EXHIBIT 99.1
DIANON AND UROCOR
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Combined Balance Sheet combines the
historical consolidated balance sheet of Dianon and the historical consolidated
balance sheet of UroCor, giving effect to the merger of UroCor with and into
Dianon as if it had been consummated on September 30, 2001. The Unaudited Pro
Forma Condensed Combined Statements of Income for the nine months ended
September 30, 2001 and the year ended December 31, 2000 combine the historical
consolidated statements of income of Dianon and UroCor, giving effect to the
merger as if it had occurred on January 1, 2000. The unaudited pro forma
financial statements give effect to the merger using the purchase method of
accounting.
This information should be read in conjunction with the:
o accompanying notes to the Unaudited Pro Forma Condensed Combined
Financial Statements;
o separate historical financial statements of Dianon as of and for the
nine months ended September 30, 2001 and 2000 and as of and for the
three years ended December 31, 2000, which are contained in Dianon's
Quarterly and Annual Reports on Form 10-Q filed October 26, 2001
and Form 10-K filed March 14, 2001, respectively; and
o separate historical financial statements of UroCor as of and for the
six months ended June 30, 2001 and as of and for the three years
ended December 31, 2000, which are contained in UroCor's Quarterly
and Annual reports on Form 10-Q filed August 14, 2001, as amended by
Amendment no. 1 to Quarterly Report on Form 10-Q for the quarter
ended June 30, 2001, on Form 10-Q/A, filed October 10, 2001, and
Form 10-K filed April 2, 2001, as amended by Amendment no. 1 to
Annual Report on Form 10-K for the year ended December 31, 2000, on
Form 10-K/A, filed October 10, 2001, respectively.
The pro forma information is not necessarily indicative of the financial
position and results of operations that would have been achieved had the merger
been consummated on the dates indicated or of future operations of the combined
company.
UNAUDITED PROFORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2001
PRO FORMA PRO FORMA
DIANON UROCOR ADJUSTMENTS Notes COMBINED
------- ------- ----------- ----- ---------
Assets
Cash and cash equivalents $ 23.2 $ 13.6 $ (8.5) (1) $ 28.3
Accounts receivable, net 21.0 13.3 (1.1) (2) 33.2
Deferred income tax asset 0.9 0.9 1.0 (3) 2.8
Refundable Income taxes 0.0 0.0 3.6 (4) 3.6
Other current assets 2.9 1.7 (0.6) (5) 4.0
--------------------------------- ---------
Total current assets 48.0 29.5 (5.6) 71.9
Property and equipment, net 4.8 9.4 (4.0) (6) 10.2
Intangible assets, net 13.2 5.7 171.7 (7) 190.6
Deferred income tax asset 1.9 2.4 4.3
Other assets 0.7 0.5 1.2
--------------------------------- ---------
TOTAL ASSETS $ 68.6 $ 47.5 $ 162.1 $ 278.2
================================= =========
Liabilities and Stockholders' Equity
Accounts payable and accrued liabilities $ 8.2 $ 5.1 $ 4.8 (8) $ 18.1
--------------------------------- ---------
Total current liabilities 8.2 5.1 4.8 18.1
Long-term portion of capitalized lease obligations 0.0 0.4 0.4
Deferred income tax liabilities 0.2 0.0 3.5 (9) 3.7
Deferred Compensation 0.0 0.6 0.6
--------------------------------- ---------
TOTAL LIABILITIES 8.4 6.1 8.3 22.8
Shareholder's Equity:
Common stock 0.1 0.1 (0.1) (10) 0.1
Additional paid-in capital 37.1 60.5 134.7 (10) 232.3
Retained earnings 23.1 (13.9) 13.9 (10) 23.1
Treasury stock, at cost (0.1) (5.3) 5.3 (10) (0.1)
TOTAL STOCKHOLDERS' EQUITY 60.2 41.4 153.8 255.4
--------------------------------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 68.6 $ 47.5 $ 162.1 $ 278.2
================================= =========
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements which are an integral part of these statements.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
PRO FORMA PRO FORMA
DIANON UROCOR ADJUSTMENTS NOTES COMBINED
--------- --------- ----------- ----- ---------
(AMOUNTS IN MILLIONS EXCEPT PER SHARE DATA)
Net revenues $ 84.5 $ 45.4 $ (1.8) (11) $ 128.1
Costs and expenses:
Cost of sales 46.9 16.2 (2.1) (11) 61.0
Selling, informational and administrative expenses
(including provision for bad debt) 25.8 23.6 (0.0) (12) 49.4
Research and development 1.0 1.0 2.0
--------- --------- --------- --------
Income from Operations 10.8 4.6 0.3 15.7
--------- --------- --------- --------
Gain on Sale of therapeutic agreement - 4.6 - 4.6
Net interest income 0.5 0.4 0.9
Other - (1.1) - (1.1)
--------- --------- --------- --------
Income before Provision for Income Taxes 11.3 8.5 0.3 20.1
Provision for income taxes 4.6 3.3 0.1 (13) 8.0
--------- --------- --------- --------
Net Income $ 6.7 $ 5.2 $ 0.2 $ 12.1
========= ========= ========= ========
Net income per Common Share -- Basic $ 0.91 $ 0.53 $ 1.07
Net income per Common Share -- Diluted $ 0.83 $ 0.48 $ .99
Weighted average shares used to calculate
earnings per share amounts:
Basic 7.4 9.9 11.3
Diluted 8.1 10.8 12.2
Cash dividends per Common Share $ - $ - $ -
========= ========= ========
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements which are an integral part of these statements.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2000
PRO FORMA PRO FORMA
DIANON UROCOR ADJUSTMENTS NOTES COMBINED
------- ------- ----------- ----- ---------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
Net revenues $ 95.6 $ 52.6 $ (0.9) (11) $ 147.3
Costs and expenses:
Cost of sales 54.1 19.8 $ (1.7) (11) 72.2
Selling, informational, and administrative
expenses (including provision for bad debt) 29.8 27.8 (0.0) (12) 57.6
Research and Development 1.0 1.4 2.4
Special Charges 10.3 - 10.3
------- ------- ------- ---------
Income (loss) from Operations 10.7 (6.7) 0.8 4.8
------- ------- ------- ---------
Net interest income 0.4 0.7 1.1
------- ------- ------- ---------
Income(loss) before Provision for Income Taxes 11.1 (6.0) 0.8 5.9
Provision for income taxes (benefit) 4.5 (1.2) 0.3 (13) 3.6
------- ------- ------- ---------
Net Income(loss) $ 6.6 $ (4.8) $ 0.5 $ 2.3
======= ======= ======= =========
Net income per Common Share -- Basic $ 0.92 $ (.50) $ 0.21
Net income per Common Share -- Diluted $ 0.84 $ (.50) $ 0.19
Weighted average shares used to calculate
earnings per share amounts:
Basic 7.2 9.7 11.0
Diluted 7.8 9.7 11.9
Cash dividends per Common Share $ - $ - $ -
======= ======= =========
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements which are an integral part of these statements.
NOTES TO PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
On November 9, 2001, DIANON Systems, Inc. ("Dianon") and UroCor, Inc.
("UroCor") completed their merger transaction pursuant to an Agreement and Plan
of Merger dated as of June 28, 2001, as amended on October 3, 2001. Dianon
issued 3,861,585 shares and 644,438 options to UroCor shareholders based on the
exchange ratio of .3843, that was determined on November 5, 2001, according to
the merger agreement. The merger is being accounted for using the purchase
method of accounting. Under this method, the acquiring company records the
acquired assets less assumed liabilities at fair value. Any difference between
the acquisition cost and the sum of the fair values of the acquired company's
identifiable assets and liabilities is recorded as goodwill.
Following is the unaudited pro forma purchase price and unaudited pro
forma purchase price allocation based on the UroCor unaudited September 30, 2001
balance sheet. The per share price that was used in the determination of the
purchase price is $44.45. This price was determined based on Dianon's average
stock price two days before and after November 5, 2001, the date the number of
shares and options to be issued became fixed.
The amount and components of the estimated pro forma purchase price along
with the preliminary allocation of such purchase price are as follows (in
thousands, except shares and share price):
Dianon shares issued 3,861,585
Per share price as described above $ 44.45
------------
$ 171,647
Fair value of Dianon options issued in exchange for
UroCor options 23,423
Estimated transaction costs and assumed liabilities 17,998
Proceeds from sale of UroCor's therapeutic business (4,550)
------------
Total consideration and costs $ 208,518
============
Pro forma purchase price allocation:
Historical book value of net assets acquired $ 41,413
Pro forma adjustments:
Sale of Therapeutic Division Assets (2,810)
Sale of Therapeutic Division Liabilities 214
Write off of capitalized software and other long term assets (2,940)
Write off of UroCor goodwill and other intangibles (5,200)
Tax effect adjustments and expenses 1,050
Fair value of identifiable intangible assets recorded
upon consummation 8,630
------------
Fair value of net assets acquired 40,357
Goodwill 168,161
------------
Total consideration and costs $ 208,518
============
Merger related fees and expenses primarily consisting of SEC filing fees,
fees of investment bankers, attorneys, accountants and financial printing
directly related to the transaction are estimated to be $9.8 million. Assumed
liabilities include integration related costs, including severance of
approximately 200 UroCor employees currently estimated to be $5.8 million, of
which $3.6 million was paid at the closing with the balance of $2.2 million to
be paid subsequent to the consummation of the merger, and other assumed
contractual or other obligations of $2.4 million.
The final purchase price will be determined based on the actual value of
the Dianon shares and options issued as well as actual transaction costs and
other accruable costs. The purchase price will be allocated to the assets
purchased and liabilities assumed based on their fair values. Dianon has engaged
a nationally recognized accounting firm to assist in determining the fair values
of the assets and liabilities acquired. This valuation will be completed after
the merger is consummated. Accordingly, the allocation of the purchase price is
subject to revision based on the final determination of appraised and other fair
values.
The final purchase price allocation will reflect other assets acquired and
liabilities assumed, including pre-acquisition contingencies as appropriate.
Such pre-acquisition contingencies include expenses relating to the previously
announced UroCor DOJ investigation, including without limitation, the
administration of the UroCor DOJ settlement(including compliance with the UroCor
corporate integrity agreement), any related governmental investigations or
proceedings (including the criminal investigation referenced in the UroCor
corporate integrity agreement) and any potential indemnification of legal and
other fees and costs for past directors, officers and employees of UroCor.
Dianon currently estimates that it is probable that these indemnification
expenses could amount to up to $1 million, and accordingly, Dianon has recorded
a $1 million legal accrual, which is reflected in the determination of total
consideration and costs above. Dianon also estimates that these potential
indemnification expenses could be as much as $6 million.
On December 31, 2001, Dianon agreed to sell the stock of UroCor's
therapeutic business for $4,550,000. The Unaudited Pro Forma Condensed Combined
Balance Sheet gives effect to the sale of the therapeutic business as if it had
been consummated on September 30, 2001. The Unaudited Pro Forma Condensed
Combined Statements of Income for the nine months ended September 30, 2001 and
for the year ended December 31, 2000 give effect to the sale of the therapeutic
business as if it had occurred on January 1, 2000. The proceeds from the sale
are considered in the allocation of the purchase price to the assets and
liabilities assumed.
Subsequent to the consummation of the merger, Dianon implemented a plan to
integrate the UroCor business into Dianon. This resulted in the restructuring
of, among other items, UroCor's current staffing levels and billing systems. As
a result, it is possible that certain accounts receivable will not be collected.
Dianon's management believes these amounts could be $3 to $5 million due to
changes in staffing and collection procedures following the merger. Dianon began
billing all new UroCor business on the Dianon centralized billing system in
Connecticut, immediately upon closing. Any UroCor receivables related to sales
prior to closing are being collected by the existing UroCor billing and
collections staff using UroCor's current billing system. However, Dianon's
integration plans provide that the UroCor billing/collections department and
related information systems department in Oklahoma be reduced significantly
immediately after closing with additional reductions in the months to follow.
Dianon expects that UroCor's entire billing/collections department will be
eliminated within a few months following the closing. Accordingly, Dianon
believes that the cost of collecting the remaining accounts receivable will
exceed the related benefits as this will delay the integration process and
impede Dianon's ability to achieve the synergies of integrating the two
companies. Based on collections subsequent to the acquisition date, Dianon
management believes that additional reserves of $3 to $7 million may be
necessary to properly state the net realizable value of the UroCor accounts
receivables, due to the changes in staffing and procedures Dianon has
implemented subsequent to the closing of the merger.
(1) Represents cash used at closing for merger related expenses including
transaction costs of $9.4 million and severance of $3.6 million offset by
$4.5 million in proceeds from the sale of UroCor's therapeutic business.
(2) Represents the sale of accounts receivable as part of the divestiture of
UroCor's therapeutic business.
(3) Represents the current deferred tax asset of $.6 million on $1.5 million of
assumed liabilities related to the early termination of a UroCor software
contract and $.4 million on a $1.0 million legal accrual related to
probable indemnification costs for former officers and employees involved
in Urocor's DOJ investigation, using an effective tax rate of 41%.
(4) Refundable income taxes represent amounts related to severance payments and
the write off of UroCor long term assets (including capitalized software,
fixed assets and intangibles) offset by the tax liability related to the
sale of UroCor's therapeutic business, using an effective tax rate of 41%.
(5) Represents the sale of inventory of $.3 million and other assets of $.3
million related to the divestiture of UroCor's therapeutic business.
(6) Represents the write off of capitalized software primarily related to
UroCor's billing system ($2.3 million), and other assets ($.6 million) that
will not be used by Dianon and the sale of fixed assets related to UroCor's
therapeutic business ($1.1 million).
(7) Represents goodwill and other intangibles recorded upon consummation of the
transaction net of the elimination of UroCor intangibles. These amounts
consist of goodwill of $168.2 million with an indefinite useful life,
tradename of $3.9 million with an indefinite useful life, and a customer
list of $4.7 million with a 15 year amortization life. The intangible
assets of UroCor to be eliminated upon consummation include goodwill of
$3.7 million, distribution rights of $.8 million, and patents and
trademarks of $.6 million.
(8) Represents an accrual for severance to be paid after closing ($2.2
million), a legal accrual related to the probable indemnification costs of
officers and employees involved in Urocor's DOJ investigation ($1.0
million), amounts due on early termination of a UroCor software project
($1.5 million), and other transaction related costs ($.3 million), offset
by the sale of UroCor's therapeutic business liabilities ($.2 million).
(9) Represents the deferred tax liability related to $8.6 million of
identifiable intangible assets, using an effective tax rate of 41%.
(10) Represents equity issued of $195.2 million to effect the transaction offset
by the elimination of UroCor equity of $ 41.4 million.
(11) Represents the elimination of revenues and expenses as part of the
divestiture of UroCor's therapeutic business for the year ended December
31, 2000 and for the nine months ended September 30, 2001.
(12) Represents the amortization of the customer lists acquired in the
transaction which are being amortized over a useful life of 15 years. This
amortization of $.2 million and $.2 million is offset by the elimination of
UroCor intangible amortization expense of $.3 million and $.3 million for
the year ended December 31, 2000 and for the nine months ended September
30, 2001, respectively.
(13) Represents the tax effect of the amortization expense and the operations of
UroCor's therapeutic business, using an effective tax rate of 41%.