<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_______________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to ___________________
Commission file number 333-13523
DADE INTERNATIONAL INC.
-----------------------
(Exact name of Registrant as Specified in its Charter)
Delaware 36-3949533
- -------------------------------- --------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1717 Deerfield Road
Deerfield, Illinois 60015-0778
- --------------------------------------- ----------
(Address of Principal Executive Office) (Zip Code)
847-267-5300
------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check [x] 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 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
------ ______
The number of shares of the registrant's Common Stock, $ .01 par value per
share, outstanding as of November 11, 1996, the latest practicable date, was
1,000 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DADE INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(Dollars in millions, except share-related data) 1995 1996
======================================================================================================
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 27.9 $ 8.6
Accounts receivable - trade and related party, net 131.2 179.3
Inventories 122.0 164.7
Prepaid expenses 6.6 12.6
Net assets held for sale 54.9 45.0
Other assets 14.2 5.3
Deferred income taxes 34.4 34.5
------------------------------------------------------------------------------------------------------
Total current assets 391.2 450.0
Property, plant and equipment, net 31.8 164.2
Debt issuance costs, net 19.1 43.3
Deferred income taxes 105.5 185.5
Goodwill, net - 158.5
Patents and trademarks, net - 30.8
Other assets 3.3 17.7
Prepaid pension asset - 18.3
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TOTAL ASSETS $ 550.9 $ 1,068.3
======================================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities
Current portion of bank term loans $ 5.8 $ 11.6
Non-domestic bank debt 2.1 10.8
Accounts payable, primarily trade and related party 56.5 54.3
Accrued liabilities 105.9 176.0
Deferred income taxes 1.5 1.4
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Total current liabilities 171.8 254.1
Revolving credit facility - 21.0
Bank term loans, less current portion 157.7 448.4
Senior subordinated notes 120.0 350.0
Accrued pension cost 12.9 -
Negative goodwill, net 5.6 5.3
Other liabilities 1.7 4.2
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TOTAL LIABILITIES 469.7 1,083.0
Commitments and contingencies - -
Common stock, $.01 par value, 1000 shares
authorized, issued and outstanding - -
Additional paid-in capital 87.0 87.3
Notes receivable on capital contribution (0.2) -
Accumulated deficit (5.0) (101.6)
Unrealized gain/(loss) on investments (1.1) -
Cumulative translation adjustment 0.5 (0.4)
------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY (DEFICIT) 81.2 (14.7)
------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) $ 550.9 $ 1,068.3
======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
DADE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(Dollars in millions) 1995 1996 1995 1996
===============================================================================================================================
<S> <C> <C> <C> <C>
Net Sales $ 150.5 $ 214.3 $ 450.5 $ 568.1
- -------------------------------------------------------------------------------------------------------------------------------
Operating Costs and Expenses
Cost of goods sold 76.8 108.9 285.5 317.3
Marketing and administrative expenses 46.3 67.1 123.9 180.2
Research and development expenses 6.2 12.4 19.9 126.6
Goodwill amortization expense (credit) (0.4) 1.5 (1.2) 2.3
Restructuring and other related items - 1.3 - 12.7
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 21.6 23.1 22.4 (71.0)
Other Income (Expense)
Interest expense, net (7.9) (21.6) (22.0) (44.5)
Other, net 1.1 0.5 1.5 1.9
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 14.8 2.0 1.9 (113.6)
Income tax expense (benefit) 5.4 0.8 0.6 (42.0)
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary items 9.4 1.2 1.3 (71.6)
Extraordinary items (net of income tax benefit of $14.7):
Write-off of deferred financing fees - - - (11.4)
Premium on purchase of Senior Subordinated Notes - - - (13.6)
- -------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 9.4 $ 1.2 $ 1.3 $ (96.6)
===============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
DADE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
(dollars in millions) 1995 1996
================================================================================
CASH FLOW PROVIDED (UTILIZED) BY OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ 1.3 $ (96.6)
Adjustments to reconcile net income (loss) to net cash
provided (utilized) by operating activities:
Write-off of in-process research and development - 98.1
Depreciation and amortization expense 2.2 21.5
Amortization of deferred financing fees 2.1 3.3
Amortization of goodwill (1.2) 2.3
Deferred income taxes 0.7 (55.8)
Restructuring and other related costs - 12.7
Write-off of deferred financing costs - 18.1
Amortization of inventory write-up 40.4 25.5
Changes in balance sheet items:
Accounts receivable (70.2) 8.4
Inventories, net of amortization for inventory
write-up 9.4 (12.2)
Prepaid expenses (1.9) (5.9)
Accounts payable and bank overdrafts 20.3 (5.6)
Accrued liabilities 1.0 1.6
Other liabilities (3.5) 3.7
Other (5.6) -
- --------------------------------------------------------------------------------
Net cash flow provided (utilized) by operating activities (5.0) 19.1
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of IVD - (530.6)
Capital expenditures (24.1) (38.3)
Proceeds from Baxter International Inc.,
for purchase price adjustments 12.2 9.7
- --------------------------------------------------------------------------------
Net cash flow utilized by investing activities (11.9) (559.2)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from sale of net assets held for sale (0.4) 9.9
Borrowings under revolving credit facility, net of repayments - 21.0
Proceeds from issuance of short term notes - 8.7
Proceeds from issuance of senior subordinated
notes, net of repayments - 230.0
Proceeds from bank term loans, net of repayments 30.5 296.5
Deferred financing costs - (45.7)
Contribution from stockholder 1.8 0.3
- --------------------------------------------------------------------------------
Net cash flow provided by financing activities 31.9 520.7
- --------------------------------------------------------------------------------
Effect of foreign exchange rates on cash (0.1) 0.1
- --------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 14.9 (19.3)
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
Beginning of Period 22.4 27.9
- --------------------------------------------------------------------------------
END OF PERIOD $ 37.3 $ 8.6
================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. FINANCIAL INFORMATION, ORGANIZATION AND BUSINESS
Dade International Inc. (the "Company") was incorporated in Delaware in 1994 to
effect the December 16, 1994 acquisition (the "Dade Acquisition") of the in
vitro diagnostics products manufacturing and services businesses of Baxter
Diagnostics Inc. and certain of its affiliates. The Company develops,
manufactures and markets diagnostic equipment, reagents, consumable supplies and
services worldwide.
The Company is a wholly-owned subsidiary of Diagnostics Holding, Inc.
("Holdings"). Bain Capital, Inc. and GS Capital Partners, L.P., an affiliate of
the Goldman Sachs Group, L.P., their respective related investors, and the
management of the Company own all of the voting capital stock of Holdings.
The Company acquired (the "Acquisition"), effective May 1, 1996, the world-wide
in vitro diagnostics business ("Dade Chemistry") of E.I. du Pont de Nemours and
Company (DuPont). As a result, the unaudited consolidated financial statements
for the three and nine months ended September 30, 1996 and as of September 30,
1996 are not comparable to the same periods of the prior year.
The unaudited interim financial statements of the Company have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures have been
condensed or omitted. These unaudited interim consolidated financial statements
should be read in conjunction with the consolidated financial statements and the
notes included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
In the opinion of management, the unaudited interim consolidated financial
statements reflect all adjustments (which include only normal and recurring
adjustments) necessary for a fair presentation of the interim periods. The
results of operations for the interim periods are not necessarily indicative of
the results of operations expected for the full year. The results reported for
the three and nine months ended September 30, 1996 reflect management's
preliminary allocation of the purchase price necessary to record the Dade
Chemistry Acquisition. This preliminary allocation is subject to further
refinement and adjustment.
Certain previously reported balances have been reclassified to conform to the
current presentation.
NOTE 2. CHANGE IN INTERNATIONAL REPORTING PERIOD
Prior to 1996, the Company's operations outside the United States and Puerto
Rico (collectively "International Operations") were consolidated on a one-month
delay (e.g., international August 1995 results were reported as September 1995
results) in the consolidated financial statements of the Company. Effective
with 1996 reporting, this one month lag for International Operations was
eliminated. As a consequence, operating results for the nine-month period ended
September 30, 1996 include ten months of International Operations. The Company
has designated the month of December 1995 as the "lag month" for purposes of
comparability to future periods. International Operations during the lag month
produced net sales of approximately $12.3 million and net income of
approximately $1.3 million, thus increasing consolidated net sales and
consolidated net income by these respective amounts for the nine months ended
September 30, 1996.
5
<PAGE>
NOTE 3. INVENTORIES
Inventories comprise the following:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
---- ----
(unaudited)
<S> <C> <C>
Raw materials $ 21.9 $ 34.6
Work in process 34.4 50.3
Finished products 65.7 79.8
---- ----
$ 122.0 $ 164.7
===== =====
</TABLE>
In connection with the Dade Acquisition and the Dade Chemistry Acquisition,
which were recorded in accordance with the purchase method of accounting, the
Company's inventories were written-up by $46.0 million and $25.5 million,
respectively, at the acquisition dates. Of the $46.0 million Dade Acquisition
write-up, $5.6 million was charged to cost of goods sold during the period
December 17, 1994 through December 31, 1994. The remaining $40.4 million was
charged to cost of goods sold during the period January 1, 1995 through March
31, 1995. The $25.5 million Dade Chemistry Acquisition write-up was charged to
cost of goods sold during the three months ended June 30, 1996.
NOTE 4. DADE CHEMISTRY ACQUISITION
The Dade Chemistry Acquisition was recorded in accordance with the purchase
accounting method. Accordingly, the purchase price and the direct costs of the
Dade Chemistry Acquisition, which aggregated $530.6 million, were allocated on a
preliminary basis to the assets acquired and the liabilities assumed based upon
their fair market values at the date of the Dade Chemistry Acquisition. Since
the purchase price exceeded the fair market value of the net assets acquired,
the residual, aggregating $161.2 million, was recorded as goodwill and is being
amortized using the straight-line method over twenty-five years. The results of
operations of Dade Chemistry are included in the accompanying unaudited
consolidated statements of operations since the effective date of the Dade
Chemistry Acquisition. The preliminary allocation of assets and liabilities of
Dade Chemistry, as determined in accordance with the purchase method of
accounting, are also consolidated in the accompanying balance sheet from the
effective date of the Dade Chemistry Acquisition resulting in increases in
various balances as compared to December 31, 1995.
A preliminary summary of assets acquired, liabilities assumed and the purchase
price paid is as follows:
<TABLE>
<S> <C>
Cash consideration $512.0
Costs of acquisition 18.6
------
530.6
Liabilities assumed 62.9
------
Costs of assets acquired $593.5
======
</TABLE>
The Company's preliminary allocation of the Dade Chemistry purchase price
includes $98.1 million of costs attributed to in-process research and
development projects which the Company believes have no alternative future use.
Accordingly, such costs were expensed upon the consummation of the Dade
Chemistry Acquisition. The above allocation is subject to continued updating as
the purchase price is finalized with the seller and all acquisition costs are
completed.
6
<PAGE>
The Dade Chemistry Acquisition was financed principally by the issuance of $350
million of senior subordinated debt, $510 million of bank debt and approximately
$16 million of cash. Of the $860 million of debt proceeds, approximately $146
million was utilized for repayment of previously issued senior subordinated
notes and related costs and approximately $154 million was used for the
repayment of senior bank debt and accrued interest. An additional $45.7 million
was used for debt issuance costs.
The following represents the unaudited pro forma results of operations of the
Company and its subsidiaries as if the Dade Chemistry Acquisition had occurred
on January 1, 1995 and January 1, 1996, respectively, after giving effect to the
following adjustments: write-off of in-process research and development,
increased depreciation of property, plant and equipment, increased amortization
of intangibles, increased amortization of goodwill, increased interest expense
on acquisition debt, refinancing charges, and related income tax effects of
these adjustments:
<TABLE>
<CAPTION>
Pro forma nine Pro forma nine
months ended months ended
September 30, 1995 September 30, 1996
------------------ ------------------
<S> <C> <C>
Net sales $719.3 $682.9
====== ======
Loss before extraordinary items $(70.4) $(76.2)
====== =======
Net loss $(95.4) $(101.2)
====== =======
</TABLE>
The unaudited pro forma results of operations presented above are not
necessarily indicative of the results that would have been obtained if the Dade
Chemistry Acquisition had actually occurred on January 1, 1995 and January 1,
1996. The decline in net sales for the nine months ended September 30, 1996 is
primarily due to the rationalization of overlapping product lines and product
repositioning following the integration of Dade Chemistry. The losses for both
periods above are due primarily to the $98.1 million write-off of in-process
research and development; 1996 results include $12.7 million of restructuring
costs as well as incremental and duplicative expenses associated with the
development of stand-alone infrastructure in the areas of information systems,
finance and human resources as the Company prepares for the termination of the
transition service agreements with Baxter International, Inc. and DuPont.
Moreover, the synergistic savings that are expected to be realized as a result
of the Dade Chemistry Acquisition and the adjustment for the differences in
reporting periods for the Company's International Operations are not reflected
in the unaudited pro forma results presented above.
NOTE 5. REFINANCING
To fund the Dade Chemistry Acquisition, the Company refinanced its existing
indebtedness by entering into a credit agreement with a number of banks ("Bank
Credit Agreement") which provides for borrowing up to $585 million, and by
repurchasing its $120 million 13% Senior Subordinated Notes and issuing $350
million of 11 1/8% Senior Subordinated Notes.
BANK CREDIT AGREEMENT. The Bank Credit Agreement consists of $460 million in
term loans and $125 million in a revolving credit facility ("Revolving Credit
Facility"). Initial borrowings under the Bank Credit Agreement consisted of
$185.0 million of A Term Loans, $90.0 million of B Term Loans, $90.0 million of
C Term Loans, $95.0 million of D Term Loans and $50 million of the $125 million
under the Revolving Credit Facility. The borrowings under the Bank Credit
Agreement are guaranteed by Holdings and the Company's domestic subsidiaries,
and are secured by substantially all the domestic assets and certain foreign
assets of the Company.
7
<PAGE>
The Term Loans bear interest at floating rates as provided therein and require
quarterly payments of interest and provide for scheduled amortization of
principal beginning in March 1997. The A, B, C, and D Term Loans mature on
December 31, 2001, 2002, 2003 and 2004, respectively.
The Revolving Credit Facility bears interest at floating rates and may be repaid
and reborrowed, and carries a commitment fee on the average unused portion of
the Revolving Credit Facility. The Revolving Credit Facility matures on
December 31, 2001.
The Bank Credit Agreement contains various restrictive covenants including
restrictions on minimum earnings, capital expenditures and additional
indebtedness, as defined therein. Additionally, the Company is required to
maintain specified levels of interest rate protection. The Company has
purchased a series of interest rate caps under which the Company will receive
cash payments from the counterparties if certain indexed rates of interest are
exceeded. Premiums paid for the purchase of the caps are capitalized and
amortized to interest expense over the life of the caps.
SENIOR SUBORDINATED NOTES. Interest on the 11-1/8% Senior Subordinated Notes
due 2006 accrues from the date of issuance and is payable semi-annually on May 1
and November 1, commencing November 1, 1996. The Senior Subordinated Notes are
redeemable in whole or in part, at the Company's option commencing May 1, 2001.
In connection with the debt refinancing and purchase of the 13% Senior
Subordinated Notes due 2005, $18.1 million ($11.4 million net of tax) of
deferred financing fees and $21.6 million ($13.6 million net of tax) of premiums
were recognized as extraordinary items. The Senior Subordinated Notes are
currently subject to an exchange offer for registered notes with identical
terms.
NOTE 6. RESTRUCTURING
During the second quarter of 1996, the Company recorded an $11.4 million charge
for restructuring and costs in connection with the Dade Chemistry Acquisition.
Additional related costs aggregating $1.3 million were recorded as incurred
during the three months ended September 30, 1996. The restructuring plan is
designed to decrease costs, increase efficiency and eliminate redundant
operations and is expected to produce annual savings and result in the
elimination of permanent and temporary positions. Management expects to
complete this restructuring within one year.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company's 1995 Annual Report on Form 10-K (Commission file No. 33-90462)
contains management's discussion and analysis of the Company's financial
condition and results of operations at and for the year ended December 31, 1995.
Management's Discussion and Analysis which follows focuses on material changes
since that time and should be read in conjunction with the Annual Report on Form
10-K. Relevant trends that are reasonably likely to be of a material nature are
discussed to the extent known.
Certain statements included in this document are forward-looking, such as
statements relating to estimates of operating and capital expenditure
requirements, future revenue and operating income, and cash flow and liquidity.
Such forward-looking statements are based on the Company's current expectations
and are subject to a number of risks and uncertainties that could cause actual
results in the future to differ significantly from results expressed or implied
in any forward-looking statements made by, or on behalf of, the Company. These
risks and uncertainties include, but are not limited to, uncertainties relating
to economic and business conditions, governmental and regulatory policies, and
the competitive environment in which the Company operates. These and other
risks are detailed below as well as in other documents filed by the Company with
the Securities and Exchange Commission.
Overview and Comparability
- --------------------------
The Dade Chemistry Acquisition was consummated effective May 1, 1996. This
acquisition established the Company as the market leader in the U.S. clinical
chemistry segment and the second largest provider to the worldwide clinical
chemistry market. The Dade Chemistry Acquisition broadened the Company's
product lines providing cross-selling opportunities, strengthened its technology
and research and development capabilities, and significantly increased its
international presence. However, it was anticipated that as a result of the
acquisition, certain product lines would be rationalized or repositioned as they
were integrated into Dade's chemistry business; this strategic decision has
resulted in lower sales in the chemistry business since the acquisition.
For comparative purposes, the Company's unaudited consolidated balance sheet and
statements of cash flows as of September 30, 1996 and for the nine months then
ended have been significantly impacted by the Dade Chemistry Acquisition.
Additionally, the Company's unaudited consolidated statement of operations has
been significantly impacted by certain items related to the Dade Acquisition and
by the Dade Chemistry Acquisition as follows:
. $25.5 million was amortized to cost of goods sold in the second quarter of
1996 related to the write-up to the fair market value of work-in-process
and finished goods inventory in connection with the Dade Chemistry
Acquisition's purchase price allocation.
. An $11.4 million restructuring charge was recorded in the second quarter
of 1996 to operating expense. Additional restructuring expenses of $1.3
million were recorded in the third quarter of 1996. Approximately $9.4
million of this charge relates to employee severance and relocation costs
and $3.3 million relates to other acquisition related initiatives. As of
September 30, 1996, approximately $4.6 million was expended against this
reserve.
. A $98.1 million pre-tax charge to research and development expense was
recorded upon consummation of the Dade Chemistry Acquisition in the second
quarter of 1996 pertaining to purchase price allocated to in-process
research and development projects that have no future alternative use.
. Two extraordinary after-tax charges totaling $25.0 million were made in
the second quarter of 1996 to record the costs associated with the
repurchase of the original 13% Senior Subordinated Notes due 2005 and the
write-off of previously deferred financing fees.
9
<PAGE>
. $40.4 million was amortized to cost of goods sold in the first quarter of
1995 related to the $46.0 million non-recurring write-up to the fair market
value of work-in-process and finished goods inventory in connection with
the Dade Acquisition's purchase price allocation.
RESULTS OF OPERATIONS
Net Sales
- ---------
Net sales for the three months ended September 30, 1996 increased $63.8 million
or 42% and increased $117.6 million or 26% for the nine months ended September
30, 1996, as compared to the respective prior year periods. The increase in net
sales for both periods is attributable primarily to the Dade Chemistry
Acquisition. In addition, Microscan sales increased $3.1 million during the
nine months ended September 30, 1996 over the prior year period due to volume
gains while the current quarter's sales were relatively unchanged over the prior
year period. Certain Dade Chemistry product lines have been designated as non-
core product lines due to product line overlap and strategic repositioning to
leverage our strengths for the cardiac market; accordingly, the Paramax and
Stratus non-cardiac product lines have been identified as non-core product
lines. Sales for these non-core product lines decreased approximately $12.0
million and $36.0 million for the quarter and nine month periods, respectively,
over the comparable prior year periods. The change in the reporting period for
the Company's international operations added $12.3 million to the sales for the
nine months ended September 30, 1996 as compared to the prior year period.
Gross Profit
- ------------
Gross profit for the three months ended September 30, 1996 increased $31.7
million or 43% over the prior year period. Gross profit for the nine months
ended September 30, 1996 increased $85.8 million or 52% over the prior year
period. The increase in gross profit for both periods is attributable primarily
to the Dade Chemistry Acquisition and increased Microscan sales, offset by lower
sales in non-core chemistry product lines as discussed above and a generally
more competitive pricing environment. The change in the reporting period for
the Company's International Operations added $8.4 million to the gross profit
for the nine months ended September 30, 1996 as compared to the comparable prior
year period. For the quarter, gross profit as a percentage of sales increased
to 49.2% from 48.9% over the comparable prior year period. For the nine months
ended September 30, 1996, gross profit as a percentage of sales, after excluding
the impacts of purchase accounting, increased to 48.6% as compared to 45.6% in
the comparable prior year period. Improvements in the gross profit margin
percentages for both periods reflect the impact of manufacturing cost reduction
initiatives being implemented by the Company. Management is continuing to
assess the Company's overall organization and cost structures and may, as a
result of this on-going process, develop future initiatives to increase
operating and administrative efficiency and enhance profitability.
Research and Development Expense
- --------------------------------
Research and development expense for the three months ended September 30, 1996
increased $6.2 million over the comparable prior year period. For the nine
months ended September 30, 1996, research and development expense increased
$106.7 million over the comparable prior year period. The increase in the nine
month period is primarily attributable to the purchase accounting impact
discussed above along with the impact of the Dade Chemistry Acquisition. The
increase during the current quarter is primarily attributable to the Dade
Chemistry Acquisition. Increased research and development expenditures are
supporting initiatives to expand test menus, developing the next generation
Dimension Rxl instrument, developing the Platelet Function Analyzer and the new
cardiac platform. These increases have been partially offset by the
nonrecurrence of molecular biology research expenses (eliminated in early 1996)
and lower research and development costs in the Paramax product line.
10
<PAGE>
Marketing and Administrative Expense
- ------------------------------------
Marketing and administrative expense for the three months ended September 30,
1996 increased $20.8 million or 45% over the prior year period. Marketing and
administrative expense for the nine months ended September 30, 1996 increased
$56.3 million or 45% over the comparable prior period. The increases for both
periods are primarily attributable to the Dade Chemistry Acquisition and
incremental and duplicative expenses in the areas of finance, information
systems and human resources associated with the establishment of the Company as
a stand-alone entity in preparation for the termination of the transition
service agreements with both Baxter and DuPont.
Income Taxes
- ------------
For the three months ended September 30, 1996, the Company recorded a tax
provision at an effective rate of approximately 37% and for the nine months
ended September 30, 1996, the Company recognized tax benefits at a 37% rate. At
September 30, 1996, the Company has a net deferred tax asset of $218.6 million
as compared to $138.4 million at December 31, 1995. Management continues to
believe that realization of the net deferred tax asset is not dependent on
material improvement over the Company's forecast of current levels of
consolidated pre-tax income, material changes in the present relationship
between income reported for financial and tax purposes, material asset sales or
other non-routine transactions.
Other Income (Expense)
- ----------------------
As a result of the increased level of indebtedness incurred by the Company for
the Dade Chemistry Acquisition, offset partially by lower rates on the
subordinated notes, interest expense for the three months and nine months ended
September 30, 1996 increased $13.7 million and $22.5 million, respectively, over
the prior year periods. During the three months ended September 30, 1996, the
Company determined that its investment in marketable securities had suffered an
impairment in value which was other than temporary and accordingly wrote-down
the investment to fair market value and recognized a $2.7 million loss. Also
during the current quarter, the Company entered into a settlement agreement in
connection with certain patent litigation which resulted in a net gain of $2.8
million.
Net Income
- ----------
Net income for the three months ended September 30, 1996 was $1.2 million,
compared to $9.4 million for the comparable prior year period. For the nine
months ended September 30, 1996, the Company recorded a net loss of $96.6
million as compared to net income of $1.3 million for the comparable period of
the prior year. The decrease in net income over the three and nine month
periods is primarily attributable to higher interest expense along with
incremental and duplicative expenses associated with the development of stand-
alone infrastructure in the areas of information systems, finance and human
resources as the Company prepares for termination of the transition service
arrangements with Baxter and DuPont.
LIQUIDITY AND CAPITAL RESOURCES
The Dade Chemistry Acquisition required the complete refinancing of the
Company's debt arrangements in order to provide adequate funding for the
purchase price of the Dade Chemistry Acquisition and the retirement of the
Company's existing obligations. The Company submitted a tender offer for its 13%
Senior Subordinated Notes due 2005 which was accepted by all of the holders. The
cost of the tender offer to the Company totaled $146.3 million representing all
principal, interest and tender premiums paid to holders. In addition, the
Company retired all of its existing bank debt. To fund these retirements, the
Company entered into the following financing arrangements.
11
<PAGE>
The first, a new bank credit facility, provides for loans up to $585 million
comprised of $460 million of amortizing term loans and up to $125 million in a
revolving credit facility. On the date the Dade Chemistry Acquisition was
consummated, all of the term loans and $50 million under the revolving credit
facility were drawn down. Second, $350 million of 11 1/8% Senior Subordinated
Notes due 2006 were issued as unsecured obligations of the Company ranking
subordinate in right of payment to all senior debt (as defined in such
indenture) of the Company. Interest on the notes is payable semi-annually.
The Company's principal liquidity requirements are for working capital, capital
expenditures, restructuring activities and debt service.
Total assets increased by $517.5 million during the nine months ended September
30, 1996, due primarily to the Dade Chemistry Acquisition. The Dade Chemistry
Acquisition served to significantly increase the accounts receivable, property,
plant and equipment, deferred income taxes, goodwill, patents and trademarks and
accrued liabilities components of the unaudited consolidated balance sheet.
During the first three quarters of 1996, working capital decreased from $219.4
million to $196.0 million primarily due to cash utilized, debt incurred and
liabilities assumed in connection with the Dade Chemistry Acquisition. Net
assets held for sale decreased from $54.9 million to $45.0 million due to the
sale of certain excess real estate.
Capital expenditures of the Company increased to $38.3 million from $24.1
million for the nine months ended September 30, 1996 as compared to the
comparable period in 1995. This increase is attributable to investments in the
Company's stand-alone infrastructure and instruments placed in customer
locations.
Management believes that cash from operating activities, together with available
revolving credit facilities will be sufficient to permit the Company to meet its
financial obligations and fund all of its operations for the foreseeable future.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to a number of legal proceedings. Management believes
that there have been no developments of which management is aware in the period
covered by this filing relating to the various legal proceedings pending against
the Company that would give rise to a liability that would result in a material
adverse effect on the Company's conduct of its business, its results of
operations or its financial position.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DADE INTERNATIONAL INC.
-----------------------
(Registrant)
Date: November 14, 1996 By: /s/ James W. P. Reid-Anderson
---------------------------------------
James W. P. Reid-Anderson
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and duly
authorized Officer of Registrant)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 8,600,000
<SECURITIES> 0
<RECEIVABLES> 179,300,000
<ALLOWANCES> 0
<INVENTORY> 164,700,000
<CURRENT-ASSETS> 450,000,000
<PP&E> 164,200,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,068,300,000
<CURRENT-LIABILITIES> 254,000,000
<BONDS> 350,000,000
<COMMON> 0
0
0
<OTHER-SE> (14,700,000)
<TOTAL-LIABILITY-AND-EQUITY> 1,068,300,000
<SALES> 214,300,000
<TOTAL-REVENUES> 214,300,000
<CGS> 108,900,000
<TOTAL-COSTS> 108,900,000
<OTHER-EXPENSES> 82,300,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,600,000
<INCOME-PRETAX> 2,000,000
<INCOME-TAX> 800,000
<INCOME-CONTINUING> 1,200,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,200,000
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1> Earnings per share are not calculated because the Company's Common Stock
is not publicly traded.
</FN>
</TABLE>
