SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20045
AMENDMENT NO. 1
to
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: (date of earliest
event reported): October 1, 1997
DADE INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 333-13523 36-3949533
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
1717 Deerfield Road, Deerfield, Illinois 60015-0778
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 267-5300
<PAGE>
Item 5.Other Events.
On October 31, 1997 Scott T. Garrett resigned from his position as
President, Chief Executive Officer and Chairman of the Company. He
continues as a Director. On October 31, 1997 Steve W. Barnes was
elected President and Chief Executive Officer of the Company.
Item 7. Financial Statement, Pro Forma Financial Information and
Exhibits.
On October 20, 1977, the Company filed a Current Report on Form 8-K to
report the Closing under an Agreement and Plan of Combination pursuant
to which the following worldwide human in vitro diagnostics products and
services business ("Behring") of Hoechst AG and certain of its affiliates
combined with and into the business of the Company. The purpose of this
Amendment No. 1 to Current Report on Form 8-K, filed on Form 8-K/A, is to
file additional financial statements and file the pro forma financial
information required by Item 7(b).
(a) Financial Statements of Business Acquired
See "Index to Financial Statements and Schedules" on page F-1
hereof for the historical financial information of Behring
Diagnostics GmbH for the fiscal years ended, and as of, December 31,
1995 and 1996 and for the nine months ended September 30, 1996
and 1997. The nine month information was not available at the time
of filing the Form 8-K to which this Amendment relates.
(b) Pro Forma Financial Information
See "Index to Financial Statements and Schedules" on page F-1
hereof for the Unaudited Proforma Consolidated Balance sheet as of
September 30, 1997, Unaudited Pro forma Consolidated Statement of
Income Before Extraordinary Items and Minority Interest of the
Company for the Year ended December 31, 1996 and the Unaudited Pro
forma Consolidated Statement of Income Before Cumulative Effect of
Change in Accounting Principle of the Company for the nine months
ended September 30, 1997.
(c) Exhibits.
2.1 Agreement and Plan of Combination by and between Diagnostics
Holdings, Inc. and Hoechst AG dated as of June 24, 1997 as
supplemented on September 29, 1997 and September 30, 1997
(incorporated by reference to the Company's Current Report on
Form 8-K filed October 20, 1997.)
<PAGE>
Index to Financial Statements and Schedules
Dade International Inc. Page
Unaudited Pro Forma Consolidated Balance Sheet as of
September 30, 1997 F-3
Unaudited Pro Forma Consolidated Statement of
Income Before Extraordinary Items and Minority Interest
for the year ended December 31, 1996 F-6
Unaudited Pro Forma Consolidated Statement of Income Before
Cumulative Effect of a Change in Accounting Principle for
the nine months ended September 30, 1997 F-9
Behring Diagnostics GmbH and Subsidiaries Schedule
Combined Balance Sheets, Statements of Operations
and Cash Flows as of and for the years ended
December 31, 1995 and 1996 1
Unaudited Combined Balance Sheets, Statements of
Operations and Cash Flows as of and for the nine
months ended September 30, 1996 and 1997 2
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The Unaudited Pro Forma Consolidated Statement of Income Before
Extraordinary Items and Minority Interest for the year ended December
31, 1996 and the Unaudited Pro Forma Consolidated Statement of Income
Before Cumulative Effect of a Change in Accounting Principle for the
nine months ended September 30, 1997 give pro forma effect to the
Behring Acquisition as if it had occurred on January 1, 1996 and
January 1, 1997, respectively. The unaudited pro forma financial data
are based on the historical consolidated financial statements of the
Company and Behring and the assumptions and adjustments described in the
accompanying notes. The Unaudited Pro Forma Statements of Income Before
Extraordinary Items and Minority Interest and Income Before Cumulative
Effect of a Change in Accounting Principle: (i) do not purport to
represent what the Company's results of operations actually would have
been if the Behring Acquisition had occurred on the dates indicated or
what such results will be for any future periods and (ii) exclude the
impact of certain non-recurring charges directly related to the Behring
Acquisition.
The following Unaudited Pro Forma Consolidated Balance Sheet as of
September 30, 1997 reflects the preliminary allocation of purchase price
to the tangible and intangible assets and liabilities of the Behring
Acquisition. The final allocation of purchase price and the resulting
depreciation and amortization expense will likely differ from the
preliminary estimates in the accompanying unaudited pro forma statements
of income upon final determination of the Behring Acquisition purchase
allocation.
The Unaudited Pro Forma Consolidated Statements of Income Before
Extraordinary Items and Minority Interest and Income Before Cumulative
Effect of a Change in Accounting Principle referred to above do not
reflect the following charges which the Company expects to incur within
the next 12 months: (i) approximately $105.0 million of restructuring
and other expenses expected to be incurred by the Company following
consummation of the Behring Acquisition; (ii) a non-cash, non-recurring
increase in cost of goods sold of $160.9 million, based upon the
estimated write-up of acquired inventory to fair market value (iii) a
non-cash, non-recurring charge of $61.2 million to research and development
expenses related to the write-off of the fair market value of acquired
in-process research and development projects in connection with the
Behring Acquisition which have no future alternative use.
<PAGE>
Effective January 1, 1997, Behring changed its accounting policy for
instrument refurbishment costs to capitalize and amortize such costs
over a thirty-six month period rather than expensing such costs
immediately. This change in accounting principle resulted in a
cumulative effect of $3.9 million net of tax benefit recorded as of
January 1, 1997.
Effective May 1, 1996, the Company acquired the in vitro diagnostic
business of E.I. Du Pont Nemours and Company (the "Chemistry
Acquisition"). In connection with the Chemistry Acquisition the
Company recognized the following as extraordinary items: the write-off
of $18.1 million ($11.4 million net of tax) of deferred financing fees
in connection with the refinancing of existing debt; and the payment of
a $21.6 million ($13.6 million net of tax) tender premium associated
with the purchase of its 13% Senior Subordinated Notes due 2006.
Certain balances in the Behring historical financial data have been
reclassified to conform with the Company's historical financial statements.
The unaudited pro forma financial data are based upon assumptions that
the Company believes are reasonable, including those related to cost
savings arising from the Company's integration plans, which the Company
believes are both factually supportable and directly attributable to the
Behring Acquisition. Such unaudited pro forma financial data should be
read in conjunction with the financial statements of the Dade and Behring
and the accompanying notes thereto.
<PAGE>
<TABLE>
DADE INTERNATIONAL INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1997
(dollars in millions)
Historical
Company
Dade Behring Combined Adjustments Pro Forma
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 6.5 $ 10.9 $ 17.4 $ 17.4
Accounts receivable, net 173.7 286.1 459.8 (158.0) (1) (2) 301.8
Inventories 165.5 132.8 298.3 160.9 (3) 459.2
Prepaid expenses and other current assets 8.4 18.9 27.3 27.3
Deferred income taxes 45.7 4.8 50.5 50.5
Total current assets 399.8 453.5 853.3 2.9 856.2
Property, plant and equipment, net 177.4 181.6 359.0 (88.6) (4) 270.4
Debt issuance costs, net 38.5 38.5 38.5
Goodwill, net 137.1 79.3 216.4 (79.3) (5) 137.1
Patents and trademarks, net 27.6 24.6 52.2 (18.1) (4) 34.1
Deferred income taxes 167.2 167.2 36.3 36.3 (6) 203.5
Prepaid pension asset 26.1 26.1 26.1
In-process research and development 61.2 (7) 61.2
Other assets 25.5 11.8 37.3 (5.6) (4) 31.7
Total Assets $ 999.2 $ 750.8 $ 1,750.0 $(91.2) $ 1,658.8
Liabilities and Owners' Equity (Deficit)
Current liabilities:
Current portion of long-term debt $ 4.1 $ 4.1 $ 4.1
Short-term debt 18.8 39.1 57.9 57.9
Accounts payable 47.5 61.6 109.1 (44.3) (1) 64.8
Accrued liabilities 129.3 102.3 231.6 (24.4) (1) (8) 208.2
Total current liabilities 199.7 203.0 402.7 (67.7) 335.0
Long-term debt, less current portion 453.0 453.0 453.0
Senior subordinated notes 350.0 350.0 350.0
Restructuring liabilities 98.6 (9) 98.6
Minority interest 3.8 3.8 3.8
Other liabilities 24.5 22.7 47.2 7.7 (10) 54.9
Total liabilities 1,027.2 229.5 1,256.7 38.6 1,295.3
Owners' Equity (Deficit) (28.0) 521.3 493.3 (129.8) (11) 363.5
Total Liabilities and Owners' $ 999.2 $ 750.8 $1,750.0 $ (91.2) $1,658.8
Equity (Deficit)
See accompanying notes.
</TABLE>
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1997
(dollars in millions)
The Unaudited Pro Forma Consolidated Balance Sheet gives effect to the
following unaudited pro forma adjustments:
(1) Represents items excluded by the contract terms of the Behring
Acquisition as follows:
Accounts receivable, primarily related parties $138.0
Accounts payable, primarily related parties 44.3
Accrued liabilities, primarily restructuring reserves 25.7
(2) Represents the preliminary adjustment of bad debt reserves of $20.0
to reflect Behring's trade receivables at fair market value for
purchase accounting.
(3) Represents the estimated write-up to fair market value of $160.9 of
Behring's inventory in connection with the preliminary purchase
price allocation. This write-up will be charged to costs of goods
sold during the three months ended December 31, 1997. This one-
time charge has not been reflected in the accompanying pro forma
Statements of Income Before Extraordinary Items and Minority
Interest and Income Before Cumulative Effect of a Change in
Accounting Principle due to its non-recurring nature.
(4) Represents the pro rata write-down in value of non-current assets
as a result of the Company's preliminary application of purchase
accounting whereby the excess of the fair market value over the
purchase price was allocated as a reduction to the fair market
value of non-current assets.
(5) Represents the write-off of Behring historical goodwill through the
application of purchase accounting.
(6) Represents the preliminary establishment of deferred taxes for
temporary differences of assets and liabilities through the
application of SFAS No 109, "Accounting for Income Taxes".
(7) Represents the estimated allocation of purchase price to acquired
in-process research and development projects which have no
alternative future use or separable economic value to the Company.
This amount was immediately written-off upon consummation of the
Behring Acquisition and has not been reflected in the accompanying
pro forma Statements of Income Before Extraordinary Items and
Minority Interest and Income Before Cumulative Effect of a Change
in Accounting Principle due to its non-recurring nature.
(8) Represents $2.3 of miscellaneous accrued liabilities to reflect
Behring's liabilities at fair market value for purchase accounting.
<PAGE>
(9) Represents preliminary restructuring reserves resulting from the
Behring Acquisition as follows:
Exit from San Jose administrative/research facility $39.2
Closure of and exit from Westwood manufacturing facility 13.8
Consolidation of worldwide marketing, sales, research
and development and administrative functions and
facilities 45.6
Total restructuring reserves $98.6
(10) Represents the estimated additional foreign pension plan liability
assumed as a result of the Behring Acquisition.
(11) Represents the elimination of certain net assets not transferred
and the pro rata write-down of non-current assets as a result of the
application of purchase accounting.
<PAGE>
<TABLE>
DADE INTERNATIONAL INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME BEFORE
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
Nine Months Ended September 30, 1997
(dollars in millions)
Historical
Company's
Dade Behring Combined Adjustments Pro Forma
<S> <C> <C> <C> <C> <C>
Net sales $612.2 $431.6 $1,043.8 $1,043.8
Cost of sales 307.4 173.6 481.0 (18.9) (3) 455.6
(6.5) (4)
Gross profit 304.8 258.0 562.8 25.4 588.2
Marketing and 197.9 203.0 (1) 400.9 (2.1) (3) 347.4
administrative expenses
(28.8) (4)
Research and development 34.7 48.5 83.2 (2.0) (4) 81.2
expenses
Amortization expense 4.1 14.4 18.5 (7.7) (5) 5.9
(4.9) (6)
Restructuring and other - 11.0 (1) 11.0 11.0
related costs
Income (loss) from operations 68.1 (18.9) 49.2 93.5 142.7
Interest expense, net (66.0) (6.7) (72.7) (72.7)
Other income 10.3 (2) - 10.3 10.3
Income (loss) before 12.4 (25.6) (13.2) 93.5 80.3
income taxes
Income tax expense 4.6 0.9 5.5 35.0 (7) 40.5
Income before cumulative
effect of a change
in accounting principle $7.8 ($26.5) ($18.7) $ 58.5 $ 39.8
See accompanying notes.
</TABLE>
<PAGE>
DADE INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME BEFORE
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
Nine Months Ended September 30, 1997
(dollars in millions)
The Unaudited Pro Forma Consolidated Statement of Income Before
Cumulative Effect of a Change in Accounting Principle gives effect to
the following unaudited pro forma adjustments:
(1) Includes the impact for Behring of the following non-recurring
adjustments recorded in the quarter ended September 30, 1997 in
connection with the Behring Acquisition:
Increase
(Decrease)
Marketing and Administrative Costs:
Severance plan costs $8.4
Employee retention bonuses 2.5
Adjustment of product liability reserve (1.6)
Adjustment of pension liability (0.9)
Total Marketing and Administrative Costs 2.5
Adjustment of Restructuring and Other (0.9)
Related Costs
Total non-recurring adjustments $3.6
(2) Includes for the Company a $9.5 non-recurring gain related to the
settlement of a commercial dispute with a supplier.
(3) Represents the estimated reduction of Behring historical
depreciation expense as a result of the Company's preliminary
application of purchase accounting whereby the excess of the fair
market value of the net assets acquired over the purchase price was
allocated as a pro rata reduction to the fair market value of the
property, plant and equipment acquired (assumed to be 90% cost of
goods sold and 10% marketing administrative expense).
(4) Reflects the estimated recurring cost savings (net of required
incremental expenditures) to the Company related to the Behring
integration plan, which includes closure of the Westwood,
Massachusetts manufacturing facility, exit of the San Jose
administrative/research facility, consolidation of worldwide
marketing, sales, research and development, logistics and
administrative support functions and the elimination of duplicative
international sales and distribution locations. The prorated
effects of the estimated cost savings related to the above items
are summarized as follows:
<PAGE>
Cost of goods sold:
Wages and related personnel costs $ 3.9
Facilities and related expenses 2.6
Total pro forma reduction in cost
of goods sold $ 6.5
Marketing and administrative expenses:
Wages and related personnel costs $ 13.7
Facilities and related expenses 15.1
Total pro forma reduction in
marketing and administrative expenses $ 28.8
Research and development expenses:
Wages and related personnel costs $ 1.1
Facilities and related expenses .9
Total pro forma reduction in
research and development expenses $ 2.0
Total pro forma reduction in Behring
historical operating expenses $37.3
(5) Reflects the elimination of amortization related to Behring
historical goodwill which was written-off through the application
of purchase accounting. There was no goodwill recorded in
conjunction with the Behring Acquisition.
(6) Reflects the estimated reduction of Behring historical amortization
expense for intangible assets which have been written down through
the application of purchase accounting.
(7) Reflects tax provision for pro forma adjustments required to yield
an estimated effective income tax rate of 40% on pro forma income
(loss) before income taxes.
<PAGE>
<TABLE>
DADE INTERNATIONAL INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME BEFORE
EXTRAORDINARY ITEMS AND MINORITY INTEREST
Year Ended December 31, 1996
(dollars in millions)
Historical
Company
Dade Behring Combined Adjustments Pro Forma
<S> <C> <C> <C> <C> <C>
Net Sales $795.8 $653.6 $1,449.4 $ 1,449.4
Cost of sales 444.1 (1) 192.9 637.0 (26.9) (4) (8.7) (5)
Gross profit 351.7 460.7 812.4 35.6 848.0
Marketing and administrative expenses 255.5 319.8 575.3 (3.0) (4) 503.9
(38.3) (5)
Research and development expenses 138.0 (2) 81.4 219.4 (2.7) (5) 216.8
Amortization Expense 3.3 21.0 24.3 (10.4) (6) 6.1
(7.8) (7)
Restructuring and other related costs 15.0 (3) 0.4 15.4 15.4
Income (loss) from operations (60.1) 38.1 (22.0) 127.9 19.2
Interest expense, net (65.6) (18.7) (84.3) (84.3)
Other income (expense) - (2.4) (2.4) 18.8
Income (loss) before income taxes (125.7) 17.0 (108.7) 127.9 19.2
Income tax expense (benefit) (45.4) 14.5 (30.9) 49.7 (8) 18.8
Income before extraordinary
items and minority interest ($80.3) $2.5 ($77.8) $78.2 $0.4
See accompanying notes.
</TABLE>
<PAGE>
DADE INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME BEFORE
EXTRAORDINARY ITEMS AND MINORITY INTEREST
Year Ended December 31, 1996
(dollars in millions)
The Unaudited Pro Forma Consolidated Statement of Income Before
Extraordinary Items and Minority Interest gives effect to the following
unaudited pro forma adjustments:
(1) Includes the non-recurring impact in 1996 for $9.5 write-off of
excess spare parts and $24.8 amortization of inventory step-up
arising from the application of purchase accounting associated with
the Chemistry Acquisition.
(2) Includes the non-recurring impact of the $98.1 write-off of in-
process research and development projects which had no alternative
future use arising from the application of purchase accounting for
the Chemistry Acquisition.
(3) Reflects the non-recurring charge for restructuring activities
related to the Chemistry Acquisition.
(4) Represents the estimated reduction of Behring historical
depreciation expense as a result of the Company's preliminary
application of purchase accounting whereby the excess of the fair
market value of the net assets acquired over the purchase price was
allocated as a reduction to the fair market value of the property,
plant and equipment acquired (assumed to be 90% cost of goods sold
and 10% marketing administrative expense).
(5) Reflects the estimated recurring cost savings (net of required
incremental expenditures) to the Company related to the Behring
integration plan, which includes closure of the Westwood,
Massachusetts manufacturing facility, exit of the San Jose
administrative/research facility, consolidation of worldwide
marketing, sales, research and development, logistics and
administrative support functions and the elimination of duplicative
international sales and distribution locations. The effects of the
estimated cost savings related to the above items are summarized as
follows:
Cost of goods sold:
Wages and related personnel costs $ 5.2
Facilities and related expenses 3.5
Total pro forma reduction in cost of goods sold $ 8.7
Marketing and administrative expenses:
Wages and related personnel costs $ 18.2
Facilities and related expenses 20.1
Total pro forma reduction in marketing
and administrative expenses $ 38.3
Research and development expenses:
Wages and related personnel costs $ 1.5
Facilities and related expenses 1.2
Total pro forma reduction in research
and development expenses $ 2.7
Total pro forma reduction in Behring
historical operating expenses $ 49.7
<PAGE>
(6) Reflects the elimination of amortization related to Behring
historical goodwill which was written off through the application
of purchase accounting.
(7) Reflects the estimated reduction of Behring historical amortization
expense for intangible assets which have been written down through
the application of purchase accounting.
(8) Reflects tax provision for pro forma adjustments required to yield
an estimated effective income tax rate of 40% on pro forma income
(loss) before income taxes.
<PAGE>
<TABLE>
BEHRING DIAGNOSTICS GmbH AND SUBSIDIARIES
COMBINED BALANCE SHEETS
(dollars in millions)
September 30, September 30,
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $10.9 $27.6
Trade accounts receivable, net of allowance
for doubtful accounts of $8.2 and $9.3 148.1 189.2
Accounts receivable from owner 5.3 40.8
Accounts receivable from related parties 132.7 10.1
Inventories, net (Note 7) 132.8 147.8
Prepaid expenses and other assets 18.9 20.4
Deferred tax asset 4.8 4.6
Total current assets 453.5 440.5
Property, plant and equipment, net 181.6 203.0
Goodwill, net of accumulated amortization
of $23.0 and $12.8 79.3 89.5
Patents, licenses and know-how, net of
accumulated amortization of $24.7 and $16.7 24.6 36.5
of $22.8 and $12.2
Investments (Note 3) 11.8 0.0
Total assets $750.8 $769.5
LIABILITIES AND OWNER'S EQUITY
Current liabilities
Short term debt - related parties $0.0 $190.8
Short term debt - third parties 39.1 26.0
Accounts payable trade 17.3 26.2
Accounts payable to owner 5.3 14.3
Accounts payable related parties 39.0 95.3
Accrued expenses 101.3 107.3
Income taxes payable 1.0 11.9
Total current liabilities 203.0 471.8
Accrued pension cost 22.7 26.2
Deferred tax liability 0.0 4.4
Commitments and contingencies
Minority interest 3.8 5.5
Owner's Equity 521.3 261.6
Total Liabilities and Owner's Equity $750.8 $769.5
The accompanying notes are an integral part of the combined financial
statements.
</TABLE>
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<TABLE>
BEHRING DIAGNOSTICS GmbH AND SUBSIDIARIES
COMBINED STATEMENTS OF CASH FLOWS
(dollars in millions)
Nine Months Ended Nine Months Ended
September 30, September 30,
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(21.7) $10.8
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 43.1 48.9
Amortization 14.5 16.0
Provision for losses on accounts (2.3) 0.6
receivable
Inventory valuation reserve provision 3.0 (15.5)
Minority interest (0.9) 0.1
Loss on disposal of fixed assets 0.0 0.4
Changes in balance sheet items:
Accounts receivable 46.8 9.2
Inventories 2.7 12.8
Prepaid expenses and other assets (1.5) 10.2
Accounts payable (46.1) 22.4
Accrued expenses and other (14.0) (47.1)
liabilities
Net cash provided by operating 23.6 68.8
activities
Cash flows from investing activities:
Capital expenditures (59.4) (61.7)
Proceeds from sale of fixed assets 8.4 6.1
Net cash used in investing activities (51.0) (55.6)
Cash flows from financing activities:
Net contribution from owner 306.2 (33.9)
(repayment to owner)
Capital contribution (Note 8) (111.7) 0.0
Change in short term debt (164.8) 30.6
Net cash provided by financing 29.7 (3.3)
activities
Effect of foreign exchange rate (0.9) (0.6)
changes on cash
Net increase in cash and cash 1.4 9.3
equivalents
Cash and cash equivalents beginning 9.5 18.3
of period
Cash and cash equivalents end of 10.9 27.6
period
The accompanying notes are an integral part of the combined interim
financial statements.
</TABLE>
<PAGE>
<TABLE>
BEHRING DIAGNOSTICS GmbH AND SUBSIDIARIES
COMBINED STATEMENTS OF OPERATIONS
(dollars in millions)
Nine Months Ended Nine Months Ended
September 30, September 30,
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
Net Sales $431.6 $501.6
Cost of Sales (173.6) (183.6)
Gross Profit 258.0 318.0
Operating income and expenses
Marketing and selling expenses (137.8) (173.7)
Research and development expenses (48.5) (51.5)
Other general and administrative (59.3) (39.2)
expenses
Amortization:
Goodwill (7.7) (7.8)
Patents, licenses and know-how (6.7) (8.2)
Restructuring costs (11.0) 0.0
Other operating income 7.7 6.4
Other operating expenses (13.6) (8.3)
Income (loss) from operations (18.9) 35.7
Other Income (Expense)
Interest income 1.4 2.2
Interest expense (8.1) (16.0)
(6.7) (13.8)
Income (loss) from operations before (25.6) 21.9
income taxes
Income tax (expense) benefit (0.9) (11.0)
Income (loss) before cumulative
effect of a change in accounting (26.5) 10.9
principle
Cumulative effect of a change in 3.9 0.0
accounting principle
Income (loss) before minority (22.6) 10.9
interest
Minority Interest (0.9) 0.1
Net income (loss) $(21.7) $10.8
The accompanying notes are an integral part of the combined interim
financial statements.
</TABLE>
<PAGE>
BEHRING DIAGNOSTICS GmbH AND SUBSIDIARIES
NOTES TO COMBINED INTERIM FINANCIAL STATEMENTS
UNAUDITED
(1) Organization and Basis of Presentation
On June 24, 1997 Hoechst AG ("Hoechst") and Diagnostics Holding Inc.
("Dade") entered into an agreement ("Combination Agreement") under which
Dade acquired the diagnostic businesses of Hoechst as of October 1, 1997
("closing date"). Subject to the terms and conditions set forth in the
Combination Agreement Hoechst has the obligation to transfer assets,
properties, rights and obligations including its shares in subsidiaries
related to its diagnostics business (the "Company") to Behring
Diagnostics GmbH ("BDG"), Hoechst Diagnostics Holding Corporation
("HDHC") or directly to Dade. Certain of Hoechst's diagnostic
businesses were previously owned by Behringwerke AG a wholly owned
subsidiary of Hoechst, which entered into a merger agreement with
Hoechst in 1996. However, the businesses previously owned by
Behringwerke AG were included in the combined financial statements for
all periods presented. The merger became legally effective upon
registration with the German commercial register as of July 31, 1997.
At the closing date Hoechst will contribute all of its shares in BDG and
HDHC as well as various other small subsidiaries to Dade in exchange for
an equity interest in Dade.
The accompanying unaudited interim combined financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States applicable for interim financial
information. They reflect the "carved-out" financial position, results
of operations and cash flows of the Company as if it had existed as a
legal entity. These unaudited interim combined financial statements do
not include all information and notes required by generally accepted
accounting principles for complete financial statements and should be
read in conjunction with the audited combined financial statements and
the notes for the years ended December 31, 1996 and 1995.
In the opinion of the management, the unaudited interim combined
financial statements reflect all 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.
<PAGE>
The entities, assets and liabilities included in the carve out interim
combined financial statements are:
*BDG (Effective January 1, 1997 Behringwerke AG contributed assets
and liabilities excluding buildings and real estate related to its
diagnostics business to BDG; Hoechst transferred assets related to
its diagnostics business with the exception of buildings and real
estate effective September 30, 1997 to BDG. For purposes of the
carve out combined financial statements such assets and liabilities
have been treated as if they had been owned by the Company for all
periods presented.)
*Behring Diagnostics Inc., San Jose/USA including 100% of Behring
Diagnostics Inc. Canada
*Behring Diagnostica de Mexico S.A. de C.V., Mexico City/Mexico
*Behring Diagnostics S.A., Rueil Malmaison/France (contributed from
Behringwerke AG to BDG effective January 1, 1997)
*Finber SpA, Italy (70%) including 100% of Istituto Behring SpA,
Milan/Italy (contributed from Hoechst to BDG effective January 1,
1997)
*Behring Diagnosticos Iberica S.A., Barcelona/Spain (contributed
from Hoechst to BDG effective January 1, 1997)
*Behring Diagnostica Austria, Ges.m.b.H., Vienna/Austria
(contributed from Hoechst to BDG effective July 1, 1997)
*Behring Diagnostics Benelux S.A., Brussels/Belgium (contributed
from Hoechst to BDG effective January 1, 1997)
*Syva Diagnostica B.V., Netherlands including 100% of Syva European
Distribution B.V., Rijkswijk/Netherlands (contributed from
Behringwerke AG to BDG effective January 1, 1997)
*Behring Diagnostika Sweden AB, Skarholmen/Sweden (contributed from
Behringwerke AG to BDG effective January 1, 1997)
*Behring Diagnostika Denmark ApS, Rodovre/Denmark (contributed from
Behringwerke AG to BDG effective January 1, 1997)
*Behring Diagnostika Norway AS, Oslo/Norway (contributed from
Behringwerke AG to BDG effective January 1, 1997)
*Behring Diagnostica AG, Zurich/Switzerland
*Behring Diagnostics UK Ltd, Hounslow/UK
*Behring Diagnostica Ltda. Brazil, Sao Paulo/Brazil (formerly
Hoechst do Brazil - Diagnostics Division, Brazil)
*Hoechst Behring Diagnostics Japan Ltd., Tokyo/Japan (formerly
Hoechst Japan Ltd. Diagnostics Division, Japan )
*Behring Diagnostics Finland Oy/Ab, Helsinki/Finland (formerly
Hoechst Fennica - Diagnostics Division, Finland)
*Behring Diagnostics Portuguesa Ltda., Mem Martins/Portugal
(formerly Hoechst Portuguesa Ltda - Diagnostics Division, Portugal)
(2) Foreign Currency Translation
Starting from January 1, 1997 Mexico is considered a highly inflationary
economy. Therefore the financial statements of Behring Diagnostica de
Mexico S.A. de C.V have been prepared with the US Dollar as the
functional currency for the period from January 1 to September 30, 1997
in accordance with SFAS 52.
(3) Investments
As of January 1, 1997 Hoechst AG and Behringwerke AG transferred a 14%
partnership interest in InfraServ GmbH & Co. Marburg KG ("InfraServ")
with a book-value of $11.8 million to BDG. InfraServ is the owner of
real estate and buildings in Marburg, Germany, which are used by BDG as
well as by subsidiaries of Hoechst. InfraServ and BDG entered into an
agreement whereby InfraServ provides site management, environmental
management and infrastructure services to the Marburg site.
<PAGE>
(4) Change in Classification of Costs
In 1997 BDG changed certain cost classifications in the income
statement. Application of the previous classification method would have
had the following impact on the income statement for the period from
January 1 to September 30, 1997:
Increase in cost of sales : $6.2 million
Increase in marketing and selling expenses : $15.9 million
Increase in R&D expenses : $2.4 million
Decrease in other G&A expenses : $24.5 million
(5) Capital contributions from Hoechst
In connection with the combination agreement under an agreement on
contributions to capital certain balances due to and due from related
parties as of September 30, 1997 were capitalized by Hoechst. These
amounts resulted in a decrease of liabilities to related parties in an
amount of $222.3 million and in an increase of receivables from related
parties in an amount of $75.3 million. Accordingly capital increased by
$297.6 million.
(6) Change in accounting principle
Effective January 1, 1997 Behring Diagnostics Inc. changed its
accounting policy for instrument refurbishment costs. Previously, all
refurbishment costs were expensed as incurred. However, beginning in
1997, costs associated with instrument refurbishment costs are
capitalized and amortized over thirty-six months. This change in
accounting principle resulted in a prior years' cumulative effect of a
$3.9 million net of tax benefit recorded as of January 1, 1997.
(7) Inventories
Inventories were comprised of the following (in millions):
September 30, September 30,
1997 1996
(Unaudited) (Unaudited)
Raw materials $27.3 $28.7
Work in process 32.5 44.5
Finished products 78.4 77.9
Supplies 5.8 7.9
144.0 159.0
Reserves 11.2 11.2
Total $132.8 $147.8
(8) Cash Flow Statement
As stated in note 5 the receivables from related parties increased by
$75.3 million as a result of the capital contribution from Hoechst. In
connection with the transfer of assets and liabilities from Behringwerke
AG to BDG the net value of net receivables of $36.4 million which were
already included in the financial statements as of December 31, 1996
were contributed to capital at the end of September 1997.
<PAGE>
Behring Diagnostics GmbH
and Subsidiaries
Combined Financial Statements
as of and for the periods ended
December 31, 1996 and 1995
Behring Diagnostics GmbH and Subsidiaries
Combined Financial Statements
Page
Report of Independent Auditors 1
Combined Balance Sheets as of December 31, 1996 and 1995 2
Combined Statements of Operations for the years ended
December 31, 1996 and 1995 3
Combined Statements of Cash Flows for the years ended
December 31, 1996 and 1995 4
Combined Statements of Changes in Owners Equity
for the years ended December 31, 1996 and 1995 5
Notes to the Combined Financial Statements 6 to 22
<PAGE>
Independent Auditor's Report
To the Board of Directors
Behring Diagnostics GmbH and Subsidiaries
Frankfort arn Main, Germany:
We have audited the accompanying combined balance sheets of Behring
Diagnostics GmbH and Subsidiaries as of December 31, 1996 and 1995 and
the related combined statements of operations, owner's equity and cash
flows for the years then ended. These combined financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these combined statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the combined 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 audit
provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial
position of Behring Diagnostics GmbH and Subsidiaries as of December 31,
1996 and 1995 and the results of operations and its cash flows for the
years then ended in conformity with generally accepted accounting
principles in the United States of America.
As discussed in Note 1 Behring Diagnostics GmbH was formed in 1996 for
the purpose of combining the worldwide diagnostics businesses of Hoechst
AG, the Company's parent. Hoechst AG intends to contribute its
diagnostics business to the Company effective January 1, 1997. However,
the combined financial statements have been prepared as if the
diagnostics businesses had been owned by the Company for the periods
presented.
June 20, 1997
Frankfurt arn Main, Germany
C&L Deutsche Revision
<PAGE>
<TABLE>
BEHRING DIAGNOSTICS GmbH AND SUBSIDIARIES
COMBINED BALANCE SHEETS
(dollars in millions)
ASSETS December 31, December 31,
1996 1995
<S> <C> <C>
Current Assets
Cash and cash equivalents $9.5 $18.3
Trade accounts receivable, net of allowance
for doubtful accounts of $10.5 and $8.7 189.3 206.6
Accounts receivable from owner (Note 14) 34.5 42.9
Accounts receivable from related
parties (Note 14) 6.3 4.2
Inventories, net (Note 4) 146.8 150.1
Prepaid expenses and other assets 16.9 24.5
Deferred tax asset (Note 12) 6.3 11.2
Total current assets 409.6 457.8
Property, plant and equipment, net (Note 5) 200.5 208.6
Goodwill, net of accumulated amortization of
$16.3 and $55.9 (Note 3) 87.0 97.4
Patents, licenses and know-how, net of
accumulated amortization of $22.8 and $12.2 34.8 46.2
Total assets $731.9 $810.0
LIABILITIES AND OWNER'S EQUITY
Current liabilities
Short term debt - related parties (Note 14) $180.6 $161.8
Short term debt - third parties (Note 7) 32.7 26.0
Accounts payable trade 23.2 42.7
Accounts payable to owner (Note 14) 6.7 4.1
Accounts payable related parties (Note 14) 73.4 65.2
Accrued expenses (Note 9) 120.4 164.0
Income taxes payable 1.3 5.5
Total current liabilities 438.3 469.3
Accrued pension cost (Note 15) 26.9 25.8
Deferred tax liability (Note 12) 0.8 6.3
Commitments and contingencies (Note 8)
Minority interest 5.3 4.7
Owner's Equity (Note 13) 260.6 303.9
Total Liabilities and Owner's Equity $731.9 $810.0
The accompanying notes are an integral part of the combined financial
statements.
</TABLE>
<PAGE>
<TABLE>
BEHRING DIAGNOSTICS GmbH AND SUBSIDIARIES
COMBINED STATEMENTS OF OPERATIONS
(dollars in millions)
1996 1995
<S> <C> <C>
Net Sales $653.6 $596.6
Cost of Sales (192.9) (212.1)
Gross Profit 460.7 384.5
Operating income and expenses
Marketing and selling expenses (287.0) (255.6)
Research and development expenses (81.4) (83.1)
Other general and administrative (30.9) (34.8)
expenses
Amortization:
Goodwill (10.4) (5.4)
Patents, licenses and know-how (10.6) (5.2)
Restructuring costs (Note 6) (0.4) (27.6)
Other operating income (Note 10) 4.4 2.6
Other operating expenses (Note 11) (6.3) (19.8)
Income (loss) from operations 38.1 (44.4)
Other Income (expense)
Interest income 2.9 1.2
Interest expense (21.6) (14.8)
Other Income (expense) (2.4) 0.1
(21.1) (13.5)
Income (loss) from operations before 17.0 (57.9)
income taxes
Income tax (expense) benefit (Note 12) (14.5) 3.4
Income (loss) before minority interest 2.5 (54.5)
Minority Interest (0.3) (0.0)
Net income (loss) $2.2 $(54.5)
The accompanying notes are an integral part of the combined interim
financial statements.
</TABLE>
<PAGE>
<TABLE>
BEHRING DIAGNOSTICS GmbH AND SUBSIDIARIES
COMBINED STATEMENTS OF CASH FLOWS
(dollars in millions)
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $2.2 $(54.5)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 61.2 46.5
Amortization 21.0 10.6
Write-off of research and development - 10.3
in process
Provision for losses on accounts receivable 1.9 1.3
Write-down of inventories (12.5) 16.0
Minority interest 0.3 -
Loss on disposal of fixed assets 0.5 0.4
Deferred income taxes 0.1 (7.5)
Changes in balance sheet items:
Accounts receivable 15.6 (8.8)
Inventories 9.1 (6.3)
Prepaid expenses and other assets 11.8 (13.2)
Accounts payable (8.9) 59.7
Accrued expenses and other liabilities (45.1) 2.3
Net cash provided by operating activities 57.2 56.8
Cash flows from investing activities:
Business acqusisition, net of cash acquired - (223.8)
Capital expenditures (73.8) (59.2)
Proceeds from sale of fixed assets 8.2 16.6
Net cash used in investing activities (65.6) (266.4)
Cash flows from financing activities:
Net contribution from owner (repayment
to owner) (14.3) 133.5
Capital contribution (Note 8) (11.9) (11.9)
Change in short term debt 26.6 101.6
Net cash provided by financing activities 0.4 223.2
Effect of foreign exchange rate changes
on cash (0.8) 0.6
Net increase (decrease) in cash and cash
cash equivalents (8.8) 14.2
Cash and cash equivalents beginning of period 18.3 4.1
Cash and cash equivalents end of period $9.5 $18.3
Supplemental Cash Flow Information:
Interst paid $12.7 $9.5
Income taxes paid 13.1 30.2
The accompanying notes are an integral part of the combined interim
financial statements
</TABLE>
<PAGE>
<TABLE>
BEHRING DIAGNOSTICS GmbH AND SUBSIDIARIES
COMBINED STATEMENTS OF CHANGES IN OWNER'S EQUITY
(dollars in millions)
Owner's
Equity
<S> <C>
Balance at December 31, 1994 $226.6
Net Loss (54.5)
Contributions from owner (Note 13) 118.5
Foreign currency translation 13.3
Balance at December 31, 1995 303.9
Net Income 2.2
Distributions to owner (Note 13): (26.5)
Foreign currency translation (19.0)
Balance at December 31, 1996 $260.6
The accompanying notes are an integral part of the combined interim
financial statements.
</TABLE>
<PAGE>
BEHRING DIAGNOSTICS GMBH AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Behring Diagnostics GmbH ("BDG"), a wholly owned subsidiary of Hoechst
AG ("Hoechst"), was formed in 1996 for the purpose of combining the
diagnostics businesses and operations of Hoechst under one entity.
Certain of the diagnostic businesses were previously owned by
Behringwerke AG, which entered into a merger agreement with Hoechst in
1996. Upon registration with the German commercial register the merger
will become legally effective. Hoechst intends to contribute its
diagnostics businesses, including fixed assets which it owned and were
used solely by its diagnostic businesses to BDG effective January 1,
1997. BDG and the former Hoechst diagnostic businesses are hereinafter
collectively referred to as "the Company".
The accompanying combined financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States and reflect the "carved-out" financial position, results of
operations, changes in owner's equity and cash flows of the Company as
if it had existed in its current form for all periods presented. The
Company's financial statements include certain expenses which have been
invoiced by Hoechst to the Company (Note 14), and certain expenses which
have been allocated to the Company by the management of those Hoechst
entities which have conducted a combination of other businesses and the
diagnostics business. Such expenses are not necessarily indicative of
the nature and level of expenses which might have been incurred had the
Company been operating as a separate entity. Further, the financial
information included herein may not reflect the consolidated financial
position, results of operations, changes in owner's equity and cash
flows of the Company had it been a separate, stand-alone entity during
the periods presented, and may not be indicative of future operations or
financial position.
The entities included in the combined financial statements of the
Company as well as the percentage owned either directly or indirectly by
BDG, are:
Percent Deemed
Owned
at December 31,
1996 and 1995
Behring Diagnostics, Inc., U.S.A. 100%
Behring Diagnostic S.A., France (formerly:
Hoechst Behring, France; merger with Syva
France S.A., France on January 1, 1996) 100%
Istituto Behring S.p.A., Italy 70%
Behring Diagnosticos Iberica S.A., Spain
(merger with Syva Diagnosticos S.A., Spain
on January 1, 1996) 100%
Behring Diagnostica Austria Ges.m.b.H.,
Austria (formerly: Behring Institut GmbH,
Austria; merger with Syva Diagnostica
Ges.m.b.H, Austria on January 1, 1996) 100%
Behring Diagnostics Benelux SA, Belgium 100%
Syva Diagnostica BV, Netherlands 100%
Syva European Distribution BV, Netherlands 100%
Behring Diagnostica AG, Switzerland 100%
<PAGE>
Behring Diagnostics UK Ltd, United Kingdom 100%
Behring Diagnostica Sweden AB, Sweden,
(formerly: Hoechst Diagnostics, Sweden) 100%
Behring Diagnostica Denmark ApS, Denmark
(formerly part of: Hoechst Norden Danmark
A/S, Denmark) 100%
Behring Diagnostica Norway A/S, Norway
(formerly part of: Norske Hoechst A/S, Norway) 100%
Behring Diagnostics Canada Inc., Canada 100%
Behring Diagnostica de Mexico S.A. de C.V., Mexico 100%
Businesses contributed to the Company by Hoechst are:
Behringwerke AG - Diagnostics Division, Germany
Hoechst Japan Ltd. - Diagnostics Division, Japan (Hoechst Behring
Diagnostics Japan Ltd., Japan established in January 1997)
Hoechst Portuguesa Ltda. - Diagnostics Division, Portugal
Hoechst Fennica - Diagnostics Division, Finland (Behring Diagnostics
Finland Oy/Ab, Finland established in December 1996)
Hoechst do Brazil - Diagnostics Division, Brazil (Behring Diagnostica
Ltda. Brazil, Brazil established in September 1996)
The Company's management intends to incorporate these entities as separate
wholly-owned subsidiaries.
Prior to the contribution of businesses to the Company by Hoechst, the
Company leased certain of its buildings, plants and equipment from Hoechst.
In connection with the carve-out of the Company, these assets will be
transferred from Hoechst to the Company. For purposes of these combined
financial statements, such property, plant and equipment has been treated
as if it had been owned by the Company for all periods presented.
2. Summary of Significant Accounting Policies
(a) Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(b) Principles of Combination
The combined financial statements include the results of majority-owned
subsidiaries and businesses as described in Note 1. All material
intercompany balances and transactions have been eliminated in the
combination.
(c) Revenue Recognition
Revenues are recognized upon shipment to the customer. Such revenues
are recorded on the basis of sales prices net of applicable discounts
and customer bonuses. The Company does not have specific warranty terms
but provides certain customer services if necessary. These costs are
charged to expense as incurred. Generally, diagnostic equipment is
placed with the customer free of charge in exchange for ongoing revenues
from the sale of reagents.
<PAGE>
(d) Cash and Cash Equivalents
Cash and cash equivalents include highly liquid instruments with
maturities of three months or less.
(e) Advertising Expense
Costs for advertising and promotions are expensed as incurred.
(f) Research and Development Expenses
Research and development costs are charged to expense as incurred. In
connection with the Syva Acquisition (Note 3), which was recorded under
the purchase method of accounting, $10.3 million of fair value was first
allocated to currently in-process research and development projects
which were deemed to be of value to the Company's continuing research
efforts and then written down to zero at the date of acquisition.
(g) Inventories
Inventories are stated at the lower of average cost or market value.
Cost includes materials, labor and applicable manufacturing overhead
costs. Market value for raw materials and for other inventories is
replacement cost and net realizable value, respectively. In determining
net realizable value deterioration and obsolescence have been considered.
(h) Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is calculated using the straight-line method
over the estimated useful lives of the related assets, the ranges of
which are as follows:
Range of Years
Manufacturing plants 20 to 50
Office buildings 10 to 50
Machinery and equipment 6 to 12
Office equipment 5 to 10
Automobiles 4 to 6
Instruments in use by customers 4 to 5
Upon the sale or disposal of fixed assets, the related cost and
accumulated depreciation are removed from the balance sheet and gains or
losses are recognized for the difference between the proceeds from sale
and the net carrying amount of the asset.
(i) Goodwill and Intangible Assets
Goodwill represents the excess of cost over the fair value of net assets
of businesses acquired and is amortized on a straight-line basis over a
period of 10 years. On a periodic basis, the Company estimates the
future undiscounted cash flows of the businesses to which goodwill
relates in order to ensure that the carrying value of goodwill has not
been impaired.
Patents, licenses and know-how are amortized using the straight-line
method over 3 to 5 years.
<PAGE>
(j) Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109 "Accounting for
Income Taxes", which is an asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities
are recognized for the expected future tax consequences, utilizing
current tax rates, of temporary differences between the financial
reporting amounts and the tax bases of assets and liabilities. Deferred
tax assets are recognized, net of any valuation allowance, for the
estimated future tax effects of deductible temporary differences and tax
operating loss carryforwards. A valuation allowance is established to
the extent it is more likely than not that the related tax benefit will
not be realized.
As described above, certain of the Company's operations have been
divisions of other entities, and, as such, have not filed separate tax
returns in their jurisdictions. In such cases, the Company's income tax
provision has been computed as if such operations were separate entities
and filed stand alone tax returns. The remainder of the Company's
operations have been operating as separate legal entities, and have
therefore been treated as if they had filed separate income tax returns.
(k) Foreign Currency Translation
For purposes of these combined financial statements the US dollar has
been used as the reporting currency. The functional currencies of the
Company's foreign subsidiaries are their respective local currencies,
with the exception of the Company's Brazilian operation, which, because
it operates in a highly inflationary economy, is assumed to have the US
dollar as its functional currency. Gains and losses from the
translation of the financial statements of subsidiaries with functional
currencies other than the US dollar are reported as a separate component
of owner's equity. Such translation is performed using the exchange
rate at the balance sheet date for assets and liabilities and an average
annual exchange rate for revenues and expenses. The exchange rate used
for translating the balance sheets at December 31, 1996 and 1995 was
DM1.55 and DM1.43 to $1.00, respectively. The average annual exchange
rate used for translating revenues and expenses for the years 1996 and
1995 was DM1.50 and DM1.43, respectively.
Foreign currency transaction gains and losses are recorded in net
earnings. The Company recorded $1.3 million of net transaction gains in
operating income for the year ended December 31, 1996 and $1.4 million
of net transaction losses for the year ended December 31, 1995.
(l) Concentration of Credit Risk
Financial instruments which potentially subject Behring Diagnostics to
concentrations of credit risk are primarily accounts receivable and cash
equivalents. The combined group performs ongoing credit evaluations of
its customers' financial condition. Generally, collateral is not
required from customers. Allowances are provided for both specific and
general risks inherent in receivables.
A number of the Company's customers operate in the hospital and
laboratory market, which may be impacted by any legislated healthcare
reforms. Approximately $61.8 million or 32% and $71.6 or 34% of the
Company's trade accounts receivable were geographically concentrated in
Italy at December 31, 1996 and 1995, respectively. The Company's
management does not expect these potential risk factors to have a material
adverse impact on its results of operations or financial position.
<PAGE>
(m) Fair Value of Financial Instruments
The carrying values of cash equivalents and other current assets and
liabilities approximate fair values due to the short-term maturities of
these instruments.
(n) Adoption of SFAS No. 121
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of." This standard requires that assets to
be disposed of be valued at the lower of carrying amount or fair value,
less costs to sell. Furthermore, companies are required to review long-
lived assets, and certain identifiable intangibles to be held and used,
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The Company has
adopted this standard from January 1, 1996. The effect of the adoption
of the new standard on the financial statements was not significant.
3. Acquisition of Syva Company
In 1995, the Company acquired all of the outstanding stock of Syva
Company ("Syva"). The acquisition was accounted for under the
purchase method of accounting, and accordingly is included in the
results of operations from the date of acquisition. The purchase price
was allocated to the assets acquired and liabilities assumed based on
their estimated fair values at the date of acquisition, and the excess
of the purchase price over the fair value of the net assets acquired was
recorded as goodwill. Of the total purchase price, approximately $10.3
million was allocated to currently in-process research and development
projects and written down to zero on the acquisition date, with a
corresponding charge to income. The technological feasibility of the
in-process research and development had not yet been established and no
alternative future use was expected.
The total purchase consideration was as follows (in millions):
Cash paid $ 277.0
Liabilities assumed 104.2
$ 381.2
Following is a summary of assets acquired (including in-process research
and development which was written-off immediately after acquisition),
and liabilities assumed (in millions):
Cash $53.2
Accounts receivable 46.5
Inventory 49.9
Other current assets 6.2
In-process research and development 10.3
Property, plant and equipment 69.8
Patents, licenses and know-how 43.0
Goodwill 102.3
Accounts payable and accrued liabilities 18.5)
Preacquisition contingencies (39.7)
Other current payables (37.7)
Long-term liabilities ( 8.3)
Net assets acquired $ 277.0
<PAGE>
Had the acquisition that occurred during the year ended December 31,
1995 been consummated on January 1, 1995, unaudited pro forma net sales
for 1995 would have been $708.2 million and unaudited pro forma net
loss would have been $53.9 million. The unaudited pro forma results of
operations are not necessarily indicative of the results that actually
would have been obtained had the acquisition occurred on January 1, 1995
and are not intended to be a projection of future results or trends.
4. Inventories
Inventories were comprised of the following (in millions):
December 31, December 31,
1996 1995
Raw materials $27.5 $19.3
Work in process 43.9 58.2
Finished products 82.40 96.70
Supplies 7.20 2.60
161.0 176.80
Reserves (14.2) (26.7)
Total $146.8 150.10
5. Property, Plant and Equipment
Property, Plant and Equipment consisted of the following (in millions):
December 31, December 31,
1996 1995
Land $1.9 $2.0
Buildings and leasehold improvements 85.10 90.80
Machinery and Equipment 191.30 170.0
Instruments placed with customers 273.30 286.70
Total property, plant and equipment, at cost 551.60 549.50
Accumulated depreciation (351.1) (340.9)
Property, plant and equipment, net $200.5 $208.6
Depreciation for the years ended December 31, 1996 and 1995 was $61.2
million and $46.5 million, respectively.
Prior to January 1, 1997, the Company leased certain buildings, plant
and machinery located in Germany from Hoechst under an operating lease
agreement. Hoechst has the legal ability and intent to contribute all
property, plant and equipment that is used by the diagnostics business
to the Company. For purposes of these combined financial statements,
property, plant and equipment has been treated as if it were owned by
the Company for all periods presented. Lease expenses were excluded
from the statements of operations and depreciation expense that was
calculated based on the straight line method of depreciation and the
estimated useful lives of the assets was charged to expense.
Instruments placed with customers consists of equipment placed in
customer locations free of charge to such customers in exchange for
ongoing reagent revenues. This equipment is depreciated on a straight-
line basis over estimated useful lives of four to five years. Management
believes the carrying value of this equipment is recoverable from the
revenues anticipated from future reagent sales.
<PAGE>
6. Restructuring
The Company has identified several restructuring plans for which it
accrued reserves of $35.7 million and $57.7 million at December 31, 1996
and 1995, respectively. The accrual has been mainly set up for
severance payments to achieve a headcount reduction in administrative
and marketing personnel. The plans are designed to improve the
Company's future profitability. Restructuring charges of $0.4 million
related to the Italian operations were expensed in 1996. In 1995
restructuring charges of $27.6 million primarily related to the
operations in the United States, Germany and Spain were expensed. While
the accrued amounts are shown as a current liability, a portion may be
paid out in years subsequent to 1997.
7. Short-term Debt Third Parties
Short-term debt third parties consists of short term borrowings under
revolving credit agreements and bear interest at floating rates.
Average interest rates ranged between approximately 3% and 7% and
approximately 3% and 11.75% for the years ended December 31, 1996 and
1995, respectively.
8. Accrued Expenses
Accrued expenses of the Company consist of the following (in millions):
December 31, December 31,
1996 1995
Restructuring costs $35.7 $57.7
Personnel related costs 38.70 58.7
Goods and services received,
not invoiced 8.10 14.5
Rebates 5.70 2.70
Other taxes payable 14.60 17.70
Accrued rent 1.60 0.50
Contingent losses 0.50 0.90
Warranty 1.0 1.50
Other 14.50 9.8
$120.4 $164.0
9. Other operating income
Other operating income consists of the following (in millions):
1996 1995
Reversal of accruals $0.4 $1.0
Foreign currency exchange gains 1.30 -
Other 2.70 1.60
$4.4 $2.6
10. Other operating expenses
<PAGE>
Other operating expenses include the following items (in millions):
1996 1995
Other personnel cost $1.9 $4.4
Other unallocated cost 0.20 -
Bad debt provision 1.90 2.0
Integration cost - 1.50
Foreign currency exchange losses - 1.4
Cost reimbursements - 0.80
Loss on disposal of fixed assets 0.50 0.40
Claims 0.20 1.80
Bank charges 0.10 0.10
Other 1.50 7.4
$6.3 $19.8
11. Income Taxes
Income before income taxes is attributable to the following geographic
locations (in millions):
1996 1995
Germany $24.3 $12.2
United States (2.5) (51.6)
Other (4.8) (18.5)
$17.0 $(57.9)
Income tax expense (benefit) for the years ended December 31, 1996 and
1995 is comprised of the following (in millions):
1996 1995
Current:
German corporate and trade $12.5 $7.5
income tax
Other Foreign income tax 1.90 (3.4)
14.40 4.10
Deferred:
Germany (0.5) 3.10
Other 0.60 (10.6)
0.10 (7.5)
Total $14.5 $(3.4)
Income is initially taxed at 45% under the German corporate income tax
system. Upon distribution of earnings the income tax is reduced to 30%
through a credit. Since January 1, 1995 a surcharge of 7.5% on the
corporate income tax has been effective. For purposes of computing
income tax for the German diagnostics operations, full distribution of
earnings was assumed. For financial reporting purposes income tax has
been calculated using a rate of 45% for 1996 and 1995, comprised of the
distributed earnings rate, trade income taxes and surcharge on income
taxes. No taxes have been provided for dividends from foreign
subsidiaries since such dividends are deemed to be permanently reinvested.
<PAGE>
The actual income tax expense attributable to income before income taxes
for the years ended December 31, 1996 and 1995 differed from the amount
computed by applying a tax rate of 45 % to income before income taxes as
a result of the following:
1996 1995
Calculated expected tax expense (benefit) $7.6 $(26.1)
Items not deductible 0.90 1.80
Tax effects attributable to foreign operations 2.80 19.60
Adjustment taxable accruals 2.10 -
Other 1.10 1.30
Income tax expense (benefit) $14.5 $(3.4)
Significant components of Behring Diagnostic's deferred tax assets and
liabilities are as follows (in millions):
Deferred tax liabilities December 31, December 31,
1996 1995
Property, plant and equipment $13.6 $15.0
Inventory 3.90 4.30
Accrued expenses 3.0 5.60
Other 4.0 2.0
Gross deferred tax liabilities 24.50 26.90
Deferred tax assets
Operating loss carryforwards 24.90 16.80
Property, plant and equipment 15.90 13.3
Goodwill 5.10 5.30
Inventory 11.60 19.10
Employee pensions and other benefits 2.20 3.30
Accrued expenses 12.30 24.80
Other 3.20 3.90
Total deferred tax assets 75.20 86.5
Valuation allowance 45.20 54.70
Gross deferred tax assets 30.0 31.80
Net deferred tax asset $5.5 $4.9
The valuation allowance has been established to fully offset the
deferred tax asset in the United States, as management believes that
sufficient uncertainty exists regarding the ability to realize those
deferred tax assets. As of December 31, 1996 and 1995, the Company had
net operating loss carryforwards available in the United States for
federal income tax return purposes of approximately $64.0 million and
$43.0 million, respectively, which expire from 2000 to 2011.
Additionally, as of December 31, 1996 and 1995, the Company had net
operating loss carryforwards available in countries outside of the
United States of approximately $2.1 million and $3.2 million,
respectively, with various dates of expiration.
12. Owner's Equity
As the Company operates as separate subsidiaries and divisions of
Hoechst, its equity accounts have been combined and presented as owner's
equity. The Company's operations are mainly funded by means of
intercompany accounts with Hoechst. Therefore, owner's equity also
includes intercompany balances due to Hoechst arising from the funding
of the Company as well as balances related to certain transactions and
other charges and credits between the Company and Hoechst. Dividends
were charged to owner's equity for the German diagnostics operations
based on an agreement between Hoechst and Behringwerke AG to transfer
net income to Hoechst or to receive funding for net losses by Hoechst.
<PAGE>
13. Related Party Transactions
Loan Agreements
Included in short-term debt related parties at December 31, 1996 and
1995 are $102.1 million and $19.6 million payables to Hoechst
Corporation ("HC"), a wholly owned subsidiary of Hoechst. Such
payables bear interest at LIBOR plus 0.25% and interest expense of $3.9
million and $0.1 million was incurred for the years ended December 31,
1996 and 1995, respectively. The Company has a revolving credit line
with HC. Interest at LIBOR which was 5.6% and 5.4% at December 31, 1996
and 1995, respectively, plus 0.25% is due on the last business day of
each quarter, while the aggregate unpaid principal amount is due ten
days after receipt of the lender's written notice of termination or by
December 31, 1997. During 1996 and 1995 the Company incurred interest
expense on this note of $0.4 million and $0.1 million, respectively.
In addition the Company and HC have a $54.2 million revolving loan
agreement secured by a promissory note. There was no balance outstanding
under this loan agreement at December 31, 1996. At December 31, 1995
$39.0 million were outstanding. Interest at LIBOR plus 0.25% is due on
the last business day of each month, while the aggregate unpaid principal
amount is due ten days after receipt of the lender's written notice of
termination or by June 30, 1997. The Company incurred interest expense of
$1.4 million and $1.2 million on this loan during 1996 and 1995,
respectively. Principal payments of $39.0 million and $15.2 million were
made in 1996 and 1995, respectively.
Included in accounts payable related parties at December 31, 1996 and
1995 are $33.2 million due to HC secured by a promissory note. The
amount is payable ten days after the receipt of the lender's written
notice or by June 30, 1997 and bears interest at LIBOR plus 0.25%.
Interest is due on the last business day of each quarter. Interest
expense of $2.4 million and $2.2 million was incurred during 1996 and
1995, respectively.
The Company entered into a loan agreement with Roussel Uclaf in April
1996. The loan acts as a revolving credit line and permits the Company
to borrow up to FF200 million. The credit line is extended on a monthly
basis and bears interest at PIBOR which was 3.4 % at December 31, 1996
plus 0.128%. Interest is due 30 days after the end of each quarter. The
agreement can be terminated by both parties with a month notice. As of
December 31, 1996, $21.2 million were outstanding under this credit line.
As of December 31, 1995, $22.8 million were outstanding in connection with
a cash management agreement between the Company and Roussel Uclaf.
Interest under this agreement was incurred at PIBOR (4.9% at December 31,
1995) plus 1/8 %.
In addition, the Company uses financing sources from certain related
parties, mainly comprised of revolving credit lines and cash management
systems with Hoechst subsidiaries. At December 31, 1996, $11.4 million
and $45.9 million were payable to Hoechst do Brazil and Hoechst Biochimica,
Milan respectively. At December 31, 1995, $24.6 million were payable to
Hoechst and $55.8 million to other Hoechst subsidiaries.
Service Agreements
The Company has an agreement with Hoechst under which Hoechst has taken
responsibility for the collection of accounts receivable from sales by
BDG to its non-German customers. Under this agreement, BDG invoices
Hoechst on 105-day terms, and Hoechst bears the risks and rewards of
collection from BDG's customers. Sales through Hoechst under this
agreement amounted to approximately $159.4 million of which $146.3
<PAGE>
million were sales to Hoechst group entities for the year ended December
31, 1996. For the year ended December 31, 1995, such sales were
approximately $173.0 million of which $139.9 million were sales to
Hoechst group entities.
In several locations the Company is operating offices, warehouses and
other facilities in close cooperation with Hoechst or Companies within
the Hoechst organization in return for fees. Services provided by
Hoechst have included but were not limited to distribution and logistics,
accounting and finance, engineering, data processing, administration,
legal and environmental services. Fees are based on either a direct cost
pass through or a percentage allocation for such services provided on
factors such as headcount or usage of floorspace. Such allocations and
charges totaled $56.9 million and $49.9 million from Hoechst for the
years ended December 31, 1996 and 1995, respectively.
Subsequent to December 31, 1996 the Company plans to enter into a
service agreement with InfraServ GmbH & Co. Marburg KG, which is
currently owned by Hoechst and Behringwerke AG. InfraServ GmbH & Co.
Marburg KG will provide the German location with services that include
but are not limited to distribution and logistics, engineering, leasing
and security.
Trade accounts receivable and payable with Hoechst
Accounts payable contain $6.7 million and $4.1 million payables to
Hoechst at December 31, 1996 and 1995, respectively, which arose from
deliveries, through Hoechst, from certain of the Company's operations to
certain other operations in different countries. In conjunction with
this agreement the Company also has receivables from Hoechst in the
amount of $34.5 million and $42.9 million at December 31, 1996 and 1995,
respectively.
Sales to related parties
Sales to other Hoechst companies approximated $10.6 million and $9.0
million for the years ended December 31, 1996 and 1995, respectively.
Accounts receivable and accounts payable related parties
Accounts receivable and accounts payable to related parties recorded in
the balance sheet arose from delivery and service transactions in the
ordinary course of business between the Company and primarily other
Hoechst subsidiaries.
14. Pension Arrangements
The Company has a defined benefit pension plan which covers substantially
all of its employees in Germany.
Plan benefits are generally based on employees' years of service and
compensation. Consistent with normal business custom in the Federal
Republic of Germany, the German pension obligation is unfunded.
The components of net pension expense for the German pension plan for
the years ended December 31, 1996 and 1995, are as follows:
1996 1995
Service costs $0.8 $0.5
Interest cost on projected benefit obligation 1.10 0.90
Net amortization and deferral 0.0 0.0
Net periodic pension cost $1.9 $1.4
<PAGE>
The reconciliation of the funded status for the German pension plan as
of December 31, 1996 is as follows:
Actuarial present value of December 31, December 31,
1996 1995
benefit obligation:
Vested benefits $15.3 $15.5
Nonvested benefits 0.9 0.90
Accumulated benefit obligation $16.2 $16.4
Projected benefit obligation $17.3 $17.8
Plan assets at fair value 0.0 0.0
Projected benefit obligation in 17.3 17.80
excess of plan assets
Unrecognized prior service cost 0.0 0.0
Unrecognized loss 1.4 2.30
Accrued pension expense $15.9 $15.5
The projected benefit obligation was determined using an assumed discount
rate of 6.5%, an assumed long-term rate of compensation increase of 3.25%
and a projected pension increase of 2.25% for 1996 and 1995.
The Company also provides for pension benefits for employees of its
operation in Japan. Net periodic pension cost for this plan, which is a
defined benefit plan, for the year ended December 31, 1996 was $1.3
million of which $0.5 million and $0.8 million were related to service
cost and interest cost, respectively. Net periodic pension cost for the
year ended December 31, 1995 was $1.4 million of which $0.5 million and
$0.9 million were related to service cost and interest cost, respectively.
The reconciliation of the funded status for the Japanese pension plan as
of December 31, 1996 and 1995 is as follows:
Actuarial present value of December 31, December 31,
1996 1995
benefit obligation:
Vested benefits $10.1 $7.9
Nonvested benefits 1.6 1.50
Accumulated benefit obligation $11.7 $9.4
Projected benefit obligation $14.9 $12.3
Plan assets at fair value 9.6 7.40
Projected benefit obligation 5.3 4.90
in excess of plan assets
Unrecognized net obligation 4.3 4.4
Unrecognized (gain)/loss (3.9) (3.5)
Accrued pension expense $4.9 $4.0
The projected benefit obligation was determined using the following
rates:
1996 1995
Assumed discount rate 4.0% 4.0%
Assumed long-term rate of compensation 4.0% 4.0%
increase
Projected pension increase 2.8% 1.2%
<PAGE>
The Company has a pension and post-employment arrangement under which
its United States employees are covered since 1996 under a multiemployer
defined benefit plan administered by the Hoechst Celanese Corporation, a
subsidiary of Hoechst. Contributions and pension expense under this
arrangement amounted to $10.5 million for the year ended December 31,
1996. $1.0 million and $0.9 million were accrued for pension expense at
December 31, 1996 and 1995, respectively.
The Company provides benefits to its employees in Italy under the
requirements of the law. The benefit is based on a percentage of
salary, plus an adjustment for inflation, and provides for immediate
vesting. Pension expense for the years ended December 31, 1996 and 1995
under this program was $0.7 million and $0.4 million, respectively. At
December 31, 1996 and 1995 $4.2 million and $3.6 million were accrued
for, respectively.
For its employees in Spain the Company sponsors a defined benefit plan
and a defined contribution plan which are fully funded. Expenses
related to these plans were $0.4 million and $0.3 million for the years
ended December 31, 1996 and 1995, respectively.
Additionally, the Company has accrued $0.9 million and $1.8 million
pension expense for employees covered in certain other foreign
diagnostics operations at December 31, 1996 and 1995, respectively.
15. Commitments and Contingencies
The Company leases certain facilities and equipment under operating
leases expiring at various dates through 2016. Significant future
minimum lease payments under noncancelable operating leases are as
follows (in millions):
Year ending December 31,
1996 $6.2
1997 6.6
1998 6.50
1999 6.50
2000 6.40
2001 6.40
Thereafter 55.30
Total rent expense under operating leases was $5.0 million and $4.9
million for the years ended December 31, 1996 and 1995, respectively.
The Company is a party in various legal proceedings. Management
believes, based on advice from legal counsel, that any potential
liability resulting from pending legal proceedings against the Company
will not have a material adverse effect on its business, results of
operations or financial position.
16. Business Segment and Geographic Information
The Company manufactures, and supplies hospitals and laboratories with,
in vitro diagnostic reagents and related instruments. This is
considered to be a single business segment.
<PAGE>
Information as of and for the years ended December 31, 1996 and 1995 by
geographic area is as follows (in millions):
United States Other
1996 Europe and Canada Foreign Total
Net sales $ 357.9 $ 216.0 $ 79.7 $ 653.6
Pretax income (loss) 22.2 (2.5) (2.7) 17.0
Identifiable assets 458.9 209.6 63.4 731.90
1995
Net sales $363.4 145.50 87.70 $596.6
Pretax income (loss) (1.1) (52.7) (4.1) (57.9)
Identifiable assets 540.50 202.70 66.80 810.0
Identifiable assets are those assets associated with a specific
geographic area. Net sales to foreign destinations were $159.4 million
and $172.7 million for the years ended December 31, 1996 and 1995,
respectively. Sales to foreign destinations are defined as direct sales
from the German diagnostics operations to foreign destinations.
17. Subsequent events
Hoechst and Behringwerke AG intend to transfer a 14% limited partnership
interest in InfraServ GmbH & Co. Marburg KG to the Company in the course
of the year 1997. InfraServ GmbH & Co. Marburg KG was founded in December
1996 and did not have any operating activities during the year ended
December 31, 1996. It is currently owned by Hoechst and Behringwerke AG
and will provide the German location with site management and
infrastructural services.
Employees covered by the German pension plan at December 31, 1996 might
differ from employees covered by the Company's plan at January 1, 1997.
Fluctuations can result from employees being transferred to or from the
diagnostics business subsequent to December 31, 1996. Retirees will be
transferred to a pension plan funded by Hoechst AG. Management does not
expect such fluctuations to have a material adverse impact on its
results of operations or financial position.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Dade International Inc.
By: /s/James W.P. Reid-Anderson
Name: James W.P. Reid-Anderson
Title: Executive Vice President, Chief
Administrative Officer and Chief
Financial Officer (Duly Authorized
Officer of Registrant)
Dated: December 15, 1997
<PAGE>
EXHIBIT INDEX
Exhibit No. Document
2.1 Agreement and Plan of Combination by and between Diagnostics
Holdings, Inc. And Hoechst AG dated as of June 24, 1997 and
supplemented on July 2, 1997 and as further supplemented on
September 29, 1997 and September 30, 1997 (incorporated by
reference to the Company's Current Report on Form 8-K filed
October 20, 1997.
