<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
________________
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from _____ to _____
Commission File No. 333-13523
DADE BEHRING INC.
(Formerly Dade International Inc.)
(Exact name of Registrant as specified in its charter)
Delaware 36-3949533
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1717 Deerfield Road, Deerfield, Illinois 60015-0778
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 267-5300
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 [ ]
The number of shares of the Registrant's Common Stock, $.01 par value per
share, outstanding as of November 15, 1999, the latest practicable date, was
1,000 shares.
<PAGE>
DADE BEHRING INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of December 31, 1998 and 2
September 30, 1999 (unaudited)
Condensed Consolidated Statements of Operations and Comprehensive 3
Income (Loss) (unaudited) for the three months ended and for the nine
months ended September 30, 1998 and September 30, 1999
Condensed Consolidated Statements of Cash Flows (unaudited) for the 4
nine months ended September 30, 1998 and September 30, 1999
Condensed Consolidated Statements of Stockholder's Equity (Deficit) for 5
the years ended December 31, 1997 and 1998 and for the nine months
ended September 30, 1999 (unaudited)
Notes to the Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results 11
of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
PART II OTHER INFORMATION
- ---------------------------------------------------------------------------------------------------------
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
</TABLE>
1
<PAGE>
DADE BEHRING INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except share-related data)
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1998 1999
------ ------------ -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................... $ 25.8 $ 78.1
Accounts receivable, net.......................................... 353.5 368.5
Inventories....................................................... 265.9 288.9
Prepaid expenses and other current assets......................... 7.3 12.2
Deferred income taxes............................................. 76.8 86.7
-------- --------
Total current assets........................................... 729.3 834.4
-------- --------
Property, plant and equipment, net.................................. 304.7 342.2
Debt issuance costs, net............................................ 31.2 46.6
Goodwill, net....................................................... 126.5 117.2
Deferred income taxes............................................... 269.7 283.1
Other assets........................................................ 72.0 90.9
-------- --------
Total assets................................................... $1,533.4 $1,714.4
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
----------------------------------------------
Current liabilities:
Current portion of long-term debt................................. $ 13.0 $ 6.0
Short-term debt................................................... 96.4 98.4
Accounts payable.................................................. 130.7 88.0
Accrued liabilities............................................... 228.4 239.1
-------- --------
Total current liabilities...................................... 468.5 431.5
-------- --------
Long-term debt, less current portion................................ 373.0 958.7
Senior subordinated notes........................................... 350.0 350.0
Other liabilities................................................... 92.6 87.7
-------- --------
Total liabilities.............................................. 1,284.1 1,827.9
-------- --------
Commitments and contingencies....................................... - -
Stockholder's equity (deficit):
Common stock, $.01 par value, 1,000 shares authorized, issued
and outstanding................................................. - -
Additional paid-in capital........................................ 493.0 178.0
Unearned stock-based compensation................................. (11.5) (5.5)
Notes receivable on capital contribution.......................... (0.2) -
Accumulated deficit............................................... (209.4) (235.1)
Accumulated other comprehensive loss.............................. (22.6) (50.9)
-------- --------
Total stockholder's equity (deficit)........................... 249.3 (113.5)
-------- --------
Total liabilities and stockholder's equity (deficit)........... $1,533.4 $1,714.4
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
DADE BEHRING INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ --------------------
1998 1999 1998 1999
----- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales........................................ $306.2 $310.9 $950.9 $952.5
Operating costs and expenses:
Cost of goods sold............................. 126.1 133.3 385.1 406.9
Marketing and administrative expense........... 119.7 131.6 373.7 422.4
Research and development expense............... 22.4 21.7 66.9 64.7
Goodwill amortization expense.................. 1.8 1.4 4.5 4.5
Restructuring expense.......................... - - - 16.5
------ ------ ------ ------
Income from operations........................... 36.2 22.9 120.7 37.5
------ ------ ------ ------
Other income (expense):
Interest expense, net.......................... (20.6) (34.7) (61.4) (76.3)
Other.......................................... 3.5 5.1 3.2 10.7
------ ------ ------ ------
Income (loss) before income taxes................ 19.1 (6.7) 62.5 (28.1)
Income tax expense (benefit)..................... 7.0 (2.6) 23.1 (11.2)
------ ------ ------ ------
Income (loss) before extraordinary items......... 12.1 (4.1) 39.4 (16.9)
Extraordinary loss related to early retirement
of debt (net of $5.9 million income tax benefit) - - - (8.8)
------ ------ ------ ------
Net income (loss)................................ $ 12.1 $ (4.1) $ 39.4 $(25.7)
------ ------ ------ ------
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments....... 5.3 (16.8) 5.9 (28.7)
Unrealized gain (loss) on marketable securities (0.3) - (0.4) 0.4
------ ------ ------ ------
Other comprehensive income (loss)................ 5.0 (16.8) 5.5 (28.3)
Income tax expense (benefit) related to items of
comprehensive income (loss).................... - - - -
------ ------ ------ ------
Other comprehensive income (loss), net of tax.... 5.0 (16.8) 5.5 (28.3)
------ ------ ------ ------
Comprehensive income (loss)...................... $ 17.1 $(20.9) $ 44.9 $(54.0)
====== ====== ====== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
DADE BEHRING INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1998 1999
---- ----
<S> <C> <C>
Operating Activities:
Net income (loss)....................................................... $ 39.4 $ (25.7)
Adjustments to reconcile net income (loss)
to net cash provided (utilized) by operating activities:
Depreciation and amortization expense............................... 40.6 47.5
Stock-based compensation expense.................................... 9.0 28.4
Writeoff of debt issuance costs..................................... - 14.7
Deferred income taxes............................................... 29.5 (23.3)
Changes in balance sheet items:
Accounts receivable, net.......................................... (49.9) (30.7)
Inventories....................................................... (15.6) (34.5)
Prepaid expenses and other current assets......................... (12.3) (4.4)
Accounts payable.................................................. (7.3) (39.5)
Accrued liabilities............................................... 22.6 15.5
Long-term notes receivable........................................ (3.9) -
Other, net........................................................ (10.3) (7.9)
------ -------
Net cash flow provided (utilized) by operating activities......... 41.8 (59.9)
------ -------
Investing Activities:
Acquisitions, net of acquired cash...................................... - (7.6)
Capital expenditures.................................................... (74.1) (84.2)
Proceeds for purchase price adjustment.................................. 32.5 -
Proceeds from sales of assets........................................... 24.4 -
------ -------
Net cash flow utilized by investing activities.................... (17.2) (91.8)
------ -------
Financing Activities:
Proceeds from issuance of short-term debt, net.......................... 43.8 2.0
Debt issuance costs..................................................... - (33.2)
Proceeds from borrowings under revolving credit facility................ 20.0 425.8
Repayment of borrowings under revolving credit facility................. (20.0) (354.0)
Proceeds from borrowings under bank credit agreement.................... - 875.0
Retirement of previous bank credit agreement............................ - (369.1)
Repayment of borrowings under bank credit agreement..................... (52.3) (2.3)
Capital contribution from parent........................................ - 80.0
Dividend to parent...................................................... - (420.1)
------ -------
Net cash flow provided (utilized) by financing activities......... (8.5) 204.1
------ -------
Effect of foreign exchange rates on cash.................................. (0.2) (0.1)
------ -------
Net increase in cash and cash equivalents......................... 15.9 52.3
Cash and Cash Equivalents:
Beginning of period..................................................... 20.5 25.8
------ -------
End of period........................................................... $ 36.4 $ 78.1
====== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
DADE BEHRING INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
(Dollars in millions)
<TABLE>
<CAPTION>
Common Notes Accumulated Total
Stock Additional Receivable Unearned Accum- Other Stockholder'
-------------- Paid-in on Capital Stock-Based lated Comprehensive Equity
Shares Amount Capital Contribution Compensation Deficit Loss (Deficit)
------ ------ ---------- ------------ ------------ -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996............... 1,000 $ -- $ 87.2 $ -- $ -- $(110.3) $ (1.9) $ (25.0)
----- ---- ------- ----- ------ ------- ------ -------
Net loss................................... (142.6) (142.6)
Capital contribution from parent........... 404.6 404.6
Notes receivable on capital contribution... (0.7) (0.7)
Cash dividend to parent on Common Stock.... (34.8) (34.8)
Issuance of unearned stock-based
compensation............................. 33.2 (33.2) --
Amortization of unearned stock-based
compensation............................. 11.4 11.4
Unrealized loss on marketable securities... (0.2) (0.2)
Cumulative translation adjustment.......... (8.6) (8.6)
----- ---- ------- ----- ------ ------- ------ -------
Balance at December 31, 1997............... 1,000 -- 490.2 (0.7) (21.8) (252.9) (10.7) 204.1
----- ---- ------- ----- ------ ------- ------ -------
Net income................................. 43.5 43.5
Payments on notes receivable............... 0.5 0.5
Issuance of unearned stock-based
compensation............................. 3.6 (3.6) --
Adjustment of unearned stock-based
compensation............................. (0.8) 0.8 --
Amortization of unearned stock-based
compensation............................. 13.1 13.1
Unrealized loss on marketable securities... (0.3) (0.3)
Cumulative translation adjustment.......... (11.6) (11.6)
----- ---- ------- ----- ------ ------- ------ -------
Balance at December 31, 1998............... 1,000 -- 493.0 (0.2) (11.5) (209.4) (22.6) 249.3
----- ---- ------- ----- ------ ------- ------ -------
(Unaudited)
Net loss................................... (25.7) (25.7)
Capital contribution from parent........... 80.0 80.0
Cash dividend to parent on
recapitalization......................... (420.1) (420.1)
Payments on notes receivable............... 0.2 0.2
Issuance of unearned stock-based
compensation............................. 0.5 (0.5) --
Adjustment of unearned stock-based
compensation............................. (1.1) 1.1 --
Amortization of unearned stock-based
compensation............................. 5.4 5.4
Issuance of stock-based compensation....... 1.3 1.3
Adjustment of stock-based compensation..... (1.0) (1.0)
Compensation expense related to
recapitalization......................... 25.4 25.4
Unrealized gain on marketable securities... 0.4 0.4
Cumulative translation adjustment.......... (28.7) (28.7)
----- ---- ------- ----- ------ ------- ------ -------
Balance at September 30, 1999.............. 1,000 $ -- $ 178.0 $ -- $ (5.5) $(235.1) $(50.9) $(113.5)
===== ==== ======= ===== ====== ======= ====== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
DADE BEHRING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Business
Dade Behring Inc. (the "Company"), formerly Dade International Inc., was
incorporated in Delaware in 1994 and is a wholly-owned subsidiary of Dade
Behring Holdings, Inc. ("Holdings"), formerly Diagnostics Holding Inc. Bain
Capital, Inc., GS Capital Partners, L.P. (an affiliate of Goldman Sachs Group,
L.P.), their respective related investors ("Bain" and "Goldman Sachs"), Hoechst
A.G. and certain of its affiliates ("Hoechst") and the management of the
Company own substantially all of the capital stock of Holdings. The Company
develops, manufactures and markets in vitro diagnostic equipment, reagents,
consumable supplies and services worldwide.
Effective December 16, 1994, the Company acquired (the "Dade Acquisition")
the worldwide in vitro diagnostics products manufacturing and services
businesses and net assets of Baxter Diagnostics Inc. and certain of its
affiliates, from Baxter International Inc. and its affiliates ("Baxter"). The
Dade Acquisition was accounted for as a purchase.
Effective May 1, 1996, the Company acquired (the "Chemistry Acquisition")
the worldwide in vitro diagnostics business ("Dade Chemistry") of E.I. du Pont
de Nemours and Company. The operating results and acquired assets and assumed
liabilities of the Chemistry Acquisition, which was accounted for as a purchase,
have been reflected in the Company's consolidated financial statements since May
1, 1996.
Effective October 1, 1997, Holdings acquired (the "Behring Combination")
the stock and beneficial interest of various subsidiaries of Hoechst that
operated its worldwide in vitro diagnostic business ("Behring"). The stock and
beneficial interest was contributed to the Company effective October 1, 1997.
The operating results and acquired assets and assumed liabilities of the Behring
Combination, which was accounted for as a purchase, have been reflected in the
Company's consolidated financial statements since October 1, 1997.
2. Basis of Presentation
The condensed consolidated financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
regulations. The Company believes the disclosures included in the unaudited
condensed consolidated financial statements, when read in conjunction with the
consolidated financial statements of the Company included in the Company's 1998
Annual Report on Form 10-K and notes thereto, are adequate to make the
information presented not misleading. In management's opinion, the condensed
consolidated financial statements reflect all adjustments necessary to summarize
fairly the consolidated financial position, results of operations, and cash
flows for such periods. The results of operations for the nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 1999.
6
<PAGE>
DADE BEHRING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
3. 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. Inventories consist of the following (in millions):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Raw materials................... $ 48.8 $ 48.0
Work-in-process................. 52.3 48.8
Finished products............... 164.8 192.1
------ ------
Total inventories......... $265.9 $288.9
====== ======
</TABLE>
4. Restructuring
In 1997, in connection with the Behring Combination, the Company recorded a
$40.1 million restructuring charge and allocated $74.3 million of the Behring
Combination purchase price for a restructuring plan to consolidate manufacturing
and distribution operations and to eliminate redundant sales, service and
administrative functions. These restructuring actions include the closure of the
Company's Miami, Florida and Behring's Westwood, Massachusetts manufacturing
facilities, the exit from the San Jose administrative/research facility, the
consolidation and reorganization of the global sales, marketing and research and
development organizations and elimination of administrative redundancies. In
1998, excess severance reserves of $4.5 million, resulting from higher than
projected employee turnover at the Miami facility, were identified and credited
to income.
A total of 1,528 employees were identified for termination resulting from
these activities, 824 of which were employees of the Company prior to the
Behring Combination. Of the 824 identified Company employees, 69, 341, and 200
were severed during 1997, 1998, and the nine months ended September 30, 1999,
respectively. Of the 704 identified Behring employees, 58, 467, and 47 were
severed during 1997, 1998, and the nine months ended September 30, 1999,
respectively.
In June 1999, in connection with a reorganization of the Company's
management structure to reduce operating costs and plans to increase
productivity primarily in the Company's U.S. and European sales and service and
R&D groups, the Company recorded a $16.5 million restructuring charge. A total
of approximately 140 employees were identified for termination resulting from
these activities. As of September 30, 1999, 23 employees had been severed.
7
<PAGE>
DADE BEHRING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
The following table summarizes the Company's restructuring activity for the
years ended December 31, 1997 and 1998 and for the nine months ended September
30, 1999 (in millions):
<TABLE>
<CAPTION>
Facility Severance
Exit and
Costs Relocation Other Total
----- ---------- ----- -----
<S> <C> <C> <C> <C>
Reserve balance, December 31, 1996......... $ -- $ -- $ -- $ --
1997 restructuring charges................. 13.0 26.4 0.7 40.1
1997 allocation of Behring Combination
purchase price............................ 47.6 26.7 -- 74.3
1997 utilization of reserve................ (9.0) (3.7) -- (12.7)
------ ------- ----- ------
Reserve balance, December 31, 1997......... 51.6 49.4 0.7 101.7
1998 restructuring charges................. -- -- -- --
1998 utilization of reserve................ (27.5) (26.6) -- (54.1)
Adjustments and reclassifications.......... -- (4.5) -- (4.5)
------ ------- ----- ------
Reserve balance, December 31, 1998......... 24.1 18.3 0.7 43.1
1999 restructuring charges................. -- 16.5 -- 16.5
1999 utilization of reserve................ (4.8) (16.2) (0.7) (21.7)
------ ------- ----- ------
Reserve balance, September 30, 1999........ $ 19.3 $ 18.6 $ -- $ 37.9
====== ======= ===== ======
</TABLE>
5. Debt
In June 1999, the Company refinanced its existing bank credit facility by
entering into a $1.25 billion senior bank credit facility consisting of $875
million of term loans and $375 million of revolving credit facilities. Similar
to the prior bank credit facility, the borrowings are secured by the stock of
the Company's U.S. subsidiaries, all tangible and intangible U.S. assets, and a
portion of the stock of the Company's foreign subsidiaries. The term loans and
revolving credit facilities bear interest at variable rates based on applicable
margins ranging from either 1.50% to 2.125% in excess of the prime lending rate
or from 2.50% to 3.125% in excess of LIBOR. At September 30, 1999, the Company's
borrowings were funded using LIBOR loans. The LIBOR lending rate in
effect at September 30, 1999 was 5.27%.
The term loans have gradual amortization requirements with minimal
repayment requirements in the first two years and final maturity dates between
2005 and 2007. The final maturity date of the revolving credit facilities is
June 30, 2005. The revolving credit facilities are subject to a commitment fee
of .50% of the unused portion of the facilities.
The bank credit agreement contains various restrictive covenants, including
mandatory repayments under certain conditions, minimum interest coverage,
maximum leverage ratios, 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, liens and encumbrances and other matters
customarily restricted in such agreements.
8
<PAGE>
DADE BEHRING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
The Company capitalized approximately $33.2 million in financing fees
related to the refinancing that will be amortized over the life of the loans.
Net deferred financing fees of $14.7 million related to the previous credit
agreement were written off as an extraordinary loss of $8.8 million, net of
taxes, in June 1999.
6. Recapitalization
In June 1999, Holdings completed a recapitalization and refinancing plan
that included the repurchase by Holdings of a portion of its Common Stock held
or obtainable upon exercise of options by Bain, Goldman Sachs, management and
others, and the refinancing of the Company's bank credit facility.
Advisory fees and out-of-pocket expenses of $16.8 million associated with
the Company's review and consideration of strategic alternatives and mergers and
acquisitions leading up to the recapitalization transaction were expensed in
June 1999.
Under the recapitalization, a portion of Class L Common and Common Stock
owned by Bain and Goldman Sachs was repurchased by Holdings for $365.4 million.
Additionally, a portion of Holdings' management-owned stock options and Class L
Common and Common Stock was repurchased for $33.4 million and $21.3 million,
respectively. Holdings funded the cost of the recapitalization from the proceeds
of a $420.1 million dividend from the Company, which the Company recorded as a
return of capital.
In September 1999, Holdings issued to Hoechst 1,275,816 shares of voting
Common Stock and 124,076 shares of Class L Common Stock pursuant to Hoechst's
exercise of its warrant, increasing Hoechst's ownership percentage of Holdings
to approximately 52%. As a result of this transaction, Hoechst's voting rights
percentage increased to approximately 35%. The Company recorded an $80.0 million
capital contribution from Holdings in connection with this warrant exercise.
7. Business Segment and Geographic Information
The business of the Company is in vitro diagnostic (''IVD'') products. The
operating segments derive substantially all their revenues from the
manufacturing and marketing of IVD products and services. The Company's
operating structure includes the following operating segments: United States,
Germany, Other Europe, Asia-Pacific, and All Other. The business segment
information provided is based on local statutory operating results, adjusted to
conform to U.S. generally accepted accounting principles, and may not be
comparable on a period-over-period basis as intercompany profit is not allocated
to the individual operating segments.
Management evaluates the performance of its operating segments separately
to individually monitor the different factors affecting financial performance.
Management evaluates segment performance based upon EBITDA, which is a widely
accepted measure of a company's ability to incur and/or service indebtedness.
EBITDA represents the sum of net income, depreciation and amortization expense,
9
<PAGE>
DADE BEHRING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
non-cash stock-based compensation expense, nonrecurring integration expenses,
and other nonrecurring operating charges and other non-cash charges. EBITDA
includes substantially all cost of goods sold, marketing and administrative
expenses, and research and development expenses. EBITDA for the U.S. and Germany
includes research and development costs for products that are sold by all
operating segments.
Financial information by segment for the nine months ended September 30, 1998
and 1999 is summarized as follows (in millions):
<TABLE>
<CAPTION>
United Other Asia- All
States Germany Europe Pacific Other(1) Total
------ ------- ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Nine Months ended September 30, 1998
Revenue from external customers........... $508.1 $116.8 $217.8 $82.0 $26.2 $950.9
Intersegment revenue...................... 112.8 100.3 27.7 - - 240.8
Segment EBITDA............................ 70.3 (7.6) 82.1 12.4 31.5 188.7
Nine Months ended September 30, 1999
Revenue from external customers........... 493.4 119.0 230.3 83.3 26.5 952.5
Intersegment revenue...................... 225.3 132.6 26.0 - - 383.9
Segment EBITDA............................ $ 49.4 $ (8.9) $ 96.7 $13.2 $41.8 $192.2
</TABLE>
________
(1) Includes the effects of purchase accounting which have not been reflected
in segment accounting records. Consequently, the impact of asset write-
downs resulting from bargain purchases are reflected in the All Other
column. Segment EBITDA includes unallocated intercompany profit, Year 2000
remediation costs, and integration costs.
A reconciliation of segment EBITDA to income (loss) before income taxes for
the nine months ended September 30, 1998 and 1999 is summarized as follows (in
millions):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1998 1999
---------- ----------
<S> <C> <C>
Segment EBITDA...................................................... $157.2 $150.4
Other EBITDA........................................................ 31.5 41.8
------ ------
Total EBITDA....................................................... 188.7 192.2
Less: Depreciation and amortization............................... (40.6) (47.5)
Interest expense, net (1)...................................... (57.0) (71.7)
Year 2000 remediation costs.................................... - (17.1)
Restructuring expense.......................................... - (16.5)
Nonrecurring advisory fees and out-of-pocket expenses.......... - (16.8)
Stock-based compensation....................................... (9.0) (28.4)
Integration costs.............................................. (16.4) (12.8)
Nonrecurring charges and other................................. (3.2) (9.5)
------ ------
Income (loss) before income taxes................................... $ 62.5 $(28.1)
====== ======
</TABLE>
________
(1) Differs from the income statement by the amount of amortization of deferred
financing fees, which is included within depreciation and amortization
above.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The Company's 1998 Annual Report on Form 10-K contains management's
discussion and analysis of the Company's financial condition and results of
operations as of and for the year ended December 31, 1998. The following
management's discussion and analysis focuses on material changes since that time
and should be read in conjunction with the 1998 Annual Report on Form 10-K.
Relevant trends that are reasonably likely to be of a material nature are
discussed to the extent known.
Certain statements included in this discussion are forward-looking, such as
statements relating to estimates of operating and capital expenditure
requirements, future revenue and operating income levels, estimated Year 2000
expenditures and remediation plans, 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 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
global economic and business conditions, governmental and regulatory policies,
Year 2000 remediation actions of suppliers and others, and the competitive
environment in which the Company operates. These and other risks are discussed
in some detail below as well as in other documents filed by the Company with the
Securities and Exchange Commission.
Results of Operations
Net Sales. Net sales for the three months ended September 30, 1999 totaled
$310.9 million as compared to $306.2 million in the comparable year-ago quarter.
Net sales for the nine months ended September 30, 1999 totaled $952.5 million as
compared to $950.9 million in the comparable year-ago period.
The $4.7 million or 1.5% increase in net sales for the quarter and the $1.6
million or 0.2% increase for the nine month period are attributable primarily to
strong sales growth from Dimension/R/, Stratus CS/R/, Hemostasis and other core
products offset by planned declines in non-core Paramax/R/, Stratus/R/, aca/R/
and other product lines and the impact of non-strategic business divestitures
that occurred in third quarter 1998.
Excluding sold businesses, revenues grew by $9.8 million or 3.2% as
compared to the comparable year-ago quarter results. Excluding sold businesses,
revenues grew by $23.0 million or 2.5% compared to the comparable year-ago nine-
month period results. For the nine-month period, the Company experienced 11%
sales growth from core product lines, offset by planned declines in non-core
product lines.
Gross Profit. Gross profit for the three months ended September 30, 1999
decreased $2.5 million or 1.4% to $177.6 million as compared to $180.1 million
in the comparable year-ago quarter. Gross margins for the three months ended
September 30, 1999 were 57.1% compared to 58.8% in the comparable year-ago
quarter. Gross profit for the nine months ended September 30, 1999 decreased
$20.2 million or 3.6% to $545.6 million as compared to $565.8 million in the
comparable year-ago period. Gross margins for the nine months ended September
30, 1999 were 57.3% compared to 59.5% in the comparable year-ago period.
11
<PAGE>
The decrease in gross profit for the quarter and the nine months ended
September 30, 1999 is attributable primarily to increased depreciation expense,
nonrecurring costs related to the Behring integration and Year 2000 remediation
expenses.
Marketing and Administrative Expense. Marketing and administrative expense
for the three months ended September 30, 1999 increased $11.9 million or 9.9% to
$131.6 million as compared to $119.7 million in the comparable year-ago quarter.
Marketing and administrative expense for the nine months ended September 30,
1999 increased $48.7 million or 13.0% to $422.4 million as compared to $373.7
million in the comparable year-ago period.
The increase in marketing and administrative expense for the quarter ended
September 30, 1999 is attributable primarily to nonrecurring Year 2000
remediation expenses and nonrecurring remediation costs of the new Delaware
product distribution system.
The increase in marketing and administrative expense for the nine months
ended September 30, 1999 is attributable primarily to the nonrecurring June 1999
stock-based compensation expense related to the recapitalization, nonrecurring
Year 2000 remediation expenses, nonrecurring advisory fees and out-of-pocket
expenses associated with the Company's review and consideration of strategic
alternatives and mergers and acquisitions leading up to the recapitalization
transaction and nonrecurring remediation costs of the new Delaware product
distribution system.
Research and Development Expense. Research and development expense for the
three months ended September 30, 1999 totaled $21.7 million as compared to $22.4
million in the comparable year-ago quarter. Research and development expense for
the nine months ended September 30, 1999 totaled $64.7 million as compared to
$66.9 million in the comparable year-ago period.
The $2.2 million or 3.3% decrease in research and development expense for
the nine month period is attributable primarily to cost synergies related to
eliminating overlapping or redundant R&D projects, partially offset by increased
investment in new products.
Research and development expenditures are primarily focused on the
development of new instrument platforms, expansion of test menus and investment
in advanced diagnostics and point of care technologies.
Income from Operations. Income from operations for the quarter decreased
$13.3 million to $22.9 million as compared to $36.2 million in the comparable
year-ago quarter. Income from operations for the nine months ended September 30,
1999 decreased $83.2 million to $37.5 million as compared to $120.7 million in
the comparable year-ago period.
The decrease in income from operations for the quarter ended September 30,
1999 is due primarily to nonrecurring Year 2000 remediation expenses, increased
depreciation expense and nonrecurring remediation costs of the new Delaware
product distribution system.
The decrease in income from operations for the nine months ended September
30, 1999 is due primarily to the nonrecurring June 1999 stock-based compensation
expense related to the recapitalization, nonrecurring Year 2000 remediation
expenses, nonrecurring advisory fees and out-of-pocket expenses associated with
the Company's review and consideration of strategic alternatives and mergers and
acquisitions leading up to the recapitalization transaction, the nonrecurring
June 1999 restructuring charge, increased depreciation expense and nonrecurring
remediation costs of the new Delaware product distribution system.
12
<PAGE>
Net Interest Expense. Net interest expense for the three months ended
September 30, 1999 totaled $34.7 million, a $14.1 million or 68.4% increase over
the same period in 1998. Net interest expense for the nine months ended
September 30, 1999 totaled $76.3 million, a $14.9 million or 24.3% increase over
the same period in 1998. The increase in net interest expense for the quarter
and the nine months ended September 30, 1999 is attributable to higher borrowing
levels as a result of the June 1999 recapitalization.
Income Taxes. The effective income tax rate for the quarter and nine months
ended September 30, 1999 was approximately 40%, an increase of 3% from the rate
recorded for the quarter and nine months ended September 30, 1998 to reflect the
estimated full year effective tax rate for 1999.
Other Income. Other income of $5.1 million for the three months ended
September 30, 1999 includes $3.6 million of royalty income. Other income of
$10.7 million for the nine months ended September 30, 1999 also includes a gain
of $2.3 million from the settlement of a patent infringement matter.
Net Income (Loss). Net loss for the three months ended September 30, 1999
totaled $4.1 million, a $16.2 million decrease from net income as compared to
the same period in 1998. Net loss for the nine months ended September 30, 1999
totaled $25.7 million, a $65.1 million decrease from net income as compared to
the same period in 1998. The decrease in net income for the quarter and the nine
months ended September 30, 1999 is attributable primarily to lower income from
operations, partially offset by the gains included in other income.
Liquidity and Capital Resources
The Company's primary liquidity requirements are for working capital,
capital expenditures, restructuring expenditures and debt service. Historically,
the Company has funded its liquidity needs with a combination of cash flows from
operations, borrowings under its revolving credit facility and other short-term
borrowing arrangements. Management believes cash flows from operating
activities, together with available short-term and revolving credit facilities
under the Company's existing credit agreements, will be sufficient to permit the
Company to meet its foreseeable financial obligations and to fund its operations
and planned investments.
As of September 30, 1999, as compared to June 30, 1999, working capital
increased $105.6 million to $342.5 million. The 44.6% increase is attributable
primarily to the relief during the third quarter of accrued liabilities recorded
in connection with the June 1999 recapitalization and restructuring, a 6%
increase in inventory levels and a 4% increase in accounts receivable.
During the nine months ended September 30, 1999, working capital increased
$74.9 million. The 28.0% increase is attributable primarily to a 33% decrease in
accounts payable, a 9% increase in inventory levels and a 4% increase in
accounts receivable.
Capital expenditures, including instrument placements in customer
locations, totaled $18.7 million for the three months ended September 30, 1999,
a $3.4 million or 15.4% decrease as compared to the same period in 1998. The
decrease in capital expenditures for the quarter is attributable primarily to
decreased Behring integration spending.
13
<PAGE>
Capital expenditures, including instrument placements in customer
locations, totaled $84.2 million for the nine months ended September 30, 1999, a
$10.1 million or 13.6% increase over the same period in 1998. The increase in
capital expenditures for the nine-month period is attributable primarily to
integration-related investments for stand-alone information systems and other
infrastructure.
Inflation affects the cost of goods and services used by the Company.
Inflation has been modest in recent years. 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.
Other Matters
Delaware Product Distribution System Issue
In July 1999, a warehouse of the Company located in Delaware experienced
start-up problems with its new warehouse management system that went live on
July 5, 1999. The Company incurred approximately $5.0 million of nonrecurring
remediation costs in the quarter ended September 30, 1999 related to these
systems issues. The Company does not expect to incur significant additional
remediation costs as a result of this issue.
Year 2000 Readiness
Certain information systems in use today may not be able to interpret dates
after December 31, 1999 because such systems allow only two digits to indicate
the year in a date. As a result, such systems are unable, for example, to
distinguish January 1, 2000 from January 1, 1900. Such inability to properly
distinguish between dates could have adverse consequences on the operations of a
business and the integrity of information processing. This potential problem is
commonly referred to as the "Year 2000" or "Y2K" issue.
The Company has completed a review of all of its information systems and
product offerings for Year 2000 issues. The scope of this review included
information technology infrastructure components (such as hardware, operating
systems and communication equipment), business application software, production
and research equipment, laboratory products and associated applications,
buildings' and facilities' systems, personal computers, and the status of all
key suppliers' Year 2000 remediation efforts.
Based on the results of the review, a formal plan has been established by
the Company to address Year 2000 issues. The plan is monitored by the Company's
Year 2000 Program Office, comprised of senior management in key functional
areas, which reports on a regular basis to executive management on the plan's
status. Although the identification and successful remediation of all Year 2000
issues cannot be assured with certainty, the Company expects a successful
execution of its Year 2000 plan. The inability of the Company or third parties
on which it relies to resolve Year 2000 issues could have a material adverse
effect on the Company's results of operations and financial condition.
The plan, which provides a process for periodic progress reporting on a
site and region basis, prioritizes mission-critical and urgent Year 2000 issues.
Substantially all of the remediation and validation work that has been
identified was completed by the end of the third quarter. Approximately 99% of
all internal business applications, infrastructure items, and embedded systems
14
<PAGE>
were remediated and validated as of September 30, 1999, as were approximately
89% of all installed products. All remaining remediations are expected to be
completed by the end of November. Contingency plans have been formulated for
remediated internal systems and for external systems such as those of suppliers
and utilities, and final reviews and approvals are expected to be completed by
the end of November.
In connection with the resolution of Year 2000 issues, the Company incurred
expenses of approximately $5.3 million in the three months ended September 30,
1999, bringing year-to-date expenses to $17.1 million. The Company expects to
incur expenses of approximately $6.3 million in the fourth quarter of 1999.
Expenses in 2000 are expected to be immaterial. However, there can be no
assurance that these costs will not be greater than anticipated.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company's 1998 Annual Report on Form 10-K contains quantitative and
qualitative disclosures about market risk as of and for the year ended December
31, 1998. No material changes in the Company's market risk have occurred since
December 31, 1998.
PART II
Item 1. Legal Proceedings.
The Company is 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 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The following exhibits are included herein:
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DADE BEHRING INC.
-----------------
(Registrant)
Date: November 15, 1999 By: /s/ Glenn R. Richter
-------------------------
Glenn R. Richter
Senior Vice President and Chief
Financial Officer
(Duly authorized Officer of Registrant)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the September 1999 Form 10-Q of Dade Behring Inc. and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 78,100 78,100
<SECURITIES> 0 0
<RECEIVABLES> 414,700 414,700
<ALLOWANCES> 46,200 46,200
<INVENTORY> 288,900 288,900
<CURRENT-ASSETS> 834,400 834,400
<PP&E> 662,600 662,600
<DEPRECIATION> 320,400 320,400
<TOTAL-ASSETS> 1,714,400 1,714,400
<CURRENT-LIABILITIES> 431,500 431,500
<BONDS> 350,000 350,000
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (113,500) (113,500)
<TOTAL-LIABILITY-AND-EQUITY> 1,714,400 1,714,400
<SALES> 310,900 952,500
<TOTAL-REVENUES> 310,900 952,500
<CGS> 133,300 406,900
<TOTAL-COSTS> 288,000 915,000
<OTHER-EXPENSES> (5,100) (10,700)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 34,700 76,300
<INCOME-PRETAX> (6,700) (28,100)
<INCOME-TAX> (2,600) (11,200)
<INCOME-CONTINUING> (4,100) (16,900)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (8,800)
<CHANGES> 0 0
<NET-INCOME> (4,100) (25,700)
<EPS-BASIC> 0 0
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