<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 June 30, 2000
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 May 15, 2000, the latest practicable date, was 1,000
shares.
<PAGE>
DADE BEHRING INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
----------------------------------------------------------------------------------------------------------
Item 1. Financial Statements (unaudited)
<S> <C> <C>
Condensed Consolidated Balance Sheets as of December 31, 1999 and June 30, 2
2000 (unaudited)
Condensed Consolidated Statements of Operations and Comprehensive Income 3
(Loss) (unaudited) for the three months and six months ended June 30, 1999 and
June 30, 2000
Condensed Consolidated Statements of Cash Flows (unaudited) for the six months 4
ended June 30, 1999 and June 30, 2000
Condensed Consolidated Statements of Changes in Stockholder's Equity (Deficit) 5
for the years ended December 31, 1998 and 1999 and for the six months ended
June 30, 2000 (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 10
Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II OTHER INFORMATION
----------------------------------------------------------------------------------------------------------
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
</TABLE>
1
<PAGE>
DADE BEHRING INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except share-related data)
<TABLE>
<CAPTION>
ASSETS December 31, June 30,
------ 1999 2000
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................... $ 49.8 $ 26.7
Restricted cash......................................................... 11.4 -
Accounts receivable, net................................................ 330.9 327.4
Inventories............................................................. 256.2 254.0
Prepaid expenses and other current assets............................... 28.7 14.8
Deferred income taxes................................................... 78.2 78.2
-------- --------
Total current assets................................................. 755.2 701.1
-------- --------
Property, plant and equipment, net........................................ 341.0 350.0
Debt issuance costs, net.................................................. 43.3 40.5
Goodwill, net............................................................. 125.8 122.7
Deferred income taxes..................................................... 286.7 304.8
Other assets.............................................................. 113.8 125.0
-------- --------
Total assets......................................................... $1,665.8 $1,644.1
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
----------------------------------------------
Current liabilities:
Current portion of long-term debt....................................... $ 6.0 $ 19.8
Short-term debt......................................................... 74.9 14.4
Accounts payable........................................................ 125.9 96.5
Accrued liabilities and other........................................... 241.9 184.7
-------- --------
Total current liabilities............................................ 448.7 315.4
-------- --------
Long-term debt, less current portion...................................... 902.4 1,051.3
Senior subordinated notes................................................. 350.0 350.0
Other liabilities......................................................... 107.5 104.1
-------- --------
Total liabilities.................................................... 1,808.6 1,820.8
-------- --------
Commitments and contingencies............................................. - -
Stockholder's equity (deficit):
Common stock, $.01 par value, 1,000 shares authorized, issued
and outstanding....................................................... - -
Additional paid-in capital.............................................. 184.1 184.1
Unearned stock-based compensation....................................... (8.1) (6.0)
Accumulated deficit..................................................... (247.9) (275.9)
Accumulated other comprehensive loss.................................... (70.9) (78.9)
-------- --------
Total stockholder's equity (deficit)................................. (142.8) (176.7)
-------- --------
Total liabilities and stockholder's equity (deficit)................. $1,665.8 $1,644.1
======== ========
</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 Six Months Ended
June 30, June 30,
------------------ ----------------
1999 2000 1999 2000
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales ......................................... $322.6 $310.2 $641.6 $598.8
Operating costs and expenses:
Cost of goods sold ............................ 145.4 148.7 273.6 273.9
Marketing and administrative expenses ......... 163.2 116.6 286.5 234.8
Research and development expenses ............. 24.3 26.9 47.3 50.5
Goodwill amortization expense ................. 1.6 0.9 3.1 2.1
Cost reduction programs ....................... 16.5 9.7 16.5 9.7
------ ------ ------ ------
Income (loss) from operations ..................... (28.4) 7.4 14.6 27.8
------ ------ ------ ------
Other income (expense):
Interest expense, net ......................... (21.1) (36.2) (41.6) (69.8)
Other ......................................... 3.6 2.8 5.6 1.8
------ ------ ------ ------
Income (loss) before income taxes ................. (45.9) (26.0) (21.4) (40.2)
Income tax expense (benefit) ...................... (18.4) (6.5) (8.6) (12.2)
------ ------ ------ ------
Income (loss) before extraordinary items .......... (27.5) (19.5) (12.8) (28.0)
Extraordinary loss related to early retirement of
debt (net of $5.9 million income tax benefit) ... (8.8) -- (8.8) --
------ ------ ------ ------
Net Income (loss) ................................. $(36.3) $(19.5) $(21.6) $(28.0)
------ ------ ------ ------
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments ...... 0.8 (8.4) (11.9) (8.0)
Unrealized gain on marketable securities ...... 0.2 -- 0.4 --
------ ------ ------ ------
Other comprehensive income (loss) ................. 1.0 (8.4) (11.5) (8.0)
Income tax expense related to items of
comprehensive income (loss) ..................... -- -- -- --
------ ------ ------ ------
Other comprehensive income (loss), net of tax ..... 1.0 (8.4) (11.5) (8.0)
------ ------ ------ ------
Comprehensive income (loss) ....................... $(35.3) $(27.9) $(33.1) $(36.0)
====== ====== ====== ======
</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>
Six Months Ended
June 30,
------------------
1999 2000
------- -------
<S> <C> <C>
Operating Activities:
Net loss ............................................................ $ (21.6) $ (28.0)
Adjustments to reconcile net loss to net
cash utilized by operating activities:
Depreciation and amortization expense ........................... 32.3 40.1
Stock-based compensation expense ................................ 27.3 2.1
Write-off of debt issuance costs ................................ 14.7 --
Deferred income taxes ........................................... (19.9) (12.2)
Loss on disposal of assets ...................................... 1.0 4.8
Sale of trade accounts receivables .............................. -- 5.8
Changes in balance sheet items:
Accounts receivable, net .................................... (19.4) (15.0)
Inventories ................................................. (18.0) (2.3)
Prepaid expenses ............................................ (2.4) (3.8)
Accounts payable ............................................ 8.5 (25.7)
Accrued liabilities ......................................... (11.9) (33.9)
Other, net .................................................. (14.9) 5.4
------- -------
Net cash flow utilized by operating activities .......... (24.3) (62.7)
------- -------
Investing Activities:
Acquisitions and purchase price adjustments, net of acquired cash ... (7.4) (1.0)
Capital expenditures ................................................ (65.5) (60.9)
------- -------
Net cash flow utilized by investing activities .......... (72.9) (61.9)
------- -------
Financing Activities:
Change in restricted cash ........................................... -- 11.4
Net proceeds/repayments related to short-term debt .................. 15.3 (8.6)
Proceeds from borrowings under revolving credit facility ............ 218.5 350.8
Repayment of borrowings under revolving credit facility ............. (237.5) (245.4)
Repayment of borrowings under long-term loans ....................... (0.8) (3.0)
Debt issuance costs ................................................. (33.2) --
Proceeds from borrowings under bank credit agreement ................ 875.0 --
Retirement of previous bank credit agreement ........................ (369.1) --
Dividend to parent .................................................. (366.1) --
------- -------
Net cash flow provided by financing activities .......... 102.1 105.2
------- -------
Effect of foreign exchange rates on cash ................................ (0.3) (3.7)
------- -------
Net increase (decrease) in cash and cash equivalents .... 4.6 (23.1)
Cash and Cash Equivalents:
Beginning of period ................................................. 25.8 49.8
------- -------
End of period ....................................................... $ 30.4 $ 26.7
======= =======
Non-Cash Supplemental Disclosure of Cash Flow Information:
Unpaid dividend declared ............................................ 54.8 --
</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>
Notes Accumulated Total
Common Stock Additional Receivable Unearned Other Stockholder's
-------------- Paid-in on Capital Stock-Based Accumulated Comprehensive Equity
Shares Amount Capital Contribution Compensation Deficit Loss (Deficit)
------ ------ ---------- ------------ ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
----- ---- ------- ----- ------ ------- ------ -------
Net loss ........................ (38.5) (38.5)
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 .................. 8.8 (8.8) --
Cancellation of stock options ... (1.2) 1.2 --
Amortization of unearned stock-
based compensation ............ 11.0 11.0
Issuance of stock-based
compensation .................. 1.3 1.3
Adjustment of stock-based
compensation .................. (1.0) (1.0)
Compensation expense related to
recapitalization .............. 22.7 22.7
Unrealized gain on marketable
securities .................... 0.4 0.4
Tax benefit of option
exercises ..................... 0.6 0.6
Minimum pension liability
adjustment .................... (1.8) (1.8)
Cumulative translation
adjustment .................... (46.9) (46.9)
----- ---- ------- ----- ------ ------- ------ -------
Balance at December 31, 1999 .... 1,000 -- 184.1 -- (8.1) (247.9) (70.9) (142.8)
----- ---- ------- ----- ------ ------- ------ -------
(Unaudited)
Net loss ........................ (28.0) (28.0)
Amortization of unearned stock-
based compensation ............ 2.1 2.1
Cumulative translation
adjustment .................... (8.0) (8.0)
----- ---- ------- ----- ------ ------- ------ -------
Balance at June 30, 2000 ........ 1,000 $ -- $ 184.1 $ -- $ (6.0) $(275.9) $(78.9) $(176.7)
===== ==== ======= ===== ====== ======= ====== =======
</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"), Aventis
S.A., formerly Hoechst A.G., and certain of its affiliates ("Aventis S.A.") 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 Aventis S.A. that
operated its worldwide human 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 1999
Annual Report on Form 10-K and notes thereto, are adequate to make the
information presented not misleading. Certain reclassifications have been made
to prior period balances to conform to the current year presentation. 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 six months ended June 30, 2000 are not necessarily indicative
of the results that may be expected for the fiscal year ending December 31,
2000.
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>
December 31, June 30,
1999 2000
------ ------
<S> <C> <C>
Raw materials................................ $ 45.9 $ 49.1
Work-in-process.............................. 43.1 45.7
Finished products............................ 167.2 159.2
------ ------
Total inventories...................... $256.2 $254.0
====== ======
</TABLE>
4. Debt
In 2000, the Company extended the maturity dates of approximately $50.0
million of German debt previously classified as short term debt. The debt is now
due at June 30, 2004 and is classified as long term debt on the Condensed
Consolidated Balance Sheet at June 30, 2000.
5. Cost Reduction Programs
During 1999, the Company completed its integration efforts related to the
Dade and Behring merger. The Company has reviewed its cost structure and
concluded it is necessary to explore additional ways to redesign, combine and
streamline its global operations to make them more efficient, while at the same
time remaining customer focused.
In June 2000 the Company announced a global cost reduction program having
the stated objective of reducing the Company's overall cost structure by
approximately $50 million annually. Management has approved and initiated
several actions contemplated by the program and expects the total reserve for
this program to be approximately $50 million. In addition, the Company
anticipates approximately $35 million of total costs which do not qualify for
reserve treatment. The Company has recorded a pre-tax reserve of $8.9 million at
June 30, 2000 and expects the balance of the reserve to be recorded in the
second half of 2000. Also, included in the cost reduction program line on the
Consolidated Statement of Operations for the quarter ended June 30, 2000 are
$5.4 million of costs which relate to the cost reduction initiatives which were
incurred and paid before June 30, 2000. Virtually all of the Company's global
operations are affected by this plan, including sales, manufacturing, marketing
and support services. The Company expects to eliminate a number of redundant
positions under this program in 2000 and 2001, while adding staff in key areas,
such as the direct distribution centers. The net effect of these changes will be
a reduction of approximately 250 positions.
During the second quarter of 2000, excess severance accruals under the 1999
Reserve of $4.6 million were identified and credited to income.
7
<PAGE>
DADE BEHRING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
A summary of the Company's current and prior year cost reduction program
reserves follows:
<TABLE>
<CAPTION>
Facility and
Other Severance and
Exit Costs Relocation Total
---------- ---------- -----
<S> <C> <C> <C>
1997 Behring Allocation Reserve
Reserve balance, December 31, 1999...................... $18.5 $ 1.5 $20.0
Cash payments........................................ (2.0) (0.6) (2.6)
Reserve balance, June 30, 2000.......................... $16.5 $ 0.9 $17.4
1999 Reserve
Reserve balance, December 31, 1999...................... $ 0.4 $10.5 $10.9
Cash payments........................................ -- (2.6) (2.6)
Reversal to income................................... (0.4) (4.2) (4.6)
Reserve balance, June 30, 2000.......................... $ -- $ 3.7 $ 3.7
2000 Reserve
Reserve balance, December 31, 1999...................... $ -- $ -- $ --
Reserve established.................................. 0.8 8.1 8.9
Cash payments........................................ -- (0.1) (0.1)
Reserve balance, June 30, 2000.......................... $ 0.8 $ 8.0 $ 8.8
</TABLE>
6. 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 segments: United States, Germany,
Other Europe, Asia-Pacific and All Other.
EBITDA, as defined by the Company and its lenders, represents the sum of
net income (loss), interest, taxes, depreciation and amortization and non-
recurring charges, including non-cash stock based compensation expenses, Y2K
remediation costs, integration costs, restructuring charges and certain non-cash
and/or non-recurring charges. Integration costs include personnel retention and
severance, moving and start-up costs associated with the transfer of
manufacturing capacity from Miami, Florida to Marburg, Germany, consulting and
costs related to the consolidation of information technology. Non-recurring
charges include costs related to the shutdown of product lines, the costs of a
mandatory relabeling initiative in Europe, and the impact of transitioning from
Allegiance Healthcare Corporation ("Allegiance") to direct distribution of
Hemostasis and MicroScan products in the U.S. The Allegiance distribution
agreement transition costs include gross profit from delayed sales to end-user
customers and other transition costs such as inventory write-offs and one-time
implementation costs (See Note 7). EBITDA is in management's opinion a financial
indicator of the Company's ability to service or incur indebtedness. While the
Company does not advocate EBITDA to be considered as a substitute for net income
or cash flows, it is the primary financial metric used by management.
Financial information by segment for the six months ended June 30, 1999 and
2000 is summarized as follows (in millions):
<TABLE>
<CAPTION>
United Other Asia- All
States Germany Europe Pacific Other Total
------ ------- ------ ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Six Months ended June 30, 1999
Revenue from external customers........... $330.5 $ 80.7 $160.5 $54.5 $15.4 $641.6
Intersegment revenues..................... 64.3 87.6 15.8 --- --- 167.7
Segment EBITDA............................ 50.1 (8.4) 73.9 11.6 3.6 130.8
Six Months ended June 30, 2000
Revenue from external customers........... $313.1 $ 58.3 $150.7 $57.4 $19.3 $598.8
Intersegment revenues..................... 73.9 90.1 9.7 --- --- 173.7
Segment EBITDA............................ 32.6 (10.6) 63.7 13.8 4.0 103.5
</TABLE>
8
<PAGE>
DADE BEHRING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
A reconciliation of segment EBITDA to income (loss) before income taxes for
the six months ended June 30, 1999 and 2000 is summarized as follows (in
millions):
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1999 2000
---- ----
<S> <C> <C>
Segment EBITDA................................................................ $127.2 $ 99.5
Other EBITDA.................................................................. 3.6 4.0
------ ------
Total EBITDA................................................................ 130.8 103.5
Less: Depreciation and amortization....................................... (32.3) (40.1)
Interest expense, net (1)........................................... (38.7) (66.7)
Allegiance distribution agreement transition ....................... ---- (10.1)
Cost reduction costs not qualifying for provision................... ---- (5.4)
Loss on disposal of assets.......................................... (1.0) (4.8)
Cost reduction provision, net of reversal........................... (16.5) (4.3)
Final Miami facility closure costs.................................. ---- (3.3)
Non-recurring charges relating to the shutdown of product line...... ---- (2.2)
Stock-based compensation............................................ (27.3) (2.1)
Integration costs................................................... (7.3) (1.1)
Year 2000 remediation costs......................................... (11.8) (0.6)
Non-recurring advisory fees and expenses related to 1999
recapitalization.................................................. (16.8) ----
Other non-recurring and/or non-cash charges......................... (.5) (3.0)
------ ------
Income (loss) before income taxes............................................. $(21.4) $(40.2)
====== ======
</TABLE>
________
(1) Differs from the income statement by the amount of amortization of deferred
financing fees, which is included within depreciation and amortization
above.
7. Subsequent Event
In August 2000, the Company finalized the details and reached agreement
regarding its decision not to renew its U.S. distribution agreement with
Allegiance and has begun the transition to direct distribution of its Hemostasis
and MicroScan products in the U.S. The Company already directly distributes more
than 80% of its products in the U.S. The transition to direct distribution of
this remaining 20% will be complete in June 2001 and will provide an ongoing
annual benefit of approximately $10.0 million. At June 30, 2000, the Company has
provided a $2.0 million transition service fee to be paid to Allegiance pursuant
to the terms and as a consequence of the Company's decision not to renew the
U.S. distribution agreement. In addition, the transition to direct distribution
will impact sales and gross profit in 2000 and 2001 as customer specific
Hemostasis inventory lots held by Allegiance for up to eighteen months are sold
to end-user customers. As customers transition to new specific lots, they will
order directly from Dade Behring.
9
<PAGE>
DADE BEHRING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The Company's 1999 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, 1999. The following management's
discussion and analysis focuses on material changes since that time and should
be read in conjunction with the 1999 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, 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 such as healthcare reimbursement policies 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 June 30, 2000 totaled $310.2
million as compared to $322.6 million in the comparable year-ago quarter. Net
sales for the six months ended June 30, 2000 totaled $598.8 million as compared
to $641.6 million in the comparable year-ago period.
The $12.4 million or 3.8% decrease in net sales for the quarter is
attributable primarily to foreign currency rate changes which accounted for a
$19.2 million decrease in revenues and the decision to discontinue our
distribution relationship with Allegiance which resulted in $8.6 million less
sales in the quarter. Excluding both of these impacts, sales increased $15.4
million, or 4.8%. The Company's Dimension product line revenues increased 34%
globally as compared to the same period in the prior year adjusted for foreign
exchange.
The $42.8 million or 6.7% decrease in net sales for the six month period ended
June 30, 2000 is also attributable to foreign currency rate changes, accelerated
purchasing by customers in 1999 in anticipation of Y2K complications and the
decision to discontinue our distribution relationship with Allegiance. Excluding
the impact of these items, sales as compared to the year ago six month period
increased $17.1 million or approximately 3%.
Gross Profit. Gross profit for the three months ended June 30, 2000 decreased
$15.7 million or 8.9% to $161.5 million as compared to $177.2 million in the
comparable year-ago quarter. Gross margins for the three months ended June 30,
2000 were 52.1% compared to 54.9% in the comparable year-ago quarter. Gross
profit for the six months ended June 30, 2000 decreased $43.1 million or 11.7%
to $324.9 million as compared to $368.0 million in the comparable year-ago
period. Gross margins for the six months ended June 30, 2000 were 54.3% compared
to 57.4% in the comparable year-ago period.
The decrease in gross profit for the quarter and six-month periods ended June
30, 2000 is attributable primarily to foreign currency rate changes, the
Allegiance transition impact and an increase in depreciation expense. Excluding
these impacts, gross profit increased by $7.0 million for the quarter as
compared to the prior year quarter and gross profit decreased $2.0 million in
the period ended June 30, 2000 as compared to the prior year period. The gross
margin impact related to depreciation accounts for 2.6% and 1.3% of the gross
margin decrease in the quarter and the six-month periods, respectively, as
compared to the prior year. The increase in depreciation expense is a non-cash
charge that relates to the Behring acquisition purchase accounting.
Marketing and Administrative Expense. Marketing and administrative expense for
the three months ended June 30, 2000 decreased $46.6 million or 28.6% to $116.6
million as compared to $163.2 million in the comparable year-ago quarter.
Marketing and administrative expense for the six months ended June 30, 2000
decreased $51.7 million or 18.0% to $234.8 million as compared to $286.5 million
in the comparable year-ago period.
10
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DADE BEHRING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The decrease in marketing and administrative expense for the quarter and six-
month period ended June 30, 2000 is attributable primarily to $16.8 million of
advisory fees and $23.0 million of stock compensation expense related to the
June 1999 recapitalization as well as Y2K/integration costs of $8.2 million and
$13.2 million in the comparable year ago quarter and six-month period,
respectively, which did not reoccur in 2000.
Research and Development Expense. Research and development expense for the
three months ended June 30, 2000 totaled $26.9 million as compared to $24.3
million in the comparable year-ago quarter. Research and development expense for
the six months ended June 30, 2000 totaled $50.5 million as compared to $47.3
million in the comparable year-ago period.
The $2.6 million or 10.7% increase in the comparable year ago quarter and the
$3.2 million or 6.8% increase in the comparable year ago six-month period is
attributable to 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 increased
$35.8 million to $7.4 million as compared to $28.4 million loss from operations
in the comparable year-ago quarter. Income from operations for the six months
ended June 30, 2000 increased $13.2 million to $27.8 million as compared to
$14.6 million in the comparable year-ago period.
The increase in income from operations for the quarter and the six months
ended June 30, 2000 is due primarily to decreased marketing and administrative
expense offset by reduced gross profit.
Net Interest Expense. Net interest expense for the three months ended June
30, 2000 totaled $36.2 million, a $15.1 million increase over the same period in
1999. Net interest expense for the six months ended June 30, 2000 totaled $69.8
million, a $28.2 million increase over the same period in 1999. The increase in
net interest expense is attributable to higher interest rates and increased
borrowing levels as a result of the June 1999 recapitalization.
Other Income/Expense. Other income for the quarter ended June 30, 2000
totaled $2.8 million, as compared to $3.6 million in the year-ago comparable
quarter. Other income for the six-month period ended June 30, 2000 totaled
$1.8 million, as compared to $5.6 million in the year-ago comparable period.
The decrease in other income as compared to the comparable year ago period is
due to the settlement of a patent infringement matter and recognition of one
time royalty income included in the 1999 results.
Income Taxes. The effective income tax rate for the quarter and six-month
period ended June 30, 2000 was approximately 25% and 30%, respectively, to
reflect the estimated full year effective tax rate for 2000.
In July 2000, the German Parliament passed a broad set of tax reforms that in
addition to a number of changes, would reduce the "base" German corporate tax
rate to 25% from 40% effective January 1, 2001. This rate change will impact the
second half of 2000, reducing the Company's German deferred tax asset and
increasing tax expense by approximately $3.0 million.
Net Income (Loss). Net loss for the three months ended June 30, 2000 totaled
$19.5 million, a $16.8 million decrease from net loss as compared to the same
period in 1999. The decrease in net loss for the quarter ended June 30, 2000 is
attributable primarily to higher income from operations.
Net loss for the six months ended June 30, 2000 totaled $28.0 million, a $6.4
million increase from net loss as compared to the same period in 1999. The
increase in net loss for the six-month period ended June 30, 2000 is due
primarily to higher net interest expense offset by higher income from
operations.
11
<PAGE>
DADE BEHRING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
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 financial obligations and to fund its operations and planned
investments.
For the quarter ended June 30, 2000, net working capital, adjusted for foreign
exchange, increased $17.2 million or 3.8% due to the following:
. Accounts receivable increased $20.0 million as a result of strong June
sales.
. Inventories decreased $10.6 million due to strong June sales and aggressive
inventory reduction efforts.
. Accrued liabilities decreased $8.5 million.
. Accounts payable decreased $.6 million
. Prepaid expenses decreased by $1.2 million
For the six-month period ended June 30, 2000, working capital increased $67.0
million to $315.0 million. The 27.0% increase is attributable primarily to uses
of cash in the accounts payable and accrued liabilities areas in the first
quarter of 2000, which typically increase as the year progresses.
The Company has and will continue to evaluate opportunities to provide
additional cash flow during 2000 and expects to generate cash from working
capital in the second half of the year.
The Company's decision not to renew its U.S. distribution arrangement with
Allegiance is expected to provide net annual cash flow benefits of $10.0 million
beginning in 2002. The net cash flow requirements of this transition however are
$27.0 million and $12.0 million in 2000 and 2001, respectively, in the form of
delayed gross profit, capital expenditures, working capital and one-time
implementation costs.
In June 2000 the Company announced a global cost reduction program having the
stated objective of reducing the Company's overall cost structure by
approximately $50 million annually. Management has approved and initiated
several actions contemplated by the program and expects the total reserve for
this program to be approximately $50 million. In addition, the Company
anticipates approximately $35 million of total costs which do not qualify
for reserve treatment. The Company has recorded a pre-tax reserve of $8.9
million at June 30, 2000 and expects the balance of the reserve to be recorded
in the second half of 2000. Also, included in the cost reduction program line on
the Consolidated Statement of Operations for the quarter ended June 30, 2000 are
$5.4 million of costs which relate to the cost reduction initiatives which were
incurred and paid before June 30, 2000. Virtually all of the Company's global
operations are affected by this plan, including sales, manufacturing, marketing
and support services. The Company expects to eliminate a number of redundant
positions under this program in 2000 and 2001, while adding staff in key areas,
such as the direct distribution centers. The net effect of these changes will be
a reduction of approximately 250 positions.
Capital expenditures, including instrument placements in customer locations,
totaled $60.9 million for the six months ended June 30, 2000, a $4.6 million or
7.0% decrease as compared to the same period in 1999. The decrease in capital
expenditures for the quarter is attributable primarily to decreased Behring
integration spending.
Pursuant to the $1.25 billion Senior Bank Credit Facility Agreement, in the
first quarter of 2000, the Euro-denominated credit facility commitment was
permanently reduced to an amount equal to the sum of all commitments to provide
lines of credit to the German subsidiary. As a result, the borrowing capacity
under the Euro-denominated credit facility was reduced by approximately $50
million.
In addition, in 2000, the Company extended the maturity dates of approximately
$50.0 million of German debt previously classified as short term debt. The debt
is now due at June 30, 2004 and is classified as long term debt on the Condensed
Consolidated Balance Sheet at June 30, 2000.
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company's 1999 Annual Report on Form 10-K contains quantitative and
qualitative disclosures about market risk as of and for the year ended
December 31, 1999. No material changes in the Company's market risk have
occurred since December 31, 1999.
12
<PAGE>
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.
13
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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: August 14, 2000 By: /s/ John M. Duffey
-------------------------
John M. Duffey
Corporate Vice President and Controller
(Duly authorized Officer of Registrant)
14
