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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark
One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from to
COMMISSION FILE NO. 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, 60015-0778
ILLINOIS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
Registrant's telephone number, including area code: (847) 267-5300
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 26, 1997 was approximately zero. At March 26, 1997,
there were 1,000 shares of Common Stock outstanding, all held by the
registrant's parent, Diagnostics Holding, Inc.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART I
ITEM 1. BUSINESS.
HISTORY
The predecessor to Dade International Inc. ("Dade" or the "Company"), the
Baxter Diagnostics business (the "Predecessor") of Baxter International Inc.
("Baxter"), was established in 1949 as part of the Dade County Blood Bank in
Florida. The Predecessor initially distributed its blood products through
American Hospital Supply Corporation ("AHS") and was subsequently acquired by
AHS in 1956. Building upon its initial blood testing base, AHS initiated
extensive research and development efforts and acquisitions to expand into the
microbiology, immunochemistry and chemistry markets of the emerging in vitro
diagnostic testing industry. From 1983 to 1985, Stratus and Paramax
development, which began in the late 1970's, culminated in product
introductions into the immunochemistry and clinical chemistry markets,
respectively. The MicroScan product line was developed through a series of
acquisitions in the early 1980s. In 1985, Baxter acquired AHS.
In December of 1994, Bain Capital, Inc. ("Bain Capital") and GS Capital
Partners, L.P. ("GS Capital") formed Diagnostics Holding, Inc. ("Holdings")
and acquired the Predecessor from Baxter (the "Dade Acquisition"), with Dade
becoming a wholly-owned subsidiary of Holdings. Since the Dade Acquisition,
the Company has made significant progress in implementing and focusing its
business strategy. Several new products such as the cardiac marker Troponin-I
were launched with strong market acceptance. Dade also entered into a
worldwide alliance with TOA Medical Electronics Co. Ltd. ("TOA") to jointly
develop and distribute coagulation products. Additionally, two non-core
businesses have been divested.
In May 1996, Dade purchased (the "Chemistry Acquisition") from DuPont its
in-vitro diagnostics business ("Dade Chemistry"), which had entered the
automated clinical chemistry market in 1968 with the introduction of the first
random access automated chemistry analyzer in the world and whose installed
base of clinical chemistry instruments is one of the largest in the world.
Dade, a corporation organized under the laws of Delaware, has its principal
executive offices located at 1717 Deerfield Road, Deerfield, Illinois 60015-
0778; its telephone number is (847) 267-5300.
INDUSTRY
In vitro (literally, "in glass") diagnostic ("IVD") tests are conducted
outside the body and are used to identify and measure substances in patients'
tissue, blood or urine samples which enable physicians to diagnose, treat and
monitor patients. The most common IVD tests are traditional clinical chemistry
tests such as glucose, cholesterol or sodium measured as part of routine blood
checks. Other IVD tests measure bodily functions such as blood clotting
ability, fertility and cardiac function, or measure the presence of infections
or drugs. The wide range and important nature of these tests have established
IVD testing as an integral part of the managed care environment, providing for
accurate and timely patient diagnosis and treatment. Increasingly, IVD testing
is being recognized as making a significant contribution to improving patient
care and lowering total patient costs. As a result, management believes that
future growth in IVD testing will be driven by: (i) greater automation in
order to achieve more consistent test results at lower costs; (ii)
applications for emerging test technologies (e.g., cardiac markers which test
for the occurrence of heart attacks); and (iii) demographic shifts such as the
aging of the population.
Dade serves the IVD market with instruments, reagents (compounds and liquids
used to perform tests), consumables (primarily disposable reaction vessels,
cuvettes, lids, etc.) and services targeted primarily at clinical
laboratories. Hospital and reference laboratories tend to use more precise,
higher volume and more automated IVD systems. The definitions of the
components of the IVD market in which the Companys products compete ("Company
Served Markets") are as follows:
. Clinical Chemistry. Clinical chemistry instrument systems, the highest
volume analyzers in most clinical laboratories, are primarily used to
test for glucose, cholesterol, sodium and other substances found in
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large concentrations in the body. These tests are typically run for both
routine and emergency patients to help doctors understand the performance
of basic bodily functions.
. Immunochemistry. Immunochemistry instrument systems use targeted
antibodies to identify and test enzymes, drugs, hormones and other
substances found in relatively small concentrations in the body. Typical
immunochemistry tests indicate conditions such as cardiac damage, anemia
and pregnancy, or monitor the level of therapeutic drugs in a patient's
bloodstream.
. Microbiology. Automated microbiology instrument systems identify disease-
causing bacteria and determine their susceptibility to various
antibiotics. Illustrative microbiology tests would include those for
strep and staph infections.
. Hemostasis. Hemostasis instrument systems test blood coagulation
(clotting) or platelet function. Hemostasis tests are typically run
before and during most surgeries or are performed to monitor patients on
anti-coagulant therapy.
. Controls. Controls are used to test instruments for accuracy and
consistency. Because of the need for a high degree of accuracy in IVD
testing, controls are run daily on most instruments in a clinical
laboratory.
IVD systems are composed of instruments, reagents, consumables, service and
data management systems. Instruments typically have a five to ten year life
and serve to automate repetitive manual tasks, improve test accuracy and speed
results reporting. Reagents are liquid or powder chemical substances that
react with the patient sample to produce measurable, objective results. The
consumable accessories vary across application segments but are generally
items such as sample containers and lids used during test procedures. Both
reagents and consumables are typically exclusive to their related instruments
(thus, a "closed" system) and, therefore, generate significant ongoing
revenues for suppliers. Sample handling and preparation devices as well as
data management systems are becoming increasingly important components of the
IVD system. Providing a total integrated system solution that is reliable and
easy to use creates high switching costs and loyalty among customers who value
consistency and accuracy in test results.
The primary users of IVD products are hospital and reference laboratories.
The revenue share of reference laboratories has increased dramatically over
the past several years, at the expense of physicians' offices and alternate
sites, due to a trend affected largely by the Clinical Laboratory Improvement
Amendment of 1988 ("CLIA '88"), legislation which encouraged a higher level of
standardization and quality assurance among testing laboratories.
A number of factors are likely to generate continued growth in the IVD
market. Instrument automation trends such as sample handling, sample
preparation, and data management systems will improve the consistency and
labor costs of IVD testing, thereby enhancing the value component of IVD use.
The development of new tests such as alternative cardiac markers will also
encourage increased IVD usage in new and/or more frequent applications. An
aging population is expected to increase the demand for health care services
in general and, despite health care reform initiatives targeted at reducing
inpatient stays, hospital inpatient and outpatient visits (at which time the
majority of IVD tests are performed) continue to grow.
IVD products contribute to the overall quality of patient care, particularly
where the timeliness and accuracy of diagnosis are critical. For example, IVD
testing can be used to identify the incidence of a heart attack. In the United
States, a large number of people are admitted each year to hospitals with
chest pain, but only a small percentage of this group actually experience a
heart attack. The incorrect admissions or, even worse, the incorrect
discharges of patients create significant costs for the health care system.
The value of these tests has established IVD as an integral part of patient
care, and IVD has become increasingly important to the overall delivery of
cost efficient, high quality health care. At the same time, the cost of IVD
products to the laboratory remains a small portion of their overall capital
and operating costs.
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In the past several years, management has observed that an increasing number
of domestic hospitals have formed into groups known as Health Systems. In
general, Health Systems consist of three to ten, or more, local or regional
hospitals which have merged or formed joint ventures in order to compete for
patients, develop strategic alliances with suppliers, and leverage specialized
departments. The formation of these Health Systems presents larger IVD
suppliers, such as Dade, with the opportunity to drive standardization of
their products across all hospitals in the group. Management believes that
successful IVD companies will need to offer a broad product portfolio,
anchored by a strong position in clinical chemistry. Additionally, as purchase
decisions have become more centralized, the sales process has become more
sophisticated. For example, IVD companies increasingly need to demonstrate
that their product offering can lower system costs and improve patient
outcomes. With its broad portfolio of products and its track record with
Health Systems, Dade is ideally suited to take advantage of these trends.
Management believes that as the IVD market continues to mature, IVD
suppliers will need to increase the scale of their operations and broaden the
scope of their product lines in order to leverage worldwide sales and, in
turn, service and research and development infrastructures. These trends are
driving industry consolidation which provides excellent opportunities for
leading IVD suppliers like Dade to increase market share and participate in
strategic alliances, joint ventures and acquisitions.
OVERVIEW
The Company is one of the largest suppliers of IVD products and services to
clinical laboratories in the United States and the world. Within the Company
Served Markets, the Company has strong market positions in five core product
segments; clinical chemistry, microbiology, hemostasis, immunochemistry
(cardiac testing), and controls.
IVD tests are conducted primarily in clinical laboratories which generally
consist of hospital-based laboratories and reference laboratories (independent
of hospitals), the majority of which are Dade customers. Nearly all hospitals
require laboratory testing capability due to the "STAT" (non-discretionary
testing requiring a turnaround time under two hours), or emergency nature of
their diagnostic needs and, therefore, represent a stable, attractive customer
base for the Company.
The Company manufactures and markets a broad offering of IVD products and
services which include: (i) instruments (approximately 10% of 1996 sales);
(ii) reagents and consumables (approximately 80% of 1996 sales); and (iii)
services (approximately 10% of 1996 sales). The Company's extensive product
line is capable of conducting over 500 different types of IVD tests and serves
over half of the global IVD market.
In total, the Company has a worldwide installed base of approximately 21,000
instruments. More importantly, all but one of Dade's instrument systems are
"closed" systems, which require the use of Company reagents and consumables in
order to run tests. As a result, through its large installed base of
instruments, the Company generates an attractive, stable and recurring stream
of revenue from reagents, consumables, and service contracts.
The following details the Company's market positions and strategies in the
Company Served Markets:
Clinical Chemistry Products
The Company is a leading supplier in the automated clinical chemistry
portion of the IVD market. The Company's clinical chemistry product line
consists of three primary instrument platforms for clinical laboratories
(Dimension, aca, Paramax, and a fourth instrument platform marketed primarily
to physicians offices, Analyst). The current installed base of clinical
chemistry instruments is approximately 9,000 worldwide.
Routine clinical chemistry tests measure substances found in large
concentrations in patients' blood, urine or other bodily fluids. These
substances include cholesterol, glucose, iron and sodium and provide
information
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on a patient's basic bodily functions. As the sensitivity of clinical
chemistry instruments has improved, more and more tests traditionally run on
immunochemistry instruments have been developed for traditional chemistry
instruments, such as those for therapeutic drug monitoring and drugs of abuse
screening. This progression of tests to lower the cost of clinical chemistry
analyzers allows customers to consolidate the number of instruments in their
laboratory and reduce the labor costs associated with operating multiple
instruments. The migration of certain immunochemistry tests from competitors'
systems represents an attractive growth prospect for Dade due to its large
installed base of routine and specialty analyzers.
On average, hospitals operate two to three clinical chemistry analyzers
which serve such roles as STAT, routine, and specialty testing. The routine
clinical chemistry analyzer, such as the Paramax or Dimension, is considered
the workhorse of the clinical laboratory, accounting for up to 40% of all IVD
tests performed in such laboratories. These analyzers are characterized by
their high throughput capabilities. Specialty analyzers, such as the aca, are
often dedicated to lower volume tasks such as emergencies, off-hours testing,
or drug screening. Specialty analyzers are characterized by their ease of use
and test menu breadth.
The clinical chemistry market is relatively mature. In the future, domestic
growth is expected to be driven primarily by the expansion of test menus. The
market is highly competitive and manufacturers have focused on specific
segments by offering analyzers with different throughput and menu
capabilities. The Company introduced its newest clinical chemistry instrument,
the Dimension RxL, in late 1996. The RxL is targeted at the highest volume
laboratories and offers advanced automation and productivity features.
Immunochemistry Products
The Company's Stratus system makes it a strong niche competitor in the
United States immunochemistry market segment, with a leading position in the
cardiac testing segment. Immunochemistry testing relies upon the properties of
antibodies and antigens in the immune system as its key detection mechanism.
Similar to clinical chemistry testing, immunoassays (immunochemistry tests)
measure substances found in blood. Immunoassays are distinct, however, in
their ability to measure relatively low concentration substances that are
difficult to detect with conventional routine clinical chemistry methods.
Dade introduced its first immunochemistry analyzer in 1983. The Stratus
analyzer currently offers a test menu of over 30 reagents and utilizes a
patented tab technology which facilitates one of the fastest test processing
times compared to those of competitor's instruments. The current installed
base of Stratus analyzers is approximately 4,000 instruments worldwide.
Because immunochemistry systems are "closed," sales of reagents are influenced
by instrument placements. The Company accelerated the placement of its
instruments in the early 1990s by providing Stratus instruments to its
customers at no charge in exchange for ongoing reagent revenues. This strategy
was subsequently pursued by other competitors and is now considered standard
industry practice.
The immunochemistry market is highly competitive. Stratus, however, has been
repositioned to compete in the cardiac testing niche of the immunochemistry
market because its instrument system currently provides the fastest response
time for cardiac testing. Cardiac tests facilitate a physician's diagnosis of
heart attacks or other forms of heart muscle damage by measuring blood markers
such as CK-MB, Troponin-I and myoglobin. Demand for Dade's new Troponin-I
assay has grown rapidly since its introduction in August 1995. Clinical data
and market research indicate that Troponin-I will likely replace CK-MB as the
standard for the detection of heart muscle damage.
The Company believes there is significant value in properly screening people
entering a hospital for chest pains. In the United States, approximately five
million people each year are admitted to a hospital with chest pains, but only
a small percentage of these people actually suffer a heart attack. The
incorrect admissions or, even worse, the incorrect discharges of patients
creates significant costs for the health care system. Through the use of the
Company's battery of cardiac tests, heart attacks can be more accurately
identified.
In the future, the Company plans to continue to emphasize specific niche
segments, especially cardiac, where it has established a market presence and
where it can market its instruments throughput and turnaround capabilities. To
this end, the Company is working on a new point-of-care cardiac specific
platform.
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Microbiology Products
Through its MicroScan product line, the Company has a worldwide leadership
position in the identification/minimum inhibitory concentration ("ID/MIC")
microbiology products market. Microbiology systems are "closed", meaning that
reagents and consumables can only be used on the instruments for which they
were produced. Growth in the microbiology testing market has been driven
primarily by advances in automation, the complexity of various microbes, and
the increasing resistance of microbes to antibiotics. Worldwide, MicroScan has
approximately 3,600 instrument installations.
Microbiology laboratories use ID/MIC products to identify infection-causing
bacteria (e.g., strep and staph) and to determine the minimum concentration of
antibiotic (e.g., erythromycin and ampicillin) necessary to inhibit or kill
the bacteria. This information is critical to the optimum management of
patient therapy. MicroScan manufactures and markets both manual and automated
ID/MIC products. MicroScan's premier instruments are the WalkAway(R)-40 and
the WalkAway(R)-96, fully automated instruments that use patented dry reagent
panel technology to conduct bacterial identification and susceptibility
testing at the same time.
During 1996, the Company continued to implement its strategy of seeking
growth internationally by entering the German market, and by releasing new
products in Japan. Germany represents an attractive opportunity for the
Company due to the combination of an advanced health care sector, a sizable
population and a low penetration of automated microbiology systems. In the
United States, MicroScan continued to secure business through the promotion of
its Rapid Panels, which produce results sooner than competitive systems, and
through the placement of pharmLINK systems. The pharmLINK system was enhanced
in 1995 by a strategic alliance with SIMKIN. SIMKIN is a pharmacokinetic
software package which suggests dosage changes based on patient specific
information (e.g., gender, age, weight, etc.). Combined with pharmLINK's
antibiotic monitoring capabilities, the two software packages provide
pharmacists, microbiologists and physicians with better information for the
management of antibiotic therapy. In addition to more focused disease
treatment, the system allows for more accurate tracking of oral vs. IV and
brand-name vs. generic antibiotics. Because antibiotics can represent a
significant portion of a typical hospital's drug budget, the potential for
cost savings will continue to drive the use of pharmLINK as an important data
management tool.
In the future, the Company expects to continue to aggressively develop
international markets and solidify its base in the United States. In addition,
the Company has begun work on the WalkAway with a focus on reducing costs,
improving ease of use and developing significant enhancements to its existing
data management software. As hospitals outside the United States continue to
develop the necessary information systems infrastructure, the Company expects
to enhance international growth by developing new versions of pharmLINK that
are specific to a country's needs.
Hemostasis Products
Dade is a well recognized and respected name in the hemostasis market
segment of the IVD industry. The introduction of some of Dade's products
approximately 40 years ago helped to pioneer the IVD testing industry. The
Dade Hemostasis product line is a leader in both domestic and worldwide
hemostasis markets. Hemostasis testing measures a patient's ability to form
and dissolve blood clots, a critical factor in the stabilization of the
cardiovascular system. These tests are typically performed before and during
surgical procedures. Hemostasis testing is also essential in post-surgical
treatments for patients with cardiovascular disorders (e.g., monitoring
treatments to "thin" the blood) and for patients with coagulation disorders
(e.g., hemophilia).
Recent hemostasis market growth has been influenced primarily by the number
of surgical procedures performed. Additional market growth is expected to come
from new hemostasis tests which accurately measure blood clotting and provide
for improved patient treatment.
The hemostasis product line consists of reagents, instruments and associated
consumables. The Company offers over 30 routine and specialty coagulation
tests. Unlike most other product areas served by the Company,
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hemostasis instrument systems are generally "open" systems, meaning that
customers can use reagents from a number of vendors with instruments
manufactured by other vendors. Primarily for this reason, the Company sells
third-party instruments rather than incurring costs to develop instruments
internally. In July of 1994, the Company's former hemostasis instrument
supplier, terminated its relationship with Dade. In March of 1995, Dade signed
a new supply agreement with TOA, a major global manufacturer of hematology and
hemostasis equipment and a recognized leader in product innovation. TOA began
shipping its hemostasis instruments to Dade in July 1995, and the instrument
line has been well accepted by customers. Management believes that its
customers perceive Dades Hemostasis reagents as premium quality products and
value the broad portfolio of products offered by the Company. Dade's worldwide
installed base of hemostasis instruments is approximately 4,500.
Dade is committed to innovation and product quality and offers a broad
hemostasis product line with high lot-to-lot consistency in its reagents. This
position has allowed Dade to commit significant resources to research and
development into products such as the Platelet Function Analyzer ("PFA"), a
new closed system which provides more precise and consistent measurement of
patient blood clotting functions in a less invasive and less time consuming
manner than conventional testing procedures.
Control Products
Dade is also a well recognized and respected name in the controls segment of
the IVD industry. Dade developed the first commercially available control
reagents in 1951 and has since maintained its reputation as a quality-
assurance leader. Controls are used by laboratory technicians to assess the
accuracy and precision of equipment. Tests are performed using controls
(solutions formulated to specific, standardized values) to determine whether
instruments are producing results valid within a statistically acceptable
range.
The Company's Total Quality Controls ("TQC") product line includes controls
for use in the hemostasis, clinical chemistry and immunochemistry segments, as
well as controls-related quality assurance programs ("QAPs"). These programs
are sophisticated statistical database systems that aid a laboratory in
monitoring and maintaining the accuracy and precision of testing over time.
Dade's QAPs enable users to monitor and compare system tests results with
those obtained by thousands of other laboratories using similar systems around
the world. With over 10,000 Dade QAP participants, the Company possesses the
world's largest inter-laboratory peer group database.
Dade has traditionally focused on developing controls primarily for its own
installed base of instruments. In 1995 however, the Company began an
aggressive campaign to seek new business by soliciting manufacturers for OEM
opportunities and developing customer compliance programs for non-Dade
instruments. In 1995, this resulted in an exclusive controls supply
relationship with Columbia/HCA and an OEM relationship with a European
supplier of clinical chemistry analyzers.
Many IVD instrument companies view controls manufacturing as non-strategic
and often have a low share of their own instrument base. Dade management,
however, estimates that, due to its strong history of controls manufacturing,
its controls are used by approximately 75% of its customers in the
immunochemistry and hemostasis markets. Management, however, estimates that
Dade controls are currently used on less than one-third of Dade's domestic
installed base of clinical chemistry instruments. The further migration of
existing customers to Dade controls represents a clear growth opportunity for
the Company.
The Company plans to continue to strengthen its business through: (i) the
migration of existing customers to Dade controls; (ii) the aggressive pursuit
of new OEM business; (iii) the development of specialty controls for each of
the main IVD segments; and (iv) the establishment of exclusive supplier
arrangements to Health Systems.
Other Product Lines
Immunohematology. Dade's immunohematology and related products are typically
used by hospital laboratories and blood donor centers to classify blood
products for use in transfusion procedures. The Dade
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Immunohematology line consists of immunohematology reagents and laboratory
equipment such as cell washers and automated centrifuges. This product line
has suffered from increased competition in recent years due to a new, simpler
testing procedure.
Integrated Services Division. The Company believes its Integrated Services
Division ("ISD") organization is the largest service organization in the
industry with over 850 product and service specialists worldwide. This
organization provides in-warranty and out-of-warranty service on Dade's 21,000
instruments and provides service on a third-party basis to other medical
instrument companies. All of the Company's field service personnel are trained
in the technical aspects of one or more of the Company's major instrument
systems.
In the United States, this field service organization provides rapid
(usually within six hours), on-site service to the Company's entire customer
base. The Company also maintains a telephone-based, in-house technical support
and customer service group of over 150 people to provide troubleshooting and
other user help, which leverages the higher cost of on-site service.
Third Party Product Distribution and Royalties. The Company distributes
various products for third-party manufacturers in select international markets
where it can leverage its existing distribution network. The Company receives
a recurring stream of royalty revenues from third-parties related primarily to
certain intellectual property assets.
RESEARCH AND DEVELOPMENT
Overview
The Company maintains an active research and development program focused on
the development and commercialization of products which both complement and
update its existing product offerings. Within the IVD industry, the Company
has established a track record of innovation and timely product introduction.
In each of its core product lines, research and development was instrumental
in the development of key technologies which have helped to create strategic
product advantages. At December 31, 1996, there were approximately 450
employees involved in the Company's product development efforts.
While management may adjust research and development levels to reflect the
changing dynamics of the IVD industry, new product development will remain an
important focus for continued growth and enhanced profitability. In order to
maximize growth and enhance profitability, research and development activities
are grouped into three primary categories: test menu development, next
generation platform development and niche platform development.
Test Menu Development
Once the Company places an instrument, the development of new reagents to
conduct additional tests represents a highly leveraged growth opportunity. The
Company's large installed base of approximately 21,000 instruments thus
represents significant potential for the Company's new reagent development
efforts. New reagents such as PSA and free T4 for the aca Plus, immunoassays
for thyroid function, anemia and cardiac damage for the Dimension RxL, new and
expanded panels for the Microscan Walkaway along with improvements of existing
reagents will continue to receive significant developmental effort.
Next Generation Platform Development
The Company is committed to enhancing its current instrument line.
Management believes that clinical laboratories are increasingly looking to IVD
suppliers to help them reduce labor costs, the largest cost component in the
laboratory. Among the activities that drive labor costs are sample
preparation, instrument setup, throughput and maintenance, manual data entry
and manipulation, and the verification and reporting of results.
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The Company is currently working on a next generation Dimension clinical
chemistry system that will incorporate the capability to perform immunoassays
along with routine clinical chemistry methods. This is a significant step
toward workstation consolidation and enhanced productivity for the laboratory.
As additional enhancements to this next generation clinical chemistry
instrument, the Company is currently investing in on-the-instrument automated
centrifuge technology to reduce excess sample handling and transportation
time, enhanced Data Fusion software to allow seamless communication of results
between the instrument and the laboratory information system and simplified
on-board specimen management to improve reliability.
Niche Platform Development
In addition to improvements in the existing portfolio of instruments, the
Company continues to seek out new growth opportunities through the focused
development of certain niche instruments. Such products include the recently
introduced PFA. Though platelet function can be measured today, current tests
have a number of disadvantages: they are manual and invasive, involve
significant sample preparation time, measure only partial platelet function
and are difficult to reproduce and standardize. The PFA automates the testing
of platelet function and provides a quantifiable measurement of platelet
function. Like most IVD instrument systems, the PFA is a closed system that
uses proprietary reagents and consumables designed exclusively for this
instrument. Another important new platform currently under development is a
cardiac-specific analyzer designed for the immediate identification of heart
attacks in patients with chest pain. This new system will use whole blood and
is designed for use in the emergency room and other point of care locations,
where speed of results is critical.
CUSTOMERS
The Company has a broad customer base that includes primarily hospital and
reference laboratories. Though the Company sells worldwide and maintains a
substantial international presence, its sales are concentrated in the United
States hospital market. No end-user customer represents more than 4% of the
Company's sales.
SALES, DISTRIBUTION AND MARKETING
The Company employs over 900 people in its worldwide sales group, comprised
of approximately 700 field sales representatives and managers and
approximately 200 clinical application specialists ("CASs"). Field sales
representatives are the traditional salesforce and are organized by product
line. The 115 CASs provide troubleshooting in the field, customer training,
and conduct workshops and seminars. The CASs are also organized by major
product lines.
In the United States, the Company maintains sales offices in seventeen
cities. The Company maintains twenty additional sales offices internationally
and has main offices in the following cities: Barcelona, Brisbane (Australia),
Brussels, Dubai, Duedingen (Switzerland), Milan, Munich, Paris, Tokyo and
Toronto.
Approximately 400 of the field salesforce is domestic. In the United States,
this sales organization works closely with the Company's chief domestic
distributor, Allegiance Healthcare Corporation ("Allegiance", Baxter's
distributor successor), whose approximately 400 highly trained distribution
professionals are capable of generating sales leads and important interactions
with hospital decision makers. Together with the Company's domestic field
salesforce, these individuals represent a sizable 800 person team, that is
capable of developing strong relationships with thousands of customers. In
addition to sales prospecting, Allegiance also provides routine distribution
and delivery functions such as order entry, invoicing, customer service,
database management and physical warehousing and delivery. Chemistry products
are sold directly to customers in the U.S. without an intervening distributor.
In addition to its worldwide sales group, the Company employs approximately
300 marketing personnel worldwide with extensive knowledge and understanding
of industry issues, market trends, customer needs and competitive dynamics.
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INSTRUMENT PLACEMENTS
The Company's instruments range in retail price from $20,000 to $110,000.
Approximately one-third of the Company's instrument placements in 1996 were
sold to customers, approximately one-third were sold to third-party lessors
and the remainder were financed directly by the Company.
The Company offers customers a variety of financing options designed to
offset the large up-front capital outlay necessary to purchase an IVD
instrument. The two most common financing methods are (i) third-party capital
leases, in which a third party purchases the instrument from the Company and
in turn leases such instrument to the customer via a capital lease agreement;
and (ii) reagent rental agreements in which Dade retains title to the
instrument and recoups the cost via premiums on its reagents.
In addition to reagent rental expenditures, the Company will, in certain
circumstances primarily involving the Stratus product line and certain
European countries, provide customers with instruments at no charge in
exchange for ongoing reagent revenues, a practice commonly referred to in the
industry as "seeding." Management's decision to reposition the Stratus product
line as a niche cardiac product line has resulted in a decreased level of
seeding. The Company believes it has a competitive advantage in the cardiac
test segment, and, therefore does not need to engage in extensive instrument
seeding for the cardiac product line.
INTELLECTUAL PROPERTY
The Company owns over seven hundred United States and foreign patents, and
has hundreds of patent applications currently pending in the United States and
abroad. These patents and patent applications cover a broad base of technology
relating to the Company's Dade, MicroScan, Stratus, Analyst, and Dimension and
aca product lines as well as technology which has yet to be commercialized.
The Company also licenses certain patents and other intellectual property
rights from third parties. In addition to its extensive patent portfolio, the
Company possesses a wide array of unpatented proprietary technology and know-
how.
The Company owns approximately five hundred United States and foreign
registered trademarks, and service marks, including the Company's well-known
and respected Dade(R), MicroScan(R), Stratus(R), Paramax(R) and Dimension(R)
brand names. In addition, the Company has numerous applications for
registration of trademarks and service marks pending in the United States and
abroad. The Company also owns several United States copyright registrations.
In the aggregate, these patents, patent applications, trademarks, copyrights
and licenses are of material importance to the Company's business. However,
the Company believes that no single patent, trademark or copyright (or related
group of patents, trademarks or copyrights) is material in relation to the
Company's business as a whole. The loss of any single license would not have a
material adverse effect on the Company's business, except for the non-
exclusive license granted by Hybritech Inc. to the Predecessor (now assigned
to the Company) for Hybritech's tandem patent which license has been granted
for the life of the patent. Hybritech's tandem patent expires in August 2000
in the United States and expires between August 2001 and August 2003 in
various countries other than the United States.
EMPLOYEES
As of December 31, 1996 the Company had approximately 5,550 full-time and
part-time employees, 4,400 in the United States (including Puerto Rico), 600
in Europe, 130 in Japan and 420 in other locations around the world. The
Company has no collective bargaining agreements with any unions and believes
that its overall relations with employees are satisfactory.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company is subject to federal, state, local and foreign environmental
laws and regulations and is subject to liabilities and compliance costs
associated with the handling, processing, storing and disposing of hazardous
substances and wastes. The Company's operations are also subject to federal,
state, local and foreign
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occupational health and safety laws and regulations. The Company devotes
resources to maintaining environmental compliance and managing environmental
risk and believes that it conducts its operations in substantial compliance
with applicable environmental and occupational health and safety laws and
regulations. Nonetheless, from time to time, the operations of the Company may
result in noncompliance with environmental or occupational health and safety
laws or liability pursuant to such laws. The Company does not expect to incur
material capital expenditures for environmental controls in the current or
succeeding fiscal year.
In connection with the Dade Acquisition, Baxter agreed to retain
responsibility for, and indemnify Dade from and against, certain environmental
matters. In connection with the Chemistry Acquisition, DuPont agreed to retain
responsibility for, and indemnify the Company from and against, certain
environmental matters. The more significant of these indemnified matters are
described below. Notwithstanding these contractual agreements, the Company
could be pursued in the first instance by governmental authorities or third
parties with respect to certain indemnified matters, subject to the Company's
right to seek indemnification from Baxter or DuPont. Management does not
currently believe that any such matter will have a material adverse effect on
the business or financial condition of the Company.
The federal Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA") and similar state laws, impose retroactive, strict, joint and
several liability with respect to certain releases or threatened releases of
hazardous substances. In particular, CERCLA can impose liability as a result
of waste disposal at a location that later requires cleanup. The Company did
not assume any liabilities for offsite waste disposal by Baxter prior to the
Dade Acquisition or offsite waste disposal by DuPont prior to the Chemistry
Acquisition. Nonetheless, the Company could in the future be held liable for
waste disposal by the Company. To date, the Company has not received notice of
any such liability.
Prior to the Dade Acquisition, Baxter conducted certain environmental
investigatory and/or remedial work at the Dade East facility in Miami, Florida
(a soil investigation in a parking lot area and organic chemical-related
groundwater remediation elsewhere on site). Baxter submitted its investigation
results to the Dade County environmental agency and received a determination
that no further action is required. In both cases, Baxter, in connection with
the Dade Acquisition, has agreed to complete and bear the cost of all required
investigatory, remedial and monitoring work and to indemnify Dade for, or bear
the cost of, both issues and against any associated liabilities. There are
certain limitations to Baxter's obligation to indemnify Dade for, or bear the
cost of, these issues, as follows: (i) Baxter will not indemnify Dade for, or
bear the cost of addressing, preexisting contamination exacerbated through the
negligence or willful misconduct of Dade; and (ii) Baxter will not indemnify
Dade for claims brought against Dade by third parties arising from these
matters after December 20, 1999.
Prior to the Chemistry Acquisition, DuPont discovered groundwater
contamination at its Glasgow Business Community, a portion of which is owned
by the Company, and at its Newtown, Connecticut facility, a portion of which
is leased by the Company. To the Company's knowledge, none of the
contamination at Glasgow is located within the parcel owned by the Company and
none of the contamination at Newtown is located within the portion leased by
the Company. With respect to Glasgow, DuPont installed, and continues to
operate, a groundwater treatment system. With respect to Newtown, at the
direction of the state of Connecticut, DuPont conducts groundwater monitoring
and has supplied nearby residences with the municipal water supply. The terms
of the Chemistry Acquisition Agreement provide that DuPont shall retain
responsibility for, and indemnify the Company without limitation from and
against, both of these groundwater contamination matters. Accordingly, the
Company expects that no expenditures will be made by the Company with respect
to these matters.
ITEM 2. PROPERTIES.
The Company provides its customers with high quality products by controlling
each stage of production. The Company manufactures products in nine locations,
(six in the continental United States, one in Puerto Rico, and two in
Switzerland), with total plant area approximating 1.4 million square feet
(including administrative
11
<PAGE>
areas housed at plant sites). Dade Hemostasis and Paramax reagents as well as
TQC products are manufactured in Puerto Rico and Miami; MicroScan reagents and
instruments are manufactured in Sacramento, California, Stratus reagents are
manufactured in Miami, Florida and Immunohematology products are manufactured
in Duedingen, Switzerland. Dade Chemistry manufactures products in Glasgow,
Delaware and Newtown, Connecticut.
Below is an overview of the Company's manufacturing facilities:
<TABLE>
<CAPTION>
FLOOR
AREA (SQ.
LOCATION NO. OF SITES FT.) OWNED/LEASED
-------- ------------ --------- ------------
<S> <C> <C> <C>
Aguada, Puerto Rico................... 1 115,300 Leased
Duedingen, Switzerland................ 2 184,700 1 Owned
1 Leased
Miami, Florida........................ 2 420,900 Owned
Sacramento, California................ 2 236,900 1 Owned
1 Leased
Glasgow, Delaware..................... 1 447,000 Owned
Newtown, Connecticut.................. 1 22,000 Leased
--- ---------
9 1,426,800
=== =========
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is the licensee of a third-party patent application that is
currently involved in an interference proceeding filed on December 15, 1993 in
the United States Patent and Trademark Office (Nemerson v. Edgington,
Interference No. 103,203). The interference proceeding relates to patent
protection of human recombinant tissue factor (hrTF), which is used in the
Company's Innovin(R) product to determine a patient's ability to clot blood.
Although current sales of Innovin(R) are immaterial, the Company expects sales
of Innovin(R) to increase in the future. A negative determination in the
pending patent interference proceeding could adversely impact the Company's
use of this licensed technology and its ability to market the Innovin(R)
product in the United States, potentially resulting in a material adverse
effect on the Company's business prospects.
In October 1994, management of the Predecessor became aware that the
diagnostics division of Baxter's Italian subsidiary had come under scrutiny as
a part of an industry-wide investigation into business practices by diagnostic
equipment suppliers. Management of the Company's Italian subsidiary believe
that the Company has taken no actions related to the investigation that would
be subject to any reasonable criticism. Based on the Company's current
understanding of the facts and circumstances surrounding the investigation by
the Italian authorities, the Company does not believe that the outcome of this
investigation will have a material adverse effect on the Company's business or
operations.
The Company is also involved in a number of legal proceedings arising in the
ordinary course of its business, none of which is expected to have a material
adverse effect on the Company's business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
None.
ITEM 6. SELECTED FINANCIAL DATA.
Set forth below are selected historical financial data of the Predecessor
and the Company as of the dates and for the periods shown. The selected
historical financial data as of December 31, 1994, December 31, 1995 and 1996,
for the period from December 17, 1994 through December 31, 1994 and for the
two years ended December 13, 1996 were derived from the Company's financial
statements, which were audited by Price Waterhouse LLP, and which, except for
data as of December 31, 1994, are included elsewhere in this Form 10-K. The
selected historical financial data for the period from January 1, 1994 through
December 16, 1994 were derived from the Predecessor's financial statements,
which were audited by Price Waterhouse LLP, and are included elsewhere in this
Form 10-K. The selected historical financial data as of December 31, 1992 and
1993 two years ended December 31, 1993 were derived from the Predecessor's
financial statements, which were audited by Price Waterhouse LLP and which do
not appear in this Form 10-K. The selected historical financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and accompanying notes thereto included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
THE PREDECESSOR(1) COMPANY(1)
------------------------- -------------------------------------------
PERIOD FROM PERIOD FROM PERIOD FROM
1/1/94 TO 12/17/94 TO 1/1/94 TO
1992 1993 12/16/94 12/31/94(2) 12/31/94 1995(2)(3) 1996(6)
------ ------ ----------- ----------- ----------- ---------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $683.3 $690.2 $650.6 $ 19.0 $669.6 $614.3 $ 795.8
Cost of sales........... $401.8 $420.8 $391.4 $ 18.6 $410.0 $368.6 $ 444.1
Gross profit............ $281.5 $269.4 $259.2 $ 0.4 $259.6 $245.7 $ 351.7
Marketing and
administration
expenses............... $183.9 $179.2 $173.2 $ 2.4 $175.6 $171.1 $ 255.5
Research and development
expenses............... $ 53.2 $ 47.2 $ 33.4 $ 1.1 $ 34.5 $ 26.5 $ 138.0
Goodwill amortization
expense (credit)....... $ 2.7 $ 2.6 $ 2.6 $ (0.1) $ 2.5 $ (0.4) $ 3.3
Restructuring and
downsizing costs(4).... $ -- $ 30.2 $ -- $ -- $ -- $ -- $ 15.0
Income (loss) from
operations............. $ 41.7 $ 10.2 $ 50.0 $(3.0) $ 47.0 $ 48.5 $ (60.1)
Extraordinary items..... $ -- $ -- $ -- $ -- $ -- $ -- $ (25.0)
Cumulative effect of
change in accounting
principles(5).......... $(5.7) $(3.3) $ -- $ -- $ -- $ --
Net income (loss)....... $ 22.1 $(1.9) $ 35.8 $ 1.9 $ 33.9 $ 12.7 $(105.3)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Total Assets............................... $734.9 $710.6 $696.2 $550.9 $1,008.8
Long-term liabilities...................... $ 40.4 $ 37.9 $300.3 $297.9 $ 807.9
</TABLE>
- --------
(1) The financial data of the Predecessor and the Company were prepared on
different bases of accounting.
(2) Financial data for the period from December 17, 1994 to December 31, 1994
and for the year ended December 31, 1995 exclude the results of the
Bartels and Burdick & Jackson product lines, which have been reflected as
"Net assets held for sale."
(3) The Company's stockholder's equity and net loss for the period December
17, 1994 through December 31, 1994 includes a non-recurring pre-tax charge
relating to the application of purchase accounting for a partial write-off
of $5.6 million (after-tax impact of $3.4 million) to cost of goods sold
related to the write-off of the $46.0 million of allocated purchase price
made to record acquired finished goods and work-in-process inventory at
fair market value. The Company's stockholder's equity and net income for
the year ended December 31, 1995 include the non-recurring pre-tax write-
off of the remaining $40.4 million (after-tax impact of $24.2 million) of
the inventory write-up discussed above.
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<PAGE>
(4) In 1993, Baxter undertook a restructuring effort, charging the Predecessor
with $30.2 million for downsizing its sales, general and administrative,
instrument manufacturing and non-strategic research and development staffs
in an effort to reorganize the businesses into a single operating
division. In 1996, a $15.0 million restructuring charge was recorded
related to a plan to eliminate redundancies and rationalize production
capacity in connection with the Chemistry Acquisition.
(5) In 1992, Baxter recorded a $5.7 million after-tax charge related to the
Predecessor for the cumulative effect of adopting SFAS No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions", and, in 1993,
Baxter recorded a $3.3 million after-tax charge related to the Predecessor
for the cumulative effect of adopting SFAS No. 109 "Accounting for Income
Taxes."
(6) The net loss for the year ended December 31, 1996 reflects the following
pretax charges resulting from the application of purchase accounting for
the Chemistry Acquisition related to the following: (i) the write-off to
cost of goods sold of the $24.8 million of allocated purchase price made
to record acquired finished goods and work-in-process inventory to fair
market value, (ii) $98.1 million charge to research and development
expense for acquired in-process research and development projects which do
not have alternative applications or separable economic value.
Additionally, the net loss for the year ended December 31, 1996 includes a
$9.5 million pretax, non-cash charge for excess spare parts.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This information should be read in conjunction with the Consolidated
Financial Statements included herein. Certain statements included in this
discussion are forward-looking, such as statements relating to estimates of
operating and capital expenditure requirements, future revenue and operating
income levels, and cash flow and liquidity. Such forward-looking statements
are based on Management'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 the 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
domestic and international economic and business conditions, governmental and
regulatory policies, and the competitive environment in which the Company
operates.
COMPARABILITY
Comparisons drawn from the Company's Consolidated Financial Statements for
1994-1996 are impacted by the Dade Acquisition effective December 16, 1994 and
by the Chemistry Acquisition effective May 1, 1996. Both of these acquisitions
were accounted for under the purchase method and accordingly their respective
results have been included in the Consolidated Financial Statements from the
date of purchase. Certain significant purchase accounting related and other
items impacting comparability include:
. A $24.8 million charge was recorded to cost of goods sold during 1996
related to the write-up to the fair market value of work-in-process and
finished goods inventory in connection with the purchase price allocation
for the Chemistry Acquisition.
. A $15.0 million restructuring charge was recorded in 1996 to operating
expense in connection with a restructuring plan designed to lower operating
costs, increase efficiency and eliminate redundant operations.
. The Company recorded a $98.1 million charge to research and development
expense upon consummation of the Chemistry Acquisition pertaining to
purchase price allocated to in-process research and development projects
that have no alternative future use.
. Two extraordinary charges totaling $25.0 million after-tax were made in
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.
. $40.4 million was charged to cost of goods sold in 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 purchase price
allocation for the Dade Acquisition.
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<PAGE>
. A $9.5 million charge to cost of goods sold was recorded in 1996 to
establish a reserve for excess inventories related to the Paramax product
line. This non-cash charge was a direct result of the Chemistry Acquisition
and the decision to designate the Paramax product line as non-core.
. The elimination of the reporting period lag for the Company's international
operations added $12.3 million to the sales for the year ended December 31,
1996. The change in reporting period did not significantly impact earnings.
. In connection with the Dade Acquisition, all non-current assets as of
December 16, 1994 were reduced to zero and negative goodwill was recorded.
Results of Operations
1996 Compared to 1995
Net Sales for 1996 were $795.8 million, an increase of $181.5 million or
29.5% over 1995. The increase was attributable primarily to the Chemistry
Acquisition (particularly the Dimension system), which added $228.6 million of
revenues during the eight months of ownership in 1996. The growth in net sales
was also supported by the Company's other core product lines: microbiology,
immunochemistry, hemostasis and TQC. Sales of the Stratus cardiac
immunochemistry product line showed significant strength increasing $15.4
million or 36.4% over 1995. In connection with the Chemistry Acquisition, the
Paramax and Stratus non-cardiac product lines were designated as non-core due
to product line overlap and to better position and leverage the Company's
product offerings in the cardiac market. Sales of these two non-core product
lines declined in 1996, with combined sales slipping by $61.5 million from
1995 levels. Also impacting sales in 1996 was the adverse impact of foreign
currency exchange as the U.S. dollar strengthened against most other
currencies; the impact in 1996 was to reduce sales by $6.0 million.
Cost of sales increased $75.5 million or 20.5% from 1995 to 1996. Excluding
the non-recurring impacts of the purchase accounting inventory step-ups in
1995 and 1996, and the impact of the Paramax inventory reserve, the increase
was $81.6 million. Gross margins, after giving effect to the above
adjustments, increased from 46.6% in 1995 to 48.5% in 1996. The increase in
gross margins is attributable to the Chemistry Acquisition and successful
initiatives in 1996 to reduce manufacturing costs, offset partially by a
competitive pricing environment and higher levels of depreciation expense.
Marketing and administrative expenses increased by $84.4 million or 49.3% in
1996 as compared to 1995. The majority of this increase is related to the
Chemistry Acquisition, with the balance due to incremental and duplicative
expenses incurred to establish stand-alone finance, information systems and
human resources functions, as the Company prepared for the termination of the
transition services arrangements with Baxter and DuPont.
Research and development expenses increased 50.6% to $39.9 million during
1996, net of the $98.1 million non-recurring write-off of in-process research
and development projects related to the Chemistry Acquisition. This increase
is attributable to eight months of incremental research and development for
the Chemistry product line. Significant research and development expenditures
in 1996 supported the development of the next generation Dimension RxL
instrument, the Platelet Function Analyzer and a new cardiac instrument
platform. Lower research and development expense levels were incurred related
to the de-emphasized Paramax product line.
During 1996, the Company accrued restructuring charges of $15.0 million in
connection with a restructuring plan designed to lower operating costs,
increase efficiency and eliminate redundant operations. Additional
restructuring reserves of $15.0 million were established through the
allocation of the Chemistry Acquisition purchase price. The plan includes
actions to close two production facilities, reorganize the domestic
15
<PAGE>
field service function, downsize operations in Canada, and eliminate
international management and marketing organizational redundancies. A total of
718 positions were identified for elimination as part of these actions, which
are expected to be substantially completed in 1997.
Interest expense for the year ended December 31, 1996 was $65.6 million as
compared to $30.8 million for 1995. The increase is related to the eight
months of increased indebtedness incurred by the Company to finance the
Chemistry Acquisition. Partially offsetting the higher borrowing levels was
the impact of lower rates on the Company's 11 1/8% subordinated notes as
compared to the 13% notes outstanding during 1995.
Other Income in 1996 includes a $2.7 million loss from a write-down of an
investment in marketable equity securities, a gain of $2.8 million related to
the settlement of a patent litigation matter, a loss on the sale of "Net
assets held for sale" of $2.8 million and foreign currency transaction gains
of $1.4 million.
Income tax benefit of $45.4 million (an effective rate of 36.1%) was
recorded for 1996. The Company's pretax loss of $125.7 million was primarily
caused by the purchase accounting adjustments related to the Chemistry
Acquisition as described above. At December 31, 1996 the Company had a net
deferred tax asset of $214.7 million. In assessing the value of the deferred
tax asset, management has analyzed the Company's forecast of future taxable
income by jurisdiction and other relevant factors and concluded that
recoverability of the net deferred tax asset is more likely to occur than not.
The realization of the deferred tax asset is not dependent upon material
improvement over the Company's forecast level of pre-tax income, significant
changes in the current relationship between income reported for financial and
tax purposes, or material asset sales or other transactions not in the normal
course of business.
In connection with the refinancing required for the Chemistry Acquisition, a
premium was paid to retire the senior subordinated notes and previously
deferred financing fees were written off. An extraordinary, net of tax loss of
$25.0 million was recorded in the second quarter to reflect the impact of
these transactions.
For the year ended December 31, 1996 the Company had a net loss of $105.3 as
compared to net income of $12.7 million in 1995. The net loss was due to the
impacts of purchase accounting, increased interest expense related to the
increased level of indebtedness, restructuring charges and incremental and
duplicative operating costs related to the establishment of stand-alone
capabilities. Excluding the impact of purchase accounting, extraordinary
losses and restructuring charges, the Company's 1996 net income would have
been $7.8 million.
1995 Compared to 1994
Net sales in 1995 decreased $55.3 million or 8.3% from 1994. After giving
effect to the reclassification of sales for product lines included in "Net
assets held for sale" and the shorter reporting period for international
results, the decrease was 0.7% on a comparable sales basis. The decrease in
sales is attributable to price reductions for Stratus non-cardiac products,
the loss of a portion of OEM business in the Company's Controls business, and
the lack of a hemostasis instrument offering during the first seven months of
1995. A portion of the hemostasis instrument sales were recovered during the
latter part of 1995 as the TOA instrument line was launched. Growth in the
Company's microbiology line also mitigated the impact of lost hemostasis
instrument sales.
Gross profit margins in 1995, after eliminating the impact of purchase
accounting, approximated the gross margins realized in 1994. During 1995, the
factors described above impacting net sales also proportionately impacted
gross profits. Marketing and administrative expenses decreased in 1995 by $4.5
million to $171.1 million, a decrease of 2.6%. The reduction was largely the
result of purchase accounting adjustments, the reclassification of operating
results for "Net assets held for sale" and the difference relating to
international reporting periods. Excluding those impacts, marketing and
administrative expenses increased 5.4%, principally as a result of incremental
expenses to establish stand-alone capabilities in the areas of finance,
information systems and human resources. Research and development expenses
declined by $8.0 million or 23.2% in 1995 as compared to 1994. After adjusting
for the impact of purchase accounting adjustments, the reclassification of
16
<PAGE>
operating results for "Net assets held for sale" and the shorter reporting
period for international results, research and development expenses declined
only modestly from 1994 levels. The decrease reflected the planned spin-off of
an advanced molecular biology research team, reduced research efforts
associated with the Paramax and Stratus instrument lines and a delay in
staffing open personnel positions in new projects.
At December 31, 1994, the Company had an aggregate reserve of $21.0 million
to cover severance actions ($10.8 million) and direct costs to exit certain
facilities ($10.2 million) as part of a facilities and plant rationalization
program instituted at the time of the Dade Acquisition. The cost of this
program was reflected as part of the allocation of purchase price in
accordance with the purchase method of accounting. Approximately $13.9 million
of the $21.0 million was spent on restructuring projects in 1995.
Income tax expense in 1995 was $7.2 million, which represented a 36.2%
effective rate. As a result of purchase accounting in 1994, the Company
recorded a net deferred tax asset of $125.3 million as of December 31, 1994.
This asset increased to $143.0 million as of December 31, 1995 primarily as a
result of tax net operating losses created by depreciation on historical tax
assets exceeding pre-tax income during the year. In assessing the value of the
deferred tax asset at December 31, 1995, management analyzed the Company's
forecast for future taxable earnings (and losses) by jurisdiction and other
relevant factors and concluded that recoverability of the net deferred tax
asset is more likely to occur than not. The deferred tax asset's realization
is not dependent on material improvement over the 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.
Net income for 1995 declined 62.5% from $33.9 million in 1994 to $12.7
million in 1995. Net income was negatively impacted by the effects of purchase
accounting, the reclassification of operating results for product lines
included in "Net assets held for sale", the shorter reporting period for
international results and by $30.8 million of interest expense attributable to
the debt incurred in connection with the Dade Acquisition.
Financial Condition and Liquidity
The Company's balance sheet underwent a significant transformation in 1996,
triggered by the Chemistry Acquisition. Total assets increased from $550.9
million at December 31, 1995 to $1,008.8 million at December 31, 1996 an
increase of $457.9 million. The assets acquired in the Chemistry Acquisition,
based on the preliminary purchase price allocation, approximated $443.0
million. The significant increases in the following assets during 1996 are
primarily attributable to the Chemistry Acquisition: accounts receivable
($42.9 million), inventories ($33.0 million), property, plant and equipment,
net ($155.2 million), goodwill ($135.3 million), patents and trademarks ($30.0
million), and prepaid pension asset ($26.0 million).
The Chemistry Acquisition required the complete refinancing of the Company's
debt arrangements. The Company submitted a tender offer for its 13% Senior
Subordinated Notes due 2005 which was accepted by all holders. The cost of the
tender offer totaled $146.3 million representing all principal, interest and
tender premiums paid to holders. In addition, the Company retired all of its
existing borrowings under its bank credit facility. To fund these retirements,
the Company entered into the following financing arrangements:
. A new bank credit facility providing amortizing term loans of $460.0
million and up to $125.0 million in a revolving credit facility. At the
date of the Chemistry Acquisition, all of the term loans and $50.0
million of the revolving credit facility were utilized.
. 11 1/8% of Senior Subordinated Notes due 2006 totaling $350.0 million
were issued. These notes were subsequently registered under the
Securities Act of 1993 in the fourth quarter of 1996.
Total liabilities of the Company as of December 31, 1996 are $1,033.8
million, as compared to $469.7 million as of December 31, 1995. The increase
of $564.1 million is substantially attributable to the incremental debt
incurred for the consideration paid and the assumed liabilities related to the
Chemistry Acquisition.
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<PAGE>
The Company's primary liquidity requirements are for working capital,
capital expenditures, restructuring expenditures and debt service. During
1996, proceeds of $54.8 million were received from the sale of assets
classified as "Net assets held for sale"; $20.0 million of these proceeds were
used to repay existing term loans, with the balance used for working capital
purposes. At December 31, 1996, the entire $125.0 million revolving credit
facility was available, reflecting a net paydown of $50.0 million since the
Chemistry Acquisition in May 1996.
Capital expenditures, including instrument placements in customer locations,
totaled $57.3 million in 1996, compared to $35.3 million in 1995. The increase
reflects the impact of eight months of ownership of Dade Chemistry and
investment in reagent rental agreements (in which the Company retains title to
an instrument and recoups the investment through premiums on reagents over a
multi-year period) and incremental investments for stand-alone infrastructure
needs, particularly in the area of information systems. Capital expenditures
in 1997 are expected to approximate 1996 levels.
In 1996, the Company used $15.0 million of cash for restructuring
activities.
Management believes cash from operating activities and the available
revolving credit facility will be sufficient to permit the Company to meet its
financial obligations and fund its operations and planned investments.
Inflation affects the cost of goods and services used by the Company.
Inflation has been modest in recent years. The competitive environment limits
the ability of the Company to recover these higher costs through increased
selling prices, although the Company selectively increases prices for certain
differentiated high value added products. Overall product prices have been
relatively stable during the past three years and the Company continues to
mitigate the adverse effects of inflation primarily through new product
offerings, improved productivity and cost containment and improvement
programs.
Outlook
Management expects sales to grow modestly in 1997 over 1996, with growth in
operating income as the integration of the Chemistry Acquisition is completed
and cost synergies are realized. Revenue growth domestically is subject to a
relatively competitive pricing environment, with an increasing level of
influence by large buying groups. Management believes the Company's broad
product line offerings position it well in such an environment.
Internationally, management anticipates that revenue growth is likely in
Europe, particularly in Germany, and in Japan and Latin America. International
sales results, however, are subject to significant influence by foreign
currency exchange rates.
Continued revenue growth is expected from the Stratus cardiac product line
both domestically and internationally. The introduction of the Platelet
Function Analyzer, launched in Europe at the end of 1996 and expected to be
available in the U.S. market late in 1997, and the introduction of the next
generation Dimension instrument with the heterogeneous module in the second
half of 1997, are both expected to generate new revenue streams. Revenues from
the Paramax product line are expected to decline from 1996 levels, as the
installed instrument base declines and customers are transitioned to the
Dimension line. Revenue decreases from 1996 levels are also expected for the
Stratus non-cardiac line as a result of the Company's overall strategy to
reposition its products and emphasize the cardiac market. Stratus non-cardiac
and Paramax sales represented 12.1% of total sales in 1996.
On March 12, 1997, the Company announced that it had reached an agreement in
principle to merge with Behring Diagnostics, a unit of Hoechst AG. The planned
stock transaction, which is subject to customary conditions including
regulatory approvals, is targeted to close in the summer of 1997 and will
create a combined diagnostics company with global revenues of $1.5 billion.
ITEM 8. FINANCIAL STATEMENTS.
See the attached Combined/Consolidated Financial Statements (pages F-1
through F-32).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Executive officers and directors of Dade are as follows
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Scott T. Garrett................ 47 President, Chief Executive Officer and
Director
Robert W. Brightfelt............ 53 Executive Vice President and Director
James W. P. Reid-Anderson....... 37 Executive Vice President and Chief
Financial Officer
Robert W. Kleinert.............. 45 Executive Vice President
John F. Doherty................. 52 Senior Vice President of Operations
Susan A. Evans.................. 48 Senior Vice President of Research and
Development
Thomas E. Hill.................. 46 Senior Vice President of Human Resources
James E. Mahoney................ 38 Senior Vice President of Business
Development and Strategic Planning
Robert A. Boghosian............. 51 Corporate Vice President of Regulatory
Affairs and Quality Assurance
Dennis A. Taylor................ 53 Corporate Vice President/Controller
Mark E. Nunnelly................ 37 Director
Stephen G. Pagliuca............. 42 Director
Adam Kirsch..................... 35 Director
John P. Connaughton............. 31 Director
Joseph H. Gleberman............. 37 Director
</TABLE>
Scott T. Garrett joined Baxter in 1975 as a product development engineer,
and has served in a number of research, strategic planning and management
positions since that time. Mr. Garrett was named Vice President and General
Manager of the Predecessor's European operations in 1987, and was named
President of the Paramax Systems Division in 1989. Mr. Garrett became
Executive Vice President of the Predecessor in 1990, with responsibility for
all divisions and operations associated with manufactured product lines. Mr.
Garrett is a member of the American Association for Clinical Chemistry and
also currently serves on the Health Industry Manufacturers Association Board
of Directors. He is also a director of Sunol Molecular Corporation. Mr.
Garrett was elected to the additional post of Chairman of Dade on January 1,
1997.
Robert W. Brightfelt joined DuPont in 1967 as a mechanical engineer and has
served in a number of research, supervisory and management positions since
that time. In 1984, Mr. Brightfelt was named Dade Chemistry's New Product
Development Manager and headed an effort to develop and commercialize two new,
fully automated diagnostic testing systems: Dimension and Vista. Following the
successful completion of this effort, Mr. Brightfelt was promoted to worldwide
Marketing Manager of Dade Chemistry in 1987 and to worldwide Business Director
in 1988. Following the Chemistry Acquisition, Mr. Brightfelt became an
Executive
19
<PAGE>
Vice President, responsible for the Clinical Chemistry and Immunochemistry
product lines, and a Director of the Company. Mr. Brightfelt is also a
director of Molecular Biosystems, Inc.
James W. P. Reid-Anderson became Executive Vice President and Chief
Financial Officer in August 1996. Prior to joining the Company, Mr. Reid-
Anderson was Chief Administrative Officer and Chief Financial Officer of
Wilson Sporting Goods; in addition concurrently he was Chief Operating Officer
of Wilson and served as Vice President and General Manager of Wilson's
International Markets. Mr. Reid-Anderson has also served in various financial
positions of increasing responsibility for Pepsico, Inc., Grand Metropolitan
PLC and Mobil Oil Corporation.
Robert W. Kleinert, Jr. joined the Predecessor as a sales representative in
1974 and held various positions with the Predecessor in marketing, product
management and business planning, including President of Clintec Nutrition
Company, a joint venture created by Baxter and Nestle S.A., President of
Baxter Diagnostics Europe, and President of MicroScan prior to becoming
Executive Vice President in 1993. In this role he was responsible for the
Hemostasis, Controls, Immunohemotology, Baxter Equipment and Burdick &
Jackson. Additional duties included the global regional sales organization of
Europe, Japan, North America and worldwide field operations. Mr. Kleinert is
currently responsible for the Hemostasis, controls and immunhemotology product
lines.
John F. Doherty joined Baxter as Manager of Distribution Planning and
Development in 1977, and has held a variety of positions since that time,
including General Manager of Lytening Systems, a division that develops,
manufactures, and sells specialty clinical analyzers for measurement of
electrolytes. Currently, Mr. Doherty is Senior Vice President, Operations and
is responsible for the functional management of manufacturing, distribution
and information systems. This includes cost improvement projects and worldwide
stand alone projects. Prior to joining Baxter, Mr. Doherty was employed by
Price Waterhouse LLP in management consulting and held a number of positions
in computer systems development.
Susan A. Evans has served as the Predecessor's Senior Vice President of
Research and Development since 1991 after serving as Vice President of
Research and Development at the former Dade Division of Baxter. Dr. Evans
joined Baxter as a senior research scientist in 1981 and has held a variety of
other positions. In 1987, Dr. Evans was promoted to Vice President of Research
and Development at Dade, where she was responsible for programs in
immunochemistry, hemostasis, controls and immunohematology. Dr. Evans also is
a director of the American Chemical Society and has held numerous positions
with the American Association for Clinical Chemistry.
Thomas E. Hill served as the Predecessor's Senior Vice President of Human
Resources since 1991. Dr. Hill joined American Hospital Supply in 1980, and
has held a number of positions within the human resource function including
Personnel Planning Consultant, Manager of Personnel Research, Director of
Human Resource Information Systems, Director of Corporate Compensation,
Director of Compensation and Benefits for the Global Businesses and Vice
President of Corporate Human Resource Planning and Staffing for Baxter
Healthcare Corporation.
James E. Mahoney served as the Predecessor's Vice President of Business
Development and Strategic Planning after serving as its Director of Business
Development. He has also served as Senior Vice President in the same capacity
for the Company from its acquisition from Baxter through 1996. Mr. Mahoney is
currently responsible for the TQC product line. Before joining Baxter in
January 1991, Mr. Mahoney was employed by FMC Corporation, where he held
several positions in the areas of business development, investment analysis
and financial planning.
Robert A. Boghosian became Corporate Vice President of Regulatory Affairs
and Quality Assurance in August 1995. For the nine years prior to joining the
Company, Dr. Boghosian held management positions of increasing responsibility
in Clinical, Regulatory and Quality Affairs, Research and Development and
General Management for Johnson & Johnson Corporate and Ortho Diagnostic
Systems Inc. From 1969 to 1986, Dr. Boghosian held Operations and Research
management positions for Warner-Lambert's IVD and pharmaceutical businesses.
Dennis A. Taylor has served as the Vice President/Controller for Baxter's
Surgical Group until joining Dade in January, 1995. Mr. Taylor began his
career with American Hospital Supply Corporation in 1965 where he
20
<PAGE>
held a variety of positions in financial management including Vice
President/Controller of its MicroScan Division. In 1988, Mr. Taylor was
promoted to the position of Vice President/Controller for Baxter's Operating
Room Division, which was later reorganized into the Surgical Group.
Mark E. Nunnelly has been a managing director of Bain Capital since May,
1993, and a general partner of Bain Venture Capital since 1990. Prior to
joining Bain Venture Capital, Mr. Nunnelly was a partner at Bain & Company
where he managed several relationships in the manufacturing sector and he also
served with Procter and Gamble in product management. He serves on the board
of several companies including Corporate Software, EduServ Technologies, SR
Research and Strategic Mapping.
Stephen G. Pagliuca has been a managing director of Bain Capital since May
1993, and a general partner of Bain Venture Capital since 1989. Prior to
joining Bain Venture Capital, Mr. Pagliuca was a partner at Bain & Company,
where he worked extensively in the health care arena. He also worked as a
senior accountant and international tax specialist for Peat Marwick Mitchell &
Company in the Netherlands. He serves on the board of several companies
including Gartner Group, Coram Healthcare, Physio Control, Wessley Jessen and
VIVRA.
Adam Kirsch has been a managing director of Bain Capital since May 1993 and
a general partner of Bain Venture Capital since 1990. Mr. Kirsch joined Bain
Venture Capital in 1985 as an associate and prior to joining Bain Venture
Capital, Mr. Kirsch was a consultant at Bain & Company, where he worked in
mergers and acquisitions. He serves on the board of several companies
including Duane Reade, Stage Stores and Brookstone.
John P. Connaughton has been a principal of Bain Capital since 1995 and a
member of the firm since 1989. Prior to joining Bain Capital in 1989, Mr.
Connaughton was a consultant at Bain & Company where he worked in consumer
products and healthcare strategy consulting. Following the Chemistry
Acquisition, Mr. Connaughton became a Director of the Company.
Joseph H. Gleberman is a partner in the Principal Investment Area of
Goldman, Sachs & Co. He joined Goldman Sachs in 1982 in the Mergers and
Acquisitions Department and became a partner of the firm in 1990. In 1990 he
became head of Mergers and Acquisitions for Asia and moved to Tokyo. Mr.
Gleberman joined the Principal Investment Area in 1993 and returned to New
York. He currently serves as a director of Applied Analytical Industries,
Inc., BCP/Essex Holdings Inc., Biofield Corporation and I-NET, Inc.
21
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth information concerning the compensation for
1994, 1995 and 1996 for Mr. Garrett, the chief executive officer, and the four
other most highly compensated officers of Dade (collectively, the "named
executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------- ------------------------------------------
NAME AND PRINCIPAL OPTIONS(1)/ LTIP ALL OTHER
POSITION YEAR SALARY($) BONUS($) SAR(#) PAYMENTS($)(2) COMPENSATION($)
------------------ ---- --------- -------- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Scott T. Garrett....... 1996 310,602 55,650 -- -- 4,500(3)
President, Chief
Executive Officer -- -- -- -- 13,368(4)
and Director -- -- -- -- 9,900(9)
1995 297,480 285,000 129,000 -- 4,500(3)
-- -- -- -- 9,750(4)
1994 234,450 175,000 -- -- 350,000(5)
-- -- -- -- 4,500(7)
-- -- -- -- 5,835(8)
Robert W. Kleinert..... 1996 202,862 32,687 -- -- 4,500(3)
Executive Vice
President -- -- -- -- 6,914(4)
-- -- -- -- 6,300(9)
1995 198,707 177,600 29,500 11,875 4,500(3)
-- -- -- -- 3,586(4)
1994 192,096 70,596 -- -- 185,000(5)
-- -- -- -- 90,000(6)
-- -- -- -- 4,500(7)
-- -- -- -- 2,515(8)
James W. P. Reid-
Anderson.............. 1996 116,769 148,500 69,000 -- --
Executive Vice
President and Chief
Financial Officer
John F. Doherty........ 1996 172,700 44,509 -- -- 4,500(3)
Senior Vice President
of Operations -- -- -- -- 4,200(4)
1995 166,546 117,300 29,500 8,125 4,500(3)
1994 149,686 56,246 -- -- 185,000(5)
-- -- -- -- 70,000(6)
-- -- -- -- 4,500(7)
-- -- -- -- 780(8)
Thomas E. Hill......... 1996 162,800 36,830 -- -- 4,500(3)
Senior Vice President
of -- -- -- -- 3,605(4)
Human Resources
1995 161,323 107,350 22,500 8,125 4,500(3)
-- -- -- -- 1,644(4)
1994 155,575 43,307 -- -- 185,000(5)
-- -- -- -- 75,000(6)
-- -- -- -- 4,500(7)
-- -- -- -- 1,055(8)
</TABLE>
- --------
(1) The options were granted under Holdings' Executive Management Equity Plan.
(2) The Predecessor issued value rights under the Baxter Diagnostics Inc. Long
Term Incentive Plan. No new Value Rights were issued in 1996, 1995, or
1994. Dade's board of directors approved a set price of $2.50 per value
right to be paid to holders of existing Value Rights in two equal
installments if Dade met EBITDA targets in 1995 and 1996. Dade met its
1995 EBITDA targets, and as a result, half of the value rights were paid
out. The EBITDA target was not reached in 1996 and according of all value
rights expired as of December 31, 1996.
22
<PAGE>
(3) Reflects amounts contributed by Dade for the benefit of the named
executive officers under the Dade Savings Investment Plan.
(4) Reflects amounts contributed by Dade for the benefit of the named
executive officer under the Dade Deferred Compensation Plan.
(5) Reflects amounts paid to the named executive by Baxter under the Baxter
Divestiture Management Bonus Arrangement.
(6) Reflects amounts paid to the named executive by Baxter under the Baxter
Retention Bonus Arrangement.
(7) Reflects amounts contributed by Dade for the benefit of the named
executive officer under the Baxter Incentive Investment Plan.
(8) Reflects amounts contributed by Dade for the benefit of the named
executive officer under the Baxter Incentive Investment Supplemental Plan.
(9) Reflects amount provided by the Company for an automobile allowance.
The following table sets forth information concerning the option grants by
Holdings in 1996 to each of the named executive officers:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE
APPRECIATION OF
INDIVIDUAL GRANTS OPTION TERMS
-------------------------------------------------------- -----------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED EXERCISE OR
OPTIONS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION
NAME (#)(2) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- --------------- -------------- ----------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
James W.P. Reid-Anderson 47,000 21.7% $ 4.00 July 28, 2005 $101,817 $245,856
11,000 5.1% $ 7.00 July 28, 2005 -- --
11,000 5.1% $16.00 July 28, 2005 -- --
</TABLE>
- --------
(1) These amounts represent certain assumed rates of appreciation in
accordance with rules of the Commission. Holdings' common stock is not
publicly traded. The assumed fair values of Holdings Common Stock (as
defined herein) and Class L Common (as defined herein) are $4.00/share and
$44.00/share, respectively, the values determined by Holdings' board of
directors in a resolution dated June 21, 1996.
(2) All options were granted for shares of Holdings' Common Stock (as defined
herein) pursuant to the Diagnostic Holding, Inc. Executive Management
Equity Plan.
(3) The stock options expire earlier upon the termination of the employee.
23
<PAGE>
The following table summarizes exercises of stock options and stock
appreciation rights ("SARs") granted by Baxter and the Company in prior years
by the named executive officers in the past year, as well as the number and
value of all unexercised options and SARs held by such executive officers at
the end of 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS/SARS
OPTIONS/SARS AT AT FISCAL
COMPANY BAXTER FISCAL YEAR END YEAR END
----------------------- ----------------------- ---------------- -------------
SHARES SHARES
ACQUIRED ON VALUE ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED(3) EXERCISE REALIZED(3) UNEXERCISABLE(4) UNEXERCISABLE
---- ----------- ----------- ----------- ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Scott T. Garrett........ 13,200 $46,200 19,287 $212,570 13,200/115,800 --
Robert W. Kleinert...... 1,300 $ 5,200 13,505 $105,780 1,300/ 28,200 --
James W.P. Reid-
Anderson............... 0 0 0 0 40,000/ 29,000 --
John F. Doherty......... 1,300 $ 5,200 4,683 $ 44,070 1,300/ 28,200 --
Thomas E. Hill.......... 900 $ 3,150 6,072 $ 58,960 900/ 21,000 --
</TABLE>
- --------
(1) Holdings' common stock is not publicly traded. The assumed fair values of
Holdings Common Stock (as defined) and Class L Common (as defined) at
December 31, 1996 are $4.00/share and $44.00/share, respectively, the
values determined by Holdings' board of directors in a resolution dated
June 21, 1996.
(2) Reflects the exercise of stock options for Baxter's common stock that were
granted to the named executive officers prior to the Acquisition.
(3) The value realized is the difference between the market price of the
shares on the exercise date and the exercise price for each of the
exercised options.
(4) The Executive Stock Purchase and Option Plan was amended in 1996 to
provide vesting of 40,000 options on Holdings Common Shares effective
December 31, 1996 in regard to Mr. Reid-Anderson.
The following table sets forth anticipated annual pension plan benefits
based on a participant's average final remuneration and the number of years of
participation in Dade's pension plan.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF PLAN PARTICIPATION
---------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
125,000................................. 32,813 43,750 54,688 65,625 76,563
150,000................................. 39,375 52,500 65,625 78,750 91,875
175,000................................. 45,938 61,250 76,563 91,875 107,188
200,000................................. 52,500 70,000 87,500 105,000 122,500
225,000................................. 59,063 78,750 98,438 118,125 137,813
250,000................................. 65,625 87,500 109,375 131,250 153,125
300,000................................. 78,750 105,000 131,250 157,500 183,750
400,000................................. 105,000 140,000 175,000 210,000 245,000
450,000................................. 118,125 157,500 196,875 236,250 275,625
500,000................................. 131,250 175,000 218,750 262,500 306,250
</TABLE>
- --------
The above estimated pension benefit amounts assume that benefit payments
begin at age 65 under a single life annuity form. Such amounts do not reflect
the social security offset incorporated by the pension benefit formula. The
social security offset amount is determined by a participant's social security
earnings history and normal retirement date of age 65. The estimated pension
amounts include benefits payable from the qualified and non-qualified pension
plans. The non-qualified pension plan provides benefits derived by the
qualified plan's formula which exceed legal maximum benefit limitations.
24
<PAGE>
The pension benefit formula is:
1.75% of "Final Average Pay" multiplied by the number of years of plan
participation
minus
1.75% of "social security PIA" multiplied by the number of years of
plan participation (social security offset not to exceed 60% of PIA)
where "Final Average Pay" is defined as a participant's five highest
consecutive calendar year earnings (base salary and bonus) out of the last ten
calendar years before retirement.
As of January 1, 1997, the named executive officers' years of plan
participation and Final Average Pay for purposes of calculating pension
benefits payable under the Pension Plan are as follows: Mr. Garrett, 20 years
and $405,936; Mr. Kleinert, 22 years and $252,812; Mr. Reid Anderson, 0 years
and $0, Mr. Doherty, 18 years and $200,027; Dr. Hill, 15 years and $196,184.
COMPENSATION OF DIRECTORS
Directors are not entitled to receive any compensation for serving on Dade's
Board of Directors. Directors are reimbursed for their out-of-pocket expenses
incurred in connection with such services.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Dade is a wholly owned subsidiary of Holdings. The common stock of Holdings
consists of Common Stock, par value $.01 per share (the "Common Stock"), and
Class L Common Stock, par value $.01 per share (the "Class L Common"). The
holders of Class L Common have no voting rights except as required by law. The
holders of the Common Stock are entitled to one vote per share on all matters
to be voted upon by the stockholders of Holdings, including the election of
directors. Bain Capital and its related investors and GS Capital and its
related investors own 58.2% and 29.1%, respectively, of the Common Stock and
are parties to a stockholder agreement regarding the ownership (including the
voting) of such stock. By virtue of such stock ownership and stockholder
agreement, Bain Capital and GS Capital have the power to control all matters
submitted to a vote of stockholders of, and to elect all directors of,
Holdings and, indirectly, to elect all directors of Dade. In 1995 and 1996,
certain members of Dade's management acquired voting common stock of Holdings,
and members of Dade's management are eligible to receive additional common
stock of Holdings in part based upon the operating performance of Dade.
The following tables set forth certain information as of December 31, 1996
regarding the beneficial ownership of (i) voting common stock by each person
(other than directors and executive officers of Dade) known to Dade to own
more than 5% of the outstanding voting common stock of Holdings and (ii)
voting and non-voting common stock by each director of Dade, each named
executive officer and all of Dade's directors and executive officers as a
group. To the knowledge of Dade, each of such stockholders has sole voting and
investment power as to the shares shown unless otherwise noted.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
COMMON STOCK (VOTING)
----------------------
NAME AND
ADDRESS
OF BENEFICIAL NUMBER OF PERCENTAGE
OWNER SHARES OF CLASS (1)
------------- --------- ------------
<S> <C> <C>
Bain Capital Entities (2)......................... 5,960,000 58.2%
c/o Bain Capital
Two Copley Place
Boston, Massachusetts 02116
The Goldman Sachs Group, L.P. and related
investors (3).................................... 2,980,000 29.1%
85 Broad Street
New York, NY 10004
</TABLE>
- --------
(1) The percentages assume that all options held by Dade's management have
been exercised. Certain of the options held by Dade's management are
exercisable in accordance with certain time and performance criteria.
25
<PAGE>
(2) Amounts shown represent the aggregate number of shares held by Bain Capital
Fund IV, L.P., Bain Capital Fund IV-B, L.P., BCIP Associates and BCIP Trust
Associates, L.P. (the "Bain Capital Entities").
(3) Includes shares beneficially owned by certain investment limited
partnerships of which affiliates of The Goldman Sachs Group, L.P. ("GS
Group") are the general partners or the managing general partners. GS Group
disclaims beneficial ownership of shares held by such investment
partnerships to the extent partnership interests in such partnerships are
held by persons other than GS Group and its affiliates.
SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS
<TABLE>
<CAPTION>
COMMON STOCK CLASS L COMMON STOCK
(VOTING) (NON-VOTING)
-------------------- -----------------------
PERCENTAGE PERCENTAGE
NUMBER OF OF NUMBER OF OF
NAME OF BENEFICIAL OWNER SHARES(1) CLASS(1) SHARES(1) CLASS(1)
- ------------------------ --------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Scott T. Garrett.................. 209,100 2.0% 8,900 0.9%
Robert W. Kleinert................ 74,500 0.7% 5,000 0.5%
James W. P. Reid-Anderson......... 69,000 0.7% 400 -- %
John F. Doherty................... 74,500 0.7% 5,000 0.5%
Thomas E. Hill.................... 49,500 0.5% 3,000 0.3%
Robert W. Brightfelt.............. 67,200 0.6% 2,800 0.3%
Mark E. Nunnelly (2).............. 5,960,000 58.2% 662,222.22 63.4%
Stephen G. Pagliuca (2)........... 5,960,000 58.2% 662,222.22 63.4%
Adam Kirsch (2)................... 5,960,000 58.2% 662,222.22 63.4%
John P. Connaughton (2)........... 5,960,000 58.2% 662,222.22 63.4%
Joseph H. Gleberman (3)........... 2,980,000 29.1% 331,111.11 31.7%
All executive officers and
directors of Dade as a group
(13 persons)..................... 9,739,350 95.1% 1,030,783.33 98.6%
</TABLE>
- --------
(1) The number of shares held by management and the percentages assume that all
options held by management have been exercised. Certain options held by
management are exercisable in accordance with certain time and performance
criteria.
(2) All of the shares shown are held by the Bain Capital Entities. Messrs.
Kirsch, Nunnelly, Connaughton and Pagliuca, who serve as directors of Dade,
and are managing directors of Bain Capital, which is the general partner of
certain of the Bain Capital Entities, and are limited partners of Bain
Capital Partners IV, L.P., the general partner of certain of the Bain
Capital Entities. Accordingly, Messrs. Kirsch, Nunnelly, Connaughton and
Pagliuca may be deemed to share voting and dispositive power as to the
shares held by the Bain Capital Entities. Messrs. Kirsch, Nunnelly,
Connaughton and Pagliuca disclaim beneficial ownership of such shares.
(3) Mr. Gleberman is a general partner of Goldman, Sachs & Co. The shares
reported herein include shares beneficially owned by certain investment
limited partnerships of which affiliates of The Goldman Sachs Group, L.P.
("GS Group") are the general partners or the managing general partners. Mr.
Gleberman disclaims beneficial ownership of such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
MANAGEMENT SERVICES AGREEMENTS
On December 20, 1994, Dade entered into 5-year Management Services Agreements
with Bain Capital and Goldman, Sachs & Co., an affiliate of GS Capital (the
"Management Services Agreements"), pursuant to which it pays Bain Capital and
Goldman, Sachs & Co. an aggregate annual fee of up to $2.0 million, subject to
compliance with the terms of the Indenture, plus their respective out-of-pocket
expenses. In connection with the Chemistry Acquisition, the Company paid Bain
Capital and Goldman, Sachs & Co. at closing, in the aggregate, a cash financial
advisory fee of $15.0 million, plus their respective out-of-pocket expenses.
Additionally, the Company entered into an amended Management Services Agreement
with Bain Capital pursuant to which the Company will pay an aggregate annual
fee of $3.0 million plus their respective out-of-pocket expenses to Bain
Capital and Goldman, Sachs & Co., subject to compliance with the terms of the
Indenture. Pursuant to the
26
<PAGE>
Management Services Agreements, Bain Capital and Goldman, Sachs & Co. have
provided, and continue to provide, management consulting in the areas of
corporate finance, corporate strategy, investment analysis, market research and
business development, advisory services and support, negotiation and analysis
of financial alternatives, acquisitions and dispositions and other services.
Dade believes that the fees received for the professional services rendered are
at least as favorable to Dade as those which could be negotiated with an
unaffiliated third party.
STOCK PURCHASE AGREEMENT
On December 20, 1994, Holdings, Bain Capital Fund IV, L.P., Bain Capital Fund
IV-B, L.P., GS Capital Partners, L.P. and certain other parties signatory
thereto entered into a Stock Purchase Agreement (the "Stock Purchase
Agreement") whereby the Company paid, in the aggregate, a cash financial
advisory fee and related out-of-pocket expenses of $5.1 million to Bain Capital
and $1.5 million to Goldman, Sachs & Co. Pursuant to the Stock Purchase
Agreement, Bain Capital and Goldman, Sachs & Co. devoted significant resources
and incurred significant expenses to the analysis, negotiation and financing of
the Dade Acquisition. Dade believes that the fees received for the professional
services rendered were at least as favorable to Dade as those which could be
negotiated with an unaffiliated third party.
STOCKHOLDERS AGREEMENT
On December 20, 1994, Holdings, Bain Capital Fund IV, L.P., Bain Capital Fund
IV-B, L.P., GS Capital Partners, L.P. and certain other parties signatory
thereto entered into a Stockholders Agreement (the "Stockholders Agreement")
whereby prior to the fifth anniversary of the date of the Stockholders
Agreement, if Holdings requires certain services of an investment banking firm,
Holdings agrees to retain Goldman, Sachs & Co. to provide such services unless
Holdings' Board of Directors determines that the retention of another
investment banking firm would provide a material additional benefit to
Holdings.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report.
(i) See "Index to Financial Statements and Schedule" on page F-1 hereof.
(ii) See "Index to Exhibits" on page X-1 hereof.
(b) Reports on Form 8-K.
(i) Dade filed, on May 22, 1996, a report on Form 8-K related to the May
7, 1996 acquisition of the in vitro diagnostics business of E.I. Du Pont
de Numours and Company and certain of its affiliates.
27
<PAGE>
DADE INTERNATIONAL INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... F-2
Report of Independent Accountants--Predecessor............................ F-3
Consolidated Balance Sheet as of December 31, 1995 and December 31, 1996.. F-4
Combined Statements of Operations for the period from January 1, 1994
through December 16, 1994 (Predecessor) and Consolidated Statements of
Operations for the period from December 17, 1994 through December 31,
1994 and the years ended December 31, 1995 and December 31, 1996......... F-5
Combined Statements of Cash Flows for the period from January 1, 1994
through December 16, 1994 (Predecessor) and Consolidated Statements of
Cash Flows for the period from December 17, 1994 through December 31,
1994 and the years ended December 31, 1995 and December 31, 1996......... F-6
Consolidated Statements of Changes in Stockholder's Equity (Deficit) for
the period from December 17, 1994 through December 31, 1994 and the years
ended December 31, 1995 and December 31, 1996............................ F-7
Notes to Combined/Consolidated Financial Statements....................... F-8
Financial Statements Schedule (Schedule II)............................... F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
of Dade International Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of changes in
stockholder's equity (deficit) present fairly, in all material respects, the
financial position of Dade International Inc. (a wholly-owned subsidiary of
Diagnostics Holding, Inc.) and its subsidiaries (the Company) at December 31,
1996 and 1995, and the results of their operations and their cash flows for
the years ended December 31, 1996 and 1995 and for the period from December
17, 1994 (inception) through December 31, 1994, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Chicago, Illinois
March 3, 1997, except as to Note 20,
which is as of March 12, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Baxter International Inc.
In our opinion, the accompanying combined statements of operations and of
cash flows present fairly, in all material respects, the results of operations
and cash flows of the in vitro diagnostics products manufacturing and services
businesses of Baxter Diagnostics, Inc. and certain of its affiliates ("BDI")
(the predecessor entity of Dade International Inc.) for the period from January
1, 1994 through December 16, 1994, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
BDI's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Chicago, Illinois
March 20, 1995
F-3
<PAGE>
DADE INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS, EXCEPT SHARE-RELATED DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
ASSETS
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 27.9 $ 3.7
Accounts receivable, net........................... 140.9 183.8
Inventories........................................ 122.0 155.0
Prepaid expenses and other current assets.......... 11.1 9.6
Net assets held for sale........................... 54.9 --
Deferred income taxes.............................. 34.4 45.5
------ --------
Total current assets............................. 391.2 397.6
------ --------
Property, plant and equipment, net................... 31.8 187.0
Debt issuance costs, net............................. 19.1 42.4
Goodwill, net........................................ -- 135.3
Patents and trademarks, net.......................... -- 30.0
Deferred income taxes................................ 105.5 171.9
Prepaid pension asset................................ -- 26.0
Other................................................ 3.3 18.6
------ --------
Total assets..................................... $550.9 $1,008.8
====== ========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
- ----------------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt.................. $ 5.8 $ 3.4
Short-term debt.................................... 2.1 15.8
Accounts payable................................... 56.5 60.2
Accrued liabilities................................ 105.9 146.5
------ --------
Total current liabilities........................ 170.3 225.9
------ --------
Long-term debt, less current portion............... 157.7 436.6
Senior subordinated notes.......................... 120.0 350.0
Other liabilities.................................. 21.7 21.3
------ --------
Total liabilities................................ 469.7 1,033.8
------ --------
Commitments and contingencies (Note 18).............. -- --
Stockholder's equity:
Common stock, $.01 par value, 1000 shares
authorized, issued and outstanding................ -- --
Additional paid-in capital......................... 87.0 87.2
Notes receivable on capital contribution........... (0.2) --
Accumulated deficit................................ (5.0) (110.3)
Unrealized gain (loss) on marketable equity
securities........................................ (1.1) 0.1
Cumulative translation adjustment.................. 0.5 (2.0)
------ --------
Total stockholder's equity (deficit)............. 81.2 (25.0)
------ --------
Total liabilities and stockholder's equity
(deficit)....................................... $550.9 $1,008.8
====== ========
</TABLE>
See accompanying notes to combined/consolidated financial statements.
F-4
<PAGE>
DADE INTERNATIONAL INC.
COMBINED/CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PREDECESSOR
------------
PERIOD FROM PERIOD FROM
JANUARY 1, DECEMBER 17, YEARS ENDED
1994 THROUGH 1994 THROUGH DECEMBER 31,
DECEMBER 16, DECEMBER 31, ---------------
1994 1994 1995 1996
------------ ------------ ------ -------
<S> <C> <C> <C> <C>
Net Sales.......................................................................... $650.6 $19.0 $614.3 $ 795.8
Operating costs and expenses:
Cost of goods sold............................................................... 391.4 18.6 368.6 444.1
Marketing and administrative expenses............................................ 173.2 2.4 171.1 255.5
Research and development expenses................................................ 33.4 1.1 26.5 138.0
Goodwill amortization expense (credit)........................................... 2.6 (0.1) (0.4) 3.3
Restructuring and other related costs............................................ -- -- -- 15.0
------ ----- ------ -------
Income (loss) from operations...................................................... 50.0 (3.0) 48.5 (60.1)
Other income (expense):
Interest expense................................................................. -- (1.2) (30.8) (65.6)
Other............................................................................ -- -- 2.2 --
------ ----- ------ -------
Income (loss) before income taxes.................................................. 50.0 (4.2) 19.9 (125.7)
Income tax expense (benefit)....................................................... 14.2 (2.3) 7.2 (45.4)
------ ----- ------ -------
Income (loss) before extraordinary items........................................... 35.8 (1.9) 12.7 (80.3)
Extraordinary items (net of tax benefit of $14.7):
Write-off of deferred financing fees............................................. -- -- -- (11.4)
Premium on purchase of 13% senior subordinated notes............................. -- -- -- (13.6)
------ ----- ------ -------
Net income (loss).................................................................. $ 35.8 $(1.9) $ 12.7 $(105.3)
- --------------------------------------------------
====== ===== ====== =======
</TABLE>
See accompanying notes to combined/consolidated financial statements.
F-5
<PAGE>
DATE INTERNATIONAL INC.
COMBINED/CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PREDECESSOR
------------
PERIOD FROM PERIOD FROM
JANUARY 1, DECEMBER 17, YEARS ENDED
1994 THROUGH 1994 THROUGH DECEMBER 31,
DECEMBER 16, DECEMBER 31, ----------------
1994 1994 1995 1996
------------ ------------ ------- -------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................................................ $ 35.8 $ (1.9) $ 12.7 $(105.3)
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........................................... 59.6 -- 7.7 44.1
Write-off of inventory step-up.................................................. -- 5.6 40.4 24.8
Non-cash write-off of excess spare parts........................................ -- -- -- 9.5
Restructuring and other related costs........................................... -- -- -- 15.0
Loss on sale of net assets held for sale........................................ -- -- -- 2.8
Loss on write-down of marketable equity securities.............................. -- -- -- 2.7
Premium on purchase of 13% senior subordinated notes............................ -- -- -- 21.6
Write-off of deferred financing costs........................................... -- -- -- 18.1
Deferred income taxes (benefit)................................................. -- (2.5) 1.6 (48.2)
Changes in balance sheet items:
Accounts receivable, net........................................................ 29.1 (11.6) (76.9) 1.0
Inventories, net of write-off of inventory step-up.............................. 4.0 1.7 0.8 (6.9)
Accounts payable................................................................ (1.5) 5.6 32.2 5.2
Accrued liabilities............................................................. (7.2) 6.2 5.0 (34.2)
Other........................................................................... (15.3) (6.1) (5.5) (11.8)
------ ------- ------- -------
Net cash flow provided (utilized) by operating activities...................... 104.5 (3.0) 18.0 36.5
------ ------- ------- -------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired............................................... -- (68.3) -- (522.5)
Proceeds from Baxter for purchase price adjustments, net......................... -- -- 8.0 9.7
Cash "restricted" for installment purchase price................................. -- (200.0) -- --
Purchase of marketable equity securities......................................... -- -- (2.0) --
Capital expenditures............................................................. (29.9) (1.0) (35.3) (57.3)
------ ------- ------- -------
Net cash flow utilized by investing activities................................. (29.9) (269.3) (29.3) (570.1)
------ ------- ------- -------
FINANCING ACTIVITIES:
Issuance of common stock......................................................... -- 45.0 -- --
Contribution from stockholder.................................................... -- -- 1.8 0.4
Debt issuance costs.............................................................. -- (20.3) (1.7) (46.2)
Proceeds from short-term debt.................................................... -- -- 2.1 15.7
Cash dividend to parent for redemption of parent's preferred stock from Baxter... -- -- (15.8) --
Proceeds from revolving credit facility.......................................... -- -- 23.0 205.0
Repayment of borrowings under revolving credit facility.......................... -- -- (23.0) (205.0)
Proceeds from issuance of 11 1/8% senior subordinated notes...................... -- -- -- 350.0
Proceeds from issuance of 13% senior subordinated notes.......................... -- 120.0 -- --
Repayment of borrowings and premium paid on 13% senior subordinated notes........ -- -- -- (141.6)
Proceeds from long-term loans.................................................... -- 150.0 35.0 460.0
Repayment of borrowings under long-term loans.................................... -- -- (21.5) (183.5)
Proceeds from sale of net assets held for sale................................... -- -- 16.5 54.8
Payments to Baxter............................................................... (74.6) -- -- --
------ ------- ------- -------
Net cash flow provided (utilized) by financing activities........................ (74.6) 294.7 16.4 509.6
------ ------- ------- -------
Effect of foreign exchange rates on cash......................................... -- -- 0.4 (0.2)
------ ------- ------- -------
Net increase (decrease) in cash and cash equivalents............................. -- 22.4 5.5 (24.2)
CASH AND CASH EQUIVALENTS:
Beginning of Period.............................................................. -- -- 22.4 27.9
------ ------- ------- -------
End of Period.................................................................... $ -- $ 22.4 $ 27.9 $ 3.7
====== ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest......................................... $ -- $ 0.5 $ 25.0 $ 62.0
====== ======= ======= =======
Cash paid during the period for income taxes..................................... $ -- $ -- $ 7.7 $ 2.4
====== ======= ======= =======
Acquisition consideration contributed by parent.................................. $ -- $ 40.0 $ -- $ --
====== ======= ======= =======
Installment note payable to Baxter for partial acquisition consideration......... $ -- $ 200.0 $ -- $ --
====== ======= ======= =======
Installment note to Baxter paid from restricted cash............................. $ -- $ -- $(200.0) $ --
- --------------------------------------------------
====== ======= ======= =======
</TABLE>
See accompanying notes to combined/consolidated financial statements.
F-6
<PAGE>
DADE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
COMMON STOCK
-------------
UNREALIZED
GAIN
NOTES (LOSS) ON
ADDITIONAL RECEIVABLE MARKETABLE CUMULATIVE TOTAL
PAID IN ON CAPITAL ACCUMULATED EQUITY TRANSLATION STOCKHOLDER'S
SHARES AMOUNT CAPITAL CONTRIBUTION DEFICIT SECURITIES ADJUSTMENT DEFICIT
------ ------ ---------- ------------ ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 16,
1994................... -- $-- $ -- $-- $ -- $ -- $ -- $ --
----- ---- ------ ---- ------- ----- ----- ------
Issuance of common
stock.................. 1,000 -- 45.0 45.0
Capital contribution.... 40.0 40.0
Net loss................ (1.9) (1.9)
----- ---- ------ ---- ------- ----- ----- ------
Balance at December 31,
1994................... 1,000 -- 85.0 -- (1.9) -- -- 83.1
----- ---- ------ ---- ------- ----- ----- ------
Capital contribution.... 2.0 2.0
Notes receivable on
capital contribution... (0.2) (0.2)
Net income.............. 12.7 12.7
Cash dividend to parent
on common stock........ (15.8) (15.8)
Unrealized loss on
marketable equity
securities............. (1.1) (1.1)
Cumulative translation
adjustment 0.5 0.5
----- ---- ------ ---- ------- ----- ----- ------
Balance at December 31,
1995................... 1,000 -- 87.0 (0.2) (5.0) (1.1) 0.5 81.2
----- ---- ------ ---- ------- ----- ----- ------
Net loss................ (105.3) (105.3)
Capital contribution
from shareholder....... 0.4 0.4
Recognition of other
than temporary
impairment of
marketable equity
securities............. 1.1 1.1
Unrealized gain on
marketable equity
securities............. 0.1 0.1
Dividends to parent..... (0.2) 0.2 --
Cumulative translation
adjustment............. (2.5) (2.5)
----- ---- ------ ---- ------- ----- ----- ------
Balance at December 31,
1996................... 1,000 $-- $ 87.2 $-- $(110.3) $ 0.1 $(2.0) $(25.0)
===== ==== ====== ==== ======= ===== ===== ======
</TABLE>
See accompanying notes to combined/consolidated financial statements.
F-7
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Dade International Inc., as successor by merger to Dade Acquisition, Inc.,
(the "Company") was incorporated in Delaware in 1994 to effect the acquisition
(the "Dade Acquisition") of the in vitro diagnostics products manufacturing and
services businesses and net assets of Baxter Diagnostics, Inc. and certain of
its affiliates ("BDI" or "Predecessor"), from Baxter International Inc. and its
affiliates ("Baxter"). 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. ("Bain Capital") and GS Capital Partners,
L.P., an affiliate of the Goldman Sachs Group, L.P. ("GS Capital"), their
respective related investors and the management of the Company own
substantially all of the capital stock of Holdings at December 31, 1996.
The Dade Acquisition was completed on December 20, 1994, effective as of
December 16, 1994, under the terms of the purchase agreement between Baxter and
Holdings ("Purchase and Sale Agreement"). The financial statements for the
post-Dade Acquisition period present the consolidated accounts of the Company.
For the pre-Dade Acquisition period, the combined financial statements present
the operations of BDI purchased by the Company.
The financial statements of the Company and BDI are not comparable in certain
respects due to differences between the cost bases of certain assets and
liabilities as well as Baxter having retained a significant portion of BDI's
trade receivables at December 16, 1994. The Predecessor financial statements
represent the "carve-out" results of operations and cash flows for the period
presented. Certain corporate and group general and administrative expenses of
Baxter have been allocated to BDI on various bases which, in the opinion of
management, are reasonable (Note 14). However, such expenses are not
necessarily indicative of the nature and level of expenses which might have
been incurred had BDI been operating as a separate company.
The combined statements of operations of BDI include the results of
operations of Burdick & Jackson and Bartels which, during the Dade Acquisition,
were identified by the Company as Assets held for sale (Note 7). Consequently,
the post-Dade Acquisition results of operations for these two businesses have
been excluded from the Company's 1994 and 1995 Consolidated Statements of
Operations.
Effective May 1, 1996, the Company acquired ("Chemistry Acquisition") the
world-wide in vitro diagnostics business ("Dade Chemistry") of E.I. du Pont de
Nemours and Company ("Du Pont") (Note 4). The results of operations of Dade
Chemistry and the allocation of purchase price to the acquired assets and
assumed liabilities, as determined in accordance with the purchase method of
accounting, are included in the Company's consolidated financial statements
since the effective date of the Chemistry Acquisition.
2. CHANGE IN INTERNATIONAL REPORTING PERIOD
Results of operations outside the United States and Puerto Rico
("International Operations") for the period December 1, 1993 through December
16, 1994 are included in the Predecessor's 1994 Combined Statement of
Operations while International Operations' results are excluded from the
Company's Consolidated Statement of Operations for the period from December 17,
1994 through December 31, 1994. For 1995, International Operation's balance
sheet amounts at November 30, 1995 are included in the Company's Consolidated
Balance Sheet at December 31, 1995. Furthermore, results of International
Operations for the period from December 17, 1994 through November 30, 1995 are
included in the Company's 1995 Consolidated Statement of Operations. Neither
the inclusion of twelve and one-half months of International Operations in the
Predecessor's combined results of operations for 1994, nor the omission of one-
half month of International Operations from the Company's 1994 and 1995
consolidated results of operations are material to the combined or consolidated
financial statements.
F-8
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective January 1, 1996, the Company's International Operations, which
previously reported financial results on a fiscal year ending November 30,
changed to a calendar year-end. As a consequence, the Company's results of
operations for 1996 include 13 months of International Operations' results.
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 reported net sales of approximately $12.3 million, thus
increasing consolidated net sales by this amount for the twelve months ended
December 31, 1996. The impact on net income was not significant.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist the
reader in understanding and evaluating the accompanying combined/consolidated
financial statements. These policies are in conformity with generally accepted
accounting principles, and have been applied consistently unless otherwise
noted and apply to both the Company and the Predecessor unless otherwise
noted.
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, liabilities, revenues,
expenses, and related disclosures. Actual results could differ from those
estimates.
Principles of Consolidation
The combined/consolidated financial statements include all majority owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
Revenue Recognition
The Company's revenues for products that are subject to a Distribution
Agreement (Note 14) in the United States are recognized upon shipment of
products to the distributor or direct shipment of the products by the Company
to third party customers. Such revenues are recorded on the basis of the sales
price to customers (i.e., generally the end consumer) less a contractual
distribution discount to the distributor. All other revenues for products sold
(i.e., those not subject to the Distribution Agreement) are recognized upon
shipment of products to customers and are recorded on the basis of the sales
price to such customers (i.e., generally the end consumer).
For the period from December 17, 1994 to September 30, 1996, the
Distribution Agreement was with Baxter (See Note 14). Effective October 1,
1996, Baxter spun-off its distribution business to Allegiance Health Care
Corporation ("Allegiance"), and Allegiance assumed the Company's Distribution
Agreement.
At December 31, 1995 and December 31, 1996, the Company has recorded an
estimate of the distribution discount due to the distributor based upon items
sold to the distributor which the distributor has not yet sold to third party
customers. As the ultimate discount is based upon the actual selling price by
the distributor to third party customers, the estimated discount recorded by
the Company may be revised in the future as actual selling price information
becomes available.
Predecessor's revenues for products sold through Baxter (the Predecessor's
parent) in the United States were recognized upon shipment by Baxter to
customers (i.e., generally the end consumer). Such revenues were recorded on
the basis of the sales price to customers less an intercompany distribution
service fee negotiated with Baxter's U.S. Distribution Division. All other
revenues for products sold were recognized upon shipment of products to
customers.
F-9
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenues under product service contracts, which are generally for one year,
are deferred and recognized ratably over the term of the contract.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
demand deposits and cash equivalents which are highly liquid instruments with
maturities of three months or less at the time of purchase and are held to
maturity. Cash equivalents include $23.7 million and $0.2 million invested in
short-term money market investments at December 31, 1995 and 1996,
respectively.
Accounts Receivable
Accounts receivable are net of bad debt reserves of $6.8 million and $9.6
million at December 31, 1995 and 1996, respectively. Accounts receivable are
unsecured.
Research and Development Expenses
Expenditures by the Company for research and development, engineering and
manufacturing processes are expensed as incurred. In conjunction with the
Chemistry Acquisition (Note 4), $98.1 million of the purchase price was
allocated to acquired in-process research and development projects which have
no alternative future use. Accordingly, such costs were expensed immediately
following the consummation of the Chemistry Acquisition.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Cost includes materials, labor and manufacturing overhead costs.
Market for raw materials is based on replacement costs and, for other
inventory classifications, on net realizable value. Appropriate consideration
is given to deterioration, obsolescence and other factors in evaluating net
realizable value.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization are provided for financial reporting purposes principally on the
straight-line method over the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
------------ --------------
<S> <C> <C>
Buildings..................................... 40 years 15 to 40 years
Machinery and equipment....................... 11 years 5 to 15 years
Equipment placed with customers............... 3 to 5 years 3 to 8 years
</TABLE>
Assets recorded under capital leases are amortized over the life of the
lease. Leasehold improvements are capitalized and amortized over their
estimated useful lives or over the terms of the related leases, if shorter.
Goodwill/Negative Goodwill
Goodwill represents the excess cost over the fair value of net assets
acquired in connection with the Chemistry Acquisition. Goodwill was $135.3
million at December 31, 1996, net of $3.7 million of accumulated amortization.
Goodwill is being amortized using the straight-line method over 25 years. The
carrying value of goodwill and other long-lived assets are reviewed for
impairment when events or changes in circumstances
F-10
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
indicate the carrying value of the asset may not be recoverable. This review
compares projected future undiscounted cash flows before interest to the
carrying value of the asset.
Negative goodwill, associated with the Dade Acquisition, arose since the
preliminary fair value of net assets acquired significantly exceeded total
acquisition cost. The residual preliminary discount of $24.2 million was
allocated to negative goodwill. Negative goodwill was adjusted downward during
1995 by $18.1 million, net of tax, related to the reallocation of final
purchase price and the fair value of net assets acquired based upon: (i) the
resolution of certain pre-Dade Acquisition contingencies; (ii) the sale of
Bartels and revision of estimated net realizable value of remaining net assets
held for sale; (iii) a negotiated settlement with Baxter related to final
purchase price adjustments; and (iv) final determination of tax bases carried
over from the Predecessor as of the Dade Acquisition date, and the related
deferred tax effect. Negative goodwill was $5.6 million at December 31, 1995,
net of $0.5 million of accumulated amortization and $5.2 million at December
31, 1996, net of $0.9 million of accumulated amortization. The $18.1 million
noncash adjustment to negative goodwill and its resulting impact on various
asset and liability accounts has not been reflected in the Company's
Consolidated Statement of Cash Flows for the year ended December 31, 1995.
Negative goodwill is being amortized on a straight-line basis as a credit to
income over 25 years.
Patents and Trademarks
Patents and trademarks purchased in connection with the acquisition of Dade
Chemistry are being amortized over their legal or estimated useful lives,
whichever is shorter (generally not exceeding 17 years). Accumulated
amortization at December 31, 1996 was $2.1 million.
Debt Issuance Costs
Debt issuance costs, which are being amortized on a straight line basis over
the applicable terms of the Bank Credit Agreement (7 years weighted average)
and Senior Subordinated Notes indenture (10 years), totaled $19.1 million at
December 31, 1995, net of accumulated amortization of $2.9 million, and $42.4
million at December 31, 1996, net of accumulated amortization of $3.8 million.
During 1996, in connection with the Chemistry Acquisition, the Company
refinanced the Bank Credit Agreement and Senior Subordinated Notes.
Accordingly, $18.1 million ($11.4 million, net of tax) of deferred financing
fees were written-off and recorded as an extraordinary item.
Income Taxes
Deferred tax assets and liabilities are recognized at current tax rates for
the expected future tax consequences of temporary differences between the
carrying 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 and
credit carryforwards. Additionally, the Company provides deferred tax
liabilities for the eventual tax effect of repatriating all unremitted earnings
of foreign subsidiaries. The Company's operations are included in Holdings'
consolidated U.S. federal and state income tax returns.
BDI's operations were historically included in Baxter's consolidated U.S.
federal and state income tax returns and in the tax returns of certain Baxter
foreign subsidiaries. The 1994 provision for income taxes has been determined
as if BDI had filed separate tax returns under its then existing legal
structure for the period presented.
Foreign Currency Translation
The Company has determined that the local currencies of its International
Operations are their functional currencies. Assets and liabilities of the
foreign subsidiaries are translated at the fiscal year-end exchange rates.
Revenues and expenses are translated at average rates of exchange in effect
during the year.
F-11
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-Term Intercompany Notes Payable
At December 31, 1995 and 1996, the Company had designated long-term interest
bearing intercompany notes payable (denominated in various foreign currencies)
from certain of its foreign subsidiaries as hedges of the Company's exposures
to exchange rate fluctuations. The aggregate loan values, translated to U.S.
dollars, were $51.9 million at December 31, 1995 and $99.1 million at December
31, 1996. Net gains or losses on translation of these intercompany notes were
recorded as a component of the Company's cumulative translation adjustment.
Derivative Financial Instruments
The Company utilizes derivative financial instruments for purposes other
than trading, specifically to manage its exposure to foreign currency and
interest rate fluctuations.
The Company enters into forward currency exchange contracts with highly-
rated counterparties to manage its exposure to foreign currency fluctuations
on short-term intercompany borrowing arrangements denominated in foreign
currencies. The intercompany borrowing arrangements support the underlying
working capital needs of foreign subsidiaries. Premiums and discounts on these
contracts are deferred and amortized to expense over the life of the contract.
Gains and losses on forward contracts resulting from revaluations are recorded
to expense. At the maturity of the forward contracts the currencies involved
will be exchanged based on the contracted exchange rate. At December 31, 1995
and December 31, 1996, deferred amounts relating to these contracts are not
material to the consolidated financial statements, and the replacement value
of "in-the-money" contracts was not significant. Total notional contract value
of foreign currency exchange contracts outstanding are as follows (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Forward purchases............................... $ 7.4 $16.1
Forward sales................................... $27.4 $32.5
</TABLE>
The Company also utilizes purchased interest rate caps, for which the
Company will receive cash payments from the counterparty if an indexed rate of
interest is exceeded, to manage a portion of its exposure to interest rate
increases on its outstanding debt. The notional value of these caps was $230.0
million at December 31, 1996. Premiums paid for the purchase of the caps are
recorded to interest expense over the life of the caps. Amounts received, if
any, are recorded to interest expense over the related period. As of December
31, 1995 and 1996, capitalized amounts relating to the caps are not material
to the consolidated financial statements.
Earnings (Loss) Per Share
Historical earnings (loss) per share is not presented in the Predecessor's
Combined Statements of Operations because, as a division of Baxter, it had no
capital structure. Earnings (loss) per share is not presented for the Company
as its common stock is not publicly traded.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of trade accounts receivable. A large
percentage of U.S. accounts receivable was generated by the Company's sales to
Allegiance. This credit risk is mitigated due to the large number of entities
comprising Allegiance's worldwide customer base and their dispersion across
many different geographies.
F-12
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A number of the Company's customers operate in the hospital and reference
laboratory market, which may be impacted by any legislated healthcare reforms.
Additionally, at December 31, 1995 and 1996, approximately $20.0 million or
31% and $20.2 million or 22% respectively, of the Company's foreign accounts
receivable were geographically concentrated in Italy. The Company does not
expect these potential risk factors to have a material adverse impact on its
results of operations or financial position.
Fair Value of Financial Instruments
The carrying values of cash equivalents and other current assets and
liabilities approximate fair value at December 31, 1995 and 1996 because of
the short maturity of these instruments.
The excess of the fair values of derivative financial instruments over
carrying values aggregated $0.4 million and $0.2 million at December 31, 1995
and 1996, respectively, using year-end published exchange rates.
The carrying value of the long-term debt of $157.7 million and $436.6
million at December 31, 1995 and 1996 respectively, approximates fair value as
the interest rate on each instrument adjusts based upon market interest rate
changes. It is not practicable to estimate the fair value of the 13% Senior
Subordinated Notes at December 31, 1995 as there was no public listing for the
notes and there had been little to no trading activity in the issue. As of
December 31, 1996 the fair value of the $350.0 million 11 1/8% Senior
Subordinated Notes was $379.8 million, based on the trading value at that
date.
Reclassifications
Certain reclassifications have been made to prior period balances to conform
to the current year presentation.
4. DADE CHEMISTRY ACQUISITION
Effective May 1, 1996, the Company completed the acquisition of Dade
Chemistry from DuPont, which was accounted for as a purchase. Accordingly, the
purchase price and the direct costs of the Chemistry Acquisition, which
aggregated $581.5 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 acquisition. The Chemistry Acquisition was financed
principally by the issuance of $350 million of senior subordinated notes, a
refinancing of bank debt and cash. Since the purchase price exceeded the fair
market value of the net assets acquired, the residual, aggregating $138.9
million, was recorded as goodwill. The estimated fair values are based on
independent appraisals, management estimates and arms-length negotiations with
DuPont, and are subject to adjustments upon resolution of preacquisition
contingencies that may impact certain assets acquired and liabilities assumed.
The summary of assets acquired, liabilities assumed as of December 31, 1996
and the purchase price paid is as follows (in millions):
<TABLE>
<S> <C>
Cash consideration................................................. $504.1
Costs of acquisition............................................... 18.4
------
522.5
Liabilities assumed................................................ 59.0
------
Costs of assets acquired........................................... $581.5
======
</TABLE>
The Company's allocation of the Dade Chemistry purchase price includes $98.1
million of costs attributed to in-process research and development projects
which have no alternative future use. Accordingly, such costs
F-13
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
were expensed upon the consummation of the Chemistry Acquisition. During the
fourth quarter of 1996, the Company recorded a non-cash charge of $9.5 million
to Cost of goods sold, to provide for excess spare parts for the Paramax
product line. This non-cash charge, which was a direct result of the
designation of the Paramax product line as noncore due to the Chemistry
Acquisition, appropriately relates to the second quarter of 1996.
The following represents the unaudited pro forma results of operations of
the Company as if the 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, write-off of
inventory step-up, 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 (in millions):
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales....................................... $ 959.0 $ 910.6
======= =======
Loss before extraordinary items................. $ (89.2) $ (83.6)
======= =======
Net loss........................................ $(114.2) $(108.6)
======= =======
</TABLE>
The unaudited pro forma results of operations presented above are not
necessarily indicative of the results that would have been obtained if the
Chemistry Acquisition had actually occurred on January 1, 1995 and January 1,
1996 and are not intended to be a projection of future results or trends. The
decline in net sales for the year ended December 31, 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
include the $98.1 million write-off of in-process research and development and
the $24.8 million write-off of inventory step-up. In addition, pro forma
results for 1996 include $15.0 million of restructuring costs, a $9.5 million
non-cash charge for excess spare parts 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
and DuPont. Moreover, the synergistic savings that are expected to be realized
as a result of the 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.
5. DADE ACQUISITION
Effective December 16, 1994, the Company, in separate transactions, acquired
certain net assets and businesses of BDI, including the stock of various
foreign subsidiaries. The Dade Acquisition was recorded in accordance with the
purchase method of accounting. Accordingly, the purchase price plus direct
costs of the Dade Acquisition were allocated to the assets acquired and
liabilities assumed based upon their estimated fair values at the date of
acquisition. Since the estimated fair values of the net assets acquired
significantly exceeded total acquisition cost, the Company's non-current
assets and in-process research and development projects were reduced to zero
and the residual was recorded as negative goodwill. The estimated fair values
were based on independent appraisals, management estimates, and arms-length
negotiations with Baxter.
F-14
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of assets acquired, liabilities assumed and the purchase price
paid is as follows (in millions):
Consideration:
<TABLE>
<S> <C>
Cash.............................................................. $ 65.9
Installment note payable to Baxter................................ 200.0
Preferred stock of Holdings issued to Baxter (Note 13)............ 40.0
Costs of acquisition.............................................. 8.3
Preliminary purchase price adjustment............................. (3.7)
------
310.5
Liabilities assumed............................................... 133.4
------
Cost of assets acquired........................................... $443.9
======
</TABLE>
The Dade Acquisition was financed by the issuance of $45.0 million of
Holdings' common stock, $150.0 million of bank debt, $120.0 million of senior
subordinated debt, and $40.0 million of Holdings' preferred stock. Of the
$270.0 million of debt proceeds, $22.0 million was used for debt issuance
costs and approximately $25.0 million was used for working capital purposes.
The installment note payable to Baxter was paid in full plus accrued interest
on January 6, 1995 with restricted cash. In addition to the $3.7 million
preliminary purchase price adjustment and in accordance with provisions of the
Purchase and Sale Agreement, the Company had submitted a reimbursement request
to Baxter for approximately $16.4 million of "Excluded General Liabilities"
related to recorded pre-Dade Acquisition period "Taxes" and "Employee
Benefits" obligations, as defined, which were paid on Baxter's behalf by the
Company. The Company received a substantial portion of the estimated amounts
due from Baxter, including final receipt in January 1996 from Baxter of $9.7
million. The negotiated amount of the final purchase price that was not
received was charged to negative goodwill in the finalization of acquisition
accounting.
The following represents the unaudited pro forma results of operations of
the Company as if the Dade Acquisition had occurred on January 1, 1994 after
giving effect to certain adjustments, including the exclusion of Burdick &
Jackson's and Bartels' results, reduced depreciation of property, plant and
equipment, reduced amortization of intangibles, amortization of negative
goodwill, cost savings from the Company's restructuring actions (Note 9),
increased employee benefits offset by reduced postretirement expenses,
increased stand alone costs, increased expense on acquisition debt, the
exclusion of non-recurring inventory write-offs, and the related income tax
effects of these adjustments (in millions):
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED
DECEMBER 31,
1994
------------
(UNAUDITED)
<S> <C>
Net sales...................................... $626.1
======
Net income..................................... $ 44.3
======
</TABLE>
The unaudited pro forma results of operations presented above, which have
been adjusted to reflect the final amount of negative goodwill, are not
necessarily indicative of the results that actually would have been obtained
if the Dade Acquisition had occurred on January 1, 1994 and are not intended
to be a projection of future results or trends.
F-15
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INVENTORIES
Inventories of the Company consist of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Raw materials................................... $ 21.9 $ 33.1
Work-in-process................................. 34.4 39.9
Finished products............................... 65.7 82.0
------ ------
Total inventories............................... $122.0 $155.0
====== ======
</TABLE>
In connection with the Dade Acquisition (Note 5) and the Chemistry
Acquisition (Note 4), which were recorded in accordance with the purchase
method of accounting, the Company's inventories were written-up by $46.0
million and $24.8 million. Of the $46.0 million 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 $24.8
million Chemistry Acquisition write-up was charged to Cost of goods sold
during the second quarter of 1996. During 1996, a $9.5 million non-cash charge
was recorded to establish a reserve for excess spare parts.
7. NET ASSETS HELD FOR SALE
The Company operated two businesses (Burdick & Jackson and Bartels) which,
along with certain excess land and warehouse facilities at another location,
were identified at the date of the Dade Acquisition (Note 5) as operations and
assets to be sold. The Company recorded "Net assets held for sale" which
represented the estimated proceeds to be received from the sale of these
operations and the excess land and warehouse facilities plus expected
operating cash flow during the holding period, offset by interest expense on
bank debt to be repaid with the estimated sales proceeds. Interest expense
allocated to net assets held for sale aggregated $6.1 million for the year
ended December 31, 1995.
During 1995, Bartels was sold for gross proceeds of $16.5 million. The
excess of the actual net proceeds over the Bartels carrying value at the date
of its sale resulted in an adjustment and reallocation of the acquisition cost
of the Company. The excess land facilities were sold during the first quarter
of 1996 for the expected net proceeds of $10.8 million. Burdick & Jackson was
sold during the fourth quarter of 1996 for cash proceeds of $44.0 million
which resulted in a pretax loss of $2.8 million.
Net sales of $34.3 million and net income of $5.8 million, reflecting the
combined operating results of Bartels and Burdick & Jackson, have been
included in the 1994 financial statements of the Predecessor.
8. PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment of the Company consist of the following (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Land............................................ $ -- $ 5.7
Buildings and leasehold improvements............ 0.4 36.0
Machinery and equipment......................... 8.8 95.2
Equipment placed with customers................. 18.1 43.8
Construction in progress........................ 8.9 38.7
----- ------
Total property, plant and equipment, at cost.... 36.2 219.4
Accumulated depreciation and amortization....... (4.4) (32.4)
----- ------
Net property, plant and equipment........... $31.8 $187.0
===== ======
</TABLE>
Equipment placed with customers is comprised of instruments given away at no
charge in exchange for contractual commitments for ongoing reagent revenues.
This equipment is depreciated on a straight-line basis over a period not
exceeding 8 years. The net book value of this equipment was $15.0 million at
December 31, 1995 and $22.0 million at December 31, 1996. Management believes
the carrying value of this equipment is recoverable from the revenues
anticipated from future reagent sales.
F-16
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. RESTRUCTURING
In conjunction with the Chemistry Acquisition, the Company recorded a $15.0
million restructuring charge and also allocated $15.0 million of the Chemistry
Acquisition purchase price to provide for the costs of a restructuring plan
designed to decrease operating costs, increase efficiencies and eliminate
redundant field service operations. Restructuring actions, which are expected
to be substantially complete within one year, include closing two production
facilities, reorganizing the domestic field service function, streamlining
operations in Canada and eliminating international management and marketing
redundancies. A total of 718 employees were identified for termination as part
of these actions; 595 of which were employees of the Company prior to the
Chemistry Acquisition. $10.6 million of the $15.0 million restructuring charge
relates to severance and related costs; with the balance relating to exit
costs. Of the $15.0 million reserve established through the allocation of the
Chemistry Acquisition purchase price, $8.9 million relates to severance and
other related costs, $0.3 million relates to relocation with the balance
related to other integration and exit costs. As of December 31, 1996, 217 of
the 595 employees described above had been severed; while 89 of the 123
Chemistry Acquisition employees had been severed. During 1996, an aggregate of
$3.2 million was paid for severance and $5.8 million was paid for exit costs.
The reserve for this restructuring action was $21.0 million as of December 31,
1996.
At the time of the Dade Acquisition, the Company's management had identified
a series of strategic restructuring actions for which it accrued an aggregate
reserve of $21.0 million to cover severance actions ($10.8 million) and direct
costs to exit certain facilities ($10.2 million) as part of a facilities and
plant rationalization program. This overall plan is designed to improve the
Company's future profitability. Restructuring actions include moving certain
reagent production from Puerto Rico to Miami; consolidation and relocation of
Paramax's manufacturing operations from Irvine, California; exiting an
existing leased facility in Miami and moving the operations to owned
facilities in Miami; streamlining the European sales force and exiting the
Company's in-house printing and labeling functions in favor of third-party
outsourcing. A total gross headcount reduction of 482 was identified as a part
of these actions, consisting primarily of manufacturing and manufacturing
support personnel at the affected operations and sales force personnel in
Europe. The program was completed by December 1996 and all reserve amounts
were expended. During 1995, the Company paid $4.9 million to cover severance
actions, paid $9.0 million for direct costs to exit certain facilities and
terminated 288 under its restructuring plan, leaving a remaining restructuring
reserve balance at December 31, 1995 of $7.1 million.
For the period ending December 16, 1994, the Predecessor paid $4.3 million
(primarily for severance) relating to restructuring measures undertaken by BDI
in 1993 to downsize its sales, general and administrative and non strategic
research and development staffs.
10. ACCRUED LIABILITIES
Accrued liabilities of the Company consist of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Salaries, wages, commissions, withholdings and
other payroll taxes.......................... $ 36.0 $ 39.3
Property, sales and use and other taxes....... 8.4 7.1
Restructuring and downsizing costs............ 7.1 21.0
Deferred service contract revenue/warranty.... 11.3 19.5
Interest payable.............................. 8.8 11.1
Other......................................... 34.3 48.5
------ ------
$105.9 $146.5
====== ======
</TABLE>
F-17
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------
11. LONG-TERM DEBT
Long-term debt of the Company consists of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Revolver........................................ $ -- $ --
Bank Credit Agreement:
A Term Loan................................... 39.9 165.0
B Term Loan................................... 36.6 90.0
C Term Loan................................... 41.2 90.0
D Term Loan................................... 45.8 95.0
13% Senior Subordinated Notes................... 120.0 --
11 1/8% Senior Subordinated Notes............... -- 350.0
------ ------
283.5 790.0
Less current portion.......................... (5.8) (3.4)
------ ------
$277.7 $786.6
====== ======
</TABLE>
To fund the Chemistry Acquisition, the Company refinanced its existing
indebtedness by entering into a new credit agreement with a number of banks
("New Bank Credit Agreement") providing for borrowing up to $585.0 million,
issued $350.0 million of 11 1/8% Senior Subordinated Notes, and repurchased
its $120.0 million 13% Senior Subordinated Notes.
The Company filed a registration statement on Form S-1 in October 1996 under
the Securities Act of 1933, involving the registration of $350.0 million of
its Series B 11 1/8% Senior Subordinated Notes due 2006, which were exchanged
for its 11 1/8% Senior Subordinated Notes due 2006.
New Bank Credit Agreement
The New Bank Credit Agreement consists of $460.0 million in term loans and
$125.0 million in a revolving credit facility ("Revolving Credit Facility").
The borrowings 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.
Indebtedness under the New Bank Credit Agreement bears interest at (i) the
base rate (as defined) plus margins ranging from 1.715% to 2.75% or (ii) the
Eurodollar Rate plus margins ranging from 2.75% to 3.75%. At December 31, 1996
the Company funded its borrowings using the Eurodollar Rate. The Eurodollar
Rate in effect at December 31, 1996 was 5.94% in respect of A Term Loan, 5.56%
in respect of B Term Loan, 5.56% in respect of C Term Loan, and 5.63% in
respect of D Term Loan.
The New Bank Credit Agreement contains various restrictive covenants
including mandatory repayments under certain conditions, minimum levels of
EBITDA (as defined therein), minimum interest coverage, maximum leverage
ratio, and other covenants which, among other things, limit the incurrence of
additional indebtedness, dividends, transactions with affiliates, asset
purchases and sales, acquisitions, mergers and consolidations, prepayments of
other indebtedness, (including the 11 1/8% Senior Subordinated Notes), liens
and encumbrances and other matters customarily restricted in such agreements.
The Company was in compliance with all debt covenants at December 31, 1995 and
December 31, 1996.
F-18
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under the terms of the New Bank Credit Agreement, 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 payment 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 cap.
The Revolving Credit Facility may be repaid and reborrowed at any time and
is due December 31, 2001. The Company is required to pay to the lenders under
the New Bank Credit Agreement a commitment fee equal to 1/2 of 1% per annum,
payable on a quarterly basis, on the average unused portions of the Revolving
Credit Facility and Term Loans during such quarter. At December 31, 1996, no
amounts were outstanding under the Revolving Credit Facility.
The A, B, C, and D Term Loans mature on December 31, 2001, 2002, 2003, and
2004, respectively. The Company will be required to pay quarterly amortization
payments beginning March 31, 1997.
Initial Bank Credit Agreement
Prior to the Chemistry Acquisition, the Company had a bank credit agreement
which provided for loans of up to $275.0 million (subsequently amended to
$250.0 million) as follows: A Term loan--$50.0 million, B Term loan--$40.0
million, C Term loan--$45.0 million, D Term loan--$50.0 million, and a
revolving credit facility of $65.0 million. The Term loans and revolving
credit facility bore interest at floating rates based on various, elective
indices. The interest rates in effect at December 31, 1995 were as follows: A
Term loan--8.625%, B Term loan--9.125%, C Term loan--9.1875%, D Term loan--
9.5%. No amounts were outstanding on the revolving credit facility at December
31, 1995.
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 11 1/8% Senior Subordinated Notes are
redeemable in whole or in part, at the Company's option commencing May 1,
2001. The 11 1/8% Senior Subordinated Notes contain restrictive covenants such
as the incurrence of additional debt, mergers and change of control.
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) and
$21.6 million ($13.6 million net of tax) of premiums were recognized as
extraordinary items.
Other Credit Facilities
During 1995, the Company entered into a multi-currency credit facility
providing for aggregate borrowings of up to $10 million. This facility
provides working capital funds to several foreign subsidiaries. At December
31, 1995 and December 31, 1996, borrowings aggregating $1.0 million and $4.3
million, respectively, were outstanding under the facility at interest rates
on the various components equal to the specific foreign currency LIBOR rate
plus a margin of 2.75%.
In addition to the multi-currency credit facility at December 31, 1996, the
Company has utilized $11.5 million of various short-term lines of credit at
various interest rates related to its foreign operations.
F-19
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Aggregate Maturities of Long-Term Debt
The aggregate maturities of long-term debt at December 31, 1996 are as
follows (in millions):
<TABLE>
<S> <C>
1997................................................. $ 3.4
1998................................................. 13.4
1999................................................. 35.5
2000................................................. 49.4
2001................................................. 80.5
Thereafter........................................... 607.8
------
$790.0
======
</TABLE>
12. INCOME TAXES
Income (loss) before income tax expense is as follows (in millions):
<TABLE>
<CAPTION>
PREDECESSOR
---------------
PERIOD FROM PERIOD FROM
JANUARY 1, 1994 DECEMBER 17, YEARS ENDED
THROUGH 1994 THROUGH DECEMBER 31,
DECEMBER 16, DECEMBER 31, --------------
1994 1994 1995 1996
--------------- ------------ ----- -------
<S> <C> <C> <C> <C>
Domestic (including Puerto
Rico)..................... $ 73.7 $(4.2) $20.5 $(103.8)
Foreign.................... (23.7) -- (0.6) (21.9)
------ ----- ----- -------
Income (loss) before income
tax expense............... $ 50.0 $(4.2) $19.9 $(125.7)
====== ===== ===== =======
</TABLE>
F-20
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Tax Expense (Benefit)
Income tax expense (benefit) consists of the following (in millions):
<TABLE>
<CAPTION>
PREDECESSOR
---------------
PERIOD FROM PERIOD FROM
JANUARY 1, 1994 DECEMBER 17, YEARS ENDED
THROUGH 1994 THROUGH DECEMBER 31,
DECEMBER 16, DECEMBER 31, -------------
1994 1994 1995 1996
--------------- ------------ ----- ------
<S> <C> <C> <C> <C>
CURRENT
Domestic:
Federal.................... $ -- $ -- $ 1.0 $ --
State and local (including
Puerto Rico).............. 5.5 0.2 3.6 2.6
Foreign...................... 1.9 -- 1.0 0.2
----- ----- ----- ------
Current tax expense........ 7.4 0.2 5.6 2.8
----- ----- ----- ------
DEFERRED
Domestic:
Federal.................... $ -- (2.5) (0.3) (38.5)
State and local (including
Puerto Rico).............. 7.1 -- 0.2 (6.5)
Foreign...................... (0.3) -- 1.7 (3.2)
----- ----- ----- ------
Deferred income tax expense
(benefit)................. 6.8 (2.5) 1.6 (48.2)
----- ----- ----- ------
Total income tax expense
(benefit)................. $14.2 $(2.3) $ 7.2 $(45.4)
===== ===== ===== ======
</TABLE>
Tax Rates
Differences between income taxes computed using the U.S. federal income tax
statutory rate of 35% and income tax expense recorded by the Company are
attributable to the following (in millions):
<TABLE>
<CAPTION>
PREDECESSOR
---------------
PERIOD FROM PERIOD FROM
JANUARY 1, 1994 DECEMBER 17, YEARS ENDED
THROUGH 1994 THROUGH DECEMBER 31,
DECEMBER 16, DECEMBER 31, -------------
1994 1994 1995 1996
--------------- ------------ ----- ------
<S> <C> <C> <C> <C>
Income tax expense (benefit)
at statutory rate.......... $ 17.5 $(1.5) $ 7.0 $(44.0)
Tax exempt operations....... (26.5) (0.8) (4.8) (2.9)
Nondeductible (non-taxable)
goodwill................... 2.2 -- (0.2) 0.5
State and local taxes (net
of federal benefit)........ 0.5 -- 0.5 (4.5)
Valuation allowances........ 8.9 -- 3.1 6.3
U.S. tax on unremitted
foreign earnings........... -- -- 1.1 (0.1)
Foreign tax expense
(benefit).................. 11.5 -- (0.3) (2.9)
Other factors............... 0.1 -- 0.8 2.2
------ ----- ----- ------
Income tax expense
(benefit).................. $ 14.2 $(2.3) $ 7.2 $(45.4)
====== ===== ===== ======
</TABLE>
F-21
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred Taxes
Deferred tax assets (liabilities) of the Company are comprised of the
following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Gross deferred tax (liabilities)............... $ (4.6) $ (2.7)
------ ------
Property, plant and equipment basis
differences................................... 40.7 27.4
Inventory basis difference..................... 7.7 19.3
Accrued liabilities not currently deductible... 8.9 30.3
Other intangible assets basis difference....... 58.2 89.5
Net operating loss carryforwards............... 22.3 64.6
Other.......................................... 18.8 5.4
------ ------
Gross deferred tax assets...................... 156.6 236.5
Valuation allowance............................ (13.6) (19.1)
------ ------
Net deferred tax assets........................ 143.0 217.4
------ ------
$138.4 $214.7
====== ======
</TABLE>
Gross deferred tax assets were adjusted upward during 1995 by $21.3 million
related to the reallocation of final purchase price and the fair value of net
assets acquired (Note 5) related to the Dade Acquisition.
In assessing the value of the gross deferred tax assets at December 31,
1996, management analyzed the Company's forecast for future taxable earnings
(and losses) by jurisdiction and other relevant factors and concluded that
recoverability of the deferred tax asset of $217.4 million, net of a $19.1
million valuation allowance, was more likely than not.
The Company received a tax exemption grant from Puerto Rico during 1996
which provides that its manufacturing operations be partially exempt from
local taxes until the year 2014. Appropriate taxes have been provided for
these operations assuming repatriation of all available earnings. Total income
tax benefit for the year ended December 31, 1996 includes tax benefits
aggregating $4.4 million related to this grant.
At December 31, 1995 and 1996, the Company had net operating loss
carryforwards available in the United States for federal income tax return
purposes of $30.0 million and $127.3 million, respectively, which expire
during 2009 through 2011. U.S. tax rules impose limitations on the use of net
operating losses and excess tax bases following certain changes in ownership.
If such a change were to occur, the limitation could reduce the amount of
these benefits that would be available to offset future taxable income,
starting with the year of ownership change. Additionally, at December 31,
1996, the Company had net operating loss carryforwards available in countries
outside of the United States of $34.5 million with various dates of
expiration.
Deferred U.S. federal income taxes and foreign withholding taxes have been
provided on the undistributed earnings of foreign subsidiaries deemed
available for repatriation.
13. STOCKHOLDER'S EQUITY
Common Stock
The Company's common stock consists of 1,000 authorized shares of $.01 par
value stock with voting rights, of which 1,000 shares were issued and
outstanding at December 31, 1995 and 1996. All outstanding shares at December
31, 1995 and 1996 were owned by Holdings.
F-22
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Preferred Stock of Holdings
Preferred stock of Holdings, with a fair value of $40.0 million, was issued
to Baxter on December 20, 1994 as part of the total consideration paid to
Baxter for the Company. Such consideration was contributed by Holdings to the
capital of the Company and is classified as "Additional paid-in capital" at
December 31, 1994. A portion of the preferred stock was repurchased by Holdings
from Baxter in a negotiated transaction and canceled by Holdings in December
1995 for an aggregate purchase price less than its fair value at issuance. The
Company distributed $15.8 million to Holdings in December 1995 for Holdings'
use for such preferred stock repurchase.
Stock Purchase and Option Plans of Holdings
During 1995 and 1996, Holdings adopted the 1995 and 1996 Executive Stock
Purchase and Option Plans (the "Executive Plans") and the 1995 and 1996
Management Stock Option Plans (the "Plans"), respectively. The Executive Plans
provide for the sale of Holdings' common stock and the issuance of nonqualified
stock options to purchase Holdings' common stock to certain members of the
Company's management. The Plans provide for the issuance of nonqualified stock
options to purchase Holdings' common stock to certain other members of the
Company's management. During 1995 and 1996, the proceeds from the exercise of
options and the sale of Holdings' common stock were contributed to the Company
by Holdings as Additional paid-in capital. During 1996, the Company paid a
dividend to Holdings for the repurchase of Holdings' common stock held by
former members of the Company's management.
All common stock shares sold, and stock options granted, to management under
the Executive Plans and the Plans have issuance and exercise prices equal to or
greater than the fair market value of Holdings' common stock on the date of
sale or grant. The stock options have various vesting terms based upon the
Company's performance and the passage of time. All granted stock options vest
within ten years of the date of grant.
14. TRANSACTIONS WITH BAXTER AND ALLEGIANCE
Commencing in December 1994, the Company and Baxter entered into a
distribution agreement within the United States and other ancillary agreements
to provide transition services to the Company and product services to Baxter.
The terms of such agreements are summarized in the following paragraphs.
U.S. Distribution Agreement
The U.S. Distribution Agreement, which became effective at the closing of the
Dade Acquisition, gave Baxter's U.S. Distribution Division the right, generally
on an exclusive basis, to sell the Company's products in the areas in which
Baxter's U.S. Distribution Division previously sold BDI's products. Effective
October 1, 1996, Baxter "spun-off" its distribution business as Allegiance
Healthcare Corporation ("Allegiance") and Allegiance assumed the Company's
distribution agreement. The term of this agreement is five years and provides
for an automatic two year renewal term, and thereafter successive one year
renewal terms. Allegiance may terminate the agreement at any time after the
four year anniversary date by providing the Company with at least six months
prior written notice. The Company may also terminate the agreement at any time
after the eighteen month anniversary with at least six months prior written
notice. As of December 31, 1995 and 1996, the Company had $64.9 million and
$6.1 million, respectively, of accounts receivable from Baxter. As of December
31, 1995 and 1996, payables to Baxter were $14.5 million and $3.3 million,
respectively. Net sales to Baxter's U.S. Distribution Division aggregated $15.4
million for the period from December 17, 1994 through December 31, 1994, $348.6
million for the year ended December 31, 1995 and $221.8 million for the year
ended December 31, 1996. Net sales to Baxter divisions other than U.S.
Distribution aggregated $15.3 million for the year ended December 31, 1995 and
$14.9 million for the year ended December 31, 1996. Net sales to Allegiance
totaled $72.2 million in 1996. At December 31, 1996, receivables from
Allegiance totaled $47.3 million.
F-23
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The U.S. Distribution Agreement provides for distribution margins to be
received by the distributor at specified percentages of end-user selling prices
for which the distributor will provide the following: customer service,
distribution services, outbound transportation, accounts receivable credit and
collection, post sales service, leasing services (including capital equipment
coordinators), sales administration, and a quality assurance program.
Allegiance will also continue to include the Company's products in Allegiance's
Corporate Program which provides rebates to customers who meet large volume
purchase requirements.
The Company reimbursed Baxter for office support, national rebates and
administration fees to multi-hospital systems, marketing tracing fees and cash
application services at Baxter's cost, which aggregated $0.2 million for the
period December 17, 1994 through December 31, 1994, $4.1 million during the
year ended December 31, 1995, and $3.5 million during the year ended December
31, 1996.
Transition Services Agreement
Pursuant to the Transition Services Agreement, which had a two year term,
Baxter supplies the Company with certain international support services
including regulatory support, sales and marketing support, warehousing
services, human resource support, information resources, office space and
accounting support. Baxter also provided for two years certain domestic support
services including data processing, regulatory and administrative services.
During 1996, the Company negotiated an extension, from one year to three years,
of the Transition Services Agreement for certain international support
services. The Consolidated Statements of Operations include $0.2 million for
these services for the period December 17, 1994 through December 31, 1994,
$12.1 million for these services for the year ended December 31, 1995, and
$14.5 million for these services for the year ended December 31, 1996.
Allocation of Baxter Selling, General and Administrative Expenses--Predecessor
Baxter had provided to the Predecessor certain domestic and international
support services including legal, treasury, audit, data processing, insurance,
human resources, facility, regulatory and administrative services. Charges for
these domestic and international services to the Predecessor were based on
allocations of Baxter's actual direct and indirect costs using varying
allocation bases as appropriate (sales, payroll, headcount, managed capital,
etc.) designed to estimate the actual cost incurred by Baxter to render these
services to the Predecessor. The allocation process was consistent with the
methodology used by Baxter to allocate the cost of similar services provided to
its other business units. The allocated costs of these services are reflected
in the Combined/Consolidated Statements of Operations and are summarized in the
table below. No provision was made for possible incremental expense that would
have been incurred had the Predecessor operated as an independent, stand-alone
entity.
The Predecessor also leased certain facilities on a month-to-month basis from
Baxter. The lease rates approximated Baxter's cost and are included in the
table below in the caption "Certain domestic services provided by Baxter."
Baxter's U.S. Distribution Division was the exclusive distributor for the
Predecessor's products in the United States. The U.S. Distribution Division
provided the following services to BDI: customer service, distribution
services, outbound transportation, accounts receivable, credit and collection,
post-sales services, leasing services (including capital equipment
coordinators), sales administration, participation in a volume rebate program
for customers, and a quality assurance program.
F-24
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The estimated cost of providing these services was allocated to the
Predecessor based on an allocation of actual direct and indirect cost incurred
by the U.S. Distribution Division to provide these services. The allocation
methodology was based primarily on sales volume and was consistent with the
manner in which such costs were allocated to other Baxter manufacturing
divisions for which the U.S. Distribution Division is the exclusive U.S.
distributor. Based on Baxter's exclusive distribution arrangements with
independent, third-party manufacturers, management believes these allocations
approximated "arms-length" pricing for these services.
The allocated costs of these services are included as direct reductions of
Net sales in the Combined/ Consolidated Statements of Operations. Sales of
products and services through Baxter, net of allocated distribution costs,
represented 68.0% of total company sales for the period January 1, 1994 through
December 16, 1994.
The Product Services unit of the Predecessor provided maintenance and repair
services for medical devices sold by the Predecessor and several other Baxter
operating units. The allocated cost of these services was billed to Baxter on
the basis of hourly billing rates for services rendered, and is included in Net
sales in the Combined/ Consolidated Statements of Operations as summarized in
the table below.
A summary of the Predecessor transactions described in the paragraphs above,
all of which are with Baxter or Baxter affiliates, is shown in the table below
(in millions):
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1994
THROUGH
DECEMBER 16, 1994
-----------------
<S> <C>
Product services provided to Baxter..................... $ 5.8
=====
Certain domestic services provided by Baxter............ 6.5
Certain international services provided by Baxter....... 20.7
Other distribution services provided by Baxter.......... 1.2
-----
Total services provided by Baxter....................... $28.4
=====
</TABLE>
15. RELATED PARTY TRANSACTIONS
Management Services Agreements
The Company and Holdings entered into five year Management Service Agreements
with Bain Capital and Goldman, Sachs & Co. (an affiliate of GS Capital)
pursuant to which they will pay Bain Capital and Goldman, Sachs & Co. an
aggregate annual fee of up to $3.0 million, subject to compliance with the
terms of the indenture governing the 11 1/8% Senior Subordinated Notes, plus
their respective out-of-pocket expenses. Pursuant to the Management Services
Agreements, Bain Capital and Goldman, Sachs & Co. have provided, and will
continue to provide, management consulting, advisory services and support,
negotiation and analysis of financing alternatives, acquisitions, divestitures
and other services agreed upon by the Company, Bain Capital and Goldman, Sachs
& Co. The Company paid $5.1 million for advisory fees and related expenses to
Bain Capital and $1.5 million to Goldman, Sachs & Co. in connection with the
Dade Acquisition (Note 5). In connection with the Chemistry Acquisition (Note
4), the Company paid $11.4 million for advisory fees and expenses to Bain
Capital and $3.6 to Goldman, Sachs & Co. Advisory fees and related expense
reimbursements under the Management Services Agreements of $1.8 million and
$0.3 million to Bain Capital and Goldman, Sachs & Co. are included in the
Consolidated Statement of Operations for the years ended December 31, 1995. For
the year ended December 31, 1996 the Consolidated Statement of Operations
includes advisory fees and related expenses of $2.7 million and $0.3 million to
Bain Capital and Goldman, Sachs & Company, respectively.
F-25
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. RETIREMENT PROGRAMS
The Company maintains non-contributory defined benefit pension plans covering
substantially all employees in the United States and Puerto Rico ("Domestic
Plans") and a combination of contributory and non-contributory plans in certain
foreign locations ("Foreign Plans"). Through December 31, 1996, the Domestic
Plans' benefits are based on years of service and the employees compensation
during five of the last ten years of employment as defined by the plans.
Effective January 1, 1997, the Company amended its pension plan covering U.S.
employees to change to a cash balance formula. The Company's funding policy is
to make contributions to the trusts of the plans which meet or exceed the
minimum requirements of the Employee Retirement Income Security Act of 1974
("ERISA").
During 1995, the Administrative Benefits Committee, as appointed by the Board
of Directors, approved an amendment to the Dade Puerto Rico Pension Plan
("Puerto Rico Plan") to suspend participation in the Puerto Rico Plan as of
December 31, 1995. No further benefits are accrued for service after that date.
Investments and assets of the Puerto Rico Plan are anticipated to meet the
projected benefit obligation of the eligible participants as of December 31,
1996. The Puerto Rico Plan was replaced with a defined contribution plan
effective January 1, 1996.
Under the terms of the Chemistry Acquisition Purchase and Sale Agreement
(Note 4), the transferred DuPont employees' pension assets and liabilities were
transferred directly into the existing Domestic Plans and the Company assumed
responsibility for the liability for future benefits payable under the terms of
the Company's plan for those employees as of the Chemistry Acquisition date.
Under the terms of the Dade Acquisition, Baxter retained liability for future
benefits payable to existing retirees and non-transferred employees of the
Predecessor as of the Dade Acquisition date, and the Company established new
plans for retained active employees. During 1995, substantially all of the
assets were transferred to the new plans. At December 31, 1995 and December 31,
1996, plan assets primarily consist of stocks, bonds and contracts with
insurance companies.
Assets held by the trusts of the Company's plans consist of the following (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996
----- ------
<S> <C> <C>
Total assets--Domestic Plans...................................... $26.6 $104.0
Total assets--Foreign Plans....................................... $11.4 $ 12.7
</TABLE>
Pension Expense
Pension expense applicable to the Company includes the following components
(in millions):
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED
DECEMBER 17, 1994 DECEMBER 31,
THROUGH --------------
DECEMBER 31, 1994 1995 1996
----------------- ------ ------
<S> <C> <C> <C>
Service cost-benefits earned during
the period........................... $ 0.1 $ 4.5 $7.4
Interest cost on projected benefit
obligation........................... 0.1 2.9 5.8
Actual return on assets............... (0.1) (2.0) (8.8)
Net amortization and deferral......... -- (0.3) 1.5
Curtailment gains..................... -- -- (2.1)
----- ------ ------
Total pension expense................. $ 0.1 $ 5.1 $ 3.8
===== ====== ======
</TABLE>
Curtailment gains of $1.5 million and $0.6 million related to restructuring
actions and the sale of Burdick & Jackson, respectively, were recognized in
1996.
F-26
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Assumptions used for the above pension expense calculations include:
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED
DECEMBER 17, 1994 DECEMBER 31,
THROUGH -------------
DECEMBER 31, 1994 1995 1996
----------------- ------ ------
<S> <C> <C> <C>
Discount rate applied to benefit
obligation:
Domestic plans....................... 8.75% 8.75% 7.75%
Foreign plans (average).............. 4.30% 5.00%
Long-term return on assets:
Domestic plans....................... 9.50% 9.50% 9.50%
Foreign plans (average).............. 5.00% 5.40%
</TABLE>
As International Operations' results are excluded from the Company's
Consolidated Statement of Operations for the period from December 17, 1994
through December 31, 1994, no pension expense related to International
Operations was recorded in the Consolidated Statement of Operations during that
period.
Funded Status
The following tables set forth the funded status of amounts applicable to the
Company (in millions):
<TABLE>
<CAPTION>
UNDERFUNDED OVERFUNDED
PLANS PLANS
-------------- ------------
DECEMBER 31,
-------------- DECEMBER 31,
1995 1996 1996
------ ------ ------------
<S> <C> <C> <C>
Actuarial present value of benefit
obligation:
Vested benefits........................... $ 46.5 $ 15.5 $ 65.4
------ ------ -------
Accumulated benefits...................... 46.8 18.0 70.4
------ ------ -------
Projected benefits........................ 56.0 24.6 70.7
Less accumulated plan assets at fair value.. (38.0) (14.3) (102.4)
------ ------ -------
Projected benefit obligation in excess of
plan assets................................ 18.0 10.3 (31.7)
Unrecognized net gains (losses) and
unrecognized prior service cost............ (5.1) (0.3) 5.7
------ ------ -------
Net pension liability................... $ 12.9 $ 10.0 $ (26.0)
====== ====== =======
</TABLE>
Assumptions used for the above funded status calculations include:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
DECEMBER 31, -------------
1994 1995 1996
------------ ------ ------
<S> <C> <C> <C>
Annual rate of increase in compensation
levels:
United States plans....................... 4.50% 4.50% 4.50%
Puerto Rico plan.......................... 4.00% 4.00% N/A
Foreign plans (average)................... 4.60% 3.10% 4.00%
Discount rate applied to benefit obligation:
United States plans....................... 8.75% 7.75% 8.25%
Puerto Rico plan.......................... 8.75% 7.75% 8.25%
Foreign plans (average)................... 6.00% 4.30% 5.00%
</TABLE>
F-27
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Savings Plan
Most domestic employees are eligible to participate in the Dade
International Savings Investment Plan (SIP), a Company-sponsored qualified
401(k) plan. Participants may contribute up to 12% of their annual
compensation, up to certain limits, to the SIP and the Company matches the
participants' contributions, up to 3% of compensation. Matching contributions
made by the Company were $0.1 million for the period December 17, 1994 through
December 31, 1994, $2.6 million for the year ended December 31, 1995 and $3.2
million for the year ended December 31, 1996.
Post-Retirement Benefits
In conjunction with the Dade Acquisition the Company did not assume any
existing post-retirement benefit obligations. In connection with the Chemistry
Acquisition, the Company agreed to provide post-retirement benefits to a
limited number of transferred DuPont employees for a three year period, with
full reimbursement of any such costs from DuPont. Under a separate agreement,
the Company and DuPont have agreed to defer the start of the Company's post-
retirement program until 1997. As of December 31, 1996 the Company does not
offer post-retirement benefits to its other employees.
17. RETIREMENT PROGRAMS--PREDECESSOR
BDI participated in Baxter-sponsored, non-contributory defined benefit
pension plans covering substantially all employees in the United States and
Puerto Rico. The benefits were based on years of service and the employee's
compensation during five of the last ten years of employment as defined by the
plans. Baxter's funding policy was to make contributions to the trust of the
Qualified Plans which met or exceeded the minimum requirements of ERISA.
Assets held by the trusts of the plans consisted primarily of equity and fixed
income securities. BDI also participated in Baxter-sponsored retirement plans
in certain locations outside the United States and Puerto Rico.
Pension Expense
Pension expense applicable to BDI included the following components (in
millions):
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1994
THROUGH
DECEMBER 16, 1994
-----------------
<S> <C>
Service cost-benefits earned during the period.......... $ 4.1
Interest cost on projected benefit obligation........... 3.1
Actual return on assets................................. (2.5)
Net amortization and deferral........................... 0.7
-----
Total pension expense............................... $ 5.4
=====
</TABLE>
Assumptions used for the above pension expense calculations included:
<TABLE>
<CAPTION>
1994
-----
<S> <C>
Discount rate applied to benefit obligation:
United States and Puerto Rico plans............................... 7.5%
Foreign plans (average)........................................... 7.0%
Long-term return on assets:
United States and Puerto Rico plans............................... 10.5%
Foreign plans (average)........................................... 8.0%
</TABLE>
F-28
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Post-retirement Benefits
In addition to pension benefits, BDI participated in certain Baxter-sponsored
contributory healthcare and life insurance benefit plans for substantially all
domestic retired employees. Under these plans, BDI accrued costs for post-
retirement benefits over the service years of the employees. The post-
retirement benefit plans were not funded.
Net post-retirement healthcare and life insurance expense ("post-retirement
benefits") applicable to BDI for active employees included the following
components (in millions):
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1994
THROUGH
DECEMBER 16,
1994
---------------
<S> <C>
Service cost-benefits earned during the period............ $0.5
Interest cost on projected benefit obligations............ 0.4
----
Net post-retirement benefits cost......................... $0.9
====
</TABLE>
Assumptions used in determining the net post-retirement benefits cost were:
<TABLE>
<CAPTION>
1994
-----
<S> <C>
Discount rate....................................................... 7.5%
Annual rate of increase in the per capita costs..................... 13.0%
Rate to decrease to................................................. 5.0%
By the year ended................................................... 2004
</TABLE>
Savings Plan
Most of the United States employees were eligible to participate in a Baxter-
sponsored qualified 401(k) plan. Participants could contribute up to 12% of
their annual compensation (limited in 1994 to $9,240 per individual) to the
plan and Baxter matched participants' contributions, up to 3% of compensation.
Matching contributions made by Baxter related to BDI's employees were $3.3
million for the period January 1, 1994 through December 16, 1994.
18. COMMITMENTS, CONTINGENCIES AND INDEMNIFICATIONS
The Company is a party in a number of legal proceedings. Based on the advice
of legal counsel, management believes that any potential liability relative to
the various legal proceedings pending against the Company will not have a
material adverse effect on the Company's conduct of its business, its results
of operations, or its financial position.
Letters of Credit
As of December 31, 1996, the Company has letters of credit outstanding of
approximately $3.4 million.
Operating Leases
The Company leases certain facilities and equipment under operating leases
expiring at various dates. Most of these operating leases contain renewal
options.
F-29
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments (including interest) under noncancelable
operating leases at December 31, 1996 are as follows (in millions):
<TABLE>
<S> <C>
1997.................................................. $14.6
1998.................................................. 10.6
1999.................................................. 7.9
2000.................................................. 5.4
2001.................................................. 4.5
Thereafter............................................ 3.7
-----
Total................................................. $46.7
=====
</TABLE>
Total expense for all operating leases was a net $14.8 million for the period
January 1, 1994 through December 16, 1994, $0.5 million for the period December
17, 1994 through December 31, 1994, $12.9 million for the year ended December
31, 1995 and $14.1 million for the year ended December 31, 1996.
Transition Services Agreement/Purchase Agreement
In conjunction with the Chemistry Acquisition, the Company has entered into a
one year transition services agreement for certain administrative support and a
3 year purchasing agreement for inventory with DuPont. The future minimum
payments under the commitment are not generally determinable as they are
activity based. The Company's total purchases under the agreement were $3.3
million for the eight month period ending December 31, 1996.
Purchase and Sale Agreement Indemnifications
Pursuant to the Dade Acquisition Purchase and Sale Agreement, as subsequently
amended, Baxter, Holdings and the Company entered into a number of
indemnification and cross-indemnification agreements. Such indemnifications by
the Company, where provided, generally relate to the protection of Baxter from
certain actions, or failure to take certain actions, with respect to
obligations assumed by the Company. Management believes that these
indemnification obligations will not have a material adverse effect on the
Company's conduct of its business, its results of operations, or its financial
position.
Conversely, Baxter has indemnified the Company, generally for a period of two
years after the effective date of the Dade Acquisition and subject to a
deductible of $250,000 for each claim and an aggregate deductible of $15
million, for any pre-Dade Acquisition intellectual property infringement
matters and any breaches of representations and warranties by Baxter.
Additionally, Baxter has indemnified the Company for all known and unknown
"Taxes", as defined, relating to all pre-Dade Acquisition periods (except with
respect to recorded "Taxes" related to five smaller foreign and domestic
subsidiaries), and for certain pre-Dade Acquisition environmental liabilities
(see "Environmental Matters" below), all pre-Dade Acquisition workers'
compensation claims and occurrences and certain pre-Dade Acquisition product
liabilities and warranty matters.
Environmental Matters
Reserves for off-site environmental liabilities totaling $5.0 million at
December 31, 1993 were created and accrued as a result of the actions of the
Predecessor and its predecessors. Management believes the reserves established
by Predecessor were adequate to cover any future environmental liability.
Baxter has retained these off-site environmental liabilities, as well as other
known pre-Dade Acquisition environmental liabilities as specified in the Dade
Acquisition Purchase and Sale Agreement, subject, in some cases, to certain
nominal baskets and an overall $170.0 million cap. Baxter will also indemnify
the Company for 100% of unknown pre-Dade Acquisition liabilities, whether
related to on-site or off-site matters, subject to survival periods ranging
from three years to an indefinite period subsequent to the Dade Acquisition
date. In addition, Baxter has indemnified the Company for 65% of certain costs
incurred by the Company to correct violations of
F-30
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
environmental regulations at Transferred Real Properties (as defined) which
occurred prior to the Dade Acquisition. No environmental liability is recorded
on the Company's Consolidated Balance Sheet as of December 31, 1995 or
December 31, 1996.
19. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company is a leading manufacturer of diagnostics test equipment and
supplies and provides related services to the hospital and reference lab
market which is considered to be a single business segment.
Financial information by geographic area for the years ended December 31,
1996 and 1995, the period December 17, 1994 through December 31, 1994 and the
period January 1, 1994 through December 16, 1994 (Predecessor) is summarized
as follows (in millions):
<TABLE>
<CAPTION>
UNITED OTHER GENERAL INTER-AREA
STATES EUROPE INTERNATIONAL CORPORATE ELIMINATIONS TOTAL
------ ------ ------------- --------- ------------ --------
DECEMBER 31, 1996 AND
THE YEAR THEN ENDED (3)
-----------------------
<S> <C> <C> <C> <C> <C> <C>
Trade sales............. $559.5 149.1 87.2 $ 795.8
Inter-area sales........ 61.0 1.5 -- (62.5) --
------ ----- ---- ----- --------
Total sales............. $620.5 150.6 87.2 (62.5) 795.8
====== ===== ==== ===== ========
Pretax income
(loss)(1)(2)........... $(40.5) 15.3 12.2 (112.7) $ (125.7)
====== ===== ==== ====== ========
Identifiable assets (5). $594.7 135.5 51.8 226.8 $1,008.8
====== ===== ==== ====== ========
<CAPTION>
DECEMBER 31, 1995 AND
THE YEAR THEN ENDED (3)
-----------------------
<S> <C> <C> <C> <C> <C> <C>
Trade sales............. $428.2 110.9 75.2 $ 614.3
Inter-area sales........ 60.3 1.5 -- (61.8) --
------ ----- ---- ----- --------
Total sales............. $488.5 112.4 75.2 (61.8) $ 614.3
====== ===== ==== ===== ========
Pretax income (loss)(4). $ 55.8 14.3 5.9 (56.1) $ 19.9
====== ===== ==== ====== ========
Identifiable assets (5). $232.4 91.0 40.1 187.4 $ 550.9
====== ===== ==== ====== ========
<CAPTION>
PERIOD DECEMBER 17, 1994
THROUGH DECEMBER 31,
1994 (3)
------------------------
<S> <C> <C> <C> <C> <C> <C>
Trade sales............. $ 19.0 -- -- $ 19.0
Inter-area sales........ 1.4 -- -- (1.4) --
------ ----- ---- ----- --------
Total sales............. $ 20.4 -- -- (1.4) $ 19.0
====== ===== ==== ===== ========
Pretax income (loss)(4). $ (1.6) -- -- (2.6) $ (4.2)
====== ===== ==== ====== ========
<CAPTION>
PERIOD JANUARY 1, 1994
THROUGH DECEMBER 16,
1994 (3)
----------------------
<S> <C> <C> <C> <C> <C> <C>
Trade sales............. $449.4 115.5 85.7 $ 650.6
Inter-area sales........ 50.1 -- -- (50.1) --
------ ----- ---- ----- --------
Total sales............. $499.5 115.5 85.7 (50.1) $ 650.6
====== ===== ==== ===== ========
Pretax income
(loss)(1)(2)........... $ 42.0 15.4 5.6 (13.0) $ 50.0
====== ===== ==== ====== ========
</TABLE>
- --------
(1) As described in Note 4, pretax income (loss) for the year ended December
31, 1996 includes a non-recurring charge resulting from the application of
purchase accounting associated with the Chemistry Acquisition, for a
write-off of $24.8 million, to cost of goods sold related to the allocated
purchase price made to record acquired finished goods and work in process
inventory at fair market value. In addition, pretax income (loss),
includes a $98.1 million charge to research and development, resulting
from the application of purchase accounting to acquired in-process
research and development projects which do not have alternative future
use.
F-31
<PAGE>
DADE INTERNATIONAL INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(2) As described in Note 9, pretax income (loss) for the year ended December
31, 1996 includes $15.0 million of restructuring charges.
(3) As described in Note 2, foreign results of operations for the period
December 17, 1994 through December 31, 1994 are not material and have been
omitted from the 1994 consolidated financial statements but were included
in the 1995 consolidated financial statements. During 1996, the one month
reporting lag for foreign operations was eliminated and therefore
operating results for the year ended December 31, 1996 include thirteen
months of foreign operating results.
(4) As described in Note 5, pretax income (loss) includes a non-recurring
charge resulting from the application of purchase accounting for a write-
off of $5.6 million and $40.4 million for the period December 17, 1994
through December 31, 1994 and the year ended December 31, 1995,
respectively, to cost of goods sold related to the amortization of the
$46.0 million of allocated purchase price made to record acquired finished
goods and work-in-process at fair market value.
(5) At December 31, 1995, general corporate identifiable assets include net
assets held for sale of $54.9 million and net deferred tax assets of
$143.0 million. At December 31, 1996 general corporate identifiable assets
include net deferred tax assets of $188.3 million.
Inter-area transactions are accounted for at cost. Identifiable assets are
those assets associated with a specific geographic area.
Foreign net sales (including U.S. export sales) of all combined foreign
entities were $216.5 million for the period January 1, 1994 through December
16, 1994, $202.2 million for the year ended December 31, 1995 and $236.6
million for the year ended December 31, 1996. Foreign net assets were $21.1
million and $123.3 million as of December 31, 1995 and 1996, respectively.
20. SUBSEQUENT EVENT
On March 12, 1997, Holdings announced that it had reached agreement in
principle to merge with Behring Diagnostics, a unit of Hoechst AG. The planned
stock transaction, expected to be consummated in the summer of 1997, will
create a combined diagnostics company with global revenues of $1.5 billion.
F-32
<PAGE>
SCHEDULE II
Valuation and qualifying accounts and reserves (in millions)
<TABLE>
<CAPTION>
ADDITIONS
-----------------
CHARGED
BALANCE AT TO COSTS CHARGED BALANCE AT
JANUARY 1, AND TO OTHER DECEMBER 31,
DESCRIPTION 1996 EXPENSES ACCOUNTS DEDUCTIONS 1996
- ----------- ---------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Allowance for Bad Debts. $ 6.8 8.1 5.3 $ 9.6
Income tax valuation
allowance.............. $13.6 6.3 (0.8)(1) $19.1
</TABLE>
- --------
(1) Impact of foreign currency translation.
F-33
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, IN THE CITY OF DEERFIELD, STATE OF ILLINOIS, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED ON MARCH 26, 1997.
/s/ Scott T. Garrett
By: _____________________________________
Name: Scott T. Garrett
Title: Chairman and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES INDICATED ON MARCH 26, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Scott T. Garrett Chairman, Chief Executive Officer and
___________________________________________ Director
Scott T. Garrett (principal executive officer)
/s/ James W. P. Reid-Anderson Executive Vice President and Chief
___________________________________________ Financial Officer (principal financial
James W. P. Reid-Anderson officer)
/s/ Dennis A. Taylor Vice President/Controller
___________________________________________ (principal accounting officer)
Dennis A. Taylor
/s/ Robert W. Brightfelt Executive Vice President and Director
___________________________________________
Robert W. Brightfelt
/s/ Mark E. Nunnelly Director
___________________________________________
Mark E. Nunnelly
/s/ Stephen G. Pagliuca Director
___________________________________________
Stephen G. Pagliuca
/s/ Adam Kirsch Director
___________________________________________
Adam Kirsch
/s/ John P. Connaughton Director
___________________________________________
John P. Connaughton
/s/ Joseph H. Gleberman Director
___________________________________________
Joseph H. Gleberman
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
3.1 Certificate of Incorporation of Dade International Inc.
Incorporated by reference to Exhibit 3.1 to Dade's Form S-1
Registration Statement under the Securities Act of 1933, as
filed on October 4, 1996.
3.2 Amended and Restated By-laws of Dade International Inc.
4.1 Indenture dated as of May 7, 1996 between Dade International,
Inc. and IBJ Schroder Bank & Trust Company. Incorporated by
reference to Exhibit 4.1 to Dade's Form S-1 Registration
Statement under the Securities Act of 1933, as filed on October
4, 1996.
4.2 Purchase Agreement dated as of April 30, 1996 between Dade
International Inc., BT Securities Corporation, CS First Boston
Corporation and Morgan Stanley & Co. Incorporated. Incorporated
by reference to Exhibit 4.2 to Dade's Form S-1 Registration
Statement under the Securities Act of 1933, as filed on October
4, 1996.
4.3 Registration Rights Agreement dated as of May 7, 1996 between
Dade International Inc., BT Securities Corporation, CS First
Boston Corporation and Morgan Stanley & Co. Incorporated.
Incorporated by reference to Exhibit 4.3 to Dade's Form S-1
Registration Statement under the Securities Act of 1933, as
filed on October 4, 1996.
10.1 Credit Agreement dated as of May 7, 1996 among Diagnostics
Holding, Inc., Dade International Inc., various lending
institutions and Bankers Trust Company as Agent. Incorporated by
reference to Exhibit 10.1 to Dade's Form S-1 Registration
Statement under the Securities Act of 1933, as filed on October
4, 1996.
10.2 Security Agreement dated as of May 7, 1996 among Diagnostics
Holding, Inc., Dade International Inc., certain subsidiaries of
Dade International Inc. and Bankers Trust Company as Collateral
Agent. Incorporated by reference to Exhibit 10.2 to Dade's Form
S-1 Registration Statement under the Securities Act of 1933, as
filed on October 4, 1996.
10.3 Pledge Agreement dated as of May 7, 1996 among Diagnostics
Holding, Inc., Dade International Inc., various subsidiaries of
Dade International Inc. and Bankers Trust Company as Collateral
Agent. Incorporated by reference to Exhibit 10.3 to Dade's Form
S-1 Registration Statement under the Securities Act of 1933, as
filed on October 4, 1996.
10.4 Asset Purchase and Sale Agreement dated December 11, 1995, as
amended and restated on May 7, 1996, between E.I. Du Pont de
Nemours and Company and Dade Chemistry Systems Inc. incorporated
by reference to Exhibit 2.1 to the Company's Form 8-K under the
Securities Act of 1934, as filed on May 22, 1996 (No. 33-90462).
10.5 Transitional Services Agreement entered into as of May 7, 1996,
effective as of April 30, 1996 by and between E.I. du Pont
Nemours and Company and Dade Chemistry Systems Inc. Incorporated
by reference to Exhibit 10.5 to Dade's Form S-1 Registration
Statement under the Securities Act of 1933, as filed on October
4, 1996.
10.6 Manufacturing Agreement entered into as of May 7, 1996,
effective as of April 30, 1996 by and between E.I. du Pont
Nemours and Company and Dade Chemistry Systems Inc. Incorporated
by reference to Exhibit 10.6 to Dade's Form S-1 Registration
Statement under the Securities Act of 1933, as filed on October
4, 1996.
10.7 Stockholders Agreement made as of December 20, 1994 by and among
Dade International Inc. and the other parties signatory thereto
incorporated by reference to Exhibit 10.6 to the Company's Form
S-4 Registration Statement under the Securities Act of 1933, as
filed on March 20, 1995 (No. 33-90462).
</TABLE>
X-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
10.8 Management Services Agreement dated as of December 20, 1994 by
and among Dade International Inc. and Bain Capital, Inc.
Incorporated by reference to Exhibit 10.7 to the Company's Form
S-4 Registration Statement under the Securities Act of 1933, as
filed on March 20, 1995 (No. 33-90462) as amended by Amendment
No. 1 to Management Services Agreement dated as of May 7, 1996,
incorporated by reference to Exhibit 10.8 to Dade's Form S-1
Registration Statement under the Securities Act of 1933, as
filed on October 4, 1996.
10.9 Management Services Agreement dated as of December 20, 1994 by
and among Dade International Inc. and Goldman, Sachs & Co.
Incorporated by reference to Exhibit 10.8 to the Company's Form
S-4 Registration Statement under the Securities Act of 1933, as
filed on March 20, 1995 (No. 33-90462).
10.10 Tax Law Change Indemnification dated as of December 16, 1994
between Baxter International Inc. and Diagnostics Holding, Inc.
Incorporated by reference to Exhibit 10.9 to the Company's Form
S-4 Registration Statement under the Securities Act of 1933, as
filed on March 20, 1995 (No. 33-90462).
10.11 Amended and Restated Exclusive Distribution Agreement dated as
of September 15, 1995, by and between Dade International Inc.
and Baxter Healthcare Corporation as amended on September 26,
1996. Incorporated by reference to Exhibit 10.11 to Dade's Form
S-1 Registration Statement under the Securities Act of 1933, as
filed on October 4, 1996.
10.12 1995 Executive Stock Purchase and Option Plan incorporated by
reference to Exhibit 10.1 to the Company's Form 10-Q under the
Securities Act of 1934, as filed on August 14, 1995 (No. 33-
90462).
10.13 1995 Management Stock Option Plan incorporated by reference to
Exhibit 10.2 to the Company's Form 10-Q under the Securities Act
of 1934, as filed on August 14, 1995 (No. 33-90462).
10.14 Form of Agreement under 1995 Executive Stock Purchase and Option
Plan incorporated by reference to Exhibit 10.3 to the Company's
Form 10-Q under the Securities Act of 1934, as filed on August
14, 1995 (No. 33-90462).
10.15 Form of Agreement under 1995 Management Stock Option Plan
incorporated by reference to Exhibit 10.4 to the Company's Form
10-Q under the Securities Act of 1934, as filed on August 14,
1995 (No. 33-90462).
10.16 1996 Executive Stock Purchase and Option Plan. Incorporated by
reference to Exhibit 10.16 to Dade's Form S-1 Registration
Statement under the Securities Act of 1933, as filed on October
4, 1996.
10.17 Form of Agreement under 1996 Executive Stock Option Plan.
Incorporated by reference to Exhibit 10.17 to Dade's Form S-1
Registration Statement under the Securities Act of 1933, as
filed on October 4, 1996.
21.1 Subsidiaries of Dade International Inc.
23.1 Report of Independent Accountants on Financial Statement
Schedule.
27.1 Financial Data Schedule.
</TABLE>
X-2
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
OF
DADE INTERNATIONAL INC.
A Delaware Corporation
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation in
the State of Delaware shall be located at 1209 Orange Street, Corporation Trust
Center, in the City of Delaware, County of New Castle 19801. The name of the
corporation's registered agent at such address shall be The Corporation Trust
Company. The registered office and/or registered agent of the corporation may be
changed from time to time by action of the board of directors.
Section 2. Other Offices. The corporation may also have offices at such
other places, both within and without the State of Delaware, as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place and Time of Meetings. An annual meeting of the
stockholders shall be held on the first Wednesday of March each year if not a
legal holiday and if a legal holiday, then on the next secular day following, at
10:00 A.M., or at such other date and time as shall be designated from time to
time by the board of directors.
Section 2. Special Meetings. Special meetings of stockholders may be called
for any purpose and may be held at such time and place, within or without the
State of Delaware, as shall be stated in a notice of meeting or in a duly
executed waiver of notice thereof.
<PAGE>
Section 3. Place of Meetings. The board of directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal executive office of the
corporation.
Section 4. Notice. Whenever stockholders are required or permitted to take
action at a meeting, written or printed notice stating the place, date, time,
and, in the case of special meetings, the purpose or purposes, of such meeting,
shall be given to each stockholder entitled to vote at such meeting.
Section 5. Stockholders List. The officer having charge of the stock ledger
of the corporation shall make, at least 10 days before every meeting of the
stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. The holders of a majority of the outstanding shares of
capital stock, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders, except as otherwise provided by
statute or by the certificate of incorporation. If a quorum is not present, the
holders of a majority of the shares present in person or represented by proxy at
the meeting, and entitled to vote at the meeting, may adjourn the meeting to
another time and/or place.
Section 7. Adjourned Meetings. When a meeting is adjourned to another time
and place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
-2-
<PAGE>
Section 8. Vote Required. When a quorum is present, the affirmative vote of
the majority of shares present in person or represented by proxy at the meeting
and entitled to vote on the subject matter shall be the act of the stockholders,
unless the question is one upon which by express provisions of an applicable law
or of the certificate of incorporation a different vote is required, in which
case such express provision shall govern and control the decision of such
question.
Section 9. Voting Rights. Except as otherwise provided by the General
Corporation Law of the State of Delaware or by the certificate of incorporation
of the corporation or any amendments thereto and subject to Section 3 of Article
VI hereof, every stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of common stock held
by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period.
Section 11. Action by Written Consent. Unless otherwise provided in the
certificate of incorporation, any action required to be taken at any annual or
special meeting of stockholders of the corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken and bearing the dates of
signature of the stockholders who signed the consent or consents, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the corporation by delivery to its registered office in
the state of Delaware, or the corporation's principal place of business, or an
officer or agent of the corporation having custody of the book or books in which
proceedings of meetings of the stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. All consents properly delivered in accordance
with this section shall be deemed to be recorded when so delivered. No written
consent shall be effective to take the corporate action referred to therein
unless, within sixty days of the earliest dated consent delivered to the
corporation as required by this section, written consents signed by the holders
of a sufficient number of shares to take such corporate action are so recorded.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
-3-
<PAGE>
Any action taken pursuant to such written consent or consents of the
stockholders shall have the same force and effect as if taken by the
stockholders at a meeting thereof.
ARTICLE III
-----------
DIRECTORS
---------
Section 1. General Powers. The business and affairs of the corporation
shall be managed by or under the direction of the board of directors.
Section 2. Number, Election and Term of Office. The number of directors
shall be established from time to time by resolution of the board. There shall
be an elected position entitled Chairman of the Board of Directors. The
directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote in the
election of directors. The directors shall be elected in this manner at the
annual meeting of the stockholders, except as provided in Section 4 of this
Article III. Each director elected shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. Removal and Resignation. Any director or the entire board of
directors may be removed at any time, with or without cause, by the holders of
a majority of the shares then entitled to vote at an election of directors.
Whenever the holders of any class or series are entitled to elect one or more
directors by the provisions of the corporation's certificate of incorporation,
the provisions of this section shall apply, in respect to the removal without
cause of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class or series and not to the vote of the
outstanding shares as a whole. Any director may resign at any time upon written
notice to the corporation.
Section 4. Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director. Each director so chosen shall hold office until a
successor is duly elected and qualified or until his or her earlier death,
resignation or removal as herein provided.
Section 5. Annual Meetings. The annual meeting of each newly elected board
of directors shall be held without other notice than this by-law immediately
after, and at the same place as, the annual meeting of stockholders.
-4-
<PAGE>
Section 6. Other Meetings and Notice. Regular meetings, other than the
annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the board of directors may be called by or at the
request of the president on at least 24 hours notice to each director, either
personally, by telephone, by mail, or by telegraph.
Section 7. Quorum, Required Vote and Adjournment. A majority of the total
number of directors shall constitute a quorum for the transaction of business.
The vote of a majority of directors present at a meeting at which a quorum is
present shall be the act of the board of directors. If a quorum shall not be
present at any meeting of the board of directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 8. Committees. The board of directors may, by resolution passed
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation, which
to the extent provided in such resolution or these by-laws shall have and may
exercise the powers of the board of directors in the management and affairs of
the corporation except as otherwise limited by law. The board of directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors. Each committee
shall keep regular minutes of its meetings and report the same to the board of
directors when required.
Section 9. Committee Rules. Each committee of the board of directors may
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. In the event that a member and that
member's alternate, if alternates are designated by the board of directors as
provided in Section 8 of this Article III, of such committee is or are absent or
disqualified, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in place of any such absent or disqualified member.
Section 10. Communications Equipment. Members of the board of directors or
any committee thereof may participate in and act at any meeting of such board or
committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the
-5-
<PAGE>
meeting can hear each other, and participation in the meeting pursuant to this
section shall constitute presence in person at the meeting.
Section 11. Waiver of Notice and Presumption of Assent. Any member of the
board of directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forward by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 12. Action by Written Consent. Unless otherwise restricted by the
certificate of incorporation, any action required or permitted to be taken at
any meeting of the board of directors, or of any committee thereof, may be taken
without a meeting if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
-6-
<PAGE>
ARTICLE IV
----------
OFFICERS
--------
Section 1. Number. The officers of the corporation shall be elected by the
board of directors and shall consist of a chief executive officer, president,
any number of vice presidents, a secretary, any number of assistant secretaries
and such other officers and assistant officers as may be deemed necessary or
desirable by the board of directors. Any number of offices may be held by the
same person. In its discretion, the board of directors may choose not to fill
any office for any period as it may deem advisable, except that the offices of
president and secretary shall be filled as expeditiously as possible.
Section 2. Election and Term of Office. The officers of the corporation
shall be elected annually by the board of directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as conveniently
may be. Vacancies may be filled or new offices created and filled at any meeting
of the board of directors. Each officer shall hold office until a successor is
duly elected and qualified or until his or her earlier death, resignation or
removal as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the board of directors
may be removed by the board of directors whenever in its judgment the best
interests of the corporation would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Section 4. Vacancies. Any vacancy occurring in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term by the board of directors
then in office.
Section 5. Compensation. Compensation of all officers shall be fixed by the
board of directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the corporation.
Section 6. Chief Executive Officer. The chief executive officer of the
corporation, subject to the powers of the board of directors, shall have general
and active management of the business of the corporation; and shall see that all
orders and resolutions of the board of directors are carried into effect. The
chief executive officer shall have such other powers and perform such other
duties as may be prescribed by the chairman of the board, the chief executive
officer or the board of directors or as may be provided in these by-laws.
-7-
<PAGE>
Section 7. President. The president shall be the chief executive officer of
the corporation; shall preside at all meetings of the stockholders and board of
directors at which he or she is present; subject to the powers of the board of
directors, shall have general charge of the business, affairs and property of
the corporation, and control over its officers, agents and employees; and shall
see that all orders and resolutions of the board of directors are carried into
effect. The president shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation. The president shall
have such other powers and perform such other duties as may be prescribed by the
board of directors, the chief executive officer or as may be provided in these
by-laws.
Section 8. Vice-presidents. The vice-president, or if there shall be more
than one, the vice-presidents in the order determined by the board of directors
shall, in the absence or disability of the president, act with all of the powers
and be subject to all the restrictions of the president. The vice-presidents
shall also perform such other duties and have such other powers as the board of
directors, the chief executive officer, the president or these-by-laws may, from
time to time, prescribe.
Section 9. The Secretary and Assistant Secretaries. The secretary shall
attend all meetings of the board of directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose. Under the
president's supervision, the secretary shall give, or cause to be given, all
notices required to be given by these by-laws or by law; shall have such powers
and perform such duties as the board of directors, the president or these
by-laws may, from time to time, prescribe; and shall have custody of the
corporate seal of the corporation. The secretary, or an assistant secretary,
shall have authority to affix the corporate seal to any instrument requiring it
and when so affixed, it may be attested by his or her signature or by the
signature of such assistant secretary. The board of directors may give general
authority to any other officer to affix the seal of the corporation and to
attest the affixing by his or her signature. The assistant secretary, or if
there be more than one, the assistant secretaries in the order determined by the
board of directors, shall, in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors, the
chief executive officer or the president may, from time to time, prescribe.
-8-
<PAGE>
Section 10. The Treasurer and Assistant Treasurer. The treasurer shall
have the custody of the corporate funds and securities; shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation; shall deposit all monies and other valuable effects in the name and
to the credit of the corporation as may be ordered by the board of directors;
shall cause the funds of the corporation to be disbursed when such disbursements
have been duly authorized, taking proper vouchers for such disbursements; and
shall render to the president and the board of directors, at its regular meeting
or when the board of directors so requires, an account of the corporation; shall
have such powers and perform such duties as the board of directors, the
president or these by-laws may, from time to time, prescribe. If required by the
board of directors, the treasurer shall give the corporation a bond (which shall
be rendered every six years) in such sums and with such surety or sureties as
shall be satisfactory to the board of directors for the faithful performance of
the duties of the office of the treasurer and for the restoration to the
corporation, in case of death, resignation, retirement, or removal from office,
of all books, papers, vouchers, money, and other property of whatever kind in
the possession or under the control of the treasurer belonging to the
corporation. The assistant treasurer, or if there shall be more than one, the
assistant treasurers in the order determined by the board of directors, shall in
the absence or disability of the treasurer, perform the duties and exercise the
powers of the treasurer. The assistant treasurers shall perform such other
duties and have such other powers as the board of directors, the chief executive
officer or the president may, from time to time, prescribe.
Section 11. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these by-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
Section 12. Absence or Disability of Officers. In the case of the absence
or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person whom it may select.
-9-
<PAGE>
ARTICLE V
---------
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
--------------------------------------------------
Section 1. Nature of Indemnity. Each person who was or is made a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, is or was a
director or officer, of the corporation or is or was serving at the request of
the corporation as a director, officer, employee, fiduciary, or agent of another
corporation or of a partnership, joint venture, trust or other enterprise
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee, fiduciary or agent or in any other capacity while serving as
a director, officer, employee, fiduciary or agent, shall be indemnified and held
harmless by the corporation to the fullest extent which it is empowered to do so
by the General Corporation Law of the State of Delaware, as the same exists or
may hereafter be amended against all expense, liability and loss (including
attorneys' fees actually and reasonably incurred by such person in connection
with such proceeding) and such indemnification shall inure to the benefit of his
or her heirs, executors and administrators; provided, however, that, except as
provided in Section 2 hereof, the corporation shall indemnify any such person
seeking indemnification in connection with a proceeding initiated by such person
only if such proceeding was authorized by the board of directors of the
corporation. The right to indemnification conferred in this Article V shall be a
contract right and, subject to Sections 2 and 5 hereof, shall include the right
to be paid by the corporation the expenses incurred in defending any such
proceeding in advance of its final disposition. The corporation may, by action
of its board of directors, provide indemnification to employees and agents of
the corporation with the same scope and effect as the foregoing indemnification
of directors and officers.
Section 2. Procedure for Indemnification of Directors and Officers. Any
indemnification of a director, officer, employee, fiduciary or agent of the
corporation under Section 1 of this Article V or advance of expenses under
Section 5 of this Article V shall be made promptly, and in any event within 30
days, upon the written request of the director, officer, employee, fiduciary or
agent. If a determination (as defined in the General Corporation Law of the
State of Delaware) by the corporation that the director, officer, employee,
fiduciary or agent is entitled to indemnification pursuant to this Article V is
required, and the corporation fails to respond within sixty days to a written
request for indemnity, the corporation shall be deemed to have approved the
request. If the corporation denies a written request for indemnification or
advancing of expenses, in whole or in part, or if payment in full pursuant to
such request is not made within 30 days, the right to indemnification or
advances as
-10-
<PAGE>
granted by this Article V shall be enforceable by the director, officer,
employee, fiduciary or agent in any court of competent jurisdiction. Such
person's costs and expenses incurred in connection with successfully
establishing his or her right to indemnification, in whole or in part, in any
such action shall also be indemnified by the corporation. It shall be a defense
to any such action (other then an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any, has been tendered to the corporation) that the
claimant has not met the standards of conduct which make it permissible under
the General Corporation Law of the State of Delaware for the corporation to
indemnify the claimant for the amount claimed, but the burden of such defense
shall be on the corporation. Neither the failure of the corporation (including
its board of directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the General Corporation
Law of the State of Delaware, nor an actual determination by the corporation
(including its board of directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
Section 3. Article Not Exclusive. The rights to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article V shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the certificate of incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 4. Insurance. The corporation may purchase and maintain insurance
on its own behalf and on behalf of any person who is or was a director, officer,
employee, fiduciary, or agent of the corporation or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him or her and incurred by him or her in any such
capacity, whether or not the corporation would have the power to indemnify such
person against such liability under this Article V.
Section 5. Expenses. Expenses incurred by any person described in Section
1 of this Article V in defending a proceeding shall be paid by the corporation
in advance of such proceeding's final disposition upon receipt of an undertaking
by or on behalf of the director or officer to repay such amount if it shall
ultimately be determined that he or she is not entitled to be indemnified by the
corporation. Such expenses incurred by other employees and agents may
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<PAGE>
be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
Section 6. Employees and Agents. Persons who are not covered by the
foregoing provisions of this Article V and who are or were employees or agents
of the corporation, or who are or were serving at the request of the corporation
as employees or agents of another corporation, partnership, joint venture, trust
or other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the board of directors.
Section 7. Contract Rights. The provisions of this Article V shall be
deemed to be a contract right between the corporation and each director or
officer who serves in any such capacity at any time while this Article V and the
relevant provisions of the General Corporation Law of the State of Delaware or
other applicable law are in effect, and any repeal or modification of this
Article V or any such law shall not affect any rights or obligations then
existing with respect to any state of facts or proceeding then existing.
Section 8. Merger or Consolidation. For purposes of this Article V,
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee, fiduciary or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under this
Article V with respect to the resulting or surviving corporation as he or she
would have with respect to such constituent corporation if its separate
existence had continued.
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<PAGE>
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Form. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by, or in the name of the corporation by the chief
executive officer, the president, or a vice-president and the secretary or any
assistant secretary of the corporation, certifying the number of shares owned by
such holder in the corporation. If such a certificate is countersigned (1) by a
transfer agent or an assistant transfer agent other than the corporation or its
employee or (2) by a registrar, other than the corporation or its employee, the
signature of the chief executive officer, the president, any vice-president,
secretary, or any assistant secretary may be facsimiles. In case any officer or
officers who have signed, or whose facsimile signature or signatures have been
used on, any such certificate or certificates shall cease to be such officer or
officers of the corporation whether because of death, resignation or otherwise
before such certificates have been delivered by the corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates or whose
facsimile signature or signatures have been used thereon had not ceased to be
such officer or officers of the corporation. All certificates for shares shall
be consecutively numbered or otherwise identified. The name of the person to
whom the shares represented thereby are issued, with the number of shares and
date of issue, shall be entered on the books of the corporation. Shares of stock
of the corporation shall only be transferred on the books of the corporation by
the holder of record thereof or by such holder's attorney duly authorized in
writing, upon surrender to the corporation of the certificate or certificates
for such shares endorsed by the appropriate person or persons, with such
evidence of the authenticity of such endorsement, transfer, authorization, and
other matters as the corporation may reasonably require, and accompanied by all
necessary stock transfer stamps. In that event, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate or certificates, and record the transaction on its books.
The board of directors may appoint a bank or trust company organized under the
laws of the United States or any state thereof to act as its transfer agent or
registrar, or both in connection with the transfer of any class or series of
securities of the corporation.
Section 2. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors
-13-
<PAGE>
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the corporation a bond
sufficient to indemnify the corporation against any claim that may be made
against the corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that
the corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty nor less than ten
days before the date of such meeting. If no record date is fixed by the board of
directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be the close of business on the next
day preceding the day on which notice is given, or if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
Section 4. Fixing a Record Date for Action by Written Consent. In order
that the corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
statute, shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the board of directors and prior action by the board of directors is required by
statute, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the board of directors adopts the resolution taking such
prior action.
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<PAGE>
Section 5. Fixing a Record Date for Other Purposes. In order that the
corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
resolution relating thereto.
Section 6. Registered Stockholders. Prior to the surrender to the
corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications, and otherwise to exercise all the rights and
powers of an owner.
Section 7. Subscriptions for Stock. Unless otherwise provided for in the
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the corporation may proceed to collect the
amount due in the same manner as any debt due the corporation.
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<PAGE>
ARTICLE VII
-----------
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation. Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or any other purpose
and the directors may modify or abolish any such reserve in the manner in which
it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other orders
for the payment of money by or to the corporation and all notes and other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, agent or agents of the corporation, and in such
manner, as shall be determined by resolution of the board of directors or a duly
authorized committee thereof.
Section 3. Contracts. The board of directors may authorize any officer or
officers, or any agent or agents, of the corporation to enter into any contract
or to execute and deliver any instrument in the name of and on behalf of the
corporation, and such authority may be general or confined to specific
instances.
Section 4. Loans. The corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is a
director of the corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
Section 5. Fiscal Year. The fiscal year of the corporation shall be fixed
by resolution of the board of directors.
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<PAGE>
Section 6. Corporate Seal. The board of directors may provide a corporate
seal which shall be in the form of a circle and shall have inscribed thereon the
name of the corporation and the words "Corporate Seal, Delaware". The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities in
any other corporation held by the corporation shall be voted by the president,
unless the board of directors specifically confers authority to vote with
respect thereto, which authority may be general or confined to specific
instances, upon some other person or officer. Any person authorized to vote
securities shall have the power to appoint proxies, with general power of
substitution.
Section 8. Inspection of Books and Records. Any stockholder of record, in
person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business
to inspect for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean any purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent shall be the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in the State of Delaware or at its principal place of business.
Section 9. Section Headings. Section headings in these by-laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision of
these by-laws is or becomes inconsistent with any provision of the certificate
of incorporation, the General Corporation Law of the State of Delaware or any
other applicable law, the provision of these by-laws shall not be given any
effect to the extent of such inconsistency but shall otherwise be given full
force and effect.
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<PAGE>
ARTICLE VIII
------------
AMENDMENTS
----------
These by-laws may be amended, altered, or repealed and new by-laws adopted
at any meeting of the board of directors by a majority vote. The fact that the
power to adopt, amend, alter, or repeal the by-laws has been conferred upon the
board of directors shall not divest the stockholders of the same powers.
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<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF DADE INTERNATIONAL, INC.
<TABLE>
<CAPTION>
STATE OR JURISDICTION OF
SUBSIDIARY INCORPORATION OR ORGANIZATION
---------- -----------------------------
<S> <C>
Dade B.V......................................... The Netherlands
Dade AG.......................................... Switzerland
Dade Diagnosticos Lda............................ Portugal
Dade Diagnosticos, SL............................ Spain
Dade Diagnostics Corporation..................... Canada
Dade Diagnostics of P.R., Inc.................... Delaware
Dade Diagnostics Pty. Ltd........................ Australia
Dade Diagnostika GmbH............................ Germany
Dade Export Corporation.......................... Delaware
Dade Foreign Sales Corporation................... Barbados W.I.
Dade Finance, Inc................................ Delaware
Dade Limited..................................... Japan
Dade Ltda........................................ Brazil
Dade MicroScan Inc............................... Delaware
Dade S.A......................................... Belgium
Dade S.A......................................... France
Dade S.A. de CV.................................. Mexico
Dade S.p.A....................................... Italy
</TABLE>
<PAGE>
EXHIBIT 23.1
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Dade International Inc.
Our audits of the consolidated financial statements of Dade International
Inc. referred to in our report dated March 3, 1997 (which report and
consolidated financial statements are listed in the "Index to Financial
Statements and Schedule" of this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedule listed in Item 14(a)(i) of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Chicago, Illinois
March 3, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Combined/Consolidated Financial Statements of Dade International Inc. as of
December 31, 1995 and 1996 and for the three years then ended and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,700,000
<SECURITIES> 0
<RECEIVABLES> 183,800,000
<ALLOWANCES> 9,600,000
<INVENTORY> 155,000,000
<CURRENT-ASSETS> 397,600,000
<PP&E> 187,000,000
<DEPRECIATION> 32,400,000
<TOTAL-ASSETS> 1,008,800,000
<CURRENT-LIABILITIES> 225,900,000
<BONDS> 350,000,000
0
0
<COMMON> 0
<OTHER-SE> (25,000,000)
<TOTAL-LIABILITY-AND-EQUITY> 1,008,800,000
<SALES> 795,800,000
<TOTAL-REVENUES> 795,800,000
<CGS> 444,100,000
<TOTAL-COSTS> 444,100,000
<OTHER-EXPENSES> 411,800,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,600,000
<INCOME-PRETAX> (125,700,000)
<INCOME-TAX> (45,400,000)
<INCOME-CONTINUING> (80,300,000)
<DISCONTINUED> 0
<EXTRAORDINARY> (25,000,000)
<CHANGES> 0
<NET-INCOME> (105,300,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
