liabilities 176.0 323.9 83.2 (521.9) 61.2
-------- ------ ------- ------- ------
Total current
liabilities 415.1 526.2 299.9 (521.9) 719.3
Long-term debt,
less current
maturities 950.8 0.8 30.6 - 982.2
Other long-term
Liabilities 532.6 279.6 214.4 (721.7) 304.9
-------- ------ ------- ------- ------
Total liabilities 1,898.5 806.6 544.9 (1,243.6) 2,006.4
Total stockholders'
equity 126.9 672.1 409.3 (1,081.4) 126.9
------- ------ ------- ------- ------
Total
liabilities and
Stockholders'
equity $2,025.4 $1,478.7 $ 954.2 $(2,325.0) $2,133.3
======== ======== ======= ========== ========
</TABLE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor Elimina- Consoli-
Parent Subsi- Subsi- tions dated
diaries diaries
Condensed Consolidated
Balance Sheet
December 31, 1997
<S> <C> <C> <C> <C> <C>
Assets:
Cash and
equivalents $ 13.9 $ 7.3 $ 11.9 $ - $ 33.1
Marketable
securities - - 0.4 - 0.4
Trade and
other
receivables 131.7 95.4 297.5 - 524.6
Inventories 127.8 98.7 136.5 (30.7) 332.3
Other
current
assets 160.2 165.1 98.1 (337.1) 86.3
----- ----- ---- ----- -----
Total
current
assets 433.6 366.5 544.4 (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 5.6 397.0 0.2 - 402.8
Other long-term
assets 1,112.4 208.0 196.5 (1,421.2) 95.7
------- ----- ----- ------- -----
Total assets $1,713.9 $1,498.1 $908.0 $(1,789.0) $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 2.7 126.0 (173.1) 69.6
----- ----- ----- ----- -----
Total current
liabilities 329.5 418.1 320.4 (173.1) 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 1,632.1 768.7 529.6 (681.2) 2,249.2
Total
stockholders'
equity 81.8 729.4 378.4 (1,107.8) 81.8
------ ----- ----- ------- -------
Total liabilities
and
stockholders'
equity $1,713.9 $1,498.1 $908.0 $(1,789.0) $2,331.0
======== ======== ====== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Elimina- Consoli-
Parent diaries diaries tions dated
------ ------- ------- ------ -----
Condensed Consolidated
Statement of Operations
Year Ended December 31, 1998
<S> <C> <C> <C> <C> <C>
Sales $609.2 $446.0 $1,156.3 $(493.3) $1,718.2
Operating costs and
expenses:
Cost of sales 295.3 226.4 890.2 (491.3) 920.6
Selling, general
and
administrative 181.4 114.5 196.4 - 492.3
Research and
development 96.2 71.2 4.0 - 171.4
Restructuring charge 19.1 - - - 19.1
---- ---- ---- ----- -----
Operating income 17.2 33.9 65.7 (2.0) 114.8
Nonoperating (income)
expense (36.1) (19.1) 13.7 109.7 68.2
---- ---- ---- ----- -----
Earnings (loss) before
income taxes 53.3 53.0 52.0 (111.7) 46.6
Income taxes 4.6 6.6 1.9 - 13.1
---- ---- ---- ----- -----
Net earnings(loss) $ 48.7 $ 46.4 $ 50.1 $(111.7) $ 33.5
</TABLE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Elimina- Consoli-
Parent diaries diaries tions dated
------ ------- ------- ------- -------
Condensed Consolidated
Statement of Operations
Year ended December 31, 1997
<S> <C> <C> <C> <C> <C>
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
Selling, 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 59.4 - - - 59.4
---- ----- ------ ----- -----
Operating income
(loss) (1.8) (310.2) 102.0 (27.0) (237.0)
Nonoperating
expense
income 233.2 (8.8) (0.7) (208.8) 14.9
----- ---- ----- ------ -----
(Loss) earnings
before income
taxes (235.0) (301.4) 102.7 181.8 (251.9)
Income taxes
(benefit) 8.6 2.0 8.1 (6.2) 12.5
----- ----- ----- ------ -----
Net (loss) earnings $(243.6) $(303.4) $94.6 $188.0 $ (264.4)
</TABLE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Elimina- Consoli-
Parent diaries diaries tions dated
------ ------- ------- ------- -------
Condensed Consolidated
Statement of Operations
Year ended December 31, 1996
<S> <C> <C> <C> <C> <C>
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
Selling, general
and
administrative 147.1 21.4 150.8 - 319.3
Research and
development 91.1 17.1 0.2 - 108.4
------ ----- ------ ------ -------
Operating income 34.3 40.6 52.4 (4.8) 122.5
Nonoperating
(income)
expense (64.9) (1.8) 0.2 77.5 11.0
------ ----- ------ ------ -------
Earnings (loss)
before
income
taxes 99.2 42.4 52.2 (82.3) 111.5
Income taxes 18.1 5.3 10.2 3.2 36.8
------ ----- ------ ------ -------
Net earnings (loss) $ 81.1 $37.1 $42.0 $(85.5) $ 74.7
====== ===== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Elimina- Consoli-
Parent diaries diaries tions dated
------ ------- ------- -------- -------
Condensed Consolidated
Statement of Cash Flows
Year ended December 31, 1998
<S> <C> <C> <C> <C> <C>
Net cash provided
(used)
by operating
activities $(23.2) $(85.3) $ 106.7 $ - $ (1.8)
Cash flows from
investing
activities:
Additions to
property,
plant and
equipment (84.5) (11.0) (69.7) - (165.2)
Net disposals of
property,
plant and
equipment 2.0 - 43.4 - 45.4
Sale of short-term
investments - - 0.4 - 0.4
Proceeds from sale-
leaseback of
real estate 186.1 - - 56.7 242.8
----- ----- ----- ---- -----
Net cash provided
(used)
by investing
activities 103.6 (11.0) (25.9) 56.7 123.4
Cash flows from
financing
activities:
Dividends to
stockholders (17.1) - - - (17.1)
Proceeds from
issuance
of stock 28.6 - - - 28.6
Notes payable
borrowings 11.4 - 45.2 - 56.6
Net intercompany
borrowings
(reductions) 59.2 93.8 (96.3) (56.7) -
Long-term debt
(reductions)
borrowings (172.2) (4.9) (21.0) - (198.1)
----- ---- ---- ----- -----
Net cash (used)
provided
by financing
activities (90.1) 88.9 (72.1) (56.7) (130.0)
----- ---- ---- ----- -----
(Decrease)
increase in
cash and
equivalents (9.7) (7.4) 8.7 - (8.4)
Cash and
equivalents -
beginning of
year 13.9 7.3 11.9 - 33.1
----- ---- ---- ------ -----
Cash and
equivalents -
end of year $ 4.2 $(0.1) $ 20.6 $ - $ 24.7
</TABLE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Elimina- Consoli-
Parent diaries diaries tions dated
------ ------- ------- ------- -------
Condensed Consolidated
Statement of Cash Flows
Year ended December 31, 1997
<S> <C> <C> <C> <C> <C>
Net cash
provided
(used)
by operating
activities $ 4.2 $ 35.9 $169.5 $ - $ 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
Sale of
short-term
investments - 7.7 - - 7.7
Proceeds from sale-
leaseback
transactions 39.6 - - - 39.6
Investments and
acquisitions (893.9) - - - (893.9)
----- ---- ---- --- -----
Net cash (used)
provided
by investing
activities (908.2) 1.5 (22.4) - (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
(reductions)
borrowings (3.5) - 15.2 - 11.7
Net intercompany
(reductions)
borrowings (39.8) 78.2 (38.4) - -
Long-term debt
borrowings
(reductions) 970.5 (39.1) (115.3) - 816.1
----- ---- ----- ----- ------
Net cash (used)
provided
by
financing
activities 890.0 39.1 (138.5) - 790.6
Effect of exchange
rates
on cash and
equivalents - - (0.8) - (0.8)
----- ---- ----- ----- -----
(Decrease)
increase in
cash and
equivalents (14.0) 4.7 7.8 - (1.5)
Cash and
equivalents -
beginning of year 27.9 2.6 4.1 - 34.6
----- ---- ---- ----- -----
Cash and
equivalents -
end of year $ 13.9 $ 7.3 $ 11.9 $ - $ 33.1
====== ===== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Elimina- Consoli-
Parent diaries diaries tions dated
Condensed Consolidated
Statement of Cash Flows
Year ended December 31, 1996
<S> <C> <C> <C> <C> <C>
Net cash
provided
(used)
by operating
activities $186.5 $ 32.3 $ (79.7) $ - $ 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
Sale of short-term
investments 0.2 - - - 0.2
Investments and
acquisition (38.0) - 15.0 - (23.0)
---- ---- ---- ---- ----
Net cash (used)
provided
by investing
activities (70.1) (9.3) (35.2) - (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
(reductions)
borrowings (5.9) - 3.5 - (2.4)
Net intercompany
(reductions)
borrowings (61.9) (39.6) 101.5 - -
Long-term debt
borrowings
(reductions) 8.0 0.3 7.0 - 15.3
---- ---- ----- ---- ----
Net cash
(used)
provided
by financing
activities (88.9) (39.3) 112.0 - (16.2)
Effect of exchange
rates
on cash and - - 0.1 - 0.1
---- ---- ----- ---- ----
Increase
(decrease) 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>
9. Derivatives
We manufacture our products principally in the United States, but we
generate approximately half of our revenues from sales made outside the
U.S. by our international subsidiaries. Sales generated by the
international subsidiaries generally are denominated in the subsidiary's
local currency, thereby exposing us to the risk of foreign currency
fluctuations. Additionally, as a net borrower, we are exposed to the risk
of fluctuating interest rates.
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 our operations. Foreign currency
contracts used include forward contracts, purchased option contracts, and
complex option contracts, consisting of purchased and sold options. The
hedge instruments mature at various dates approximating the transaction
dates. The table below summarizes the notional amounts of contracts
afforded hedge accounting treatment at December 31:
Notional Amount*
1998 1997
---- ----
Forward Contracts $196.6 $66.9
Purchased Option Contracts 158.8 45.0
Complex Option Contracts 12.0 28.5
* Notional amounts represent the amounts of the items on which the
contracts are based and not the actual amounts exchanged by the parties.
When we use 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:
- the recognition of the net premium paid to acquire option contracts;
- the recognition of any loss in the value of the forward contracts
designated as hedges of the transactions; and
- 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.
At December 31, 1998, we held no purchased foreign currency call
option contracts. At December 31, 1997, we held purchased foreign
currency call option contracts totaling $20.4 million, 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 matured at various dates throughout 1998 with
resulting gains recognized at maturity. Premiums paid for these
contracts are recognized immediately in "Other, net nonoperating
expense".
We also use foreign currency swap contracts to hedge loans between
subsidiaries. At December 31, 1998, we had foreign currency swap
contracts totaling $138.8 million expiring at various dates through May
1999. At December 31, 1997, the Company had foreign currency swap
contracts totaling $103.7 million. 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.
We occasionally use foreign currency contracts to hedge the market
risk of a subsidiary's net asset position. At December 31, 1998, we had
$22.5 million foreign currency contracts related to net asset positions.
At December 31, 1997, we had no foreign currency contracts related to net
asset positions. Foreign currency contracts resulted in favorable foreign
currency translation adjustments of $2.5 million and $1.5 million at
December 31, 1998 and 1997, respectively. Market value gains and losses on
foreign currency contracts used to hedge the market risk of a subsidiary's
net asset position are recognized in "Accumulated Other Comprehensive
Income" as translation gains and losses are reflected in the balance sheet.
The foreign currency translation adjustments are only recognized in "Other,
net nonoperating expense" upon liquidation of the subsidiary.
We use 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 were terminated. Gains or losses accumulated
prior to termination of the hedged relationship are 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 March 1998, we entered into reverse interest rate swap contracts
associated with the issuance of the $400.0 million Senior Notes.
Specifically, we entered into $300.0 million in reverse interest rate
swap agreements in which we receive an average fixed interest rate of
6.4% and pay an average floating interest rate (5.3% at December 31,
1998).
In October 1997, we entered into $500.0 million in interest rate swap
contracts associated with our $1,100.0 million in borrowing arising from
the acquisition of Coulter. In July 1998, we terminated a $150.0 million
interest rate swap agreement when the related Credit Facility debt was paid
with proceeds from the sale-leaseback of real estate. The termination cost
was $2.3 million. See Note 6 "Sale-leaseback of Real Estate". At December
31, 1998, we have $350.0 million in interest rate swap agreements in which
we receive an average floating interest rate (5.2% at December 31, 1998)
and pay an average fixed interest rate of 6.2%. The interest rate swaps are
accounted for as hedges.
In October 1997, we also entered into $400.0 million in treasury rate
lock agreements to hedge the U.S. Treasury Note rate underlying an expected
refinancing. In March 1998, in conjunction with the issuance of the $400.0
million Senior Notes, we paid $9.2 million to settle the treasury rate lock
agreements.
The counterparties to our foreign currency and interest rate swap
contracts are major financial institutions. Our company is exposed to
credit risk in the event of non-performance of these counterparties, which
event we believe is remote. Nevertheless, we monitor our counterparty
credit risk and utilize netting agreements and internal policies to
mitigate this 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 $22.0 million and $8.0 million at December 31, 1998,
and 1997, respectively.
10. Income Taxes
The components of earnings (loss) before income taxes were:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. $10.2 $(304.5) $ 42.5
Non-U.S. 36.4 52.6 69.0
----- ------- -------
$46.6 $(251.9) $ 111.5
===== ======= =======
</TABLE>
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current
U.S. federal $ 4.0 $ 5.2 $ 9.6
Non-U.S. 9.1 5.3 12.4
U.S. state and
Puerto Rico (1.1) 3.5 4.0
---- ---- ----
Total current 12.0 14.0 26.0
Deferred
U.S. federal 8.2 0.7 9.0
Non-U.S. (7.1) (2.2) 1.8
---- ---- ----
Total deferred, net 1.1 (1.5) 10.8
---- ---- ----
Total $ 13.1 $ 12.5 $ 36.8
==== ==== ====
</TABLE>
The reconciliation of the U.S. federal statutory tax rate to the
consolidated effective tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<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 0.4 0.1 0.4
Ireland and Puerto Rico
income (21.1) (2.0) (6.8)
Goodwill 14.1 0.2 -
Non-U.S. taxes (0.2) 0.9 5.0
Foreign income taxed in
the U.S., net of
credits 9.0 1.4 (2.8)
Other (9.1) 0.2 2.2
---- ---- ----
Effective tax rate 28.1% 5.0% 33.0%
==== ==== ====
</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 $6.9 million in 1998, $5.1 million in 1997, and $7.6 million
in 1996. 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; however, the impending closure of the Puerto Rico
facility (as part of our restructuring plans) will shorten the period of
benefit.
The components of the provision (benefit) for deferred income taxes
are:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Restructuring costs $ 2.6 $ (15.7) $ 3.0
Compensation 22.1 18.7 -
Inventory (2.0) (4.0) -
Net operating loss
carryforward (16.6) (2.6) -
International transactions (7.1) 2.2 1.3
Intangibles (5.7) - -
Accelerated depreciation - (0.4) (0.5)
Accrued expenses 16.6 (4.2) 3.3
Pension costs (3.5) 8.9 6.9
Post-employment/retirement
benefits (0.7) (1.7) (1.7)
Other (4.6) (2.7) (1.5)
------ ------- -------
Total $ 1.1 $ (1.5) $ 10.8
====== ======= =======
</TABLE>
Net operating loss carryforwards expire at varying dates through 2018.
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>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets
Inventories $ 12.5 $ 9.8
Capitalized expenses 0.8 0.7
International 35.4 22.7
Tax credits (primarily R&D) 29.4 38.4
Purchase and assumed liabilities
(see Note 3) 64.0 87.4
Accrued expenses 61.6 43.9
Restructuring costs 14.6 16.3
Environmental costs 3.1 4.8
Post-employment/retirement benefits 42.5 38.6
Other 12.5 30.5
----- -----
276.4 293.1
Less: Valuation allowance (59.2) (59.2)
----- -----
Total deferred tax assets 217.2 233.9
Deferred tax liabilities
Depreciation 1.3 1.8
Pension costs 3.7 9.9
Intangible assets 134.8 140.4
Fixed assets 17.5 17.5
Leases 8.6 9.9
Deferred service contracts 1.8 3.2
International transactions 7.9 6.4
Other 23.9 32.1
----- -----
Total deferred tax liabilities 199.5 221.2
----- -----
Net deferred tax asset $ 17.7 $ 12.7
===== =====
</TABLE>
Based upon our historical pretax earnings, adjusted for significant
items such as non-recurring charges, our management believes it is more
likely than not that we will realize the benefit of the existing net
deferred tax asset at December 31, 1998. We believe the existing net
deductible temporary differences will reverse during periods in which we
generate 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 each December 31, 1998 and 1997 we recorded a valuation allowance
of $59.2 million, for certain deductible temporary differences for which it
is more likely than not that we will not receive future benefits. The
change in the valuation allowance was $16.8 million and $27.9 million for
1998 and 1997, 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 $182.2 million 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.
11. Stockholders' Equity
We had been authorized, through 1998, to acquire our common stock to
meet the needs of our existing stock-related employee benefit plans. Under
this program, we repurchased 1.0 million shares of our common stock during
1997. We elected to discontinue this stock repurchase program in
connection with the Coulter acquisition, since the Credit Facility
generally prohibits market repurchase of the Company's stock. Therefore, in
1998, we did not repurchase any shares under this program. Treasury shares
have been, and are expected to continue to be, reissued to satisfy our
obligations under existing stock-related employee benefit plans.
In January 1993 we created the Benefit Equity Fund ("BEF"), a trust
for pre-funding 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 participants of the Employee Stock
Purchase Plan exercise the related voting rights. At December 31, 1998,
0.7 million shares remain in treasury of which 0.2 million are held by the
BEF.
12. Employee Benefits
Incentive Compensation Plans
In 1988, we adopted an Incentive Compensation Plan for our 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, we granted options to purchase
approximately 0.8 million shares, with an expiration date of ten years from
the date of grant.
We have also adopted the Incentive Compensation Plan of 1990 ("1990
Plan"). This 1990 Plan reserved shares of our common stock for grants of
options and restricted stock.
In 1998, we adopted the 1998 Incentive Compensation Plan ("1998
Plan"), which replaced the 1990 Plan. An initial 2.0 million shares have
been reserved under the 1998 Plan. Granted options typically vest over
three years and expire ten years from the date of grant. Each year,
commencing January 1, 1999, the number of shares available under the plan
will increase by 1.5% of the number of common stock issued and outstanding
as of the prior December 31. As of January 1, 1999, 2.4 million shares
remain available for grant under this plan.
The following is a summary of the option activity, including weighted
average option information (in thousands, except per option information):
<TABLE>
<CAPTION>
1998 1997 1996
Weighted Weighted Weighted
Average Average Average
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 2,895 $28.60 2,672 $26.03 2,634 $ 22.83
Granted 703 $42.56 536 $40.49 447 $ 40.72
Exercised (322) $24.19 (302) $26.77 (372) $ 19.97
Canceled (34) $38.93 (11) $33.38 (37) $ 37.12
Outstanding
at end of 3,242 $32.40 2,895 $28.60 2,672 $ 26.03
year
</TABLE>
<TABLE>
<CAPTION>
Weighted Weighted
Average Weighted Average
Range of Outstanding Exercise Average Exercisable Exercise
Exercise at December Price Remaining at December Price Per
Price 31, 1998 Per Contractual 31, 1998 Option
Option Life (a)
(Years)
<S> <C> <C> <C> <C> <C>
$11.47 to 125 $16.50 1.1 125 $16.50
$17.21
$17.21 to 661 $20.51 3.1 661 $20.51
$22.95
$22.95 to 531 $26.42 4.7 531 $26.42
$28.69
$28.69 to 342 $29.25 5.6 342 $29.25
$34.42
$34.42 to 450 $39.51 7.2 200 $39.44
$40.16
$40.16 to 1,055 $41.29 7.4 426 $41.09
$45.90
$45.90 to 42 $48.59 7.7 8 $48.19
$51.64
$51.64 to 36 $55.96 9.5 20 $57.38
$57.38
3,242 2,313
</TABLE>
(a) Options exercisable at December 31, 1997 and 1996 (in thousands)
were 2,034 and 1,911, respectively.
The following represents pro forma information as if the Company recorded
compensation cost using the fair value of the issued compensation
instrument under SFAS 123 (the results may not be indicative of the actual
effect on net earnings in future years):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net earnings (loss) as
reported $ 33.5 $(264.4) $74.7
Assumed stock compensation
cost,
net of tax (6.2) (5.7) (2.6)
----- ----- ----
Pro forma net
earnings (loss) $ 27.3 $(270.1) $72.1
Diluted earnings (loss)
per share as reported $ 1.14 $ (9.58) $2.58
Pro forma diluted earnings
(loss) per share $ 0.93 $ (9.79) $2.49
</TABLE>
We use the Black-Scholes valuation model for estimating the fair value
of the compensation instruments. The following represents the estimated
fair value of options granted and the assumptions used for calculation:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average
estimated
fair value per option
granted $ 16.66 $ 15.73 $ 14.56
Average exercise price
per option granted $ 42.56 $ 40.49 $ 40.72
Stock volatility 33.0% 22.0% 18.0%
Risk-free interest rate 4.7% 5.9% 6.7%
Option term - years 6.7 10.0 10.0
Stock dividend yield 1.4% 1.4% 1.5%
</TABLE>
Stock Purchase Plan
Our stock purchase plan allows all U.S. employees and employees of
certain subsidiaries outside the U.S. to purchase the Company's common
stock at favorable prices and 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 million shares during 1998 and 1.3 million shares
remain available for use in the plan at December 31, 1998.
Stock Appreciation Rights
In 1998 we awarded stock appreciation rights to certain employees of
our international subsidiaries. These rights vest over three years.
Compensation expense for these rights are based on changes between the
grant price and the fair market value of the rights.
Post-employment Benefits
Effective January 1, 1994 the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Post-employment
Benefits" ("SFAS 112"). This statement required the Company to recognize
an obligation for post-employment benefits provided to former or inactive
employees, their beneficiaries and covered dependents after employment but
before retirement. Additional accruals for post-employment benefits,
subsequent to adopting SFAS 112, was approximately $1.7 million in 1998,
$0.9 million in 1997 and $0.8 million in 1996. The increase in 1998 is
primarily attributable to the addition of former or inactive Coulter
employees to the plan and changes in plan assumptions.
13. Retirement Benefits
In February 1998, FASB issued Statement of Financial Accounting Standards
No. 132, "Employers Disclosures about Pensions and other Post-retirement
Benefits," ("SFAS 132"). This statement amends portions of Statement of
Financial Accounting Standards No. 87, "Employers' Accounting for Pensions,
Statement of Financial Accounting Standards No. 88, "Employers' Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits" and Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other than
Pensions" to revise the disclosure requirements of these statements. We
have adopted SFAS 132 beginning with this annual report.
Defined Benefit Pension Plans
We provide pension benefits covering the majority of our employees.
Consolidated pension expense was $15.5 million in 1998, $11.3 million in
1997, and $18.3 million in 1996.
Pension benefits for Beckman Coulter's domestic employees are based on
age, years of service and compensation rates. Our 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.
Certain of our international subsidiaries have separate pension plan
arrangements, which include both funded and unfunded plans. Unfunded
foreign pension obligations are recorded as a liability on our consolidated
balance sheets. Pension expense for international plans was $6.6 million in
1998, $4.9 million in 1997, and $4.0 million in 1996.
Healthcare and Life Insurance Benefits
We presently provide certain healthcare 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 following represents required disclosures regarding benefit
obligations and plan assets of the Pension and Post-Retirement Plans
determined by independent actuarial valuations:
<TABLE>
<CAPTION>
Post-
Pension Plans Retirement
Plans
1998 1997 1998 1997*
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning
of year $407.9 $359.1 $77.0 $46.7
Service cost 11.9 9.9 2.5 1.2
Interest cost 27.8 26.6 5.3 3.4
Actuarial loss (gain) 46.7 32.1 11.8 (0.2)
Benefits paid (20.5) (19.8) (4.7) (3.6)
Plan participant contribution - - 1.3 1.0
Amendments - - - (1.2)
Acquisitions - - (2.0) 29.7
----- ---- ---- ----
Benefits obligation
at end of year $473.8 $407.9 $91.2 $77.0
Change in plan assets:
Fair value of plan assets at
beginning of year $408.9 $331.2 $ - $ -
Employer contribution 0.4 30.5 3.5 2.6
Plan participant contribution - - 1.2 1.0
Actual return on plan assets 73.8 67.0 - -
Benefits paid (20.5) (19.8) (4.7) (3.6)
----- ---- ---- ----
Fair value of plan assets
at end of year $462.6 $408.9 $ - $ -
Funded status $(11.2)$ 1.0 $(91.2)$(77.0)
Unrecognized net actuarial
loss (gain) 20.3 15.2 (4.6) (16.9)
Unrecognized net obligation at
transition 0.9 1.4 - -
Unrecognized prior service cost 5.5 6.4 (1.0) (1.1)
---- ---- ---- ----
Prepaid (accrued) benefit cost $15.5 $ 24.0 $(96.8)$(95.0)
Amounts recognized in the balance
sheets
consist of:
Prepaid benefit cost $15.5 $24.0 $(96.8)$(95.0)
Accrued benefit liability (0.4) - - -
Intangible asset 0.4 - - -
Net amount recognized $15.5 $24.0 $(96.8)$(95.0)
</TABLE>
* Costs, actuarial loss and benefits paid represent 2 months
in 1997 for Coulter.
The total benefit obligation for unfunded pension plans included in the
above table was $10.4 million and $9.8 million in 1998 and 1997,
respectively.
Coulter has provided for a non-qualified executive retirement plan.
Information regarding this plan is not included in the tables above. The
unfunded benefit obligation was $3.1 million at December 31, 1998 and $2.8
million at December 31, 1997. The pension expense related to this plan was
$0.6 million in 1998 and $0.1 million for the two months ended December 31,
1997.
The following table lists the components of the net periodic benefit
cost of the plans and the weighted-average assumptions as of December 31
for the periods indicated:
<TABLE>
<CAPTION>
Pension Plans Post-Retirement
Plans
1998 1997 1996 1998 1997* 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost $11.9 $9.9 $10.8 $2.5 $1.2 $1.4
Interest cost 27.8 26.6 25.7 5.3 3.4 3.3
Expected return on plan
assets (34.2) (31.7) (27.2) - - -
Amortization 3.4 1.5 5.0 (0.7) (1.3) (0.5)
---- ---- ---- ---- ---- ----
Net periodic benefit cost $ 8.9 $6.3 $14.3 $7.1 $3.3 $4.2
Discount rate 6.3% 7.0% 7.8% 6.3% 7.0% 7.8%
Expected return on plan
assets 9.8% 9.8% 9.8% - - -
Rate of compensation
increase 4.3% 4.3% 4.3% - - -
Healthcare cost trend rate - - - 8.0% - -
Decreasing to ultimate
rate by
the year 2004 - - - 5.5% - -
Decreasing to ultimate
rate by
the year 2005 - - - 5.5% - -
Calculation of obligation,
excluding Coulter:
Healthcare cost trend rate - - - - 8.0% 8.0%
Decreasing to ultimate
rate by
the year 2004 - - - - 5.5% 5.5%
Calculation of Coulter
obligation:
Healthcare cost trend rate - - - - 7.0% -
Decreasing to ultimate
rate by the year 2002 - - - - 5.0% -
</TABLE>
* Costs, expected return and amortization paid represent 2 months
in 1997 for Coulter.
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 $1.4
million in 1998, $0.7 million in 1997, and $0.9 million in 1996, and in the
accumulated post-retirement benefit obligation by $13.7 million in 1998 and
$10.9 million in 1997.
The ongoing post-retirement plan has been recently amended to provide
for the inclusion of Coulter employees and to conform benefit provisions.
Employees outside the U.S. generally receive similar benefits from
government-sponsored plans.
Defined Contribution Pension Plans
We have defined contribution plans available to our domestic employees.
Under the plans, eligible employees may contribute a portion of their
compensation. Employer contributions are primarily based on a percentage
of employee contributions. However certain plans provide for additional
contributions based on the age and salary levels of employees. We
contributed $14.9 million in 1998, $6.8 million in 1997, and $4.5 million
in 1996. Employees generally become fully vested with respect to employer
contributions after three to five years of qualifying service as defined by
each plan.
14. Commitments and Contingencies
Environmental Matters
We are subject to federal, state, local and foreign environmental
laws and regulations. Although we continue to make expenditures for
environmental protection, we do not anticipate any significant
expenditure in order to comply with such laws and regulations, which
would have a material impact on our operations, financial position, or
liquidity. We believe that our operations comply in all material
respects with applicable federal, state, local and foreign environmental
laws and regulations.
To address contingent environmental costs, we establish reserves when
the costs are probable and can be reasonably estimated. We believe, based
on current information and regulatory requirements (and taking third party
indemnities into consideration), the reserves established for environmental
expenditures are adequate. Based on current knowledge, to the extent that
additional costs may be incurred that exceed the reserves, the amounts are
not expected to have a material adverse effect on our operations, financial
position, or liquidity, although no assurance can be given in this regard.
In 1983, we discovered organic chemicals in the groundwater near a
waste storage pond at our manufacturing facility in Porterville,
California. Soil and groundwater remediation have been underway at the site
since 1983. In 1989, the U.S. Environmental Protection Agency issued a
final Record of Decision specifying the soil and groundwater remediation
activities to be conducted at the site. We have completed substantially
all of the required work. SmithKline Beckman, our former controlling
stockholder, agreed to indemnify us with respect to this matter for any
costs incurred in excess of applicable insurance, eliminating any impact on
our results of operations, financial position, or liquidity. 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 us. In 1988 The
Prudential Insurance Company of America ("Prudential"), which purchased the
property from us, filed suit against us 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 we 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 has 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 1998 and expect to continue its
operation in 1999.
Investigations on the property are continuing. During 1998, two
additional areas of soil requiring remediation were identified. Work on
one area was completed in 1998. Work on the second area should be
completed during 1999. We can give no assurance that further investigation
will not reveal additional contamination or result in additional costs. We
believe 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 our results of operations, financial
position, or liquidity.
Litigation
We are involved in a number of lawsuits, which we consider ordinary
and routine in view of our size and the nature of our business. We do not
believe that any ultimate liability resulting from any such lawsuits will
have a material adverse effect on our results of operations, financial
position, or liquidity. However, we do not give any assurance to the
ultimate outcome with respect to such lawsuits. The resolution of such
lawsuits could be material to our operating results for any particular
period, depending upon the level of income for such period. Also, see
environmental discussion above.
Lease Commitments
We lease certain facilities, equipment and automobiles. Certain of the
leases provide for payment of taxes, insurance and other charges by the
lessee. Rent expense was $59.8 million in 1998, $35.4 million in 1997, and
$32.9 million in 1996.
As of December 31, 1998, minimum annual rentals payable under
non-cancelable operating leases aggregate $457.7 million, which is payable
$52.8 million in 1999, $46.7 million in 2000, $40.0 million in 2001, $29.2
million in 2002, $21.4 million in 2003 and $267.6 million thereafter.
Other
Under our dividend policy, we pay a regular quarterly dividend to
our stockholders, which amounted to $17.1 million in 1998 and $16.6
million in 1997. In February of 1999, the Board of Directors declared a
quarterly dividend of $0.16 per share, which approximates $4.6 million in
total. This dividend is payable March 11, 1999 to stockholders of record
on February 19, 1999. The Credit Facility restricts (but does not
prohibit) our ability to pay dividends.
15. 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>
Year Ended December 31, 1998
Income Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Basic EPS
Net earnings $ 33.5 28.0 $ 1.19
Effect of dilutive stock
options - 1.3 (0.05)
---- ---- ----
Diluted EPS
Net earnings $ 33.5 29.3 $ 1.14
====== ==== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 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 GAAP, as we were in a net loss position in 1997, 1.0 common share
equivalents were not used to compute diluted loss per share, as the effect
was antidilutive.
<TABLE>
<CAPTION>
Year Ended December 31, 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>
16. Business Segment Information
We adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"("SFAS
131"), beginning with this annual report. SFAS 131 requires segments to be
determined and reported based on how management measures performance and
makes decisions about allocating resources.
We are engaged primarily in the design, manufacture and sale of
laboratory instrument systems and related products. Our organization has
two reportable segments: (1) clinical diagnostics and (2) life science
research. The clinical diagnostics segment encompasses diagnostic
applications, principally in hospital laboratories. The life science
research segment includes life sciences and drug discovery applications in
universities, medical schools, and pharmaceutical and biotechnology
companies. All corporate activities including financing transactions are
captured in a central services "Center", which is reflected in the tables
below. We evaluate performance based on profit or loss from operations.
Although primarily operating in the same industry, reportable segments are
managed separately, since each business requires different marketing
strategies and has different customers.
<TABLE>
<CAPTION>
For the years Ended 1998 1997 1996
December 31,
<S> <C> <C> <C>
Net sales
Clinical diagnostics $ 1,342.5 $ 815.2 $ 652.0
Life science research 375.7 382.8 376.0
Center - - -
------- ----- -----
Consolidated 1,718.2 1,198.0 1,028.0
Operating income (loss)
Clinical diagnostics 172.6 (149.3) 141.2
Life science research 44.0 39.3 50.9
Center (a) (101.8) (127.0) (69.6)
------- ----- -----
Consolidated (a) 114.8 (237.0) 122.5
Interest income
Clinical diagnostics (9.8) (2.7) (2.0)
Life science research - - -
Center (3.6) (3.4) (3.8)
------- ----- -----
Consolidated (13.4) (6.1) (5.8)
Interest expense
Clinical diagnostics - - -
Life science research - - -
Center 87.8 29.4 18.1
------- ------ -----
Consolidated 87.8 29.4 18.1
Total assets
Clinical diagnostics 1,519.2 1,923.1 415.1
Life science research 199.2 161.1 161.6
Center 414.9 246.8 383.4
------- ------ -----
Consolidated $2,133.3 $2,331.0 $ 960.1
Geographic areas
Sales to external
customers
United States --
domestic $ 892.2 $ 612.0 $ 512.1
United States -- export 75.9 60.8 36.0
Europe 462.3 333.7 316.7
Asia and other areas 287.8 191.5 163.2
------- ------ -----
Consolidated $1,718.2 $1,198.0 $1,028.0
Long-lived assets
United States $ 808.8 $1,051.2 $ 149.5
Europe 273.2 215.3 128.2
Asia and other areas 94.6 87.8 52.1
------- ------- ------
Consolidated $1,176.6 $1,354.3 $ 329.8
</TABLE>
(a) Includes restructuring charges of $19.1 million in 1998 and $59.4
million in 1997. We did not incur restructuring charges in 1996.
17. Supplementary Information
Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
Balance Additions Balance
at Charged to at End
Beginning Cost and Deduc- Other of
of Period Expenses tions Period
--------- -------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
December 31, $ 17.4 $ 8.3(a) $5.0(b) $ - $ 20.7
1998
December 31, 9.6 2.4(a) 3.5(b) 9.4(d) 17.4
1997 0.5(c)
December 31, 9.1 2.2(a) 1.1(b) - 9.6
1996 0.6(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.
QUARTERLY INFORMATION (Unaudited)
Tabular dollar amounts in millions, except amounts per share
<TABLE>
<CAPTION>
First Second Third Fourth Full Year
Quarter Quarter Quarter Quarter
1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $399.4 $231.9 $434.7 $270.6 $400.8 $271.6 $483.3 $423.9 $1,718.2 $1,198.0
Cost
of
sales 229.8 109.6 236.5 130.7 207.0 132.1 247.3 237.3 920.6 609.7
Gross
profit 169.6 122.3 198.2 139.9 193.8 139.5 236.0 186.6 797.6 588.3
Selling,
general
and
adminis-
trative 119.7 74.8 123.6 79.7 120.2 82.9 128.8 122.9 492.3 360.3
Research
and
develop-
ment 41.6 24.0 42.2 28.6 41.2 27.7 46.4 43.3 171.4 123.6
In-
process
research
and
develop-
ment - - - - - - - 282.0 - 282.0
Restruc-
turing
charge - - - - - - 19.1 59.4 19.1 59.4
Operating
income
(loss) 8.3 23.5 32.4 31.6 32.4 28.9 41.7 (321.0) 114.8 (237.0)
(Loss)
earnings
before
income
taxes (12.4) 22.3 14.0 29.7 20.4 27.7 24.6 (331.6) 46.6 (251.9)
Net
(loss)
earn-
ings $(8.4) $15.6 $9.5 $20.8 $13.9 $19.4 $18.5 $(320.2) $33.5 $(264.4)
Basic
(loss)
earnings
per
share $(0.30) $0.56 $0.34 $0.75 $0.49 $0.71 $0.65 $(11.63) $1.19 $(9.58)
Diluted
(loss)
earnings
per
share $(0.30) $0.54 $0.32 $0.72 $0.47 $0.68 $0.63 $(11.63) $1.14 $(9.58)
Dividends
per
share $0.15 $0.15 $0.15 $0.15 $0.15 $0.15 $0.16 $0.15 $0.61 $0.60
</TABLE>
<TABLE>
<CAPTION>
Stock
price -
High
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$60 7/16$44 3/8$59 7/16$49 3/16$63 5/8$52 5/16$54 1/4$44 1/2$63 5/8$52 5/16
</TABLE>
<TABLE>
<CAPTION>
Stock
price -
Low
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$41 $37 7/8$50 13/16$40 3/8$50 $39 3/4 $46 1/4$37 3/8$41 $37 3/8
</TABLE>
<TABLE>
<CAPTION>
Bar Chart: Stock Price By Quarter 1998
<S> <C> <C> <C> <C>
Quarter 1st 2nd 3rd 4th
High 60 7/16 59 7/16 63 5/8 54 1/4
Low 41 50 13/16 50 46 1/4
Bar Chart: Stock Price By Quarter 1997
Quarter 1st 2nd 3rd 4th
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
Bar Chart: Sales By Quarter 1998 (millions)
Quarter 1st 2nd 3rd 4th
Sales $399.4 $434.7 $400.8 $483.3
Bar Chart: Sales By Quarter 1997 (millions)
Quarter 1st 2nd 3rd 4th
Sales $231.9 $270.6 $271.6 $423.9
</TABLE>
<PAGE>
REPORT BY MANAGEMENT
The consolidated financial statements and related information for
the years ended December 31, 1998, 1997, and 1996 were prepared by
management in accordance with GAAP. 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.
Our independent auditors examine our consolidated financial statements
in accordance with generally accepted auditing standards. Their report
expresses an independent opinion on the fairness of our reported operating
results and financial position. In performing this audit, the auditors
consider the 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.
JOHN P. WAREHAM D.K. WILSON
John P. Wareham Dennis K. Wilson
Chairman, President and Vice President, Finance
Chief Executive Officer and Chief Financial Officer
<PAGE>
KPMG
Center Tower Drive
Costa Mesa, CA 92626
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Beckman Coulter, Inc.:
We have audited the accompanying consolidated balance sheets of
Beckman Coulter, Inc. and subsidiaries as of December 31, 1998 and 1997,
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, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respsects, the financial position of
Beckman Coulter, Inc. and subsidiaries as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1998 in conformity with
generally accepted accounting principles.
KPMG LLP
Orange County, California
January 22, 1999
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.
Jurisdiction
Name of Company of Incorporation
- --------------- ----------------
Beckman Analytical S.p.A. Italy
Beckman Coulter Eurocenter S.A. Switzerland
Beckman Coulter Canada Inc. Canada
Beckman Instruments (Naguabo) Inc. California
Beckman Instruments Espana S.A. Spain
Beckman Coulter France S.A. France
Beckman Coulter G.m.b.H. Germany
Beckman Coulter Hong Kong Ltd. Hong Kong
Beckman Instruments (Ireland) Inc. Panama
Beckman Coulter K.K. Japan
Beckman Coulter United Kingdom Ltd. England
Beckman Coulter International S.A. Switzerland
Coulter Corporation Delaware
Coulter Electronics Industria E Comercia LTDA Brazil
Beckman Coulter de Mexico S.A. de C.V. Mexico
Coulter Scientific, Inc. Illinois
Hybritech Incorporated California
EXHIBIT 23
KPMG
Center Tower
650 Town Center Drive
Costa Mesa, CA 92626
Independent Auditors' Consent
The Stockholders and 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,
33-41519, 33-51506, 33-66990, 33-66988, 333-72081, 333-69291, 333-59099,
333-69249 and 333-69251) on Form S-8 of Beckman Coulter, Inc. of our report
dated January 22, 1999, relating to the consolidated balance sheets
of Beckman Coulter, Inc. and subsidiaries as of December 31, 1998
and 1997, 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, 1998, which report appears in the
December 31, 1998 annual report on Form 10-K of Beckman Coulter, Inc.
KPMG LLP
Orange County, California
February 19, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet and the Consolidated Statement of Operations and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 25
<SECURITIES> 0
<RECEIVABLES> 541
<ALLOWANCES> 21
<INVENTORY> 303
<CURRENT-ASSETS> 957
<PP&E> 818
<DEPRECIATION> 509
<TOTAL-ASSETS> 2133
<CURRENT-LIABILITIES> 719
<BONDS> 1006
0
0
<COMMON> 3
<OTHER-SE> 127
<TOTAL-LIABILITY-AND-EQUITY> 2133
<SALES> 1718
<TOTAL-REVENUES> 1718
<CGS> 921
<TOTAL-COSTS> 921
<OTHER-EXPENSES> 683
<LOSS-PROVISION> 8
<INTEREST-EXPENSE> 88
<INCOME-PRETAX> 47
<INCOME-TAX> 13
<INCOME-CONTINUING> 34
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<EXTRAORDINARY> 0
<CHANGES> 0
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<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.14
</TABLE>
