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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, 1999
COMMISSION FILE NUMBER 001-10109
BECKMAN COULTER, INC.
4300 N. HARBOR BOULEVARD, FULLERTON, CALIFORNIA 92834-3100 (714) 871-4848
(PRINCIPAL EXECUTIVE OFFICES)
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DELAWARE 95-104-0600
STATE OF INCORPORATION I.R.S. EMPLOYER IDENTIFICATION NO.
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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COMMON STOCK, $.10 PAR VALUE NEW YORK STOCK EXCHANGE
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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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 21, 2000: $1,512,143,672.
Common Stock, $.10 par value, outstanding as of January 21, 2000:
29,079,686 shares.
Documents incorporated by reference in this report:
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Documents incorporated...................................... Form 10-K Part Number
Those portions of the Annual Report to
Stockholders for the fiscal year ended
December 31, 1999 referenced herein......................... Part I and Part II
Proxy Statement for the 2000 Annual
Meeting of Stockholders to be held on
April 6, 2000............................................... Part III
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BECKMAN COULTER, INC.
PART I
ITEM 1. BUSINESS
OVERVIEW
Beckman Coulter simplifies and automates laboratory processes used in all
phases of the battle against disease. The company designs, manufactures, and
markets systems which consist of instruments, chemistries, software, and
supplies that meet a variety of laboratory needs. Its products are used in a
range of applications, from instruments used for pioneering medical research and
drug discovery to diagnostic tools found in hospitals and physicians' offices.
Beckman Coulter competes in market segments that total approximately $27 billion
in annual sales worldwide.
Beckman Coulter's product lines include virtually all blood tests routinely
performed in hospital laboratories and a range of systems for medical and
pharmaceutical research. The organization has approximately 125,000 systems
operating in laboratories around the world, with 68% of annual revenues coming
from after-market customer purchases of operating supplies, chemistry kits, and
service. Beckman Coulter markets its products in approximately 130 countries,
generating nearly 45% of revenues outside the United States.
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.
COMPANY HISTORY
Beckman Coulter adopted its current name in April, 1998. The name change
followed the October, 1997 acquisition of Coulter Corporation by what was then
Beckman Instruments, Inc.
Beckman Instruments, Inc. was founded by Dr. Arnold O. Beckman in 1935, and
entered the laboratory market by introducing the world's first pH meter. Beckman
Instruments became a publicly-traded corporation in 1952. In 1968, Beckman
Instruments expanded its laboratory instrument focus to include healthcare
applications in clinical diagnostics. Beckman Instruments was acquired by
SmithKline Corporation to form SmithKline Beckman Corporation in 1982. It was
operated as a subsidiary of SmithKline Beckman until 1989 when it was divested.
Since that time, Beckman Instruments, now Beckman Coulter, Inc., has operated as
a fully independent, publicly-owned company.
Coulter Corporation was founded by Wallace and Joseph Coulter in 1958.
Coulter 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 Beckman Coulter serves are the clinical
diagnostics market and the life science research market. Beckman Coulter'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).
Beckman Coulter's life science research customers include universities
conducting academic research, medical research laboratories, pharmaceutical
companies, and biotechnology firms. Beckman Coulter's customers are continually
searching for processes and systems that can perform tests faster, more
efficiently and at lower costs. Beckman Coulter believes that its focus on
automated, high-throughput systems position it to capitalize on this need.
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Virtually all new analytical methods and tests originate from 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 laboratories. 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 the number of tests
performed per hour and the degree of automation.
By serving several customer groups with differing needs related through
common science and technology, Beckman Coulter has the opportunity to broadly
apply and leverage its expertise. Beckman Coulter serves all of its customers
with a common set of technical competencies in chemistry, engineering, cellular
analysis, and computer sciences. These core competencies allow the company to
leverage its investment in research and development, while creating a range of
integrated instrument and reagent systems. Also, by participating in the life
sciences research market, Beckman Coulter gets an early window on new
developments that someday will move from the discovery stage into routine use in
clinical practice.
The clinical diagnostics and life science research markets both have
significant barriers to entry. One major barrier is the research and development
investment and technical infrastructure required to develop products which
require the integration of chemistry, engineering, cellular analysis, and
computer sciences. In addition, it is necessary to have an extensive worldwide
distribution infrastructure with highly qualified personnel to provide sales,
service, customer training, and technical product support. Also, in some cases,
permission to market clinical diagnostics products must be obtained in the
United States and other countries.
Nevertheless, both the clinical diagnostics and the life science research
markets are highly competitive and Beckman Coulter encounters significant
competition in each market from many domestic and international manufacturers.
Also, the clinical diagnostics market continues to be unfavorably impacted by
global health care cost containment policies, while the life science research
market continues to be affected by consolidation of pharmaceutical companies and
governmental constraints on research and development spending, primarily outside
of the United States.
Consolidation also is a key factor affecting the clinical diagnostics
market. 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 Beckman Coulter'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, healthcare spending, and physician practice. As a
result of the cost containment pressures and other factors described above,
Beckman Coulter expects both markets to grow in the low single digits over the
short term. In the long term, Beckman Coulter expects worldwide healthcare
expenditures for diagnostic testing to increase, primarily as a result of
growing demand for services generated by the aging of the world population,
increasing expenditures on diseases requiring costly treatment (for example,
diabetes, AIDS and cancer), and expanding demand for improved healthcare
services in developing countries.
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PRODUCTS
Beckman Coulter offers a wide range of instrument systems and related
products, including consumables, accessories, and support services in both the
clinical diagnostics and the life science research segments. 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
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1999 1998 1997
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Clinical Diagnostics............................ 78 78 68
Life Science Research........................... 22 22 32
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CLINICAL DIAGNOSTICS PRODUCTS OVERVIEW
The clinical diagnostics market encompasses the detection and monitoring of
disease by means of laboratory evaluation and analysis of bodily fluids, cells,
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.
IVD systems are composed of instruments, reagents, consumables, service and
data management systems. They automate repetitive manual tasks, improve test
accuracy, and speed the reporting of results. Instruments typically have a five-
to ten-year life. 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
reduce customer costs through automation. Beckman Coulter believes that the most
important criteria customers use to evaluate IVD systems are operating costs,
reliability, reagent quality and service. It also believes that by providing a
fully integrated system that is cost effective, reliable and easy to use, it
builds loyalty among customers who value consistency and accuracy in test
results.
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. Beckman Coulter 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. Beckman Coulter divides the market into three major broad
subcategories -- clinical chemistry, immunodiagnostics, and cellular analysis.
It also offers products in areas it identifies as primary care (primarily
physician offices and clinics), and flow cytometry.
CLINICAL CHEMISTRY SYSTEMS
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. Beckman Coulter 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. Beckman
Coulter 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
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individual analytes are offered for use with Beckman Coulter's clinical
chemistry systems. These products range in price from $45,000 to over $300,000.
Beckman Coulter's line of SYNCHRON(R) Automated General Chemistry Systems
is a family of products which include modular automated diagnostic instruments
and the reagents, standards and other consumable products required to perform
commonly requested diagnostic tests. The SYNCHRON systems were 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 is the SYNCHRON CX(R)3 (DELTA)
Analyzer. It is designed to perform a number of the tests routinely ordered by
physicians and has up to nine on-board chemistries. The SYNCHRON CX(R)4, CX(R)5,
CX(R)7, CX(R)7 RTS, CX(R)9 ALX, and LX(R)20 Analyzers are random access systems
designed to perform routine chemistry profiles as well as some special chemistry
profiles, and can perform over 85% of the laboratory's general chemistry testing
requirements.
IMMUNODIAGNOSTIC SYSTEMS
Immunodiagnostic 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 immunodiagnostic
systems use antibodies and antigens as the central component in analytical
reactions. Antibodies are created by an 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. Immunodiagnostic 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.
Beckman Coulter offers over 60 immunodiagnostic test kits for individual
analytes. These products range in price from $60,000 to $90,000.
Beckman Coulter's two primary immunodiagnostic systems are the IMMAGE(R)
Immunochemistry System and the Access(R) Immunoassay System. The IMMAGE system
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 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.
Electrophoresis systems provide analytical information by using an
electrical charge to separate a sample into its various components. The presence
or absence of various components as well as the relative concentrations of each
provide diagnostic information. The relative concentration of each component is
determined by scanning the test result using a densitometer. Beckman Coulter
sells a variety of manual and automated electrophoresis tests under the name
Paragon(R) Systems. The manual Paragon(R) Electrophoresis Systems allow Beckman
Coulter to offer a full range of electrophoresis products that provide
specialized protein analysis for clinical laboratories. These products use a gel
based material as the separation medium. Paragon reagent kits are used in the
diagnosis of diabetes, as well as cardiac, liver and other diseases. The
APPRAISE(R) Densitometer is used in conjunction with Paragon reagent kits. The
Paragon CZE(R) 2000 System is the first capillary electrophoresis system
specifically designed for the clinical laboratory. 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.
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Beckman Coulter also sells a number of manual immunodiagnostic tests.
Paramount among these products are tests for prostate specific antigen (PSA) and
free PSA. The PSA test is utilized as an aid in the detection (in conjunction
with digital rectal examination) and monitoring of prostate cancer. The free PSA
test is used in conjunction with Beckman Coulter's PSA test to assist in
determining which patients require further testing and evaluation. Another
manual immunochemistry 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.
CELLULAR ANALYSIS SYSTEMS
Beckman Coulter'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.
Beckman Coulter's hematology product line is structured to address the
differing requirements of the high, medium, and low volume portions of this
market. 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.
Systems designed for the high volume segment include the COULTER(R)
GEN*S(TM) and the COULTER(R) STKS(TM) Hematology Systems. The 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 CBC's, five-part white
blood cell differential, red cell morphology and reticulocyte analysis with
automated slidemaking from a single aspiration of blood. The system automates
manual interpretation and result verification through its data management
workstation. The STKS is a cost-effective system designed for high volume
clinical laboratories which provides a CBC and five-part white blood cell
differential; red cell morphology and semi automated reticulocyte analysis.
These high volume hematology systems typically sell in the $70,000 to $120,000
price range.
Moderate Volume Hematology Systems include the new COULTER(R) HmX and the
COULTER(R) MAXM(TM) Hematology Systems. The HmX System was introduced in 1999.
It offers the technology features of the larger systems in a compact bench top
system designed for the moderate volume market segment. The HmX is available in
two configurations, a fully automated walkaway system and a single sample
loading system. Both systems come with a data management system. The COULTER HmX
hematology system offers the same comprehensive CBC, five-part white blood cell
differential, red cell morphology and reticulocyte analysis as the COULTER STKS.
The system uses Coulter's advanced VCS technology in an affordable instrument
for the moderate volume workload laboratory. The MAXM hematology system is a
cost effective, bench top system designed for the moderate volume laboratory.
The system utilizes Coulter's VCS technology to produce an accurate and reliable
CBC, five-part white blood cell differential and reticulocyte analysis. These
moderate volume hematology systems typically sell in the $35,000 to $60,000
price range.
Low-volume hematology systems include the COULTER(R) ONYX(TM) Hematology
System and the COULTER A(C)-T(TM) and A(C)-T diff(TM) Series Hematology Systems.
The ONYX analyzer provides a cost-effective option for laboratories that require
only a CBC and three-part white blood cell differential. It is available in
either a single sample loading or autoloading configuration for walkaway
analysis. The A(C)-T product range consists of three hematology analyzers. The
COULTER A(C)-T hematology analyzer, was introduced in 1996. It offers a complete
blood count. In 1998, the COULTER A(C)-T diff was released. This
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product added three-part white blood differential analysis to the system. In
1999, the COULTER A(C)-T diff 2 was released. The A(C)-T diff 2 system added the
safety of closed vial sampling to the CBC and three-part white blood cell
differential analysis capabilities. All of the A(C)-T series hematology
analyzers are designed to use a very small sample volume, making them ideal for
analysis of pediatric samples. The low volume hematology systems typically sell
in the range of $10,000 to $30,000.
Beckman Coulter's line of flow cytometry systems includes the COULTER
EPICS(R) ALTRA(TM) HyPerSort Cell Sorting System, COULTER EPICS(R) XL(TM) Flow
Cytometer with System II(TM) Software, and COULTER TQ-Prep(TM). The 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 Beckman Coulter's extensive portfolio of
reagents. The EPICS ALTRA simultaneously performs complex multi-parameter
applications such as DNA analysis, physiologic measurements, chromosome
enumeration and the study of the hematopoietic 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. The EPICS XL
Cytometer 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. The Coulter TQ-Prep is a third
generation product which provides a consistent, standardized method for
preparing whole blood for flow cytometric analysis. These products sell for
$15,000 to $300,000.
PRIMARY CARE DIAGNOSTICS
Beckman Coulter offers a number of products used in physicians' offices,
clinics, hospitals and other medical settings. These products include several
single-use self-contained diagnostic test kits, such as the Hemoccult(R) occult
blood test (OBT) and the FlexSure(R) HP test kit. The Hemoccult test is used as
an aid in screening for gastrointestinal disease, most importantly colorectal
cancer. The FlexSure HP 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. In addition, Beckman Coulter markets the
ICON(R) line of test kits, featuring a high sensitivity pregnancy test widely
used by health care practitioners.
LIFE SCIENCE RESEARCH PRODUCTS OVERVIEW
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. Beckman Coulter estimates that in 1998
the total market for instruments and related biochemicals and supplies used
primarily for life science research was approximately $8.0 billion. Beckman
Coulter focuses on customers doing research in university and medical school
labs, research institutes, government labs, and biotechnology and pharmaceutical
companies. The market for life science research instruments and related
biochemicals and supplies used by these customers in 1998 was approximately $5.8
billion. The products which Beckman Coulter provides to serve these customers
include centrifuges, HPLC, automated liquid handlers, capillary electrophoresis,
DNA analysis, DNA synthesis, spectrophotometers, and liquid scintillation
counters. Trends in the life science research market include the growth in
funding for genetic analysis and drug discovery research coupled with an
increasing demand for automation and efficiency in high throughput processes.
Beckman Coulter divides its life science research products into two broad
categories -- robotic automation and genetic analysis, and centrifugation and
analytical systems.
ROBOTIC AUTOMATION AND GENETIC ANALYSIS PRODUCTS
Beckman Coulter's products are used in many parts of the drug discovery
process. An important application for the robotic automation products is in
primary screening. The primary screen is done to test libraries of compounds for
possible interaction with a target protein, which is associated with a disease
state. High-throughput screening is a term that is often used to describe the
primary screen, which can involve the
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screening of 100,000 or more compounds. Secondary screening and pre-clinical
testing can also require samples to be processed in an automated or
high-throughput mode. The Human Genome Project, the SNP Consortium, and a host
of "gene hunter" companies are currently providing valuable genetic information
to pharmaceutical companies that allows the pharmaceutical company to select
relevant target proteins. The analysis of massive amounts of genetic information
also requires the automation of sample processing in order to meet the
aggressive timetables which have been established for some projects. DNA
analyzers work around the clock to provide gene sequence data. DNA analyzers
allow researchers to determine a nucleic acid sequence through an
electrophoretic separation. DNA synthesizers provide an essential component,
primers, for many molecular biology reactions. These techniques are central to
molecular biology and the understanding of the genetic component of life
processes. Beckman Coulter's primary entry in the DNA analysis field is its
CEQ(TM) 2000 DNA Analysis System. This capillary electrophoresis based
instrument allows unattended, automated operation. DNA Analysis Systems sell in
the range of $12,000 to $90,000.
Liquid handling robotic workstations and integrated systems 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 as well as robotic manipulation of samples.
Key products in this area are Beckman Coulter's Sagian(TM) Core Systems, which
can help biotechnology and pharmaceutical firms substantially reduce the time to
market for new drugs by allowing them to process assays 24 hours a day. These
systems use sophisticated scheduling and data handling software. Prices range
from $50,000 to $500,000.
CENTRIFUGATION AND ANALYTICAL SYSTEMS
Beckman Coulter offers a wide range of life science research systems that
are used to advance basic understanding of life processes. Much of this basic
research is done in university and medical school labs, research institutes and
government labs. The same research systems are also used for applied research in
pharmaceutical and biotechnology companies. Product categories include
centrifuges, flow cytometers, high performance liquid chromatography ("HPLC"),
capillary electrophoresis, spectrophotometers and liquid scintillation counters.
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 similar
to those used in clinical applications and sell in the $70,000 to $400,000
range.
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.
Beckman Coulter focuses on biologically related applications and sells a variety
of products under the System Gold(R) name. These systems range in price from
$20,000 to $50,000.
Beckman Coulter also provides specialized software that is capable of
recording, manipulating and archiving data from multiple chromatographic
systems, and other instruments. This type of software is essential to the
pharmaceutical production 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. Beckman Coulter
has systems for basic research, pharmaceutical methods development, and quality
control. These systems are based on the P/ACE(TM) series platform. Capillary
electrophoresis systems sell in the range of $30,000 to $90,000.
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. Centrifuge models range from
small table top units, such as the Microfuge(R) line of
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products to larger, free-standing units, such as the recently introduced
Avanti(R) J Series. Centrifuges are priced from $2,000 to $250,000.
Spectrophotometry is the optical measurement of compounds in liquid
mixtures. Monitoring biological reactions is a typical application for this
technology. Beckman Coulter's DU(R) series of 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. Researchers often insert radioactive atoms into compounds that are then
introduced into biological systems. The compounds can be traced to a specific
tissue or waste product by using a liquid scintillation counter to measure the
amount and type of radioactive label that is present. Beckman Coulter's LS6500
Series Liquid scintillation systems sell in the $16,000 to $30,000 range.
COMPETITION
The markets for Beckman Coulter'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
(Diagnostics Division), Bayer/Chiron, Dade International/Behring Diagnostics
Division, 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,
Agilent Technologies, Amersham Pharmacia Biotech p.l.c., Becton Dickinson,
Bio-Rad Laboratories, Inc., Hitachi, Packard BioScience Company, Jouan, Kendro
Laboratory Products, PE Biosystems, Shimadzu, Tecan, and Waters Corporation.
Some of these competitors are divisions or subsidiaries of corporations with
substantial resources. In addition, Beckman Coulter competes with several
companies that offer reagents, consumables and service for laboratory
instruments that are manufactured by Beckman Coulter and others.
RESEARCH AND DEVELOPMENT
Beckman Coulter'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. Beckman
Coulter'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. Beckman Coulter's
research and development expenditures were $173.4 million in 1999, $171.4
million in 1998, and $123.6 million in 1997.
An area of research that has been ongoing is expanding the Access platform
into the area of cancer immunodiagnostics by developing tests to look for
markers of liver, ovarian, pancreatic, and testicular cancer. Beckman Coulter
also is looking for opportunities to expand the use of flow cytometry systems
into the investigation of cell chemistry, focusing on use in oncology and the
study of immune function, and pursuing opportunities in DNA analysis by
providing new instrumentation, automation, and chemistries to speed up genetic
discovery.
SALES AND SERVICE
Beckman Coulter has sales in approximately 130 countries and maintains its
own marketing, service and sales forces in major markets throughout the world.
Most of Beckman Coulter's products are distributed by Beckman Coulter's sales
groups; however, Beckman Coulter employs independent distributors to serve those
markets that are more efficiently reached through such channels. In addition to
direct sales of its instruments, Beckman Coulter leases certain instruments to
its customers, principally those used for clinical diagnostic applications in
hospitals.
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Beckman Coulter's sales representatives are technically educated and
trained in the operation and application of Beckman Coulter'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 Beckman
Coulter's products. These individuals give Beckman Coulter the ability to
provide immediate after sales service and technical support, elements which are
critical to customer satisfaction. This includes capabilities to provide
immediate technical support by phone and to deliver parts or have a service
engineer on site within hours. To have such capabilities on a global basis
requires a major investment in personnel, facilities, and other resources.
Beckman Coulter's large, existing installed base of instruments makes the
required service and support infrastructure financially viable. Beckman Coulter
considers its reputation for service responsiveness and competence and its
worldwide sales and service network to be important competitive assets.
PATENTS AND TRADEMARKS
Beckman Coulter's primary trademark and trade name are "Beckman Coulter".
The company vigorously protects its primary trademark, which is used on Beckman
Coulter's products and is recognized throughout the worldwide scientific and
diagnostic community. Beckman Coulter owns and uses secondary trademarks on
various products, but none of these secondary trademarks is considered of
primary importance to the business.
To complement and protect the innovations created by Beckman Coulter's
research and development efforts, Beckman Coulter has a 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. Beckman Coulter also files important corresponding applications in
principal foreign countries. Beckman Coulter has taken an aggressive posture in
protecting its patent rights.
While no one patent is considered essential to the success of the business,
a number of patents relating to major product lines or which provide significant
sources of revenue are nearing the end of their terms. Patents nearing the end
of their terms that relate to major product lines include those covering some of
the reagents used with the cellular analysis products. Patents nearing the end
of their terms that provide significant sources of revenue include the patents
covering certain fundamental immunoassay technologies. These patents have been
the basis for substantial licensing revenues, which will cease upon expiration
of the patents.
YEAR 2000 COMPLIANCE
Information with respect to this subject is incorporated by reference to
the section entitled "Management's Discussion and Analysis" of Beckman Coulter's
Annual Report to Stockholders for the year ended December 31, 1999.
GOVERNMENT REGULATIONS
Beckman Coulter's products and operations are subject to a number of
federal, state, local and foreign laws and regulations. It believes that its
products and operations comply in all material respects with these laws and
regulations. Although Beckman Coulter continues to make expenditures to comply
with these requirements, it does not anticipate any expenditures which would
have a material impact on Beckman Coulter's operations or financial position.
All clinical diagnostics products sold in the United States are subject to
laws and regulations administered by the United States Food & Drug
Administration ("FDA"). These laws and regulations require the products to be
safe and effective for their intended uses and to be developed and manufactured
in accordance with "good manufacturing practices". They also require the
labeling for the products to contain specified information and, in some cases,
FDA must review and approve the quality assurance protocols specified in the
labeling. In addition, certain products must meet performance standards or
conform to other special controls adopted by the FDA, and some products are
subject to a formal premarket approval process.
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
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international quality standard, the International Organization for
Standardization Series 9000 Quality Standards ("ISO 9000"). Beckman Coulter's
major manufacturing operations and development centers have been certified as
complying with the requirements of the appropriate ISO 9000 standard. Many of
Beckman Coulter's international sales and service subsidiaries also have been
certified as complying.
The European Union also has adopted a number of "directives" that specify
requirements for medical devices and other products. Beckman Coulter's products
that are covered by these directives must comply with their requirements in
order to be sold in the European Union. The key directives that have been
applicable to Beckman Coulter's products include those establishing requirements
for electromechanical compatibility, packaging and packaging waste, and
non-implantable medical devices. In order to comply with these requirements, the
company has taken steps such as modifying certain of its designs, obtaining
specialized test equipment, generating information about its packaging
materials, and modifying its product labeling. In 1999, the European Union
adopted a new directive establishing requirements for in vitro diagnostic
products. This directive will be phased in beginning in June, 2000 and will
become mandatory in June, 2003.
The design of Beckman Coulter'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 series of clinical analyzers, reflects Beckman
Coulter'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, Beckman
Coulter 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. Beckman Coulter is closely
following these developments so that it may position itself to take advantage of
them. However, Beckman Coulter cannot predict the effect on its business of
these reforms should they occur nor of any other future government regulation.
ENVIRONMENTAL MATTERS
Beckman Coulter is subject to federal, state, local and foreign
environmental laws and regulations. Although Beckman Coulter continues to make
expenditures for environmental protection, it does not anticipate any
expenditures to comply with such laws and regulations which would have a
material impact on Beckman Coulter's operations or financial position. Beckman
Coulter believes that its operations comply in all material respects with
applicable federal, state, and local environmental laws and regulations.
To address contingent environmental costs, Beckman Coulter establishes
reserves when the costs are probable and can be reasonably estimated. Beckman
Coulter believes that, based on current information and regulatory requirements
(and taking third party indemnities into consideration), the reserves
established by Beckman Coulter 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 Beckman Coulter's operations, financial condition, or
liquidity, although no assurance can be given in this regard.
In 1983, Beckman Coulter 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. Beckman Coulter
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believes that it has completed all of the required work and has initiated
discussions with the EPA regarding the criteria to be used in making this
determination. SmithKline Beckman, Beckman Coulter's former controlling
stockholder, agreed to indemnify Beckman Coulter with respect to this matter for
any costs incurred in excess of applicable insurance, eliminating any impact on
Beckman Coulter'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 formerly owned by Beckman Coulter. In 1988, The Prudential
Insurance Company of America ("Prudential"), which had purchased the property
from Beckman Coulter, filed suit against Beckman Coulter 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, Beckman Coulter 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.
During 1998, two additional areas of soil requiring remediation were identified.
Work on one area was completed in 1998 and work on the second area was completed
in 1999. 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. Beckman Coulter and Prudential continued to
operate a groundwater treatment system throughout most of 1999. In October,
1999, the Regional Water Quality Control Board agreed that the system could be
shut down. Continued monitoring will be necessary for a period of time to verify
that groundwater conditions remain acceptable.
Beckman Coulter 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 Beckman Coulter'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, 1999, Beckman Coulter had approximately 6,900 employees
located in the United States and approximately 2,600 employees in international
operations. Beckman Coulter 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 Beckman Coulter's Annual Report to Stockholders for the
year ended December 31, 1999.
FORWARD-LOOKING STATEMENTS
All statements contained in this report, or in any document we file with
the Securities and Exchange Commission, or in any press release or other written
or oral communication by or on behalf of our company, that do not directly and
exclusively relate to historical facts constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
This 10-K report contains a number of forward-looking statements, including
statements regarding, among other items:
1. anticipated growth in Beckman Coulter's markets and factors affect
those markets;
2. Beckman Coulter's compliance with government regulations and the
impact of those regulations on its business operations;
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3. the expected outcome of legal proceedings; and
4. product development activities.
These forward-looking statements are based on our expectations and are
subject to a number of risks and uncertainties, some of which are beyond our
control. These risks and uncertainties include, but are not limited to:
1. complexity and uncertainty regarding development of new
high-technology products;
2. loss of market share through aggressive competition in the clinical
diagnostics and life science research markets;
3. our dependence on capital spending policies and government funding;
4. the effect of potential healthcare reforms;
5. general economic conditions in countries in which we do business,
such as, Japan and Germany;
6. fluctuations in foreign exchange rates and interest rates;
7. reliance on patents and other intellectual property;
8. delays in obtaining any government approvals necessary to market
new products, particularly in clinical diagnostics;
9. difficulties, delays or failure in effectively integrating
worldwide operations; and
10. 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.
ITEM 2. PROPERTIES
Beckman Coulter's primary instrument assembly and manufacturing facilities
are located in Fullerton, Brea, and Palo Alto, California; Chaska, Minnesota;
and Hialeah and Opa Locka, Florida. Components, parts, and electronic
subassemblies are manufactured in facilities located in Fullerton and
Porterville, California and Hialeah, Florida. An additional manufacturing
facility is located in Galway, Ireland. Reagents are manufactured in Fullerton,
Carlsbad, and Palo Alto, California; Chaska, Minnesota; Miami, Florida;
Florence, Kentucky; Galway, Ireland; Germany; France; Japan; Brazil; Australia;
Argentina; and Hong Kong.
Part of Beckman Coulter'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
Beckman Coulter's laboratory robotics operations are conducted in leased
facilities in Indianapolis, Indiana. Beckman Coulter's principal distribution
locations are in Brea and Fullerton, California; Chaska, Minnesota; Somerset,
New Jersey; Florence, Kentucky; Frankfurt, Germany; and Paris, France. Beckman
Coulter's European Administration Center is located in Nyon, Switzerland.
Beckman Coulter owns the facilities located in Carlsbad, Fullerton, and
Porterville, California; and some of the facilities in Hialeah, Florida. All of
the other facilities are leased. The Brea and Palo Alto, California; Miami,
Florida; and Chaska, Minnesota facilities, which previously were owned by
Beckman Coulter and sold in 1998, are leased for initial terms of twenty years
with options to renew for up to an additional thirty years. All manufacturing
facilities located outside of the U.S. are leased with the exception of Germany,
France, Japan, Brazil and Australia. During 1999, as part of previously
announced restructuring activities, Beckman Coulter closed its manufacturing
operations in San Diego, California and Naguabo, Puerto Rico and began
relocating a portion of the manufacturing activities conducted in Germany to
Ireland.
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Beckman Coulter 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
Beckman Coulter and its subsidiaries are involved in a number of lawsuits
which Beckman Coulter considers ordinary and routine in view of its size and the
nature of its business. Beckman Coulter 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 Beckman Coulter's operating
results for any particular period, depending upon the level of income for such
period.
In December 1999, Streck Laboratories, Inc. served Beckman Coulter and
Coulter Corporation with a complaint filed in the United States District Court
for the District of Nebraska. The complaint alleges that control products sold
by Beckman Coulter and/or Coulter Corporation infringe each of five patents
owned by Streck, and seeks injunctive relief, damages, attorneys fees and costs.
Beckman Coulter for itself and on behalf of Coulter Corporation has answered the
complaint, denying infringement and raising all appropriate affirmative defenses
and/or counterclaims. At this early stage of this matter, there is no reasonable
basis for Beckman Coulter to conclude that this litigation could lead to an
outcome that would have a material adverse effect on Beckman Coulter's
operations or financial position.
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 1999.
EXECUTIVE OFFICERS OF BECKMAN COULTER
The following is a list of the executive officers of Beckman Coulter as of
February 4, 2000, showing their ages, present positions and offices with Beckman
Coulter 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, 58, Chairman of the Board, President and Chief Executive
Officer
Mr. Wareham is Chairman, President and Chief Executive Officer of Beckman
Coulter. He became Chairman in February 1999, Chief Executive Officer in
September 1998 and President in October 1993. He also served as Beckman
Coulter's Chief Operating Officer from October 1993 to September 1998 and as
Vice President, Diagnostic Systems Group from 1984 to 1993. Prior to 1984, he
had served as President of Norden Laboratories, Inc., a wholly owned subsidiary
of SmithKline Beckman Corporation engaged in developing, manufacturing and
marketing veterinary pharmaceuticals and vaccines, having first joined
SmithKline Corporation, a predecessor of SmithKline Beckman Corporation, in
1968. He is a director and Chairman Elect of the Health Industry Manufacturers
Association, and is a member of the Center for Corporate Innovation. He has been
a director of Beckman Coulter since 1993.
JACK FINNEY, 61, Vice President, Bioresearch Division
Mr. Finney has been Vice President, Bioresearch Division since 1997. He
first joined Beckman Coulter 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.
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JAMES T. GLOVER, 50, Vice President and Treasurer
Mr. Glover was named Vice President and Treasurer in December, 1999. He had
been Vice President and Controller of Beckman Coulter since 1993, and previously
Vice President, Controller -- Diagnostic Systems Group from 1989. Mr. Glover
joined Beckman Coulter 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.
AMIN I. KHALIFA, 46, Vice President and Chief Financial Officer
Mr. Khalifa has been Vice President and Chief Financial Officer since
December, 1999. He first joined Beckman Coulter in June, 1999 as Vice President,
Chief Financial Officer and Treasurer. Prior to joining Beckman Coulter he had
been Chief Financial Officer of the Agricultural Sector of Monsanto Company,
head of Investor Relations and Strategy for Aetna, Inc., Vice President and
Chief Financial Officer of Aetna Health Plans, and held various positions of
increasing responsibility at PepsiCo.
FIDENCIO MARES, 53, Vice President, Human Resources and Corporate Communications
Mr. Mares was named Vice President, Human Resources and Corporate
Communications of Beckman Coulter 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.
WILLIAM H. MAY, 57, Vice President, General Counsel and Secretary
Mr. May has been Vice President, General Counsel and Secretary of Beckman
Coulter since 1985 and has been General Counsel and Secretary of Beckman Coulter
since 1984. Mr. May first joined Beckman Coulter in 1976.
EDGAR E. VIVANCO, 56, 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 Coulter 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.
ALBERT R. ZIEGLER, 61, 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 Beckman Coulter 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 in 1971.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
As of January 21, 2000 there were approximately 7,054 holders of record of
Beckman Coulter's common stock. During 1999, Beckman Coulter paid quarterly
dividends of sixteen cents per share for a total of sixty-four cents per share
of common stock for the year. During 1998 Beckman Coulter 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. Under the terms of Beckman Coulter'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 Beckman Coulter'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 Beckman
Coulter's Annual Report to Stockholders for the year ended December 31, 1999.
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 Beckman
Coulter's Annual Report to Stockholders for the year ended December 31, 1999.
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
Beckman Coulter's Annual Report to Stockholders for the year ended December 31,
1999.
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 Beckman
Coulter's Annual Report to Stockholders for the year ended December 31, 1999.
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
Beckman Coulter's Annual Report to Stockholders for the year ended December 31,
1999.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
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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 Beckman Coulter's
Proxy Statement for the Annual Meeting of Stockholders to be held April 6, 2000
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 Beckman Coulter's Proxy
Statement for the Annual Meeting of Stockholders to be held April 6, 2000
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 Beckman Coulter's Proxy Statement for
the Annual Meeting of Stockholders to be held April 6, 2000 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
Beckman Coulter's Proxy Statement for the Annual Meeting of Stockholders to be
held April 6, 2000 entitled "ADDITIONAL INFORMATION ABOUT THE BOARD OF
DIRECTORS, 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
<TABLE>
<C> <S>
Management contracts and compensatory plans or arrangements
are identified by *.
2.1 Stock Purchase Agreement among Coulter Corporation, The
Stockholders of Coulter Corporation and Beckman Coulter,
dated as of August 29, 1997 (incorporated by reference to
Exhibit 2.1 of Beckman Coulter'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 Beckman
Coulter, June 5, 1992 (incorporated by reference to Exhibit
3.1 of Beckman Coulter'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).
</TABLE>
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<TABLE>
<C> <S>
3.2 Amended and Restated By-Laws of Beckman Coulter, 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 Beckman
Coulter's Form S-1 registration statement, File No.
33-24572).
4.2 Rights Agreement between Beckman Coulter 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 Beckman Coulter 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 Beckman Coulter'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 Beckman Coulter 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 Beckman Coulter'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
Beckman Coulter'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 Beckman Coulter'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).
4.8 Stockholder Protection Rights Agreement (incorporated by
reference to Exhibit 4 of Beckman Coulter's report on Form
8-K filed with the Securities and Exchange Commission on
February 8, 1999, File No. 001-10109).
10.1 Credit Agreement dated as of October 31, 1997 among the
Company as Borrower, the Initial Lenders and the Initial
Issuing Banks named therein, and Citicorp USA, Inc. as Agent
(incorporated by reference to Exhibit 10.1 of Beckman
Coulter'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 Beckman Coulter, in favor of the Lender Parties
(as defined in the Credit Agreement) (incorporated by
reference to Exhibit 10.2 of Beckman Coulter'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.
</TABLE>
18
<PAGE> 19
<TABLE>
<C> <S>
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 Beckman Coulter'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
Beckman Coulter'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 Beckman
Coulter'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
Beckman Coulter 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 Beckman Coulter'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 Beckman Coulter's Annual Incentive Plan for 1997, adopted by
Beckman Coulter in 1997 (incorporated by reference to
Exhibit 10.1 of Beckman Coulter'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 Beckman Coulter'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 Beckman
Coulter'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 Beckman Coulter'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 Beckman Coulter's Incentive Compensation Plan, as amended by
the Beckman Coulter's Board of Directors on October 26, 1988
and as amended and restated by Beckman Coulter's Board of
Directors on March 28, 1989 (incorporated by reference to
Exhibit 10.16 of Beckman Coulter'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 Beckman Coulter'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
Beckman Coulter 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).
</TABLE>
19
<PAGE> 20
<TABLE>
<C> <S>
*10.14 Form of Restricted Stock Agreement, dated as of January 3,
1997, between Beckman Coulter and certain of its Executive
Officers and certain other key employees (incorporated by
reference to Exhibit 10.1 of Beckman Coulter'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 Beckman Coulter's Supplemental Pension Plan, adopted by the
Company October 24, 1990 (incorporated by reference to
Exhibit 10.4 of Beckman Coulter'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 Beckman Coulter's Supplemental Pension
Plan, adopted by Beckman Coulter 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 Beckman Coulter's Supplemental Pension
Plan, dated as of December 9, 1996 (incorporated by
reference to Exhibit 10.18 of Beckman Coulter'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 Beckman Coulter'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 Beckman Coulter, certain of its Executive
Officers and certain other key employees (incorporated by
reference to Exhibit 10.34 of Beckman Coulter'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 Beckman Coulter and Albert
Ziegler (incorporated by reference to Exhibit 10.22 of
Beckman Coulter'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 Beckman
Coulter and Fidencio M. Mares (incorporated by reference to
Exhibit 10.3 of Beckman Coulter'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 Beckman Coulter'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 Beckman Coulter's Amended and Restated Deferred Directors'
Fee Program, amended as of June 5, 1997 (incorporated by
reference to Exhibit 10.6 of Beckman Coulter'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 Beckman Coulter's Supplemental Pension
Plan, adopted as of October 31, 1997 (incorporated by
reference to Exhibit 10.7 of Beckman Coulter'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).
</TABLE>
20
<PAGE> 21
<TABLE>
<C> <S>
*10.25 Form of Restricted Stock Award Agreement between Beckman
Coulter 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 Beckman
Coulter's Registration Statement on Form S-8 filed with the
Securities and Exchange Commission on October 8, 1997,
Registration No. 333-37429).
*10.27 Beckman Coulter'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 Beckman Coulter'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 Beckman Coulter'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 Beckman Coulter October 31, 1997
(incorporated by reference to Exhibit 10.38 of Beckman
Coulter'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 Beckman Coulter 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, Beckman
Coulter and Allergan, Inc. (incorporated by reference to
Exhibit 10.26 of Amendment No. 2 to Beckman Coulter's Form
S-1 registration statement, File No. 33-28853).
10.32 Cross-Indemnification Agreement between Beckman Coulter and
SmithKline Beckman Corporation (incorporated by reference to
Exhibit 10.1 of Amendment No. 1 to Beckman Coulter'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 Beckman Coulter, 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 Beckman Coulter'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 Beckman Coulter's 1998 Incentive Compensation Plan
(incorporated by reference to Exhibit 10.2 of Beckman
Coulter'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 Beckman Coulter'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 Beckman
Coulter's current report on Form 8-K filed with the
Securities and Exchange Commission on July 9, 1998, File No.
001-10109).
</TABLE>
21
<PAGE> 22
<TABLE>
<C> <S>
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 Beckman Coulter'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 Beckman Coulter'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 Beckman
Coulter'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 Beckman Coulter'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 Beckman Coulter'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 Beckman
Coulter's current report on Form 8-K filed with the
Securities and Exchange Commission on July 9, 1998, File No.
001-10109).
*10.45 Beckman Coulter'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 Beckman Coulter's Registration Statement on Form S-8
filed with the Securities and Exchange Commission on
December 18, 1998, Registration No. 333-69249).
*10.46 Beckman Coulter'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 Beckman Coulter's Amended and Restated Savings Plan dated
December 24, 1998, effective as of September 1998
(incorporated by reference to Exhibit 4.1 of Beckman
Coulter'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 Beckman Coulter's 1998 Incentive Compensation Plan
(incorporated by reference to Exhibit 10.2 of Beckman
Coulter'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)
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C>
*10.49 1999 Annual Incentive Plan (AIP) (incorporated by reference to Exhibit 10.1 of Beckman Coulter's
Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarter ended
September 30, 1999, File No. 001-10109).
*10.50 Amendment 1999-1, adopted October 22, 1999 and effective as of September 1, 1998, to the Beckman
Coulter, Inc. Executive Restoration Plan (incorporated by reference to Exhibit 10.2 of Beckman
Coulter's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarter
ended September 30, 1999, File No. 001-10109).
*10.51 Amendment 1999-2, adopted November 23, 1999, to the Beckman Coulter, Inc. 1998 Incentive
Compensation Plan.
*10.52 Amendment 1999-1, adopted December 20, 1999, to the Beckman Coulter, Inc. Savings Plan.
*10.53 Change of Control Agreement between Beckman Coulter, Inc. and John P. Wareham, dated as of January
1, 2000.
11. Statement regarding computation of per share earnings: This information is incorporated by
reference to the discussions of "Earnings (Loss) Per Share" located in Note 15 of the Consolidated
Financial Statements of Beckman Coulter's Annual Report to Stockholders for the year ended
December 31, 1999.
13. Beckman Coulter's Annual Report to Stockholders for the year ended December 31, 1999.
21. Subsidiaries.
23. Consent of KPMG LLP.
24. Power of Attorney (included herein on the signature page).
27.1 Financial Data Schedule (1999)
27.2 Financial Data Schedule (1998 Amended)
99.1 II. Valuation and Qualifying Accounts (Allowance for Doubtful Accounts)
</TABLE>
(b) Reports on Form 8-K During Fourth Quarter ended December 31, 1999.
The following reports on Form 8-K were filed since September 30, 1999:
None.
23
<PAGE> 24
BECKMAN COULTER, INC.
INDEX TO
FINANCIAL STATEMENTS AND SCHEDULES
The consolidated financial statements of Beckman Coulter and the related
report of KPMG LLP, dated January 27, 2000 are incorporated by reference to the
section entitled "WORDS ON NUMBERS" filed as Exhibit 13 to this Form 10-K.
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.
24
<PAGE> 25
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 /s/ 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, Amin I.
Khalifa, William H. May, 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOHN P. WAREHAM Chairman of the Board, February 3, 2000
- -------------------------------------------------- President and Chief Executive
John P. Wareham Officer
/s/ AMIN I. KHALIFA Vice President, Finance and February 3, 2000
- -------------------------------------------------- Chief Financial Officer
Amin I. Khalifa (Principal Financial Officer)
/s/ JAMES B. GRAY Director/Controller (Principal February 3, 2000
- -------------------------------------------------- Accounting Officer)
James B. Gray
/s/ HUGH K. COBLE Director February 3, 2000
- --------------------------------------------------
Hugh K. Coble
/s/ CAROLYNE K. DAVIS Director February 3, 2000
- --------------------------------------------------
Carolyne K. Davis, Ph.D.
/s/ PETER B. DERVAN Director February 3, 2000
- --------------------------------------------------
Peter B. Dervan, Ph.D.
/s/ RONALD W. DOLLENS Director February 3, 2000
- --------------------------------------------------
Ronald W. Dollens
/s/ CHARLES A. HAGGERTY Director February 3, 2000
- --------------------------------------------------
Charles A. Haggerty
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GAVIN S. HERBERT Director February 3, 2000
- --------------------------------------------------
Gavin S. Herbert
/s/ VAN B. HONEYCUTT Director February 3, 2000
- --------------------------------------------------
Van B. Honeycutt
Director
- --------------------------------------------------
William N. Kelley, M.D.
/s/ C. RODERICK O'NEIL Director February 3, 2000
- --------------------------------------------------
C. Roderick O'Neil
/s/ BETTY WOODS Director February 3, 2000
- --------------------------------------------------
Betty Woods
</TABLE>
26
<PAGE> 27
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<C> <S>
10.51 Amendment 1999-2, adopted November 23, 1999, to the Beckman
Coulter, Inc. 1998 Incentive Compensation Plan.
10.52 Amendment 1999-1, adopted December 20, 1999, to the Beckman
Coulter, Inc. Savings Plan.
10.53 Change of Control Agreement between Beckman Coulter, Inc.
and John P. Wareham dated as of January 1, 2000.
13. Beckman Coulter's Annual Report to Stockholders for the year
ended December 31, 1999.
21. Subsidiaries.
23. Consent of KPMG LLP.
27.1 Financial Data Schedule (1999).
27.2 Financial Data Schedule (1998 Amended).
99.1 II. Valuation and Qualifying Accounts. (Allowance for
Doubtful Accounts)
</TABLE>
27
<PAGE> 1
EXHIBIT 10.51
AMENDMENT 1999-2
BECKMAN COULTER, INC.
1998 INCENTIVE COMPENSATION PLAN
WHEREAS, Beckman Coulter, Inc. (the "Company") maintains the Beckman
Coulter, Inc. Incentive Compensation Plan (the "Plan");
WHEREAS, the Company's Board of Directors has the authority to amend
the Plan; and
WHEREAS, the Company's Board of Directors has determined that it is in
the best interest of the Company to terminate provisions of the Plan relating to
restricted stock grants to eligible non-employee directors and, in lieu thereof,
to increase the number of stock options granted to such directors.
NOW, THEREFORE, the Plan is amended, effective as of the date of the
year 2000 annual meeting of stockholders, as follows:
1. Section 6.2 is amended to read as follows:
"6.2 Annual Option Grants. Subject to adjustments
under 6.4, each Eligible Director then continuing in office
shall automatically be granted at the close of trading on the
day of the annual stockholders meeting in 1999 (without any
action by the Administrator) a nonqualified stock option (the
grant date of which will be date of such annual stockholder
meeting) to purchase 2,000 Common Shares provided, however,
that if an Eligible Director takes office other than on the
date of an annual stockholders meeting, the Eligible Director
shall be granted (without any action by the Administrator) a
nonqualified stock option (the grant date of which will be the
date he or she participates in the first meeting of the full
Board after taking office) to purchase 200 Common Shares, or
if greater, the number of Common Shares determined by
multiplying 2,000 by (i) the number of days remaining after
the grant date until the first anniversary of the preceding
annual meeting of the Company's stockholders (provided that
such number shall not be greater than 365), divided by (ii)
365, then rounded to the next whole number. Beginning with the
annual stockholders meeting in the year 2000 and on the date
of the annual stockholders meeting each year thereafter for
the term of the Plan, the number 2,500 shall be substituted
for the number 2,000 each time it appears in the foregoing
sentence."
2. Section 6.3.1 is amended to read as follows:
"6.3.1 Restricted Stock Grants. Immediately following
the annual stockholders meeting in 1999, there shall be
granted automatically (without any action by the
Administrator) a restricted stock award for 100 restricted
Common Shares (subject to adjustment under Section 6.4) to
each Eligible Director then continuing office. No further
restricted stock awards will be granted in any remaining year
during the term of this Plan."
<PAGE> 2
IN WITNESS WHEREOF, the Company as caused its duly authorized officer
to execute this Amendment to the Plan on November 23, 1999.
BECKMAN COULTER, INC.
By: /s/ Fidencio M. Mares
Its: Vice President, Human Resources
<PAGE> 1
EXHIBIT 10.52
AMENDMENT 1999-1
BECKMAN COULTER, INC.
SAVINGS PLAN
WHEREAS, Beckman Coulter, Inc. (the "Company"), a Delaware corporation
maintains the Beckman Coulter, Inc. Savings Plan (the "Plan"); and
WHEREAS, the Company now desires to amend the Plan to clarify certain
provisions; and
WHEREAS, the Company has the right to amend the Plan;
NOW, THEREFORE, the Plan is hereby amended as follows, effective as of
the date of adoption of this Amendment 1999-1, except as otherwise indicated
below:
1. The definition of "Committee" in Section 1.2 of the Plan is hereby
amended to read as follows:
"'Committee' shall mean the Benefits Finance and
Administration Committee appointed by the Board pursuant to
Article VII."
2. The definition of "Plan Compensation" in Section 1.2 of the Plan is
hereby amended by adding the following as a new fourth sentence; such amendment
is considered a clarification of the previous intent of the Company, and does
not constitute a substantive change:
"Plan Compensation shall not include amounts deferred under
the Company's non-qualified deferred compensation programs,
such as its Executive Deferred Compensation Plan and Executive
Restoration Plan."
3. Effective September 1, 1998, the first sentence of Section 6.8 is
hereby amended to read as follows:
<PAGE> 2
"The total number of withdrawals referred to in Sections 6.1,
6.2, 6.3, 6.4 and 6.5 shall not exceed four in any Plan Year
for any Participant."
4. The first sentence of Section 7.1 of the Plan is amended to read as
follows:
"The Committee is the Benefits Finance and Administration
Committee, which is appointed by, and serves at the pleasure
of, the Board."
5. The reference to the "Committee" in Section 8.1 of the Plan is
changed to a reference to the "Corporate Benefits Committee" of the Company.
6. Section 9.11(c)(2) shall be amended by adding the following to the
end of the section:
"Loan repayments may be suspended during a Participant's
active military service, as provided in Code Section
414(u)(4)."
7. Effective September 1, 1998, Section 9.11(c)(3)(B) of the Plan shall
be deleted and Section 9.11(c)(3)(C) shall be redesignated as Section
9.11(c)(3)(B).
8. Effective January 1, 2000, Section 1.2(c) of Appendix A shall have
no further force and effect.
9. Effective October 21, 1996, Section 1 of Appendix C is amended by
adding the following to the end of the section:
"Genomyx Corporation was added as a Participating Affiliate
effective October 21, 1996; provided, however, that employees
of Genomyx Corporation were not entitled to allocations of
Company Matching Contributions."
10. Effective May 1, 1998, Section 1 of Appendix C is amended by adding
the following to the end of the section:
<PAGE> 3
"Effective May 1, 1998, the employees of Genomyx Corporation
became employees of the Company, and they therefore became
eligible for allocations of Company Matching Contributions
from that time forward."
11. Effective July 28, 1999, Section 1 of Appendix C is amended by
adding the following to the end of the section:
"Each individual who became a Covered Employees as a result of
the 'Strategic Alliance and Cross Distribution Agreement
between Beckman Coulter, Inc. and C.H. Werfen S.A.,' signed
July 28, 1999 (sometimes referred to as 'MLA and Ortho
employees'), shall be credited for purposes of determining
eligibility under this Plan with such individual's service
with the C.H. Werfen S.A. entity which employed such
individual prior to becoming a Covered Employee."
12. Effective October 31, 1997, Section 1 of Appendix F is amended to
provide as follows:
"Each Covered Employee who as of October 31, 1997 was
classified by the Company as an employee rendering services to
Coulter Corporation is subject to the provisions of the
Appendix F (a "Coulter Employee"). With respect to individuals
not employed by the Company as of October 31, 1997 the
following rules shall apply: (1) If such Covered Employee had
no prior service with Beckman Instruments, Inc. or Coulter
Corporation, and the Covered Employee's first Hour of Service
is performed at a facility, location or operation determined
by the Company to be primarily related to the portion of the
Company's business acquired through the acquisition of Coulter
Corporation, that person shall be a "Coulter Employee" for
purposes of this Appendix F. (2) If such a Covered
<PAGE> 4
Employee's first Hour of Service is after October 31, 1997,
and he has prior service with either Coulter Corporation or
Beckman Instruments, Inc., then he shall be classified as a
"Coulter Employee" upon rehire if he was most recently
employed by Coulter Corporation (rather than Beckman
Instruments, Inc.) prior to October 31, 1997. Otherwise, upon
rehire by the Company he shall be classified as a "Beckman
Employee." The initial classification of an Employee as a
"Coulter Employee" or "Beckman Employee" shall continue
notwithstanding any change to the Employee's facility,
location or operation or any subsequent termination and
rehire."
13. Effective September 1, 1998, the first sentence of subsection 6(5)
of Appendix F of the Plan is amended to provide as follows:
"(5) Amounts credited to a Coulter Employee's "Pension Plan
Account" and "Retirement Plus Account" under the Plan shall be
available for distribution as provided under Section 6.6 after
the Coulter Employee's Severance from Service, or after the
Coulter Employee reaches age 70-1/2, pursuant to Section
6.10(b)"
14. Effective September 1, 1998, the second sentence of the first
paragraph of Section 7 of Appendix F is amended to read as follows:
"Commencing September 1, 1998, as of the end of each calendar
quarter (ending march 31, June 30, September 30, and December
31) in each Plan Year, the Company shall make a "Retirement
Plus Contribution" to the Retirement Plus Contributions
Account of each Coulter Employee who, as of the last working
day of that quarter (i) is a Covered Employee and (ii) has
completed a twelve month Period of Service with the Company or
a Related Company.
<PAGE> 5
15. Effective September 1, 1998, the first sentence of the second
paragraph of Section 7 of Appendix F is amended to read as follows:
"In addition, for each Coulter Employee who was (1) hired on
or before November 1, 1995, (2) was employed by Coulter
Corporation on March 31, 1996, and (3) was a participant in
the Coulter Corporation Pension Plan on March 31, 1996, the
Company shall make the quarterly contribution shown in the
following table to the Retirement Plus Contributions Account
of each such Coulter Employee who is a Covered Employee on the
last working day of that quarter."
IN WITNESS WHEREOF, this Amendment 1999-1 is hereby adopted
this 20th day of December, 1999.
BECKMAN COULTER, INC.
By /s/ Fidencio M. Mares
------------------------------------
Fidencio M. Mares
Its Vice President - Human Resources
<PAGE> 1
EXHIBIT 10.53
AGREEMENT
This Agreement ("Agreement") is dated as of January 1, 2000, and is entered into
by and between John P. Wareham ("Employee") and Beckman Coulter, Inc., a
Delaware corporation ("Beckman"). Employee and Beckman hereby agree to the
following terms and conditions:
1. Purpose of Agreement. The purpose of this Agreement is to provide that,
in the event of a "Change in Control," Employee may become entitled to
receive additional benefits in the event of his termination. It is
believed that the existence of these potential benefits will benefit
Beckman by discouraging turnover among Employees with Agreements and
causing such Employees to be more able to respond to the possibility of
a Change in Control without being influenced by the potential effect of
a Change in Control on their job security. In addition, this Agreement
provides Employee with certain benefits upon the termination of his
employment by reason of disability before or after a Change in Control.
2. Change in Control. As used in this Agreement, the phrase "Change in
Control" shall mean the following and shall be deemed to occur if any of
the following events occur:
(a) Any "person," as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of Beckman representing 15% or more of
the combined voting power of Beckman's then outstanding voting
securities, provided that, no Change in Control shall be deemed
to occur solely because a corporation (the "seller") owns 15% or
more of Beckman voting securities if such ownership is only a
transitory step in a reorganization whereby Beckman purchases
the assets of the seller for Beckman voting securities and the
seller liquidates shortly thereafter; or if the "person"
described above is an underwriter or underwriting syndicate that
has acquired ownership of the Company's securities solely in
connection with a public offering of the Company's securities or
is an employee benefit plan maintained by the Company or any of
its subsidiaries.
(b) Individuals who, as of the date hereof, constitute the Board of
Directors of Beckman (the "Incumbent Board"), cease for any
reason to constitute at least a majority of the Board of
Directors, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for
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election by Beckman's stockholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent
Board (other than an election or nomination of an individual
whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election
of the directors of Beckman, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act)
shall be deemed to be a member of the Incumbent Board of
Beckman;
(c) The consummation of a merger or consolidation with any other
corporation, other than
(1) a merger or consolidation which would result in the
voting securities of Beckman outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of another entity) more than 85% of the
combined voting power of the voting securities of
Beckman or such other entity outstanding immediately
after such merger or consolidation,
(2) a merger or consolidation affected to implement a
recapitalization of Beckman (or similar transaction) in
which no person acquires 15% or more of the combined
voting power of Beckman's then outstanding voting
securities; or
(d) The stockholders of Beckman approve a plan of complete
liquidation of Beckman or an agreement for the sale or
disposition by Beckman of all or substantially all of Beckman's
assets.
Furthermore, even though a transaction meets the definition of a Change
in Control set forth in clause (a) of the first sentence of this
section, such transaction shall not constitute a Change in Control under
this Agreement if subsequent to the transaction and at all times
thereafter at least 70% of the voting power of Beckman's then
outstanding voting securities remain widely held by members of the
general public.
In addition, the merger or consolidation which would constitute a Change
in Control under clause (c) of the first sentence of this section shall
not be treated as a Change in Control if three criteria are met: (1)
after the merger or consolidation, persons who owned Beckman voting
securities prior to the merger or consolidation own at least 60% of the
voting securities of the surviving entity; (2) the voting securities not
owned by former Beckman shareholders are widely held by the general
public; and (3) the Committee resolves, prior to the approval that would
otherwise constitute a Change in Control under clause (c), that no
Change in Control shall be treated as having occurred. For the purpose
of this paragraph, the former Beckman
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shareholders shall be treated as owning the shares owned by the entity
into which their shares are converted so that, for example, if the
reorganization causes Beckman to become a wholly owned subsidiary of
another entity and the former Beckman shareholders own at least 60% of
that entity, then the share ownership requirement shall be considered to
have been satisfied.
3. Disability Payment and Benefits Prior to or Subsequent to a Change in
Control.
(a) In the event of the Disability of the Employee, Beckman shall
pay two times Compensation (as defined hereinafter). As used
herein "Disability" refers to an illness, or accident that
causes the Employee to be unable to perform his job for six or
more consecutive months. In addition, the Employee shall receive
additional payments from Beckman under the Beckman Coulter, Inc.
Pension Plan (the "Pension Plan") as set forth in this section.
The Disability Payment provided by this section shall be paid in
equal monthly installments over two (2) years.
(b) In addition, at the time that Employee (or Employee's
beneficiary) first begins to receive benefits under the Pension
Plan there shall be calculated the difference between the
benefit that Employee or Employee's beneficiary has begun to
receive under the Pension Plan and the benefit that would have
been received if Employee had worked for another two years
subsequent to the date of the Disability. For the purpose of the
preceding sentence, Employee shall be deemed to have received
"Earnings" under the Pension Plan for the period subsequent to
the Disability at an annual rate equal to his Compensation, as
calculated under Section 8(a) of this Agreement. This difference
shall be paid by Beckman as a supplemental payment to Employee
or Employee's beneficiary for the period of time that he is
entitled to the payment that is being supplemented.
(c) To the extent that Employee's pension benefit is provided by
tax-qualified defined benefit pension plan for Beckman employees
other than the Pension Plan, the calculation of the obligation
under this section shall be calculated with regard to such
successor plan's benefit formula and other relevant features.
This section shall be applied with regard to the new plan in a
manner designed to provide Employee with the additional benefits
he would have received if he had remained employed for another
two years. If Employee is not participating in a tax-qualified
defined benefit pension plan at the time of the Disability, the
benefit under this section shall be calculated with regard to
the terms of the Pension Plan at the time of this Agreement.
(d) The disability benefits provided in Subsections (b) and (c) of
this Section 3 shall in no event result in the Employee
receiving more than the benefits he
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would have otherwise received under the Pension Plan when
retiring at age sixty-two (62).
4. Rights and Obligations Prior to a Change in Control. With the exception
of Section 3, prior to a Change in Control the rights and obligations of
Employee with respect to his employment by Beckman shall be whatever
rights and obligations are negotiated between Beckman and Employee from
time to time. The existence of this Agreement, which deals with such
rights and obligations subsequent to a Change in Control, shall not be
treated as raising any inference with respect to what rights and
obligations exist prior to a Change in Control unless specifically
stated elsewhere in this Agreement.
5. Effect of a Change in Control. In the event of a Change in Control,
Sections 7 through 10 of this Agreement shall become applicable to
Employee if his Qualifying Termination occurs on or prior to the second
anniversary of the date upon which the Change in Control occurred. If a
Qualifying Termination has occurred by that date, this Agreement shall
remain in effect until Employee receives the various benefits to which
he has become entitled under the terms of this Agreement; otherwise,
upon such date this Agreement shall be of no further force or effect.
6. Qualifying Termination. If, subsequent to a Change in Control Employee's
employment terminates, such termination shall be considered a Qualifying
Termination unless:
(a) Employee voluntarily terminates employment. It shall not be
considered, however, a voluntary termination of employment if,
following the Change in Control, Employee's compensation or
duties are changed in any material respect from what they were
immediately prior to a Change in Control, and subsequent to such
change Employee elects to terminate employment. A "change in any
material respect" shall encompass any substantial diminishment
or modification in Employee's overall compensation (as measured
by the overall value of such compensation, including fringe
benefits, to Employee), position, duties, responsibilities, or
reporting relationship, and shall also include the transfer of
Employee's job location to a site more than 50 miles away from
his place of employment prior to the Change in Control.
(b) The termination is on account of Employee's death or Disability.
(c) Employee is involuntarily terminated for "cause." For this
purpose "cause" shall mean:
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(i) any material act of misconduct against Beckman or any
of its affiliates, such as fraud, misappropriation, or
embezzlement;
(ii) conviction of a felony involving a crime of moral
turpitude;
(iii) willful and knowing significant violation of rules
or regulations of any governmental or regulatory body which has
a material impact to the business of Beckman; or
(iv) substantial and willful failure to render services in
accordance with the job description of Employee's position
(other than as a result of illness, accident or other physical
or mental incapacity), provided that (A) a demand for
performance of services has been delivered to the Employee in
writing by or on behalf of the Board of Directors of Beckman at
least 60 days prior to termination identifying the manner in
which such Board of Directors believes that the Employee has
failed to perform and (B) the Employee has thereafter failed to
remedy such failure to perform.
7. Constructive Qualifying Termination. If within six months prior to a
change in control the Employee's employment terminates other than by
causes listed in paragraph 6(a)(b) & (c), Employee may submit to an
arbitration proceeding under paragraph 17 the determination of whether
said termination within six month prior to a change in control was a
constructive Qualifying Termination, entitling the Employee to
Compensation and other benefits that would have been granted if said
termination had occurred after a change in control.
8. Date and Notice of Termination. Any termination of the Employee's
employment by Beckman or by the Employee shall be communicated by a
written notice of termination to the other party (the "Notice of
Termination"). Where applicable, the Notice of Termination shall
indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Employee's employment under the provision so indicated. The date of the
Employee's termination of employment with Beckman (the "Date of
Termination") shall be determined as follows: (i) if the Employee's
employment is terminated by Beckman, either with or without Cause, the
Date of Termination shall be the date specified in the Notice of
Termination (which, in the case of a termination by Beckman other than
for Cause, shall not be less than two (2) weeks from the date such
Notice of Termination is given unless Beckman elects to pay the
Employee, in addition to any other amounts payable hereunder, an amount
equal to two (2) weeks of the Employee's base salary in effect on the
Date of Termination), and (ii) if the basis for the Employee's
Termination is a Qualifying Termination, the Date of Termination shall
be determined by Beckman, but shall
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not in any event be less than fifteen (15) days nor more than sixty (60)
days from the date such Notice of Termination is given.
9. Severance Payment. If Employee is terminated as a result of a Qualifying
Termination, Beckman shall pay Employee within 30 days of said
Qualifying Termination a declining lump sum depending upon the age of
this Agreement. At the effective date of this Agreement, the lump sum
will equal to 60 months of Compensation. The amount of the lump sum will
decrease each month by one month of Compensation until the amount of 36
months of compensation is reached. For calculation purposes, any partial
month will be rounded up or down to the nearest month. The lump sum will
not be less than 36 months of Compensation. The calculation of Benefits
under the Pension Plan in Section 10 shall use the same monthly
calculation as utilized in this Section 8. By way of example and
clarification, and if there were a Change in Control, the Employee had a
Qualifying Termination 12 months after the effective date of this
Agreement, the Employee would receive a lump sum of 48 months
Compensation and a Pension Plan calculation as if the Employee had
worked an additional 48 months.
(a) "Compensation" shall equal the sum of the Employee's highest
annual salary rate (i.e., the highest rate of annual salary that
Employee has been entitled to while an employee of Beckman) plus
a "Management Bonus Increment." The Management Bonus Increment
equals the "applicable percentage" of the highest annual salary
rate. The "applicable percentage" is determined by looking at
the management bonus plan that is applicable to Employee at the
time of the Qualifying Termination and calculating the total
award guideline percentage that would be applicable if the
target performance were achieved. The total award guideline
percentage (at target) shall not be adjusted either up or down
by any individual performance rating under the plan. By way of
illustration, the applicable percentage is 75% under the Beckman
Employee Bonus Plan currently applicable to the Chief Executive
Officer. If subsequent to this Agreement the Beckman Management
Bonus Plan is redesigned or replaced, the applicable percentage
shall be equitably adjusted to reflect the percentage of salary
that Employee could reasonably expect to receive as a bonus if
his performance had been excellent and profit objectives had
been met for the year of the Qualifying Termination. If at the
time of the Qualifying Termination neither the Beckman
Management Bonus Plan nor a successor plan with a substantially
similar bonus potential is in place and applicable to Employee,
the calculation of the applicable percentage shall be based on
the terms of the Beckman Management Bonus Plan that applied to
Employee at the time that this Agreement was executed.
(b) In lieu of a cash lump sum, Employee may elect in writing to
receive the Severance Payment provided by this Section in equal
monthly installments
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over three to five years (depending on the applicable multiple
discussed in this Section 8). Such election may only be made
prior to the occurrence of the events which constitute the
Change in Control in question and such election is irrevocable
once made.
(c) The Severance Payment hereunder is in lieu of any severance
payments that Employee might otherwise be entitled to from
Beckman under the terms of any severance pay arrangement not
referred to in this Agreement.
(d) If a Qualifying Termination occurs during a calendar year,
Employee shall receive a prorata Management Bonus for that
portion of the year before the Qualifying Termination occurred.
The prorata Management Bonus shall be calculated to the nearest
month based on a twelve month year. Further, the prorata
Management Bonus shall be based on the total award guideline
percentage applicable to Employee if the target performance were
achieved. The total award guideline percentage (at target) shall
not be adjusted either up or down by any individual performance
rating under the plan.
10. Stock Option Grants and Other Forms of Employee Compensation.
(a) Employee may have received or will receive stock option grants
or restricted stock under the Beckman Incentive Compensation
Plan, or other stock option plans of Beckman. In the event of a
Qualifying Termination, Beckman agrees (1) that all such stock
options shall be immediately exercisable and shall remain
exercisable for the length of the option period, and (2) that
all such restricted stock shall have the restrictions removed.
(b) Beckman acknowledges that it may establish new Employee
compensation programs subsequent to the date of this Agreement
in addition to the ones described in this Agreement. If such a
program is established, Employee becomes a participant in such a
program, and the receipt by Employee of the benefits to which he
is potentially entitled under the program is conditioned upon
the satisfaction of a vesting requirement, then such vesting
requirement shall be treated as completely satisfied in the
event of a Qualifying Termination.
11. Pension Plan for Employees of Beckman (the "Pension Plan"). In addition
to any retirement benefits that might otherwise be due Employee under
the Pension Plan or any successor plan, Employee shall receive
additional payments from Beckman calculated as set forth in this section
if Employee is terminated on account of a Qualifying Termination.
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(a) At the time that Employee (or Employee's beneficiary) first
begins to receive benefits under the Pension Plan there shall be
calculated the difference between the benefit that Employee or
Employee's beneficiary has begun to receive under the Pension
Plan and the benefit that would have been received if Employee
had worked for another three to five years (depending on the
compensation multiple discussed in Section 8 used to calculate
the Employee's Severance Payment) subsequent to the date of the
Qualifying Termination. For the purpose of the preceding
sentence, Employee shall be deemed to have received "Earnings"
under the Pension Plan for the period subsequent to the
Qualifying Termination at an annual rate equal to his
Compensation, as calculated under Section 7(a) of this
Agreement. This difference shall be paid by Beckman as a
supplemental payment to Employee or Employee's beneficiary for
the period of time that he is entitled to the payment that is
being supplemented.
(b) To the extent that Employee's pension benefit is provided by a
different tax-qualified defined benefit pension plan for Beckman
employees, the calculation of the obligation under this section
shall be calculated with regard to such successor plan's benefit
formula and other relevant features. This section shall be
applied with regard to the new plan in a manner designed to
provide Employee with the additional benefits he would have
received if he had remained employed for another three to five
years, as the case may be. If Employee is not participating in a
tax-qualified defined benefit pension plan at the time of the
Qualifying Termination, the benefit under this section shall be
calculated with regard to the terms of the Pension Plan at the
time of this Agreement.
12. Additional Benefits. In the event of a Qualifying Termination, Employee
shall be entitled to continue to participate in the following employee
benefit programs which had been made available to Employee before the
Qualifying Termination: group medical insurance, group dental insurance,
group-term life insurance, disability insurance, automobile allowance,
outplacement services, continuation of D&O insurance, and
indemnification. These programs shall be continued at no additional cost
to Employee; provided that, Employee acknowledges that tax rules may
require the inclusion of the value of such benefits in Employee's
income. The programs shall be continued in the same way and at the same
level as immediately prior to the Qualifying Termination. The programs
shall continue for three to five years, depending on Employee's
compensation multiple under Section 8.
13. Funding of SERP Obligations Upon Change of Control and a Qualifying
Termination. Upon the occurrence of a Change in Control and a Qualifying
Termination of the Employee, Beckman shall fund that portion, if any, of
the obligations of Beckman to the Employee, under any supplemental
executive
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retirement plan ("SERP") and other non qualified plans that may then
cover the Employee, that are not then irrevocably funded by establishing
and irrevocably funding a trust for the benefit of the Employee. The
amount of such fund shall include the obligations of Beckman to Employee
under any non qualified plan as well as the then present value of the
supplemental pension obligation due as determined by a nationally
recognized firm qualified to provide actuarial services which has not
rendered services to Beckman during the two years preceding such
determination. The actuary shall be selected by Beckman, subject to
approval by the Employee (which approval shall not unreasonably be
withheld), and paid by Beckman. The establishment and funding of such
trust shall not affect the obligation of Beckman to pay any non
qualified benefits, including, but not limited to supplemental pension
payments under the terms of the applicable SERP.
14. Section 280G
(a) Gross-Up. Notwithstanding any other provisions of this
Agreement, in the event that any payment or benefit received or
to be received by the Employee or the acceleration of any
payment or benefit (all such payments and benefits, and
accelerations thereof including the Change in Control Severance
Payments, being hereinafter called the "Total Payments") would
be subject (in whole or in part) to the tax (the "Excise Tax")
imposed under Section 4999 of the Code, Beckman shall pay to the
Employee such additional amounts (the "Gross-Up Payment") such
that the net amount retained by the Employee, after deduction of
any Excise Tax on the Total Payments and any federal, state and
local income and employment taxes and Excise Tax upon the
Gross-Up Payment, shall be equal to the Total Payments. For
purposes of determining the amount of the Gross-Up Payment, the
Employee shall be deemed to pay federal income tax at the
highest marginal rate of federal income taxation in the calendar
year in which the Gross-Up Payment is calculated for purposes of
this section, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and
local taxes. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account
hereunder, the Employee shall repay to Beckman, at the time that
the amount of such reduction in Excise Tax is finally
determined, the portion of the Gross-Up Payment attributable to
such reduction (plus that portion of the Gross-Up Payment
attributable to the Excise Tax and federal, state and local
income tax imposed on the Gross-Up Payment being repaid by the
Employee to the extent that such repayment results in a
reduction in Excise Tax and/or a federal, state or local income
tax deduction) plus interest on the amount of such repayment at
the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount
taken into account hereunder (including by reason of any payment
the existence or
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amount of which cannot be determined at the time of the Gross-Up
Payment), Beckman shall make an additional Gross-Up Payment in
respect of such excess (plus any interest, penalties or
additions payable by the Employee with respect to such excess)
at the time that the amount of such excess is finally
determined. The Employee and Beckman shall each reasonably
cooperate with the other in connection with any administrative
or judicial proceedings concerning the existence or amount of
liability for Excise Tax with respect to the Total Payments.
(b) Accounting Firm. All determinations to be made with respect to
this Section 12 shall be made by Beckman's independent
accounting firm (or, in the case of a payment following a Change
in Control, the accounting firm that was, immediately prior to
the Change in Control, Beckman's independent auditor). The
accounting firm shall be paid by Beckman for its services
performed hereunder.
15. Term of Agreement. This Agreement shall be effective from January 1,
2000 through December 31, 2009. Beckman may, in its sole discretion and
for any reason, provide written notice of termination (effective as of
the then applicable expiration date) to Employee no later than 60 days
before expiration date of this Agreement. If written notice is not so
provided, this Agreement shall be automatically extended for an
additional period of 12 months past the expiration date. This Agreement
shall continue to be automatically extended for an additional 12 months
at the end of such 12-month period and each succeeding 12-month period
unless notice is given in the manner described in this section.
16. Governing Law. Except to the extent that federal law is applicable, this
Agreement is made and entered into in the State of California, and the
laws of California shall govern its validity and interpretation in the
performance by the parties hereto of their respective duties and
obligations hereunder.
17. Entire Agreement. This Agreement constitutes the entire agreement
between the parties respecting the benefits due Employee in the event of
a Change in Control followed by a Qualifying Termination, and there are
no representations, warranties or commitments, other than those set
forth herein, which relate to such benefits. This Agreement may be
amended or modified only by an instrument in writing executed by all of
the parties hereto. This is an integrated agreement.
18. Dispute Resolution. Any disagreement, dispute, controversy or claim
arising out of or relating to this Agreement or the interpretation of
this Agreement or any arrangements relating to this Agreement or
contemplated in this Agreement or the breach, termination or invalidity
thereof shall be settled by final and binding arbitration administered
by JAMS/Endispute in Orange County, California in
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accordance with the then existing JAMS/Endispute Arbitration Rules and
Procedures for Employment Disputes. In the event of such an arbitration
proceeding, the Employee and Beckman shall select a mutually acceptable
neutral arbitrator from among the JAMS/Endispute panel of arbitrators.
In the event the Employee and Beckman cannot agree on an arbitrator, the
Administrator of JAMS/Endispute will appoint an arbitrator. Neither the
Employee nor Beckman nor the arbitrator shall disclose the existence,
content, or results of any arbitration hereunder without the prior
written consent of all parties. Except as provided herein, the Federal
Arbitration Act shall govern the interpretation, enforcement and all
proceedings. The arbitrator shall apply the substantive law (and the law
of remedies, if applicable), of the State of California, or federal law,
or both, as applicable and the arbitrator is without jurisdiction to
apply any different substantive law. The arbitrator shall have the
authority to entertain a motion to dismiss and/or a motion for summary
judgement by any party and shall apply the standards governing such
motions under the Federal Rules of Civil Procedure. The arbitrator shall
render an award and a written, reasoned opinion in support thereof.
Judgement upon the award may be entered in any court having jurisdiction
thereof. The Employee and Beckman shall generally each be responsible
for payment of one-half the amount of the arbitrator's fee, provided,
however, that Beckman shall pay to the Employee all legal fees and
expenses (including but not limited to fees and expenses in connection
with any arbitration) incurred by the Employee in disputing in good
faith any issue arising under this Agreement relating to the termination
of the Employee's employment in connection with a Change in Control or
in seeking in good faith to obtain or enforce any benefit or right
provided by this Agreement on account of a Change in Control.
In the case of a termination for cause, and Employee files for
arbitration under the dispute resolution paragraph 17, the Company shall
continue to pay Employee his salary from the time of said termination
for cause for a period of six (6) months. The arbitrator in the dispute
resolution proceeding shall have the authority to direct the Company of
the Employee (taking into account the good faith claim and the needs of
the Employee) to continue payment of Employee's salary beyond said six
months. If Employee is successful in the arbitration proceeding with a
finding of a Qualifying Termination and receives his Compensation under
this Agreement, the payment of salary subsequent to the alleged
termination for cause will be deducted from any payment of Compensation
to the Employee.
19. Tax Withholding. All amounts paid under this Agreement shall be subject
to all applicable federal, state and local wage and employment tax
withholding.
20. Release. Notwithstanding anything herein to the contrary, Beckman's
obligation to make the payments provided for in this Agreement is
expressly made subject to and
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conditioned upon (i) the Employee's prior execution of a release
substantially in the form attached hereto as Exhibit A within forty-five
days after the applicable Date of Termination and (ii) the Employee's
non-revocation of such release in accordance with the terms thereof.
21. Successors: Binding Agreement.
(a) Assumption by Successor. Beckman shall require any successor
(whether direct or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all of the business or
assets of Beckman expressly to assume and to agree to perform
its obligations under this Agreement in the same manner and to
the same extent that Beckman would be required to perform such
obligations if no such succession had taken place; provided,
however, that no such assumption shall relieve Beckman of its
obligations hereunder. As used herein, Beckman shall mean any
successor to its business and/or assets as aforesaid that
assumes and agrees to perform its obligations by operation of
law or otherwise.
(b) Enforceability Beneficiaries. This Agreement shall be binding
upon and inure to the benefit of the Employee (and the
Employee's personal representatives and heirs) and Beckman and
any organization which succeeds to substantially all of the
business or assets of Beckman, whether by means of merger,
consolidation, acquisition of all or substantially all of the
assets of Beckman or otherwise, including, without limitation,
as a result of a Change in Control or by operation of law. This
Agreement shall inure to the benefit of and be enforceable by
the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If the Employee should die while any amount would
still be payable to such Employee hereunder if he had continued
to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to
his devisee, legatee or other designee or, if there is no such
designee, to his estate.
22. Confidentiality: Non Solicitation.
(a) Confidentiality. The Employee acknowledges that in the course of
his employment within Beckman, he has acquired non-public
privileged or confidential information and trade secrets
concerning the operations, future plans and methods of doing
business ("Proprietary Information") of Beckman, and the
Employee agrees that it would be extremely damaging to Beckman
if such Proprietary Information were disclosed to a competitor
of Beckman or to any other person or corporation. The Employee
understands and agrees that all Proprietary Information the
Employee has acquired during the course of
12
<PAGE> 13
such employment has been divulged to the Employee in confidence
and further understands and agrees to keep all Proprietary
Information secret and confidential (except for such information
which is or becomes publicly available other than as a result of
a breach by the Employee of this provision) without limitation
in time. In view of the nature of the Employee's employment and
the Proprietary Information the Employee has acquired during the
course of such employment, the Employee likewise agrees that
Beckman would be irreparably harmed by any disclosure of
Proprietary Information in violation of the terms of this
paragraph and that Beckman shall therefore be entitled to
preliminary and/or permanent injunctive relief prohibiting the
Employee from engaging in any activity or threatened activity in
violation of the terms of this paragraph and to any other
judicial relief available to it. Inquires regarding whether
specific information constitutes Proprietary Information shall
be directed to Beckman's General Counsel (or, if such position
is vacant, Beckman's Chief Executive Officer); provided,
however, that Beckman shall not unreasonably classify
information as Proprietary Information.
(b) Non-Solicitation of Employees. The Employee recognizes that he
possesses and will possess confidential information about other
employees of Beckman, relating to their education, experience,
skills, abilities, compensation and benefits, and interpersonal
relationships with customers of Beckman. The Employee recognizes
that the information he possesses and will possess about these
other employees is not generally known, is of substantial value
to Beckman in developing their business and in securing and
retaining customers, and has been and will be acquired by him
because of his business position within Beckman. The Employee
agrees that for a period of one (1) year following the Date of
Termination, he will not, directly or indirectly, solicit
recruit any employee of Beckman for the purpose of being
employed by him or by any other competitor of Beckman on whose
behalf he is acting as an agent, representative or employee and
that he will not convey any such confidential information or
trade secrets about other employees of Beckman to any other
person; provided, however, that it shall not constitute a
solicitation or recruitment of employment in violation of this
paragraph to discuss employment opportunities with any employee
of Beckman who has either first contacted the Employee or
regarding whose employment the Employee has discussed with and
received written approval of Beckman's Vice President, Human
Resources (or, if such position is vacant, Beckman Chief
Executive Officer), prior to making such solicitation or
recruitment. In view of the nature of the Employee's employment
with Beckman, the Employee likewise agrees that Beckman would
irreparably harmed by any solicitation or recruitment in
violation of the terms of this paragraph and that Beckman shall
therefore be entitled to preliminary and/or permanent injunction
relief prohibiting the Employee from engaging in any activity or
13
<PAGE> 14
threatened activity in violation of the terms of this paragraph
and to any other judicial relief available to it.
23. Notices. Any notice or communications required or permitted to be given
to the parties hereto shall be delivered personally or be sent by United
States registered or certified mail, postage prepaid and return receipt
requested, and addressed or delivered as follows, or to such other
addresses the party addressed may have substituted by notice pursuant to
this section:
(a) If to Beckman Coulter, Inc.:
Beckman Coulter, Inc.
4300 N. Harbor Boulevard
Fullerton, California 92835
Attn: Vice President, General Counsel and Secretary
(b) If to Employee:
John P. Wareham
[Address Deleted]
24. Captions. The captions of this Agreement are inserted for convenience
and do not constitute a part hereof.
25. Severability. In case any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in other respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement,
but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein and there shall
be deemed substituted for such other provision as will most nearly
accomplish the intent of the parties to the extent permitted by the
applicable law. In case this Agreement, or any one or more of the
provisions hereof, shall be held to be invalid, illegal or unenforceable
within any governmental jurisdiction or subdivision thereof, this
Agreement or any such provision thereof shall not as a consequence
thereof be deemed to be invalid, illegal or unenforceable in any other
governmental jurisdiction or subdivision thereof.
26. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same Agreement.
14
<PAGE> 15
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first written above in
Fullerton, California.
BECKMAN COULTER, INC.
By /s/ William N. Kelley
--------------------------------
William N. Kelley, Ph.D.
Chairman, Organization and
Compensation Committee of the
Board of Directors
EMPLOYEE
/s/ John P. Wareham
-----------------------------------
John P. Wareham
15
<PAGE> 16
Exhibit A
RELEASE OF ALL CLAIMS
1.0 This Release of all Claims ("Release") serves to conclude _________________
_________ (name) employment at Beckman Coulter, Inc. ("Company") pursuant to a
change in control Agreement dated ___________________ and a Qualifying
Termination thereunder.
2.0 Consideration of the full and final settlement of any and all claims that
______________________ (name) may have or have made against the Company, or any
of its agents at any time through and including, the effective date of this
Release and for the execution and delivery of this Release is the Company's
obligations under the Agreement between _______________________ (name) and the
Company dated _____________________.
3.0 __________________________ (name) and (his/her) heirs, executors and
administrators, if any, hereby forever release and discharge the Company, any of
its past, present or future parent companies, subsidiaries, affiliates,
divisions, successors, assigns, trust fiduciaries, stockholders, agents,
directors, officers, employees, representatives, heirs, attorneys, and all
persons acting by, through, under or in concert with them, or any of them
(hereinafter collectively known as "Releasees") of and from any and all manner
of claims, causes of action, or complaints, in law or in equity, of any nature
whatsoever, known or unknown, fixed or contingent (hereinafter called "Claims"),
which _______________________ (name) now has or may have against the Releasees,
or any of them, arising out of (his/her) employment or separation from Company,
and any other claim of any nature whatsoever based upon any fact or event
occurring prior to the date of this Release.
4.0 Without limiting the generality of paragraph 3, _________________ (name)
ALSO SPECIFICALLY AGREES TO WAIVE ANY RIGHT TO RECOVERY BASED ON LOCAL, STATE OR
FEDERAL AGE, SEX, SEXUAL ORIENTATION, PREGNANCY, RACE, COLOR, NATIONAL ORIGIN,
MARITAL STATUS, RELIGION, PHYSICAL DISABILITY, MENTAL CONDITION OR MENTAL
DISABILITY DISCRIMINATION LAWS, INCLUDING WITHOUT LIMITATION, TITLE VII OF THE
CIVIL RIGHTS ACT OF 1964, THE AGE DISCRIMINATION IN EMPLOYMENT ACT, THE
AMERICANS WITH DISABILITIES ACT, THE FEDERAL FAMILY MEDICAL LEAVE ACT OF 1993,
THE CALIFORNIA FAMILY RIGHTS ACT OF 1991 AND THE FAIR EMPLOYMENT AND HOUSING
ACT, WHETHER SUCH CLAIM OR CLAIMS MAY BE BASED ON AN ACTION FILED BY YOU OR BY A
GOVERNMENTAL AGENCY.
16
<PAGE> 17
5.0 ____________________(name) is aware that after the effective date of this
Release ____________________ (name) may discover facts different from, or in
addition, those ____________________(name) now knows or believes to be true with
respect to the Claims released in paragraphs 3 and 4 above and agrees that this
Release shall be and remain in effect in all respects as a complete and general
release as to all matters released, notwithstanding any different or additional
facts.
6.0 It is _____________________(name) intention in executing this Release that
it shall be effective as a bar to each and every Claim of any nature whatsoever.
In furtherance of this intention, ____________________(name) specifically waives
the benefit of SECTION 1542 OF THE CIVIL CODE OF THE STATE OF CALIFORNIA, which
states the following:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF
EXECUTING THIS RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY EFFECTED HIS SETTLEMENT WITH THE DEBTOR.
7.0 This Release shall be construed and interpreted in accordance with the laws
of the State of California.
8.0 I, _____________________(name) understand, acknowledge and represent that:
(a) I have carefully read and understand this Release and its final
and binding effect;
(b) This Release constitutes a voluntary waiver of any and all
rights and claims I have against Company as of the date of the
execution of this Release;
(c) I have waived rights or claims pursuant to this Release in
exchange for consideration, the value of which exceeds payment
or remuneration to which I was already entitled;
(d) I was advised to consult and have had the opportunity to fully
discuss the contents and consequences of this Release with any
attorney of my choice prior to executing it;
(e) I have a period of at least 21 days to consider the terms of
this Release. I may revoke this Release at any time during the
seven (7) days following the
17
<PAGE> 18
date I execute this Release, and this Release shall not become
effective or enforceable until such revocation period has
expired;
(f) I have voluntarily and knowingly signed this Release.
-----------------------------------
Name
Date:
------------------------------
18
<PAGE> 1
BECKMAN COULTER 1999 ANNUAL REPORT
EXHIBIT 13
WORDS ON NUMBERS
Section of our
Annual Report to Stockholders
For the Year Ended
December 31, 1999
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
Other Information
Bar Chart: Income from Operations* (millions)
<TABLE>
<CAPTION>
Year 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Income from Operations $110.8 $122.5 $104.4 $133.9 $216.3
</TABLE>
Bar Chart: EBITDA* (millions)
<TABLE>
<CAPTION>
Year 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
EBITDA $192.6 $217.4 $228.0 $305.9 $372.0
</TABLE>
*Excludes pre-tax special charges in 1995, 1997, 1998 and 1999.
Bar Chart: Dividends Paid Per Share of Common Stock
<TABLE>
<CAPTION>
Year 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Dividends Paid
($ Per Share) $ 0.44 $ 0.52 $ 0.60 $ 0.61 $ 0.64
</TABLE>
-1-
<PAGE> 2
SELECTED FINANCIAL INFORMATION
Dollars in millions, except amounts per share
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997 1996 1995
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Sales $ 1,808.7 $ 1,718.2 $ 1,198.0 $ 1,028.0 $ 930.1
Operating income before special
charges(1) $ 216.3 $ 133.9 $ 104.4 $ 122.5 $ 110.8
Earnings before special and non-
recurring charges, after taxes $ 105.9 $ 44.7 $ 54.0 $ 74.7 $ 66.1
Special charges:
In-process research and
development -- -- (282.0) -- --
Restructure credit (charge), net of
tax 0.1 (11.2) (36.4) -- (17.2)
- --------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 106.0 $ 33.5 $ (264.4) $ 74.7 $ 48.9
==============================================================================================================
Diluted earnings per
share before special charges $ 3.57 $ 1.52 $ 1.88 $ 2.58 $ 2.29
Diluted earnings (loss) per share $ 3.57 $ 1.14 $ (9.58) $ 2.58 $ 1.70
Dividends paid per share of
common stock $ 0.64 $ 0.61 $ 0.60 $ 0.52 $ 0.44
Shares outstanding (millions) 29.0 28.4 27.6 28.0 28.3
Weighted average common shares and
dilutive common share equivalents
(millions)(2) 29.7 29.3 27.6 28.9 28.8
Other Information
Total assets $ 2,110.8 $ 2,133.3 $ 2,331.0 $ 960.1 $ 907.8
Long-term debt, less current
maturities $ 980.7 $ 982.2 $ 1,181.3 $ 176.6 $ 162.7
Working capital $ 390.5 $ 237.3 $ 81.8 $ 300.1 $ 282.1
EBIT before special charges(1)(3) $ 228.3 $ 153.5 $ 118.9 $ 129.6 $ 113.5
Depreciation and amortization
expense $ 143.7 $ 152.4 $ 109.1 $ 87.8 $ 79.1
EBITDA before special charges(1)(3) $ 372.0 $ 305.9 $ 228.0 $ 217.4 $ 192.6
EBITDA(3) $ 372.2 $ 286.8 $ (113.4) $ 217.4 $ 164.9
Debt to EBITDA before special
charges(1) (3) 2.8 3.7 5.5 0.9 0.9
Capital expenditures $ 134.9 $ 165.2 $ 100.9 $ 110.5 $ 103.2
Number of employees at December 31, 9,520 10,064 11,171 6,079 5,702
</TABLE>
(1) Excludes pre-tax special charges. Special charges include: 1)
restructure (credits) charges of $(0.2), $19.1, $59.4, and $27.7 in
1999, 1998, 1997, and 1995, 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 $216.5, $114.8, ($237.0),
and $83.1 in 1999, 1998, 1997, and 1995 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 expense.
-2-
<PAGE> 3
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>
1999 1998
Years ended % of % of % of Compared Compared
December 31, 1999 Sales 1998 Sales 1997 Sales to 1998(2) to 1997(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales:
Clinical
diagnostics $ 1,418.2 78.4 $ 1,342.5 78.1 $ 815.2 68.0 $ 75.7 $ 527.3
Life science
research 390.5 21.6 375.7 21.9 382.8 32.0 14.8 (7.1)
--------- --------- --------- --------- --------- --------- --------- ---------
Total sales $ 1,808.7 100.0 $ 1,718.2 100.0 $ 1,198.0 100.0 $ 90.5 $ 520.2
Cost of sales 942.1 52.1 920.6 53.6 609.7 50.9 21.5 310.9
Gross profit 866.6 47.9 797.6 46.4 588.3 49.1 69.0 209.3
Selling, general
& administrative 476.9 26.4 492.3 28.7 360.3 30.1 (15.4) 132.0
Research &
development 173.4 9.5 171.4 10.0 123.6 10.3 2.0 47.8
--------- --------- --------- --------- --------- --------- --------- ---------
Operating
income(1) 216.3 12.0 133.9 7.8 104.4 8.7 82.4 29.5
Net nonoperating
expense 61.8 3.4 68.2 4.0 14.9 1.2 (6.4) 53.3
--------- --------- --------- --------- --------- --------- --------- ---------
Earnings before
income taxes(1) 154.5 8.6 65.7 3.8 89.5 7.5 88.8 (23.8)
Income tax
provision (1) 48.6 2.7 21.0 1.2 35.5 3.0 27.6 (14.5)
--------- --------- --------- --------- --------- --------- --------- ---------
Earnings before
special charges,
after taxes(1) $ 105.9 5.9 $ 44.7 2.6 $ 54.0 4.5 $ 61.2 $ (9.3)
Net earnings (loss) $ 106.0 5.9 $ 33.5 1.9 $ (264.4) (22.1) $ 72.5 $ 297.9
--------- --------- --------- --------- --------- --------- --------- ---------
Diluted earnings per
share before
special charges $ 3.57 $ 1.52 $ 1.88 $ 2.05 $ (0.36)
Diluted earnings
(loss)per share $ 3.57 $ 1.14 $ (9.58) $ 2.43 $ 10.72
Dividends paid per
share of common stock $ 0.64 $ 0.61 $ 0.60 $ 0.03 $ 0.01
--------- --------- --------- --------- ---------
</TABLE>
(1) Amounts exclude special charges. Special charges include: l) restructure
(credits) charges of $(0.2), (0.01)% of sales in 1999; $19.1, 1.1% of sales in
1998; and $59.4, 5.0% of sales in 1997, 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 $216.5, 12.0% of sales in 1999; $114.8, 6.7% of sales in 1998;
and $(237.0), (19.8%) of sales in 1997, and 2) earnings
-3-
<PAGE> 4
(loss) before income taxes was $154.7, 8.6% of sales in 1999; $46.6, 2.7% of
sales in 1998; and $(251.9), (21.0%) of sales in 1997.
(2) Parentheses indicate decreases from the comparative period.
-4-
<PAGE> 5
Bar Chart: SG&A as a % of Sales
<TABLE>
<CAPTION>
Year 1997 1998 1999
<S> <C> <C> <C>
SG&A (% of Sales) 30.1 28.7 26.4
</TABLE>
Bar Chart: R&D Expenses Before Write-off of In-Process R&D (millions)
<TABLE>
<CAPTION>
Year 1997 1998 1999
<S> <C> <C> <C>
R&D Expenses $123.6 $171.4 $173.4
</TABLE>
-5-
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following review should be read in conjunction with the consolidated
financial statements and related notes included on pages 30 through 57.
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 used in all phases of the battle
against disease. We design, manufacture, market and service a broad range of
laboratory systems consisting of instruments, chemistries, software, and
supplies that meet a variety of laboratory needs. Our products are used in a
range of applications, from instruments used for pioneering medical research and
drug discovery to diagnostic tools found in hospitals and physicians' offices.
We compete in market segments that total approximately $27 billion in annual
sales worldwide.
Our diagnostics product lines cover virtually all blood tests routinely
performed in hospital laboratories. For medical and pharmaceutical research, we
provide a wide range of systems used in genomic, cellular and protein testing.
We have approximately 125,000 systems operating in laboratories around the
world, with 68% of annual revenues coming from after-market customer purchases
of operating supplies, chemistry kits, and service. We market our products in
approximately 130 countries, generating nearly 45% of revenues outside the
United States.
Our strategy is to maintain our position as a leading provider of
laboratory systems. On October 31, 1997, we achieved a significant milestone in
accomplishing this strategy when we acquired Coulter Corporation ("Coulter").
Through this acquisition we added Coulter's leading market position in
hematology and number two position in flow cytometry to our existing market
position.
The next milestone in our global strategy -- offering our customers a
single sales source, a single sales contact and a single organization for
service to meet nearly all of their diagnostic needs for routine blood testing
- -- came to fruition in 1999. As a result of this strategy, in 1999, we signed
four "Power of One" collaboration agreements with large group purchasing
organizations covering our entire product line.
We also achieved the following significant milestones in 1999:
- - Realized record sales volume of $1.8 billion as well as a record 12%
operating margin.
- - Launched three key products - the Coulter(R) HmX Hematology System, Fragment
Analysis on the CEQ(TM) 2000 DNA Analysis System, and the Avanti(R) J High
Capacity Centrifuge.
- - Entered into an alliance with Instrumentation Laboratory for an expanded
bilateral distribution agreement covering North America and Spain, an
example of our strategy to leverage our global infrastructure with
additional product lines.
The success of our integration programs has allowed us to achieve our
profitability targets, while our combined clinical diagnostics portfolio is
providing important sales synergy and increased sales in a competitive market.
However, we do not guarantee the extent to which we will continue to realize the
benefits of the integration, or the timing of any such realization.
-6-
<PAGE> 7
1. Acquisition Activities
The primary focus of our acquisition strategy has been to broaden our
product offerings. The following table lists our recent acquisitions:
<TABLE>
<CAPTION>
COMPANY PRODUCT/TECHNOLOGY ACQUIRED ACQUISITION DATE
- ------- --------------------------- ----------------
<S> <C> <C>
Coulter Corporation Hematology & flow cytometry October 1997
Sanofi Diagnostics Pasteur Access(R) Immunoassay product line April 1997
("Sanofi")*
Sagian, Inc. ("Sagian")** High-throughput screening & December 1996
Robotics technology
Genomyx, Inc. DNA sequencing technology October 1996
Hybritech Incorporated Immunoassays & cancer January 1996
("Hybritech") Diagnostics
</TABLE>
* 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
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 caused 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 related to Coulter 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. and Canada. Balance
sheet amounts for these subsidiaries are as of November 30. The operating
results for these subsidiaries are for twelve-month periods ending on November
30, except as follows: Coulter was acquired October 31, 1997 and its results are
included subsequent to that date. However, in order to be consistent with the
way we have historically reported our international results, the reporting of
Coulter's international results of operations were lagged by one month in 1998.
Therefore, the results for the year 1998 include only January through November
sales and expenses for Coulter subsidiaries outside the United States and
Canada. The exclusion of one month's results in 1998 for Coulter international
subsidiaries was not significant.
Acquired Research and Development:
-7-
<PAGE> 8
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 Generally Accepted Accounting
Principles ("GAAP").
Goodwill and Intangible Assets:
As a result of the Coulter acquisition 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.
Restructure Charges:
As a result of further additions to the plans initiated in 1997 for
company reorganization, in the fourth quarter of 1998, we recorded a restructure
charge of $19.1 million. This charge was in addition to the $59.4 million
restructure charge recorded in 1997.
In the fourth quarter of 1999, we recorded a restructure charge of $4.3
million related to additional reorganization activities. This charge was offset
by the reversal of $4.5 million of excess restructure reserves from the 1998 and
1997 charges, resulting in a net restructure credit of $(0.2) million. On an
after-tax basis, the restructure (credits) charges were $(0.1) million with no
impact on earnings per share in 1999, $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
restructure 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
located 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 these transactions under Note 6 "Sale-leaseback of Real Estate" of
the Notes to Consolidated Financial Statements.
Sale of Assets:
During 1999, we sold certain financial assets (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 $72.4
million for which we received approximately $74.0 million in cash proceeds. In
1998, we sold similar assets with a net book value of $67.7 million for cash
proceeds of $68.9 million.
In 1999 and 1998, as a result of our Coulter integration activities, we
made progress in reducing excess facilities outside the United States, which
added $3.9 million and $3.0 million, respectively, to non-operating income.
-8-
<PAGE> 9
In December 1997, we entered into an agreement for the sale and
leaseback of certain instruments, which are subject to 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 operating lease agreement are included in
Note 14 "Commitments and Contingencies" 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 for 1999 primarily as a result of the
tax loss carry forwards attributable mainly to 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 balance of the deferred income tax
liability of $129.6 million, which is related to the Coulter intangible assets
acquired, will continue to be reduced as the intangible assets are amortized,
since such amortization is not deductible for income tax purposes.
-9-
<PAGE> 10
3. Results of Operations
1999 Compared with 1998:
Sales in 1999 were $1,808.7 million, an increase of 5.3% (5.0% excluding
the effect of foreign currency rate changes) compared to $1,718.2 million
reported in 1998. In 1999, clinical diagnostics sales were $1,418.2 million and
life science research sales were $390.5 million, an increase of 5.6% and 3.9%,
respectively, compared to $1,342.5 million and $375.7 million, respectively, in
1998. Sales (in millions) in the various geographical segments of our market
were as follows:
<TABLE>
<CAPTION>
1999 % INCREASE 1998
-------- ---------- --------
<S> <C> <C> <C>
North America $1,003.9 6.1% $ 945.8
Europe $ 516.6 3.4% $ 499.8
Asia and
Rest of World $ 288.2 5.7% $ 272.6
-------- -------- --------
Total $1,808.7 5.3% $1,718.2
-------- -------- --------
</TABLE>
In North America, sales increased due to synergies from the integration
of the Beckman and Coulter organizations, as a result of our global strategy. In
addition to giving the company the scale for profitability, the Coulter
acquisition has allowed Beckman Coulter to offer a broad spectrum of product
offerings to clinical diagnostics laboratories, covering nearly all routine
blood tests. Placements of the combined Beckman Coulter clinical chemistry,
immunodiagnostics and cellular analysis instrument systems contributed to the
increase in clinical diagnostics sales. In the life science research business,
our robotic automation and genetic analysis products were the primary
contributors to our sales growth over the prior year, driven by biotechnology
and pharmaceutical company purchases of SAGIAN(TM) Core Systems for
high-throughput screening of candidate drug compounds and the newly introduced
sequencing and fragment analysis on the CEQ(TM) 2000 DNA Analysis Systems.
European sales growth was dampened by continued softness in the German
market. The increase in sales in Asia and Rest of World markets was the result
of a stronger economy in the Asia Pacific region, led primarily by Japan during
the second half of 1999, where placements of cellular analysis systems and life
science research products increased compared to 1998.
Gross profit as a percentage of sales in 1999 was 47.9%, 1.5 percentage
points higher than the prior year. The increase in gross profit percentage was
due to synergies from the integration of the Beckman and Coulter organizations,
partially offset by increased service costs related to Year 2000 issues during
the second half of 1999.
Selling, general and administrative ("SG&A") expenses declined $15.4
million to $476.9 million or 26.4% of sales in 1999 from $492.3 million or 28.7%
of sales in the prior year. The decline in SG&A expenses both in absolute
dollars and as a percentage of sales in 1999 compared to the prior year was due
to continued progress with our integration activities.
In accordance with our integration plans, we continue to move the
manufacturing of certain products from our manufacturing operations in Germany
and the United States to Ireland. We expect the additional expenses associated
with these moves to be offset by tax savings, which will result from
manufacturing in a lower tax rate jurisdiction, and future consolidation
savings. In addition to the tax savings, the move will expand our manufacturing
and technical knowledge base for these products in Ireland, as well as
accommodate future Far East volume requirements for the same products with
minimal incremental expenditure. As part of our integration efforts, we intend
to continue to look for and implement further opportunistic changes in 2000 and
beyond.
-10-
<PAGE> 11
Net earnings for 1999 were $106.0 million or $3.57 per diluted share
compared to $33.5 million or $1.14 per diluted share ($44.7 million or $1.52 per
diluted share before restructure charge) in 1998. The increase in net earnings
was primarily due to the various reasons discussed previously. A decrease in
interest expense of $14.0 million or 16.0% from 1998 to 1999, primarily due to a
lower average debt balance, also contributed to the increase in net earnings.
Interest income declined $5.6 million or 41.8% from 1998 to 1999 as a result of
the sale of customer lease receivables see "Sale of Assets" discussed
previously.
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 was 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
continued market-driven pricing pressures and adverse currency fluctuations, our
core businesses remained strong.
Gross profit in 1998 was 46.4% of sales, 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 1998
declined in comparison to 1997, gross profit in each quarter of 1998 showed a
positive trend increasing from 42.5% in the first quarter to 48.8% in the fourth
quarter.
SG&A expenses 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 1997 as a percentage of sales, primarily due to the implementation
of integration activities. SG&A expenses included 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.
Both 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 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 lower foreign currency exchange
gains increased net
-11-
<PAGE> 12
nonoperating expenses. These were partially offset by gains from 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.
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.
-12-
<PAGE> 13
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 1999, cash provided by operations was $212.6 million compared to $1.8
million used by operations in 1998 and cash provided by operations of $137.8
million in 1997. The increase in 1999 is primarily due to a $63.8 million
increase in net earnings, after adding back the effects of depreciation and
amortization. Also contributing to the increase in cash provided by operations
were the relatively low 1999 payments related to accounts payable and accrued
expenses as compared to 1998. In 1998, a major portion of the payments related
to purchased and assumed liabilities recorded as part of the Coulter
acquisition. The improvements were partially offset by increases in receivables
and inventories due to increased sales. Additionally, the 1999 results included
$74.0 million in cash proceeds from the sale of lease receivables compared to
$68.9 million in 1998. See Note 5 "Sale of Assets" of the Notes to Consolidated
Financial Statements.
Investing activities used $118.6 million of cash in 1999, compared to
$123.4 million of cash provided in 1998, and $929.1 million used in 1997. 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. 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 $84.2 million of cash flows in 1999 as total
debt (including notes payable) was reduced $86.6 million. In 1998, 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 acquisition of Coulter, net of any repayments. Another significant
change reflected in financing activities was the $43.7 million used in 1997 to
purchase treasury stock. In 1998 and 1999, we did not re-purchase any treasury
stock due to the level of outstanding debt and our efforts to reduce these
obligations. Proceeds from sales of treasury stock decreased whereas dividends
to stockholders increased slightly over 1998.
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 to
service the debt, we have implemented a plan to decrease the level of
outstanding borrowings rapidly. This ultimately is expected to provide savings
on the associated interest cost, partially offset by increased rental expense as
a result of our sale-leaseback transactions.
Based upon current levels of operations, anticipated cost savings and
future growth, we believe our cash flow from operations, together with available
borrowings under the credit facility ($153.0 million as of December 31, 1999)
and other sources of liquidity (including other credit facilities, leases and
any other available financing sources) will
-13-
<PAGE> 14
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 of directors, seeks to minimize the potentially negative effects of
changes in foreign exchange rates and interest rates on the results of
operations. Our primary exposures to fluctuations in the financial markets are
to changes in foreign exchange risk and interest rates.
Foreign exchange risk arises because our reporting currency is the U.S.
dollar and we generate approximately 45% of our sales in various foreign
currencies. U.S. dollar-denominated costs and expenses as a percentage of total
operating costs and expenses are much greater than 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 our exposure to changes in exchange rates by
denominating costs and expenses in foreign currencies. When these opportunities
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. We do not use these instruments for speculative or
trading purposes.
On January 1, 1999, the countries of the European Union adopted a single
currency, 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 derivative
contracts on certain borrowing transactions. With the aid of these contracts, we
seek to reduce the negative effects of changes in interest rates 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 annual reports. Several alternatives, all with some limitations,
have been offered. The following discussion is based on a 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:
- it is based on a single point in time; and
-14-
<PAGE> 15
- it 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 a hypothetical 10% strengthening and 10% weakening of the
spot exchange rates for the U.S. dollar against the foreign currencies at
December 31, 1999. The analysis showed that a 10% strengthening of the U.S.
dollar would result in a gain in fair value of $29.2 million and a 10% weakening
of the U.S. dollar would result in a loss in fair value of $28.6 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 a sensitivity analysis on our variable rate debt
instruments and derivatives. A one percentage point increase or decrease in
interest rates was estimated to decrease or increase next year's pre-tax
earnings by $3.7 million based on the amount of debt outstanding at year-end.
For further discussion of this topic, see Note 7 "Debt Financing" and
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. Some examples of the
types of claims are:
- intellectual property;
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<PAGE> 16
- 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 probable 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
Our Year 2000 program, implemented worldwide under the direction of our
senior management, was completed on schedule. We did not experience any
significant operational issues nor did our customers experience any major
problems with our instrument systems. An insignificant number of instruments
experienced minor issues in January 2000, which were evaluated and immediately
corrected. The total cost of our Year 2000 program was approximately $7.1
million of which $3.3 million was spent in 1999. We are not aware of any
obligations related to contractual damages resulting from Year 2000 issues. We
do not believe that any such obligations that may arise in the future will have
a material effect on our business, results of operations, financial position or
liquidity.
Euro - the new European currency:
The countries of the European Union have adopted a single currency, the
"euro". The euro came into existence on January 1, 1999, and can be used for
transactions within and between 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 130 countries, generating approximately
45% 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:
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<PAGE> 17
- 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 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" ("SFAS 133"). 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, as amended, is effective for the company in the
first quarter of 2001. We are currently evaluating the impact of this
pronouncement on our financial statements and results of operations. At this
time, we are unable to assess the impact of adopting SFAS 133.
5. Business Climate
The clinical diagnostics and life science research markets are 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 parts of Europe
and Asia and government and healthcare cost containment initiatives 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 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 relative value of the U.S. dollar strengthens
against certain currencies.
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.
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<PAGE> 18
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 at a lower
cost. 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 offerings. Beckman Coulter is now the world's leading manufacturer of
hematology systems for the clinical analysis of blood cells, where we have a
market share twice the size of our 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 increasing size and
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 two earlier acquisitions in immunochemistry-based
diagnostics, Hybritech, and the Access(R) immunoassay product line, 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 a broad range of automated systems that
together can perform more than 75% of a hospital laboratory's 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 income taxation in many jurisdictions throughout the
world. Our effective tax rate and income tax liabilities 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 income 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 tax year.
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<PAGE> 19
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;
- the impact of Year 2000 issues, the euro conversion and inflation on
our operations; and
- earnings and sales growth.
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 healthcare 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.
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<PAGE> 20
CONSOLIDATED BALANCE SHEETS
In millions, except amounts per share
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Assets
Current assets
Cash and equivalents $ 34.4 $ 24.7
Trade and other receivables 566.4 540.2
Inventories 313.1 302.8
Deferred income taxes 21.5 60.5
Other current assets 31.0 28.4
-------- --------
Total current assets 966.4 956.6
Property, plant and equipment, net 305.9 309.4
Intangibles, less accumulated amortization
of $46.8 in 1999 and $27.6 in 1998 399.9 419.1
Goodwill, less accumulated amortization of
$26.3 in 1999 and $14.9 in 1998 344.7 356.1
Other assets 93.9 92.1
-------- --------
Total assets $2,110.8 $2,133.3
======== ========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 131.4 $ 84.7
Notes payable 39.0 111.2
Current maturities of long-term debt 11.0 23.9
Accrued compensation 79.2 70.0
Other accrued expenses 263.5 368.3
Income taxes 51.8 61.2
-------- --------
Total current liabilities 575.9 719.3
Long-term debt, less current maturities 980.7 982.2
Deferred income taxes 38.7 42.8
Other liabilities 287.6 262.1
-------- --------
Total liabilities 1,882.9 2,006.4
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 1999 and 1998; shares outstanding 29.0
at 1999 and 28.4 at 1998 2.9 2.9
Additional paid-in capital 134.5 131.9
Retained earnings 123.0 35.4
Accumulated other comprehensive loss:
Cumulative foreign currency translation
adjustments (24.3) (13.9)
Treasury stock, at cost (8.2) (29.4)
-------- --------
Total stockholders' equity 227.9 126.9
-------- --------
Total liabilities
and stockholders' equity $2,110.8 $2,133.3
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 21
CONSOLIDATED STATEMENTS OF OPERATIONS
In millions, except amounts per share
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Sales $ 1,808.7 $ 1,718.2 $ 1,198.0
Cost of sales 942.1 920.6 609.7
--------- --------- ---------
Gross profit 866.6 797.6 588.3
--------- --------- ---------
Operating costs and expenses
Selling, general and administrative 476.9 492.3 360.3
Research and development 173.4 171.4 123.6
In-process research and development -- -- 282.0
Restructure (credit) charge (0.2) 19.1 59.4
--------- --------- ---------
650.1 682.8 825.3
--------- --------- ---------
Operating income (loss) 216.5 114.8 (237.0)
Nonoperating (income) expense
Interest income (7.8) (13.4) (6.1)
Interest expense 73.8 87.8 29.4
Other, net (4.2) (6.2) (8.4)
--------- --------- ---------
61.8 68.2 14.9
--------- --------- ---------
Earnings (loss) before income taxes 154.7 46.6 (251.9)
Income taxes 48.7 13.1 12.5
--------- --------- ---------
Net earnings (loss) $ 106.0 $ 33.5 $ (264.4)
========= ========= =========
- ---------------------------------------------------------------------------------------------
Basic earnings (loss) per share $ 3.70 $ 1.19 $ (9.58)
========= ========= =========
Weighted average number of shares outstanding 28.7 28.0 27.6
========= ========= =========
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Diluted earnings (loss) per share $ 3.57 $ 1.14 $ (9.58)
========= ========= =========
Weighted average number of shares and dilutive
securities outstanding 29.7 29.3 27.6
========= ========= =========
- ---------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
-21-
<PAGE> 22
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
In millions, except amounts per share
<TABLE>
<CAPTION>
Total
Accumulated Total Compre-
Additional Other Stock- hensive
Common Paid-in Retained Comprehensive Treasury holders' (Loss)
Stock Capital Earnings Income (Loss) Stock Equity Income
------ ---------- -------- ------------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
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
- -------------------------------------------------------------------------------------------------------------------------------
Net earnings -- -- 106.0 -- -- 106.0 $106.0
Foreign currency
translation
adjustments -- -- -- (10.4) -- (10.4) (10.4)
- -------------------------------------------------------------------------------------------------------------------------------
Comprehensive income for
the year ended
December 31, 1999 -- -- 106.0 (10.4) -- -- $ 95.6
</TABLE>
-22-
<PAGE> 23
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Dividends to
stockholders,
$0.64 per share -- -- (18.4) -- -- (18.4)
Employee stock
purchases -- 2.6 -- -- 21.2 23.8
- -------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity at
December 31, 1999 $ 2.9 $134.5 $123.0 $(24.3) $ (8.2) $227.9
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
-23-
<PAGE> 24
CONSOLIDATED STATEMENTS OF CASH FLOWS
In millions
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings (loss) $ 106.0 $ 33.5 $ (264.4)
Adjustments to reconcile net earnings (loss)
to net cash provided (used) by operating activities
Depreciation and amortization 143.7 152.4 109.1
Net deferred income taxes 34.8 (5.0) (5.1)
Write-off of acquired in-process
research and development -- -- 282.0
Proceeds from sale of sales-type lease
receivables 74.0 68.9 35.7
Changes in assets and liabilities,
net of acquisitions
Trade and other receivables (83.2) (58.3) (53.1)
Inventories (11.2) 23.9 18.2
Accounts payable and accrued expenses (1.5) (191.0) (3.4)
Accrued restructure costs (19.1) (5.4) 44.4
Accrued income taxes (9.4) (8.4) 1.0
Other (21.5) (12.4) (26.6)
-------- -------- --------
Net cash provided (used) by operating
activities 212.6 (1.8) 137.8
-------- -------- --------
Cash Flows from Investing Activities
Additions to property, plant and
equipment (134.9) (165.2) (100.9)
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 16.3 45.4 18.4
Sales of short-term investments -- 0.4 7.7
Investments and acquisitions -- -- (893.9)
-------- -------- --------
Net cash (used) provided by investing
activities (118.6) 123.4 (929.1)
-------- -------- --------
Cash Flows from Financing Activities
Dividends to stockholders (18.4) (17.1) (16.6)
Proceeds from issuance of stock 24.6 28.6 23.1
Purchases of treasury stock -- -- (43.7)
Net notes payable (reductions) borrowings (72.1) 56.6 15.2
Long-term debt borrowings 41.6 411.2 1,164.2
Long-term debt reductions (59.9) (609.3) (351.6)
-------- -------- --------
Net cash (used) provided by
financing activities (84.2) (130.0) 790.6
Effect of exchange rates on cash and equivalents (0.1) -- (0.8)
-------- -------- --------
Increase (decrease) in cash and equivalents 9.7 (8.4) (1.5)
Cash and equivalents-beginning of year 24.7 33.1 34.6
-------- -------- --------
Cash and equivalents-end of year $ 34.4 $ 24.7 $ 33.1
======== ======== ========
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 76.5 $ 88.4 $ 18.7
</TABLE>
-24-
<PAGE> 25
<TABLE>
<S> <C> <C> <C>
Cash payments for income taxes 58.1 21.5 12.9
Noncash Investing and Financing Activities
Purchase of equipment under capital
lease obligation 3.0 9.7 9.8
Issuance of restricted stock as
employee compensation (0.8) 0.3 2.2
</TABLE>
See accompanying notes to consolidated financial statements.
-25-
<PAGE> 26
BECKMAN COULTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tabular dollar amounts in millions, except amounts per share
NOTE 1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business
Beckman Coulter simplifies and automates laboratory processes used in
all phases of the battle against disease. We design, manufacture, and market
systems which consist of instruments, chemistries, software, and supplies that
meet a variety of laboratory needs. Our products are used in a range of
applications, from instruments used for pioneering medical research and drug
discovery to diagnostic tools found in hospitals and physicians' offices. We
compete in market segments that total approximately $27 billion in annual sales
worldwide.
Our diagnostics product lines cover virtually all blood tests routinely
performed in hospital laboratories. For medical and pharmaceutical research, we
provide a wide range of systems used in genomic, cellular and protein testing.
We have approximately 125,000 systems operating in laboratories around the
world, with 68% of annual revenues coming from after-market customer purchases
of operating supplies, chemistry kits, and service. We market our products in
approximately 130 countries, generating nearly 45% of revenues outside the
United States.
Principles of Consolidation
The consolidated financial statements include the accounts of Beckman
Coulter, Inc., and its wholly owned subsidiaries (the "Company"). All
significant intercompany transactions have been eliminated from the consolidated
financial statements. Balance sheet amounts for subsidiaries operating outside
the United States and Canada are as of November 30. The operating results for
the international subsidiaries (except Canada) are for the twelve-month periods
ending on November 30, 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 were 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 and Canada. The exclusion of one month's results for
Coulter international subsidiaries in 1998 was not significant.
Use of Estimates
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles ("GAAP") requires management to make estimates
and assumptions, including accounts receivable and inventory valuations,
warranty, in-process research and development, value of long-lived assets,
pension obligations, environmental and litigation obligations, income taxes,
etc. These estimates and assumptions affect the amounts reported in the
financial statements and accompanying notes. 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, 1999 and 1998. 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
-26-
<PAGE> 27
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.
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.
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.
The Company evaluates at least annually the recoverability of its goodwill. In
assessing recoverability, the current and future profitability of the related
operations are considered, along with management's plans with respect to the
operations and the projected undiscounted cash flows. Other intangibles consist
primarily of patents, trademarks and customer base arising from business
combinations. Other intangibles are amortized on a straight-line basis over
periods ranging from 15 to 30 years.
Accounting for Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying value of an asset may not be
recoverable. If the fair value is less than the carrying amount of the asset, a
loss is recognized for the difference.
Environmental Expenditures
We accrue for environmental expenses resulting from known existing
conditions that relate to operations when the costs are probable and reasonable
to estimate.
-27-
<PAGE> 28
Revenue Recognition
Revenue is recognized when it is realizable and earned. For products,
revenue is recognized when a product is shipped, except 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. Credit is extended based upon the
evaluation of the customer's financial condition and generally does not require
collateral.
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 four
items: (i) interest expense, (ii) interest income, (iii) foreign exchange gains
or losses, and (iv) income (loss) from investments that are non-core or are
accounted for as a minority interest. 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.
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.
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" ("SFAS 133"). 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, as amended, is effective for the company in the
first quarter of 2001. We are currently evaluating the impact of this
pronouncement on our financial statements and results of operations. At this
time, we are unable to assess the impact of adopting SFAS 133.
-28-
<PAGE> 29
Reclassifications
We made certain reclassifications to prior year amounts to conform to
the current year presentation.
NOTE 2. Composition of Certain Financial Statement Captions
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Trade and other receivables
Trade receivables $ 540.9 $ 488.9
Other receivables 35.7 50.2
Current portion of lease receivables 21.3 21.8
Less allowance for doubtful accounts (31.5) (20.7)
-------- --------
$ 566.4 $ 540.2
======== ========
Inventories
Finished products $ 210.9 $ 183.2
Raw materials, parts and assemblies 87.2 95.1
Work in process 15.0 24.5
-------- --------
$ 313.1 $ 302.8
======== ========
Property, plant and equipment, net
Land $ 18.5 $ 17.3
Buildings 128.1 142.7
Machinery and equipment 372.3 371.7
Instruments subject to lease(a) 297.7 286.7
-------- --------
816.6 818.4
Less accumulated depreciation
Building, machinery and equipment (326.7) (330.7)
Instruments subject to lease(a) (184.0) (178.3)
-------- --------
$ 305.9 $ 309.4
======== ========
Other accrued expenses
Purchase liability $ 52.5 $ 110.0
Accrued restructure costs 22.5 41.6
Unrealized service income 72.0 68.1
Insurance 14.5 18.9
Accrued warranty and installation costs 14.0 16.4
Other 88.0 113.3
-------- --------
$ 263.5 $ 368.3
======== ========
</TABLE>
(a) Includes instruments leased to customers under three to five-year
cancelable operating leases.
NOTE 3. Acquisitions
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. The acquisition was accounted for using the
purchase method of accounting. 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 $1.3 billion 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 reduced
recorded goodwill by $35.7 million. This reflected 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
-29-
<PAGE> 30
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, 1999, are as follows:
<TABLE>
<CAPTION>
PURCHASE &
ASSUMED
LIABILITY
---------
<S> <C>
BALANCE AT DECEMBER 31, 1997 $285.9
- ------------------------------------------------------------
1998 ACTIVITY(1):
Personnel $(125.0)
Other (50.9)
-------
TOTAL 1998 ACTIVITY $(175.9)
-------
BALANCE AT DECEMBER 31, 1998:
Personnel $ 70.4
Tax issues 16.6
Other 23.0
-------
BALANCE AT DECEMBER 31, 1998 $ 110.0
-------
1999 ACTIVITY:
Personnel $ (55.2)
Tax issues (0.4)
Other (1.9)
-------
TOTAL 1999 ACTIVITY $ (57.5)
-------
BALANCE AT DECEMBER 31, 1999:
Personnel $ 15.2
Tax issues 16.2
Other 21.1
-------
BALANCE AT DECEMBER 31, 1999 $ 52.5
-------
</TABLE>
(1) 1998 activity includes a reduction of $17.1 million, a result of the
finalization of purchase accounting entries.
-30-
<PAGE> 31
NOTE 4. Provision for Restructuring Operations
1999 Restructure
We recorded a restructure charge of $4.3 million, $2.6 million after taxes, in
the fourth quarter of 1999. This charge includes $2.7 million for personnel
related costs and $1.0 million for dealer termination costs. The work force
reductions anticipated under this plan totaled 55 positions in Europe and North
America in selling, general, administrative ("SG&A") and technical functions and
production related areas. At December 31, 1999, the remaining obligation related
to the 1999 restructure charges was $3.6 million, which is included in "Other
accrued expenses."
<TABLE>
<CAPTION>
Facility
Consolidation
and Asset
Personnel and Related
Other Write-offs Total
------------- ------------- -------
<S> <C> <C> <C>
PROVISION
Consolidation of SG&A and technical
functions $ 3.7 $ 0.6 $ 4.3
1999 ACTIVITY
Consolidation of SG&A and technical
functions $ (0.7) $ -- $ (0.7)
------ ------ ------
BALANCE AT DECEMBER 31, 1999
Consolidation of SG&A and technical
functions $ 3.0 $ 0.6 $ 3.6
------ ------ ------
</TABLE>
The 1999 restructure charge was offset by reversal of excess liabilities related
to prior restructure, resulting in a net restructure credit of $(0.2) million.
1998 Restructure
We recorded a restructure charge of $19.1 million, $11.2 million after
taxes, in the fourth quarter of 1998. This charge includes $4.1 million for
personnel related and $9.2 million for dealer termination costs. The work force
reductions anticipated under this plan, totaled 75 positions in Europe, Asia and
North America in 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 1999 activity includes the reversal of $2.2 million of
excess liabilities, which is included in the "Restructure (credit) charge" line
on the Consolidated Statement of Operations. At December 31, 1999, the remaining
obligation related to the 1998 restructure charges was $13.9 million, which is
included in "Other accrued expenses."
-31-
<PAGE> 32
<TABLE>
<CAPTION>
Facility
Consolidation
and Asset
Personnel Related
and Other Write-offs Total
--------- -------------- -------
<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
------ ------ ------
1999 ACTIVITY
Consolidation of SG&A and technical
functions $ (1.4) $ -- $ (1.4)
Changes in manufacturing operations (1.1) (0.5) (1.6)
Reversal of excess reserves (1.4) (0.8) (2.2)
------ ------ ------
TOTAL 1999 ACTIVITY $ (3.9) $ (1.3) $ (5.2)
------ ------ ------
BALANCE AT DECEMBER 31, 1999
Consolidation of SG&A and technical
functions $ 8.3 $ -- $ 8.3
Changes in manufacturing operations 1.1 4.5 5.6
------ ------ ------
Balance at December 31, 1999 $ 9.4 $ 4.5 $ 13.9
------ ------ ------
</TABLE>
1997 Restructure
In the fourth quarter of 1997 we recorded a restructure 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. The 1999 activity includes the reversal of $2.3 million of excess
liabilities, which is included in the "Restructure (credit) charge" line on the
Consolidated Statements of Operations. At December 31, 1999, our remaining
obligation related to the prior restructuring charges was $5.0 million, which is
included in "Other accrued expenses."
-32-
<PAGE> 33
The following table details the major components of the 1997 restructuring
provision:
<TABLE>
<CAPTION>
Facility
Consolidation
and Asset
Personnel Related
and Other Write-offs Total
--------- -------------- -------
<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
------ ------ ------
1999 ACTIVITY
Consolidation of SG&A and technical
functions $(11.1) $ (2.2) $(13.3)
Changes in manufacturing operations (0.3) (1.6) (1.9)
Reversal of excess reserves -- (2.3) (2.3)
------ ------ ------
Total 1999 activity $(11.4) $ (6.1) $(17.5)
------ ------ ------
BALANCE AT DECEMBER 31, 1999
Consolidation of SG&A and technical
functions $ 1.7 $ 1.7 $ 3.4
Changes in manufacturing operations 1.6 -- 1.6
------ ------ ------
Balance at December 31, 1999 $ 3.3 $ 1.7 $ 5.0
------ ------ ------
</TABLE>
-33-
<PAGE> 34
NOTE 5. Sale of Assets
During 1999 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 $72.4
million for which we received approximately $74.0 million in cash proceeds. In
1998, we sold similar assets with a net book value of $67.7 million for cash
proceeds of $68.9 million.
Under the provisions of Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities", the 1999 and 1998 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 probable liabilities.
In 1999 and 1998, as a result of Coulter integration activities, we made
progress in reducing excess facilities outside the United States, which added
$3.9 million and $3.0 million, respectively, to non-operating income.
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."
NOTE 6. Sale-leaseback of Real Estate
On June 25, 1998, we sold our interest in four of our properties located
in: Brea, California; Palo Alto, California; Chaska, Minnesota; and Miami,
Florida. At the same time, we entered into long-term leases for the California
and Minnesota properties and Coulter entered into a long-term 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 are currently planning to consolidate certain manufacturing
operations conducted elsewhere in the Miami area into the Miami property.
Otherwise, we expect to continue the same types 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 $21.5 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. We expect to pay the
rents as they come due out of cash generated by our Japanese operation.
Obligations under the operating lease agreement are included in Note 14
"Commitments and Contingencies."
The Palo Alto property is owned by Stanford University. 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 gain from this transaction in our earnings and
included it in "Other liabilities." The gain is being amortized over the initial
lease term of twenty years. The remaining
-34-
<PAGE> 35
unrecognized gain was $123.1 million and $130.1 million, respectively, at
December 31, 1999 and 1998.
Proceeds from the above transaction were used primarily to reduce
outstanding borrowings under the $1.3 billion credit facility. See Note 7 "Debt
Financing."
NOTE 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, 1999,
approximately $61.2 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., $30.0 million in unused uncommitted 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 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Senior Notes, unsecured, due 2003 7.10% $ 160.0 $ 160.0
Senior Notes, unsecured, due 2008 7.45% 240.0 240.0
Credit Agreement -
Revolving credit facility 6.88% 397.0 430.0
Debentures 7.05% 100.0 100.0
Other long-term debt 4.30% 94.7 76.1
-------- --------
991.7 1,006.1
Less current maturities 11.0 23.9
-------- --------
Long-term debt, less current
maturities $ 980.7 $ 982.2
======== ========
</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 provided up to a maximum aggregate amount of $1.3 billion
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
-35-
<PAGE> 36
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 0.15% per annum at December 31, 1999 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 $1.3 billion to $550.0 million by June 1998. As
of December 31, 1999, the Company's remaining borrowing availability under the
Credit Facility is $153.0 million. Amounts may be drawn under the Credit
Facility 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, 1999 consists principally of $86.4
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 $58.9 million at December 31,
1998. Capitalized leases of $8.3 million in 1999 and $17.2 million in 1998 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, 1999, the Company was in compliance with all
such covenants.
The aggregate maturities of long-term debt for the five years subsequent
to December 31, 1999 are $11.0 million in 2000, $8.1 million in 2001, $448.0
million in 2002, $174.6 million in 2003, $4.8 million in 2004 and $345.2 million
thereafter.
-36-
<PAGE> 37
NOTE 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, 1999
Assets:
Cash and equivalents $ (5.3) $ 3.7 $ 36.0 $ -- $ 34.4
Trade and
other receivables 255.8 6.0 304.6 -- 566.4
Inventories 201.0 32.1 122.7 (42.7) 313.1
Other current assets 455.4 725.7 95.4 (1,224.0) 52.5
-------- -------- -------- --------- --------
Total current assets 906.9 767.5 558.7 (1,266.7) 966.4
Property, plant and
equipment, net 152.4 84.6 142.3 (73.4) 305.9
Intangibles, net 30.2 366.2 3.5 -- 399.9
Goodwill, net 10.3 325.6 8.8 -- 344.7
Other assets 1,457.9 35.8 279.2 (1,679.0) 93.9
-------- -------- -------- --------- --------
Total assets $2,557.7 $1,579.7 $ 992.5 $(3,019.1) $2,110.8
======== ======== ======== ========= ========
Liabilities:
Notes payable and
current maturities of
long-term debt $ 4.4 $ 1.1 $ 44.5 $ -- $ 50.0
Accounts payable and
accrued expenses 368.3 32.7 95.6 (22.5) 474.1
Other current
liabilities 530.9 213.1 131.0 (823.2) 51.8
-------- -------- -------- --------- --------
Total current liabilities 903.6 246.9 271.1 (845.7) 575.9
Long-term debt, less
current maturities 913.0 0.1 67.6 -- 980.7
Other liabilities 513.2 647.9 213.0 (1,047.8) 326.3
-------- -------- -------- --------- --------
Total liabilities 2,329.8 894.9 551.7 (1,893.5) 1,882.9
Total stockholders' equity 227.9 684.8 440.8 (1,125.6) 227.9
-------- -------- -------- --------- --------
Total liabilities and
stockholders' equity $2,557.7 $1,579.7 $ 992.5 $(3,019.1) $2,110.8
======== ======== ======== ========= ========
</TABLE>
-37-
<PAGE> 38
<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 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 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>
-38-
<PAGE> 39
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Elimina- Consoli-
Parent diaries diaries tions dated
-------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Condensed Consolidated
Statement of Operations
Year ended December 31, 1999
Sales $1,179.9 $ 443.4 $ 991.0 $ (805.6) $1,808.7
Operating costs and
expenses:
Cost of sales 823.9 228.9 692.3 (803.0) 942.1
Selling, general and
administrative 231.6 54.2 196.5 (5.4) 476.9
Research and development 96.3 73.1 4.0 -- 173.4
Restructure credit (0.2) -- -- -- (0.2)
-------- -------- -------- -------- --------
Operating income 28.3 87.2 98.2 2.8 216.5
Nonoperating (income) expense (99.1) 3.5 (3.0) 160.4 61.8
-------- -------- -------- -------- --------
Earnings (loss) before
income taxes 127.4 83.7 101.2 (157.6) 154.7
Income taxes 24.3 5.4 19.0 -- 48.7
-------- -------- -------- -------- --------
Net earnings (loss) $ 103.1 $ 78.3 $ 82.2 $ (157.6) $ 106.0
======== ======== ======== -------- ========
</TABLE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Elimina- Consoli-
Parent diaries diaries tions dated
-------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Condensed Consolidated
Statement of Operations
Year ended December 31, 1998
Sales $ 845.8 $ 508.7 $ 857.0 $ (493.3) $1,718.2
Operating costs and
expenses:
Cost of sales 531.9 289.1 590.9 (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
Restructure 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>
-39-
<PAGE> 40
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Elimina- Consoli-
Parent diaries diaries tions dated
-------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Condensed Consolidated
Statement of Operations
Year ended December 31, 1997
Sales $ 513.9 $ 150.9 $1,069.5 $ (536.3) $1,198.0
Operating costs and
expenses:
Cost of sales 214.2 106.3 798.5 (509.3) 609.7
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
Restructure charge 59.4 -- -- -- 59.4
-------- -------- -------- -------- --------
Operating (loss) income (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>
-40-
<PAGE> 41
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Consoli-
Parent diaries diaries dated
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Condensed Consolidated
Statement of Cash Flows
Year ended December 31, 1999
Net cash provided (used)
by operating activities $ 227.8 $ (104.7) $ 89.5 $ 212.6
-------- -------- -------- --------
Cash flows from investing
activities:
Additions to property,
plant and equipment (58.4) (5.0) (71.5) (134.9)
Net disposals of property,
plant and equipment -- -- 16.3 16.3
-------- -------- -------- --------
Net cash (used)
provided by investing
activities (58.4) (5.0) (55.2) (118.6)
-------- -------- -------- --------
Cash flows from financing activities:
Dividends to stockholders (18.4) -- -- (18.4)
Proceeds from issuance
of stock 24.6 -- -- 24.6
Net notes payable
reductions (13.4) -- (58.7) (72.1)
Net intercompany
(reductions) borrowings (133.1) 115.3 17.8 --
Long-term debt
(reductions) borrowings (38.6) (1.8) 22.1 (18.3)
-------- -------- -------- --------
Net cash (used)
provided by financing
activities (178.9) 113.5 (18.8) (84.2)
Effect of exchange rates
on cash and equivalents -- -- (0.1) (0.1)
-------- -------- -------- --------
(Decrease) increase in
cash and equivalents (9.5) 3.8 15.4 9.7
Cash and equivalents -
beginning of year 4.2 (0.1) 20.6 24.7
-------- -------- -------- --------
Cash and equivalents -
end of year $ (5.3) $ 3.7 $ 36.0 $ 34.4
======== ======== ======== ========
</TABLE>
-41-
<PAGE> 42
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Elimina- Consoli-
Parent diaries diaries tions dated
-------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Condensed Consolidated
Statement of Cash Flows
Year ended December 31, 1998
Net cash (used) provided
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
Net 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>
-42-
<PAGE> 43
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Subsi- Subsi- Consoli-
Parent diaries diaries dated
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Condensed Consolidated
Statement of Cash Flows
Year ended December 31, 1997
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
Purchase of treasury
stock (43.7) -- -- (43.7)
Net notes payable
(reductions) borrowings (6.1) -- 21.3 15.2
Net intercompany
(reductions) borrowings (39.8) 78.2 (38.4) --
Long-term debt borrowings
(reductions) 973.1 (39.1) (121.4) 812.6
-------- -------- -------- --------
Net cash provided
(used) 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>
-43-
<PAGE> 44
NOTE 9. Derivatives
We use derivative financial instruments to hedge foreign currency and
interest rate exposures of underlying assets, liabilities and other obligations.
We do not speculate in derivative instruments in order to profit from foreign
currency exchange or interest rate fluctuations; nor do we enter into 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.
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:
<TABLE>
<CAPTION>
Notional Amounts*
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Forward Contracts $ 166.1 $ 196.6
Purchased Option Contracts 54.9 158.8
Complex Option Contracts 49.6 12.0
</TABLE>
* 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.
We also use foreign currency swap contracts to hedge loans between
subsidiaries. At December 31, 1999, we had foreign currency swap contracts
totaling $125.8 million
-44-
<PAGE> 45
expiring at various dates through February 2000. At December 31, 1998, the
Company had foreign currency swap contracts totaling $138.8 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, 1999,and 1998, we had
$22.5 million foreign currency contracts related to net asset positions. Foreign
currency contracts resulted in favorable foreign currency translation
adjustments of $3.9 million and $2.5 million at December 31, 1999 and 1998,
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. The
foreign currency translation adjustments are only recognized in "Other, net
nonoperating expense" upon liquidation of the subsidiary.
We use interest rate derivative contracts on certain borrowing
transactions to hedge fluctuating interest rates. Interest rate derivative
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 derivative
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 (6.1% at December 31, 1999).
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, 1999, we have $350.0
million in interest rate swap agreements in which we receive an average floating
interest rate (6.2% at December 31, 1999) 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, an event which 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
-45-
<PAGE> 46
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 $11.3 million
and $22.0 million at December 31, 1999, and 1998, respectively.
NOTE 10. Income Taxes
The components of earnings (loss) before income taxes were:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
U.S. $ 62.9 $ 10.2 $ (304.5)
Non-U.S. 91.8 36.4 52.6
-------- -------- --------
$ 154.7 $ 46.6 $ (251.9)
======== ======== ========
</TABLE>
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current
U.S. federal $ -- $ 4.0 $ 5.2
Non-U.S. 10.1 9.1 5.3
U.S. state and Puerto Rico 3.5 (1.1) 3.5
-------- -------- --------
Total current 13.6 12.0 14.0
Deferred
U.S. federal 25.8 8.2 0.7
Non-U.S. 9.3 (7.1) (2.2)
-------- -------- --------
Total deferred, net 35.1 1.1 (1.5)
-------- -------- --------
Total $ 48.7 $ 13.1 $ 12.5
======== ======== ========
</TABLE>
The reconciliation of the U.S. federal statutory tax rate to the
consolidated effective tax rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<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 0.7 0.4 0.1
Ireland and Puerto Rico income (3.5) (21.1) (2.0)
Goodwill 2.3 14.1 0.2
Non-U.S. taxes 0.9 (0.2) 0.9
Foreign income taxed in the
U.S., net of credits 3.5 9.0 1.4
Other (7.4) (9.1) 0.2
-------- -------- --------
Effective tax rate 31.5% 28.1% 5.0%
======== ======== ========
</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 $5.5
million in 1999, $6.9 million in 1998, and $5.1 million in 1997. Since April
1990, earnings from manufacturing operations in Ireland are subject to a 10%
tax. Although the lower Puerto Rico income tax rate was not scheduled to expire
until July 2003, the closure of the Puerto Rico manufacturing operations on
October 29, 1999, (as part of our restructuring plan) shortened the period of
benefit.
-46-
<PAGE> 47
The components of the provision (benefit) for deferred income taxes are:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Restructuring costs $ 6.2 $ 2.6 $ (15.7)
Compensation (1.4) 22.1 18.7
Inventory 3.0 (2.0) (4.0)
Net operating loss carryforwards 31.6 (16.6) (2.6)
International transactions 9.2 (7.1) 2.2
Intangibles -- (5.7) --
Purchase liabilities 20.1 -- --
Accelerated depreciation (0.4) -- (0.4)
Accrued expenses (10.0) 16.6 (4.2)
Pension costs (5.0) (3.5) 8.9
Post-employment/retirement benefits (11.8) (0.7) (1.7)
Other (6.4) (4.6) (2.7)
-------- -------- --------
Total $ 35.1 $ 1.1 $ (1.5)
======== ======== ========
</TABLE>
Net operating loss carryforwards expire at varying dates through 2019.
-47-
<PAGE> 48
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>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets
Inventories $ 9.5 $ 12.5
Capitalized expenses 1.0 0.8
International 27.9 35.4
Tax credits (primarily R&D) 36.2 29.4
Purchase and assumed liabilities (see Note 3) 45.2 64.0
Accrued expenses 60.3 61.6
Restructuring costs 9.6 14.6
Environmental costs 2.8 3.1
Post-employment/retirement benefits 44.4 42.5
Other 23.0 12.5
-------- --------
259.9 276.4
Less: Valuation allowance (59.2) (59.2)
-------- --------
Total deferred tax assets 200.7 217.2
Deferred tax liabilities
Depreciation 1.3 1.3
Pension costs 2.2 3.7
Intangible assets 129.6 134.8
Fixed assets 17.5 17.5
Leases 13.0 8.6
Deferred service contracts 5.9 1.8
International transactions 13.2 7.9
Other 35.2 23.9
-------- --------
Total deferred tax liabilities 217.9 199.5
-------- --------
Net deferred tax (liability) asset $ (17.2) $ 17.7
======== ========
</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 deferred tax asset existing at
December 31, 1999. 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 December 31, 1999 and 1998 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 during 1998 and was related to the
acquisition of Coulter.
Non-U.S. withholding taxes and U.S. taxes have not been provided on
approximately $213.9 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.
NOTE 11. Stockholders' Equity
We had been authorized, through 1997, 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 Agreement generally prohibits market
repurchase of the Company's stock. Therefore, in 1999 and 1998, we did not
repurchase any shares under this program. Treasury shares have been reissued to
-48-
<PAGE> 49
satisfy our obligations under existing stock-related employee benefit plans. We
expect to issue new shares to satisfy such obligations when treasury shares are
no longer available.
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, 1999, 0.2 million shares remain in
treasury of which 0.1 million are held by the BEF.
NOTE 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
for voting purposes of common stock issued and outstanding as of the prior
December 31. As of January 1, 2000, 2.8 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>
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
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 3,242 $32.40 2,895 $28.60 2,672 $26.03
Granted 757 $52.76 703 $42.56 536 $40.49
Exercised (205) $25.92 (322) $24.19 (302) $26.77
Canceled (37) $48.31 (34) $38.93 (11) $33.38
- ------------------------------------------------------------------------------------------------------------
Outstanding at end of year 3,757 $36.66 3,242 $32.40 2,895 $28.60
- --------------------------------------------------------------------------------------------------------------
</TABLE>
-49-
<PAGE> 50
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Weighted Weighted
Options Average Weighted Average Options Average
Outstanding Exercise Remaining Exercisable Exercise
Range of Exercise at December Price Per Contractual Life at December Price Per
Price 31, 1999 Option (Years) 31, 1999 (a) Option
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.00 to $17.21 113 $ 16.21 0.2 113 $ 16.21
$17.21 to $22.95 593 $ 20.45 2.1 593 $ 20.45
$22.95 to $28.69 468 $ 26.42 3.5 468 $ 26.42
$28.69 to $34.43 307 $ 29.25 4.2 307 $ 29.25
$34.43 to $40.16 440 $ 39.51 5.8 331 $ 39.49
$40.16 to $45.90 1,091 $ 41.43 6.2 746 $ 41.24
$45.90 to $57.38 745 $ 53.43 8.4 70 $ 52.71
-------- --------
3,757 2,628
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Options exercisable at December 31, 1998 and 1997 (in thousands)
were 2,313 and 2,034, respectively.
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 granted to employees 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. The following represents pro forma information as if the
Company recorded compensation cost using the fair value of the issued
compensation instrument under Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation"(the results may not be indicative
of the actual effect on net earnings in future years):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net earnings (loss) as reported $ 106.0 $ 33.5 $ (264.4)
Assumed stock compensation cost,
net of tax (7.7) (6.2) (5.7)
------------------------------------------
Pro forma net earnings (loss) $ 98.3 $ 27.3 $ (270.1)
==========================================
Diluted earnings (loss) per
share as reported $ 3.57 $ 1.14 $ (9.58)
Pro forma diluted earnings
(loss) per share $ 3.31 $ 0.93 $ (9.79)
</TABLE>
We use the Black-Scholes valuation model for estimating the fair value
of the options. The following represents the estimated fair value of options
granted and the assumptions used for calculation:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Weighted average estimated
fair value per option granted $ 23.91 $ 16.66 $ 15.73
Average exercise price per
option granted $ 52.76 $ 42.56 $ 40.49
Stock volatility 26.9% 33.0% 22.0%
Risk-free interest rate 6.7% 4.7% 5.9%
Option term - years 7.0 6.7 10.0
Stock dividend yield 1.4% 1.4% 1.4%
</TABLE>
-50-
<PAGE> 51
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 1999 and 1.5 million shares remain available for use in the plan
at December 31, 1999.
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 is 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, were approximately $2.0 million in 1999, $1.7 million in
1998, and $0.9 million in 1997.
NOTE 13. Retirement Benefits
Defined Benefit Pension Plans
We provide pension benefits covering the majority of our employees.
Consolidated pension expense was $22.0 million in 1999, $16.3 million in 1998,
and $11.3 million in 1997.
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 $4.7 million in 1999, $6.6
million in 1998, and $4.9 million in 1997.
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.
-51-
<PAGE> 52
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-Retirement
Pension Plans Plans
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 480.7 $ 413.6 $ 91.2 $ 77.0
Service cost 17.3 12.1 3.5 2.5
Interest cost 30.4 28.3 6.4 5.3
Actuarial (gain) loss (82.7) 47.4 (6.2) 11.8
Benefits paid (22.8) (20.7) (5.2) (4.7)
Plan participant contribution -- -- 1.3 1.3
Acquisitions -- -- -- (2.0)
-----------------------------------------------------
Benefits obligation at end of year $ 422.9 $ 480.7 $ 91.0 $ 91.2
-----------------------------------------------------
Change in plan assets:
Fair value of plan assets at
beginning of year $ 462.6 $ 408.9 $ -- $ --
Employer contribution 1.4 0.6 3.9 3.5
Plan participant contribution -- -- 1.3 1.2
Actual return on plan assets 54.3 73.8 -- --
Benefits paid (22.8) (20.7) (5.2) (4.7)
-----------------------------------------------------
Fair value of plan assets at end of year $ 495.5 $ 462.6 $ -- $ --
-----------------------------------------------------
Funded status $ 72.6 $ (18.1) $ (91.0) $ (91.2)
Unrecognized net actuarial (gain) loss (82.0) 23.0 (10.7) (4.6)
Unrecognized net obligation at
Transition 0.4 1.0 -- --
Unrecognized prior service cost 5.2 6.2 (1.0) (1.0)
-----------------------------------------------------
(Accrued) prepaid benefit cost $ (3.8) $ 12.1 $ (102.7) $ (96.8)
-----------------------------------------------------
Amounts recognized in the balance sheets
consist of:
Prepaid benefit cost $ 11.3 $ 25.9 $ -- $ --
Accrued benefit liability (15.1) (13.8) (102.7) (96.8)
-----------------------------------------------------
Net amount recognized $ (3.8) $ 12.1 $ (102.7) $ (96.8)
-----------------------------------------------------
</TABLE>
The total benefit obligation for unfunded pension plans included in the above
table was $15.1 million, and $13.8 million in 1999 and 1998, respectively.
-52-
<PAGE> 53
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
------------------------------------ ------------------------------------
1999 1998 1997 1999 1998 1997*
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 17.3 $ 12.1 $ 9.9 $ 3.5 $ 2.5 $ 1.2
Interest cost 30.5 28.3 26.7 6.4 5.3 3.4
Expected return on plan assets (37.2) (34.3) (31.7) (0.1) -- --
Amortization 6.7 3.6 1.5 -- (0.7) (1.3)
-------- -------- -------- -------- -------- --------
Net periodic benefit cost $ 17.3 $ 9.7 $ 6.4 $ 9.8 $ 7.1 $ 3.3
-------- -------- -------- -------- -------- --------
Discount rate 7.8% 6.3% 7.0% 7.8% 6.3% 7.0%
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 -- -- -- 11.5% 8.0% --
Decreasing to ultimate rate by
the year 2005 -- -- -- 5.5% 5.5% --
Decreasing to ultimate rate by
the year 2006 -- -- -- 5.0% 5.5% --
Calculation of obligation,
excluding Coulter:
- ----------------------------------
Healthcare cost trend rate -- -- -- -- -- 8.0%
Decreasing to ultimate rate by
the year 2004 -- -- -- -- -- 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 $1.9
million in 1999, $1.4 million in 1998, and $0.7 million in 1997, and in the
accumulated post-retirement benefit obligation by $13.1 million in 1999, and
$13.7 million in 1998.
The ongoing post-retirement plan had been 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 Benefit Plan
We have a defined contribution plan available to our domestic employees.
Under the plan, eligible employees may contribute a portion of their
compensation. Employer contributions are primarily based on a percentage of
employee contributions and vest immediately. However, certain former Coulter
employees are eligible for additional employer contributions based on their age
and salary levels, which become fully vested after five years of service. We
contributed $13.2 million in 1999, $14.9 million in 1998, and $6.8 million in
1997.
NOTE 14. Commitments and Contingencies
-53-
<PAGE> 54
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 believe we have completed substantially all of the required work
and have initiated discussions with the EPA regarding the criteria to be used in
making this determination. 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. During 1998, two additional areas of soil requiring remediation
were identified. Work on one area was completed in 1998. Work on the second area
was completed in 1999. 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 most of 1999. In
October 1999, the Regional Water Quality Control Board agreed that the system
could be shut down. Continued monitoring will be necessary for a period of time
to verify that groundwater conditions remain acceptable. 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.
However, we give no assurance that further investigation will not reveal
additional soil or groundwater contamination or result in additional costs.
-54-
<PAGE> 55
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.
In December 1999, Streck Laboratories, Inc. served Beckman Coulter and
Coulter Corporation with a complaint filed in the United States District Court
for the District of Nebraska. The complaint alleges that control products sold
by Beckman Coulter and/or Coulter Corporation infringe each of five patents
owned by Streck, and seeks injunctive relief, damages, attorneys' fees and
costs. We, on behalf of ourselves and on behalf of Coulter Corporation intend to
answer the complaint, denying infringement and raising all appropriate
affirmative defenses and/or counterclaims. At this early stage of this matter,
there is no reasonable basis for us to conclude that this litigation could lead
to an outcome that would have a material adverse effect on our results of
operations, financial position or liquidity.
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 $78.1 million in 1999, $59.8 million in 1998, and $35.4 million
in 1997.
As of December 31, 1999, minimum annual rentals payable under
non-cancelable operating leases aggregate $545.3 million, which is payable $66.2
million in 2000, $58.6 million in 2001, $47.9 million in 2002, $36.4 million in
2003, $33.4 million in 2004, and $302.8 million thereafter.
Other Under our dividend policy, we pay a regular quarterly dividend to
our stockholders, which amounted to $18.4 million in 1999, and $17.1 million in
1998. On February 3, 2000, 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 9, 2000 to stockholders of record on February 18, 2000. The Credit
Facility restricts (but does not prohibit) our ability to pay dividends.
NOTE 15. Earnings (Loss) Per Share
We compute basic and diluted earnings per share ("EPS") in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings Per Share".
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. The following is a reconciliation of the numerators and
denominators of the basic and diluted EPS computations.
Year Ended December 31, 1999
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS
Net earnings $106.0 28.7 $ 3.70
Effect of dilutive stock options -- 1.0 (0.13)
------ ------ ------
Diluted EPS
</TABLE>
-55-
<PAGE> 56
<TABLE>
<S> <C> <C> <C>
Net earnings $106.0 29.7 $ 3.57
====== ====== ======
</TABLE>
Year Ended December 31, 1998
<TABLE>
<CAPTION>
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>
Year Ended December 31, 1997
<TABLE>
<CAPTION>
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.
NOTE 16. Business Segment Information
We adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), in 1998. 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 December 31, 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales
Clinical diagnostics $1,418.2 $1,342.5 $ 815.2
Life science research 390.5 375.7 382.8
Center -- -- --
-------- -------- --------
Consolidated 1,808.7 1,718.2 1,198.0
-------- -------- --------
Operating income (loss)
Clinical diagnostics 260.7 172.6 (149.3)
Life science research 64.6 44.0 39.3
</TABLE>
-56-
<PAGE> 57
<TABLE>
<S> <C> <C> <C>
Center(a) (108.8) (101.8) (127.0)
-------- -------- --------
Consolidated(a) 216.5 114.8 (237.0)
-------- -------- --------
Interest income
Clinical diagnostics (3.6) (9.8) (2.7)
Life science research -- -- --
Center (4.2) (3.6) (3.4)
-------- -------- --------
Consolidated (7.8) (13.4) (6.1)
-------- -------- --------
Interest expense
Clinical diagnostics -- -- --
Life science research -- -- --
Center 73.8 87.8 29.4
-------- -------- --------
Consolidated $ 73.8 $ 87.8 $ 29.4
-------- -------- --------
Total assets
Clinical diagnostics $1,460.8 $1,519.2 $1,923.1
Life science research 178.4 199.2 161.1
Center 471.6 414.9 246.8
-------- -------- --------
Consolidated $2,110.8 $2,133.3 $2,331.0
-------- -------- --------
GEOGRAPHIC AREAS
Sales to external customers
North America $1,003.9 $ 945.8 $ 703.0
Europe 516.6 499.8 323.3
Asia and Rest of World 288.2 272.6 171.7
-------- -------- --------
Consolidated $1,808.7 $1,718.2 $1,198.0
======== ======== ========
Long-lived assets
North America $ 746.0 $ 814.7 $1,055.8
Europe 308.0 273.3 215.3
Asia and Rest of World 90.4 88.7 83.2
-------- -------- --------
Consolidated $1,144.4 $1,176.7 $1,354.3
======== ======== ========
</TABLE>
(a) Includes restructure (credits) charges of $(0.2) million in 1999, $19.1
million in 1998 and $59.4 million in 1997.
-57-
<PAGE> 58
QUARTERLY INFORMATION (unaudited)
Tabular dollar amounts in millions, except amounts per share
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter Full Year
1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $ 405.1 $ 399.4 $ 446.2 $ 434.7 $ 440.1 $ 400.8 $ 517.3 $ 483.3 $1,808.7 $1,718.2
Cost of sales 211.2 229.8 234.1 236.5 231.2 207.0 265.6 247.3 942.1 920.6
Gross profit 193.9 169.6 212.1 198.2 208.9 193.8 251.7 236.0 866.6 797.6
Selling,
general and
administrative 111.8 119.7 115.5 123.6 117.4 120.2 132.2 128.8 476.9 492.3
Research and
development 38.8 41.6 42.5 42.2 42.0 41.2 50.1 46.4 173.4 171.4
Restructure
charge -- -- -- -- -- -- (0.2) 19.1 (0.2) 19.1
Operating
income 43.3 8.3 54.1 32.4 49.5 32.4 69.6 41.7 216.5 114.8
Earnings
(loss) before
income taxes 25.1 (12.4) 38.1 14.0 35.2 20.4 56.3 24.6 154.7 46.6
Net earnings
(loss) $ 17.1 $ (8.4) $ 25.9 $ 9.5 $ 24.4 $ 13.9 $ 38.6 $ 18.5 $ 106.0 $ 33.5
Basic earnings
(loss) per
share $ 0.60 $ (0.30) $ 0.91 $ 0.34 $ 0.85 $ 0.49 $ 1.34 $ 0.65 $ 3.70 $ 1.19
Diluted
earnings (loss)
per share $ 0.58 $ (0.30) $ 0.87 $ 0.32 $ 0.82 $ 0.47 $ 1.30 $ 0.63 $ 3.57 $ 1.14
Dividends per
share $ 0.16 $ 0.15 $ 0.16 $ 0.15 $ 0.16 $ 0.15 $ 0.16 $ 0.16 $ 0.64 $ 0.61
Stock price -
High $ 55-1/8 $60-7/16 $ 53-1/4 $59-7/16 $ 45-3/8 $63-5/8 $ 51-3/8 $ 54-1/4 $ 55-1/8 $ 63-5/8
Stock price -
Low $ 40 $41 $43-7/16 $50-13/16 $ 43-5/8 $ 50 $40-15/16 $ 46-1/4 $ 40 $ 41
</TABLE>
-58-
<PAGE> 59
Bar Chart: Stock Price By Quarter 1999
<TABLE>
<CAPTION>
Quarter 1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
High 55-1/8 53-1/4 45-3/8 51-3/8
Low 40 43-7/16 43-5/8 40-15/16
</TABLE>
Bar Chart: Stock Price By Quarter 1998
<TABLE>
<CAPTION>
Quarter 1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
High 60-7/16 59-7/16 63-5/8 54-1/4
Low 41 50-13/16 50 46-1/4
</TABLE>
Bar Chart: Sales By Quarter 1999 (millions)
<TABLE>
<CAPTION>
Quarter 1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
Sales $405.1 $446.2 $440.1 $517.3
</TABLE>
Bar Chart: Sales By Quarter 1998 (millions)
<TABLE>
<CAPTION>
Quarter 1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
Sales $399.4 $434.7 $400.8 $483.3
</TABLE>
-59-
<PAGE> 60
REPORT BY MANAGEMENT
The consolidated financial statements and related information for the
years ended December 31, 1999, 1998, and 1997 were prepared by management in
accordance with Generally Accepted Accounting Principles. Financial data
included in other sections of this Annual Report are consistent with that in the
consolidated financial statements.
Management maintains a system of internal accounting controls, which is
designed to provide reasonable assurance, at appropriate costs, that its
financial and related records fairly reflect transactions, that proper
accountability for assets exists, and that established policies and procedures
are followed. A professional staff of internal auditors reviews compliance with
corporate policies. Among these policies is an ethics policy, which requires
employees to maintain high standards in conducting the Company's affairs, and
requires management level employees to submit certificates of compliance
annually. Management continually monitors the system of internal accounting
controls for compliance and believes the system is appropriate to accomplish its
objectives.
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 AMIN I. KHALIFA
John P. Wareham Amin I. Khalifa
Chairman, President and Vice President, Finance
Chief Executive Officer and Chief Financial Officer
-60-
<PAGE> 61
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Beckman Coulter, Inc.:
We have audited the accompanying consolidated balance sheets of Beckman
Coulter, Inc. and subsidiaries as of December 31, 1999 and 1998, 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, 1999. 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 respects, the financial position of Beckman
Coulter, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999 in conformity with generally accepted accounting
principles.
KPMG LLP
Orange County, California
January 27, 2000
-61-
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
------------
The following table lists current subsidiaries of the Company whose results are
included in the Company's combined financial statements. The list of
subsidiaries does not include certain subsidiaries which, when considered in the
aggregate, do not constitute a significant subsidiary of the Company.
JURISDICTION
NAME OF COMPANY OF INCORPORATION
- --------------- ----------------
Beckman Coulter Canada Inc. Canada
Beckman Coulter Eurocenter S.A. Switzerland
Beckman Coulter Espana S.A. Spain
Beckman Coulter France S.A. France
Beckman Coulter G.m.b.H. Germany
Beckman Coulter Holdings G.m.b.H. Germany
Beckman Coulter Hong Kong Ltd. Hong Kong
Beckman Coulter International S.A. Switzerland
Beckman Coulter Ireland Inc. Panama
Beckman Coulter K.K. Japan
Beckman Coulter Nederland B.V. Netherlands
Beckman Coulter S.p.A. Italy
Beckman Coulter United Kingdom Ltd. England
Coulter Corporation Delaware
Coultronics France S.A. France
Hybritech Europe S.A. Belgium
Hybritech Incorporated California
Immunotech S.A. France
<PAGE> 1
EXHIBIT 23
KPMG
Center Tower
650 Town Center Drive
Costa mesa, CA 92626
Independent Auditors' Consent and
Report on Supplementary Financial Schedule
To the Stockholders and Board of Directors of
Beckman Coulter, Inc.:
Under date of January 27, 2000, we reported on the consolidated balance sheets
of Beckman Coulter, Inc. and subsidiaries as of December 31, 1999 and 1998, 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,
1999, as contained in the 1999 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year 1999. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related Supplementary Financial Schedule entitled Schedule II Valuation and
Qualifying Accounts, as listed in the accompanying index. This Supplementary
Financial Schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this Supplementary Financial Schedule
based on our audits. In our opinion, the Supplementary Financial Schedule, when
considered in relation to the consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
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 27,
2000, relating to the consolidated balance sheets of Beckman Coulter, Inc. and
subsidiaries as of December 31, 1999 and 1998, 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, 1999, and the related
schedule, which report appears in the December 31, 1999 annual report on Form
10-K of Beckman Coulter, Inc.
KPMG LLP
Orange County, California
February 16, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 34
<SECURITIES> 0
<RECEIVABLES> 598
<ALLOWANCES> 32
<INVENTORY> 313
<CURRENT-ASSETS> 966
<PP&E> 817
<DEPRECIATION> 511
<TOTAL-ASSETS> 2,111
<CURRENT-LIABILITIES> 576
<BONDS> 992
0
0
<COMMON> 3
<OTHER-SE> 225
<TOTAL-LIABILITY-AND-EQUITY> 2,111
<SALES> 1,809
<TOTAL-REVENUES> 1,809
<CGS> 942
<TOTAL-COSTS> 942
<OTHER-EXPENSES> 650
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 74
<INCOME-PRETAX> 155
<INCOME-TAX> 49
<INCOME-CONTINUING> 106
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106
<EPS-BASIC> 3.70
<EPS-DILUTED> 3.57
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 25
<SECURITIES> 0
<RECEIVABLES> 561
<ALLOWANCES> 21
<INVENTORY> 303
<CURRENT-ASSETS> 957
<PP&E> 818
<DEPRECIATION> 509
<TOTAL-ASSETS> 2,133
<CURRENT-LIABILITIES> 719
<BONDS> 1,006
0
0
<COMMON> 3
<OTHER-SE> 124
<TOTAL-LIABILITY-AND-EQUITY> 2,133
<SALES> 1,718
<TOTAL-REVENUES> 1,718
<CGS> 921
<TOTAL-COSTS> 921
<OTHER-EXPENSES> 683
<LOSS-PROVISION> 8
<INTEREST-EXPENSE> 88
<INCOME-PRETAX> 47
<INCOME-TAX> 13
<INCOME-CONTINUING> 34
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34
<EPS-BASIC> 1.19
<EPS-DILUTED> 1.14
</TABLE>
<PAGE> 1
EXHIBIT 99.1
II. VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts (in millions)
<TABLE>
<CAPTION>
Balance at Additions Balance at
Beginning of Charged to End of
Period Cost and Expenses Deductions Other Period
================================================================================================
<S> <C> <C> <C> <C> <C>
December 31, 1999 $ 20.7 $14.4(a) $2.9(b) $ - $ 31.5
0.7(c)
================================================================================================
December 31, 1998 17.4 8.3(a) 5.0(b) - 20.7
================================================================================================
December 31, 1997 9.6 2.4(a) 3.5(b) 9.4(d) 17.4
0.5(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.
