SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_______________
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 333-13523
DADE INTERNATIONAL INC.
(Exact name of Registrant as Specified in its Charter)
Delaware 36-3949533
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1717 Deerfield Road
Deerfield, Illinois 60015-0778
(Address of Principal Executive Office) (Zip Code)
847-267-5300
(Registrant's Telephone Number, Including Area Code)
Indicate by check x 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 proceeding 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 August 1, 1997, the latest practicable
date, was 1,000 shares.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Dade International Inc.
Consolidated Balance Sheet
(Dollars in millions,
except share-related data)
December 31, June 30,
1996 1997
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 3.7 $ 5.1
Accounts receivable, net 183.8 176.7
Inventories 155.0 160.2
Prepaid expenses and other current asset 9.6 7.7
Deferred income taxes 45.5 45.7
Total current assets 397.6 395.4
Property, plant and equipment, net 187.0 177.1
Debt issuance costs, net 42.4 39.9
Goodwill, net 135.3 138.5
Patents and trademarks, net 30.0 28.4
Deferred income taxes 171.9 172.9
Prepaid pension asset 26.0 26.0
Other assets 18.6 20.2
Total Assets $1,008.8 $998.4
Liabilities and Stockholder's Deficit
Current liabilities:
Current portion of long-term debt $ 3.4 $ 4.1
Short-term debt 15.8 16.6
Accounts payable 60.2 44.8
Accrued liabilities 146.5 122.2
Total current liabilities 225.9 187.7
Revolving credit facility - 17.0
Long-term debt, less current portion 436.6 454.1
Senior subordinated notes 350.0 350.0
Other liabilities 21.3 22.5
Total Liabilities 1,033.8 1,031.3
Commitments and contingencies - -
Common stock, $.01 par value, 1,000
shares authorized, issued and outstanding - -
Additional paid-in-capital 87.2 87.3
Accumulated deficit (110.3) (108.4)
Unrealized gain (loss) on marketable
equity securities 0.1 (0.2)
Cumulative translation adjustment (2.0) (11.6)
Total Stockholder's Deficit (25.0) (32.9)
Total Liabilities and Stockholder's Deficit $1,008.8 $998.4
See accompanying notes to consolidated financial statements.
Dade International Inc.
Consolidated Statements of Operations
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in millions) 1996 1997 1996 1997
(Unaudited) (Unaudited)
Net Sales $ 195.3 $ 207.5 $ 353.8 $ 408.1
Operating Costs and
Expenses:
Cost of goods sold 126.3 104.3 208.4 201.6
Marketing and administrative
expenses 60.7 65.3 113.1 133.4
Research and development
expenses 107.6 12.1 114.2 23.6
Restructuring and other
related items 11.4 - 11.4 -
Goodwill amortization expense 0.9 1.4 0.8 2.7
Income (loss) from operations (111.6) 24.4 (94.1) 46.8
Other Income (Expense)
Interest expense, net (15.8) (21.9) (22.9) (43.3)
Other 0.5 (0.6) 1.3 -
Income (loss) before income
taxes (126.9) 1.9 (115.7) 3.5
Income tax expense (benefit) (46.9) 0.7 (42.8) 1.3
Income (loss) before
extraordinary items (80.0) 1.2 (72.9) 2.2
Extraordinary items (net
of tax benefit of $14.7):
Write-off of deferred
financing fees (11.4) - (11.4) -
Premium on purchase of 13%
senior subordinated notes (13.6) - (13.6) -
Net income (loss) $(105.0) $1.2 $(97.9) $2.2
See accompanying notes to consolidated financial statements.
Dade International Inc.
Consolidated Statements of Cash Flows
Six months ended
June 30,
(Dollars in millions) 1996 1997
(Unaudited)
Operating Activities:
Net income (loss) $ (97.9) $ 2.2
Adjustments to reconcile net
income to net cash provided
(utilized) by operating activities:
Write-off of in-process research and development 98.1 -
Depreciation and amortization expense 12.5 29.4
Write-off of deferred financing fees 18.1 -
Amortization of inventory write-up 25.5 -
Restructuring and other related costs 11.4 -
Deferred income taxes (57.8) 2.2
Change in balance sheet items:
Accounts receivable, net 13.6 9.6
Inventories (6.3) (8.6)
Accounts payable 3.5 (15.6)
Accrued liabilities (6.3) (26.5)
Other (1.5) (2.4)
Net cash flow provided (utilized) by
operating activities 12.9 (9.7)
Investing Activities:
Acquistions, net of acquired cash (529.1) (2.2)
Capital expenditures (25.0) (21.9)
Proceeds from Baxter International
Inc. for purchase price ajustments 9.7 -
Net cash flow utilized by investing activities ( 544.4) (24.1)
Financing Activities:
Proceeds from sale of "Net assets held for sale" 10.7 -
Proceeds from short-term debt, net of repayment 8.3 0.8
Proceeds from revolving credit facility,
net of repayments 15.0 17.0
Deferred financing fees (45.7) (0.5)
Proceeds from subordinated notes, net
of repayment 230.0 -
Proceeds from borrowings under bank credit
agreement, net of repayments 296.5 18.2
Net cash flow provided by financing 514.8 35.5
Effect of foreign exchange rates on cash (0.3) (0.3)
Net increase (decrease) in cash and cash
equivalents (17.0) 1.4
Cash and Cash Equivalents:
Beginning of Period 27.9 3.7
End of Period $ 10.9 $ 5.1
See accompanying notes to consolidated financial statements.
DADE INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
Note 1. Organization, Business and Interim Financial Information
Dade International Inc. (the "Company"), was incorporated in Delaware
in 1994 to effect the acquisition of the in vitro diagnostics products
manufacturing and services businesses of Baxter Diagnostics Inc.,
a wholly-owned subsidiary of Baxter International Inc.("Baxter"). The
Company develops, manufactures and markets diagnostic equipment, reagents,
consumable supplies and services worldwide.
The Company is a wholly-owned subsidiary of Diagnostics Holding, Inc.
("Holdings"). Bain Capital, Inc. and GS Capital Partners, L.P., an
affiliate of the Goldman Sachs Group, L.P., their respective related
investors and the management of the Company own substantially all of the
voting capital stock of Holdings.
The Company acquired, effective May 1, 1996, the world-wide in vitro
diagnostics business ("Chemistry" or "Chemistry Acquisition") of E.I.
du Pont de Nemours and Company ("DuPont"). The Chemistry Acquisition
was accounted for as a purchase from its effective date and as a result,
the unaudited consolidated financial statements as of and for the three
and six months ended June 30, 1997 are not comparable to those for the
same period in the prior year.
The unaudited interim financial statements of the Company have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote
disclosures have been condensed or omitted. These unaudited interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
In the opinion of management, the unaudited interim consolidated
financial statements reflect all adjustments (which include only normal
and recurring adjustments) necessary for a fair presentation of the
interim periods. The results of operations for the interim periods are
not necessarily indicative of the results of operations expected for the
full year.
Certain prior period balances have been reclassified to conform with the
current presentation.
Note 2. Change in International Reporting Period
Prior to 1996, the Company's operations outside the United States and
Puerto Rico (collectively "International Operations") were consolidated
on a one-month delay (i.e., international December 1995 results were
reported as January 1996 results) in the consolidated financial
statements of the Company. Effective with 1996 reporting, this one month
lag for International Operations was eliminated. As a consequence,
operating results for the six-month period ended June 30, 1996 include
seven months of International Operations. The Company has designated
the month of December 1995 as the lag month for purposes of comparability
to future periods. International Operations during the lag month
produced net sales of approximately $12.3 million and net income of
approximately $1.3 million, thus increasing consolidated net sales
and consolidated net income by these respective amounts for the six
months ended June 30, 1996.
Note 3. Inventories
Inventories of the Company consist of the following (in millions):
December 31, June 30,
1996 1997
(unaudited)
Raw materials $ 33.1 $ 36.4
Work-in-process 39.9 36.0
Finished products 82.0 87.8
Total inventories $155.0 $160.2
Note 4. Bank Credit Agreement
The Company renegotiated the terms of the Bank Credit Agreement during
the second quarter of 1997. The amended credit agreement provides for a
reduction in interest rates and a reallocation of principal among the
various loans.
Note 5. Behring Diagnostics Merger
On July 2, 1997, the Company announced that it had reached definitive
agreement to combine with Behring Diagnostics, a unit of Hoechst AG.
The planned stock transaction, which is subject to regulatory approval
and customary closing conditions, is expected to be consummated in the
second half of 1997.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The Company's 1996 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, 1996. The
following management's discussion and analysis focuses on material
changes since that time and should be read in conjunction with the 1996
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 document are forward-looking, such
as statements relating to estimates of operating and capital expenditure
requirements, future revenue and operating income, and cash flow and
liquidity. Such forward-looking statements are based on the Company'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
economic and business conditions, governmental and regulatory 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.
Comparability
The comparability of the Company's unaudited consolidated balance sheet
and statements of operations and cash flows for the periods presented
has been significantly impacted by the Chemistry Acquisition which was
effective May 1, 1996.
Results of Operations
Net Sales
Net sales for the three months ended June 30, 1997 reached $207.5
million, an increase of $12.2 million or 6% over the comparable period a
year ago. This increase was primarily due to the inclusion of a full
three months of sales from the Chemistry Acquisition (versus two months
of sales in the comparable period of the prior year) offset partially by
the adverse impact of foreign currency exchange rate fluctuations,
declining sales in the Company's mature product lines and continued
pricing and competitive pressures in the U.S.; in addition the Company
encountered manufacturing capacity constraints with regard to demand for
its new Dimension RXL product line. During the current quarter, the
strong U.S. dollar reduced foreign sales by $9.5 million.
As a result of the Chemistry Acquisition, the Paramax and Stratus non-
cardiac product lines were designated as non-core due to product line
overlap and to better position and leverage the Company's product
offerings in the cardiac market. During the second quarter of 1997, net
sales of these mature product lines declined by $4.7 million as
compared to the same period last year. The Dimension RXL product line
capacity issue negatively impacted sales by approximately $5.3 million
in the quarter and year-to-date; this backlog is expected to clear by
year end 1997.
Net sales for the six months ended June 30, 1997 were $408.1 million, an
increase of $54.3 million or 15% over the comparable period of 1996.
This increase was primarily due to the inclusion of six months of
sales from the Chemistry Acquisition in the current period (versus two
months of sales in the comparable period of the prior year) offset
partially by the adverse impact of foreign currency exchange rate
fluctuations, declining sales in the Company's mature product lines and
pricing and competitive pressures in the U.S. During the six months
ended June 30, 1997, the strong U.S. dollar reduced foreign sales by
$15.2 million. Net sales of the Company's mature Paramax and Stratus
non-cardiac product lines decreased $11.5 million during the current
period as compared to the similar period of 1996.
Gross Profit
Gross profit for the three months ended June 30, 1997 was $103.2 million
as compared to $94.5 million reported in the comparable period of the
prior year, excluding the $25.5 million purchase accounting inventory
step-up impact. The $8.7 million increase in gross profit in the
current quarter was primarily attributable to the increase in net sales
discussed above and improved margins resulting from the realization of
manufacturing cost reduction initiatives and a shift toward higher
margin products. Gross margins for the current quarter rose to 49.7% as
compared to 48.4% in the second quarter of 1996, exclusive of the impact
of purchase accounting.
Gross profit for the six months ended June 30, 1997 totaled $206.5
million as compared to $170.9 million for the first six months of 1996,
excluding the $25.5 million purchase accounting inventory step-up
impact. The $35.6 million increase in gross profit over the comparable
period of the prior year was due to the inclusion of a full six months
of results of the Chemistry Acquisition during 1997, as compared to only
two months in the comparable prior period, as well as the on-going
realization of manufacturing cost reduction initiatives and a shift
toward higher margin products. Gross margins for the six months ended
June 30, 1997 improved to 50.6% as compared to 48.3% during the same
period in 1996,exclusive of the impact of purchase accounting.
Marketing and Administrative Expense
Marketing and administrative expense for the current quarter totaled
$65.3 million, as compared to $60.7 million sales for the comparable
period of 1996. For the six month period ended June 30, 1997, marketing
and administrative expenses were $133.4 million versus $113.1 million
for the prior year period. The increases for the three and six month
periods ended June 30, 1997 are due to the inclusion of three and six
months of activity for the Chemistry Acquisition as compared to the two
months reported in the prior year periods.
Research and Development Expense
Research and development expense for the quarter ended June 30, 1997 was
$12.1 million, a $2.6 million increase over the comparable period of
1996, excluding the $98.1 million purchase accounting write-off of
acquired in-process research and development projects which had no
alternative future use.
For the six month period ended June 30, 1997, research and development
expenses totaled $23.6 million as compared to $16.1 million for the same
period last year, excluding the $98.1 million purchase accounting
write-off of acquired in-process research and development projects.
The increases in research and development expense for the comparable
quarter and six month year over year periods is directly related to the
Chemistry Acquisition. Increased levels of research and development are
supporting projects which are expanding test menus, developing the next
generation Dimension RxL clinical chemistry instrument platform and
developing a new cardiac instrument platform.
Operating Income
Income from operations for the current quarter of $24.4 million was
slightly better than the $23.4 million of operating earnings for the
same period a year ago, excluding the impacts of purchase accounting.
Excluding the impact of adverse foreign exchange, operating income would
have increased to $26.9 million.
Income from operations for the six months ended June 30, 1997 totaled
$46.8 million as compared to $40.9 million for the same period last
year, excluding the impacts of purchase accounting. The increase in the
comparable periods year over year is due to higher gross profits from
higher sales volume and improved margins, offset partially by adverse
foreign exchange of $4.4 million year-to-date.
Income Taxes
The effective income tax rate for the quarter ended June 30, 1997 was
approximately 36%, consistent with the rate used in the first quarter of
1997. This compares closely with the effective rate of 37% recorded for
the quarter and six month periods ended June 30, 1996.
At June 30, 1997, the Company has recorded a deferred tax asset of
$218.6 million. Management continues to believe that realization of the
net deferred tax asset is not dependent on material improvement over the
Company's forecast of future levels of consolidated pre-tax income,
material changes in the present relationship between income reported for
financial and tax purposes, material asset sales or other non-routine
transactions.
Other Income (Expense)
Net interest expense for the current quarter was $21.9 million, a $6.1
million increase over the comparable period of 1996. This increase is
attributable to a full three months of Chemistry Acquisition debt
service recorded during the current quarter; during the second quarter
of 1996, the incremental debt associated with the Chemistry Acquisition
was outstanding for only two months. Interest expense for the six
months ended June 30, 1997 of $43.4 million was $20.4 million higher
than in the comparable prior year period for the same reason.
Net Income
Net income for the quarter ended June 30, 1997 was $1.2 million, as
compared to $5.1 million for the second quarter of 1996, excluding the
impacts of purchase accounting, restructuring and extraordinary items.
The decrease was primarily due to adverse foreign currency exchange
rates which created after-tax losses of $1.6 million and the impact
of a full three months of interest expense ($21.9 million) at the
higher levels of indebtedness associated with the Chemistry Acquisition
current quarter, as compared to only two months of similar debt levels
reflected in the second quarter of 1996.
Net income for the six months ended June 30, 1997 totaled $2.2 million
as compared to $12.2 million for the six months ended June 30, 1996,
excluding the impact of purchase accounting, restructructing and
extraordinary items. The decrease was attributable to the increase in net
interest expense to $43.3 million and $2.8 million of after-tax foreign
currency exchange rate losses offset partially by higher levels of
operating income.
Liquidity and Capital Resources
The Company's principal liquidity requirements are for working capital,
capital expenditures, debt service and restructuring activities. The
Company has historically funded its liquidity needs generally with a
combination of cash flows from operations and borrowings under its
revolving credit facility and other short-term borrowing arrangements.
During the second quarter of 1997, working capital increased $9.3million
to $207.7 million. The increase in working capital was caused primarily
by a decrease in accrued liabilities related to the payments of accrued
restructuring liabilities and lower levels of accrued interest related to
the Company's senior subordinated notes which require semi-annual interest
payments. The increase in working capital was funded primarily through
increased long-term borrowings resulting from the April 1997 amendment of
the Company's credit facility agreement.
During the six months ended June 30, 1997, working capital increased
$36.0 million. This increase was primarily due to increased inventory
levels as the Company rebuilt stocks depleted by strong fourth quarter
1996 shipments, lower accrued liabilities related to restructuring
reserves and accrued interest, and lower levels of accounts payable due
to the timing of payments. The increase in working capital was funded
primarily through borrowings under the revolving credit facility and
increased long-term borrowings resulting from the April 1997 amendment
of the Company's credit facility agreement.
Capital expenditures of the Company during the second quarter of 1997
were $14.3 million as compared to $12.8 million in the comparable period
last year. The increase is attributable to three months of Chemistry
activity included in the current quarter whereas the second quarter of
1996 reflected only two months of Chemistry operations. On a current
year to date basis, capital expenditures totaled $21.9 million compared
to $25.0 million for the similar period in 1996. The year over year
decrease of $3.1 million is primarily attributable to an increase in
instruments being financed by customers through third party lessors.
Management believes cash flows from operating activities, together with
available revolving credit borrowing capacity under the Company's
existing credit agreements, are sufficient to permit the Company to meet
its foreseeable financial obligations and fund its operations and planned
investments.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is involved in a number of legal proceedings 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.
None.
(b) Reports on Form 8-K.
On July 17, 1997, the Company filed a Current Report on Form 8-K
reporting its July 10, 1997, announcement that an Agreement and
Plan of Combination to combine the Company and the Behring
Diagnostics business of Hoechst AG had been entered.
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 INTERNATIONAL INC.
(Registrant)
Date: August 14, 1997 By: /s/ Scott T. Garrett
Scott T. Garrett
Chairman and Chief Executive
Officer (Principal Executive
Officer and duly authorized
Officer of Registrant)