SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(X) ANNUAL REPORT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission File Number [000-19392]
A. Full title of the plan and address of the plan, if different from
that of the issuer named below:
DIANON Systems, Inc. 401(k) Retirement Plan
200 Watson Boulevard
Stratford, CT 06615
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office:
DIANON Systems, Inc.
200 Watson Boulevard
Stratford, CT 06615
Merrill Lynch and Company
World Financial Center
250 Vesey St.
Manhattan, NY 10281-1306
DIANON SYSTEMS, INC.
401(K) RETIREMENT PLAN
Financial Statements and Schedule
As of December 31, 2001 and 2000
Together with Report of Independent Public Accountants
EIN #06-1128081
Plan #001
DIANON SYSTEMS, INC. 401(K) RETIREMENT PLAN
Index to Financial Statements and Schedule
Page
----
Report of Independent Public Accountants 2
Financial Statements:
Statements of Net Assets Available for Benefits as of December 31, 2001 and 2000 3
Statement of Changes in Net Assets Available for Benefits for the Year Ended
December 31, 2001 4
Notes to Financial Statements 5-11
Supplemental Schedule:
Schedule I - Schedule of Assets (Held at End of Year) as of December 31, 2001 12
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Management of the
DIANON Systems, Inc. 401(k) Retirement Plan:
We have audited the accompanying statements of net assets available for benefits
of the DIANON Systems, Inc. 401(k) Retirement Plan (the "Plan") as of December
31, 2001 and 2000, and the related statement of changes in net assets available
for benefits for the year ended December 31, 2001. These financial statements
and the schedule referred to below are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 2001 and 2000, and the changes in its net assets available for
benefits for the year ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets (held
at end of year) as of December 31, 2001 is presented for purposes of additional
analysis and is not a required part of the basic financial statements but is
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. These supplemental schedules are the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
Stamford, Connecticut
May 13, 2002
/s/ Arthur Andersen LLP
- -----------------------
Arthur Andersen LLP
DIANON SYSTEMS, INC. 401(K) RETIREMENT PLAN
Statements of Net Assets Available for Benefits
December 31, 2001 and 2000
2001 2000
----------- -----------
INVESTMENTS, AT FAIR VALUE $12,137,103 $10,305,917
RECEIVABLES:
Employer contributions 55,189 12,157
Employee contributions 149,908 42,826
Accrued income 4,881 5,620
----------- -----------
Total receivables 209,978 60,603
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $12,347,081 $10,366,520
=========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
3
DIANON SYSTEMS, INC. 401(K) RETIREMENT PLAN
Statement of Changes in Net Assets Available for Benefits
For the Year Ended December 31, 2001
ADDITIONS:
Investment Income:
Interest and dividend income $ 251,651
Contributions:
Employer 722,415
Employee 2,121,926
------------
Total contributions 2,844,341
------------
Total additions 3,095,992
------------
DEDUCTIONS:
Distributions to employees (611,102)
Administrative expenses (27,337)
Net Realized and unrealized loss on investments (476,992)
------------
Total deductions (1,115,431)
------------
Net increase 1,980,561
NET ASSETS AVAILABLE FOR BENEFITS, beginning of year 10,366,520
------------
NET ASSETS AVAILABLE FOR BENEFITS, end of year $ 12,347,081
============
The accompanying notes to financial statements are an integral part of this
statement.
4
DIANON SYSTEMS, INC. 401(K) RETIREMENT PLAN
Notes to Financial Statements
December 31, 2001
1. DESCRIPTION OF PLAN
-------------------
The following brief description of the DIANON Systems, Inc. 401(k) Retirement
Plan (the "Plan") for employees of DIANON Systems, Inc. ("DIANON" or the
"Company") is provided for general information purposes only. Participants
should refer to the Plan agreement for a more complete description of the Plan.
General
- -------
The Plan is a voluntary defined contribution plan that became effective January
1, 1991. Effective October 1, 1997, the Plan was amended for eligibility
requirements to allow substantially all employees of the Company who have
completed three months of service to participate in the Plan. Employees become
eligible to receive employer contributions after one year of service. The Plan
is subject to the provisions of the Employee Retirement Income Security Act of
1974 ("ERISA") and is administered under a Plan and Trust Agreement. Merrill
Lynch Trust Company, FSB is the trustee of the Plan. Merrill Lynch Trust
Company, FSB serves as custodian of the Plan and maintains and administers the
Plan's investment assets for the benefit of participants.
Employee Contributions
- ----------------------
Eligible employees may elect to defer a percentage of their compensation by
means of a pretax contribution to the Plan, up to an annual maximum of 17% of
compensation as defined in the Plan pursuant to the provisions of the Internal
Revenue Code. Employee contributions can be invested in any combination of the
following investments: The Merrill Lynch Retirement Preservation Trust, Merrill
Lynch Equity Index Trust, Massachusetts Investors Trust, John Hancock Bond Fund,
Merrill Lynch Balanced Capital Fund, MFS Emerging Growth Fund, Merrill Lynch
Global Allocation Fund, Merrill Lynch Fundamental Growth Fund, Alger MidCap
Growth Retirement Portfolio, Merrill Lynch Small Cap Value Fund, ING Pilgrim
International Value Fund, Van Kampen Growth & Income Fund, Davis Series
Financial Fund, MFS Utilities Fund, Merrill Lynch Global SmallCap Fund, Merrill
Lynch Healthcare Fund, Merrill Lynch Natural Resources Trust, Phoenix Real
Estate Securities Fund and DIANON Systems, Inc. common stock. Employees may
change their contribution percentage and investment allocations or make
transfers between investment accounts via voice response system on a daily
basis.
Employer Contributions
- ----------------------
The Company contributes an amount determined each year by the Board of
Directors. If the Company makes matching contributions, such contributions are
equal to 50% on the first 6% of each participant's elective deferrals, not to
exceed 3% of the participant's annual compensation, as defined in the Plan.
Participant Accounts
- --------------------
Each participant's account is credited with the participant's contribution and
allocations of the Company contribution and plan earnings. Allocations are based
on participant compensation or account balances, as defined.
5
DIANON SYSTEMS, INC. 401(K) RETIREMENT PLAN
Notes to Financial Statements
December 31, 2001
Vesting
- -------
Participants are 100% vested in their contributions. Vesting of employer
contributions is based on years of service and is summarized as follows:
Years of Services Vesting Percentages
----------------- -------------------
Less than 1 0%
1 20%
2 40%
3 60%
4 80%
5 or more 100%
Loans Receivable
- ----------------
Participants may borrow from their fund accounts up to a maximum equal to the
lesser of $50,000 or 50% of the vested portion of their accounts. Loans must be
repaid at the current rate of interest (Prime) over no more than 5 years, or up
to 30 years, if for the purchase of a primary residence. Interest rates on loans
ranged from 5.5% to 9.5% during 2001. Principal and interest is paid ratably
through bi-weekly payroll deductions.
Participant Forfeitures
- -----------------------
Forfeitures of the unvested employer contribution are used to offset the
employer contribution or administrative fees for the subsequent year. At
December 31, 2001, forfeited nonvested accounts totaled $11,024.
Payment of Benefits
- -------------------
On termination of the Plan, or termination of service due to death, disability,
retirement, or other termination, a participant or the lawfully designated
beneficiary will receive a lump-sum amount equal to the value of the
participant's vested interest in his or her account.
Expenses of the Plan
- --------------------
In 2001, administrative expenses of the Plan including custodian and
recordkeeping are paid by the Plan. Audit and legal expenses are paid by the
Company.
Payment of Benefits
- -------------------
Benefits are recorded when paid.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Basis of Accounting
- -------------------
The financial statements of the Plan have been prepared on the accrual basis of
accounting.
6
DIANON SYSTEMS, INC. 401(K) RETIREMENT PLAN
Notes to Financial Statements
December 31, 2001
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
3. INVESTMENTS
-----------
Investments held in the funds are valued on the basis of quoted market value.
Income derived from investments is recognized when earned. A description of the
Plan's investment assets are as follows:
Merrill Lynch Retirement Preservation Trust
-------------------------------------------
The objective of this fund is to provide income while preserving capital
and maintaining liquidity. The fund invests in a broadly diversified
portfolio of investment contracts offered by major insurance companies and
other approved financial institutions and in U.S. government obligations.
Merrill Lynch Equity Index Trust
--------------------------------
The objective of this fund is to produce income and to provide an
opportunity for growth of principal consistent with common stock investing.
Massachusetts Investors Trust
-----------------------------
This fund seeks reasonable current income and long-term growth of income
and capital by investing primarily in quality stocks representing
well-known companies across a wide range of industries.
John Hancock Bond Fund
----------------------
This fund seeks long-term growth of capital and income without undue market
risks. The fund invests primarily in marketable debt securities.
Merrill Lynch Balanced Capital Fund
-----------------------------------
The objective of this fund is to emphasize total return consistent with
prudent risk through a diversified investment in stocks and bonds.
MFS Emerging Growth Fund
------------------------
The objective of this fund is to seek long-term growth of capital by
emphasizing securities of small and medium-size companies in the U.S. and
other economies with earnings growth that is expected to accelerate.
Merrill Lynch Global Allocation Fund
------------------------------------
This fund seeks total return consistent with prudent risk through a
diversified investment in both domestic and foreign securities, debt and
money market investments issued in at least three countries.
7
DIANON SYSTEMS, INC. 401(K) RETIREMENT PLAN
Notes to Financial Statements
December 31, 2001
Merrill Lynch Fundamental Growth Fund
-------------------------------------
This fund seeks growth of capital by investing primarily in undervalued
equity.
Alger MidCap Growth Retirement Portfolio
----------------------------------------
The portfolio seeks long-term capital appreciation. Under normal
circumstances, the portfolio invests primarily in the equity securities of
companies having a market capitalization within the range of companies in
the S&P MidCap 400 Index.
Merrill Lynch Small Cap Value Fund
----------------------------------
The investment objective of the fund is to seek long-term growth of capital
by investing in a diversified portfolio of securities, primarily common
stock, of relatively small companies that management of the fund believes
have special investment value and emerging growth companies, regardless of
size.
ING Pilgrim International Value Fund
------------------------------------
The fund invests primarily in foreign companies with market capitalizations
greater than $1 billion, however it may hold up to 25% of its assets in
companies with smaller market capitalizations.
Van Kampen Growth & Income Fund
-------------------------------
The fund's investment objective is to seek income and long-term growth of
capital. The fund invests primarily in income-producing equity securities,
including common stocks and convertible securities (although investments
are also made in nonconvertible preferred stocks and debt securities).
Davis Series Financial Fund
---------------------------
The fund's investment objective is growth of capital. The fund invests
primarily in common stock of financial companies. During normal market
conditions, at least half of the Fund's assets are invested in companies
that are "principally engaged" in banking and financial services industry.
MFS Utilities Fund
------------------
The fund's investment objective is to seek capital growth and current
income (income above that available from a portfolio invested entirely in
equity securities). The fund invests, under normal market conditions, at
least 65% of its total assets in equity and debt securities of domestic and
foreign companies in the utilities industry.
Merrill Lynch Global Small Cap Fund
-----------------------------------
The investment objective of the fund is to seek long-term growth of capital
by investing primarily in a portfolio of equity securities of small-cap
issuers located in various foreign countries and in the United States.
8
DIANON SYSTEMS, INC. 401(K) RETIREMENT PLAN
Notes to Financial Statements
December 31, 2001
Merrill Lynch Healthcare Fund
-----------------------------
The investment objective of the fund is to seek long-term capital
appreciation through worldwide investment in equity securities of companies
that, in the opinion of fund management, derive or are expected to derive a
substantial portion of their sales from products and services in the
healthcare industry.
Merrill Lynch Natural Resources Trust
-------------------------------------
The investment objective of the trust is to seek long-term growth of
capital and to protect the purchasing power of shareholders' capital by
investing in a portfolio of equity securities of domestic and foreign
companies with substantial natural resource assets.
Phoenix Real Estate Securities Fund
-----------------------------------
The Phoenix Real Estate Securities Fund has an investment objective of
capital appreciation and income with approximately equal emphasis. Under
normal circumstances, the fund invests 75% of its assets in publicly traded
real estate investment trusts ("REITS") and companies that are principally
engaged in the real estate industry.
DIANON Systems, Inc. Common Stock
---------------------------------
The DIANON Systems, Inc. common stock is purchased bi-monthly on the open
market at the closing price on the day the broker receives the cash.
Risks and Uncertainties
- -----------------------
Investment securities, in general, are exposed to various risks, such as
interest rate, credit and overall market volatility. Due to the level of risk
associated with certain investment securities, it is reasonably possible that
changes in the values of investment securities will occur in the near term.
The following presents investments that represent 5 percent or more of the
Plan's net assets:
December 31, December 31,
2001 2000
------------ ------------
Merrill Lynch Retirement Preservation Trust $2,794,390 $1,617,858
Merrill Lynch Equity Index Trust 2,407,732 2,628,269
Massachusetts Investors Trust 1,592,188 1,744,614
MFS Emerging Growth Fund 1,138,347 1,367,265
John Hancock Bond Fund 812,679 447,006
DIANON Systems, Inc. Common Stock 1,542,696 1,328,811
9
DIANON SYSTEMS, INC. 401(K) RETIREMENT PLAN
Notes to Financial Statements
December 31, 2001
During the year ended December 31, 2001, the Plan's investments (including gains
and losses on investments bought and sold, as well as held during the year)
appreciated or (depreciated) in value as follows:
December 31,
2001
------------
Merrill Lynch Retirement Preservation Trust $ 4,307
Merrill Lynch Equity Index Trust (323,952)
Massachusetts Investors Trust (307,601)
John Hancock Bond Fund 2,776
Merrill Lynch Balanced Capital Fund (44,693)
MFS Emerging Growth Fund (402,341)
Merrill Lynch Global Allocation Fund (14,246)
Merrill Lynch Growth Fund 34,384
Alger MidCap Growth Retirement Portfolio 2,482
Merrill Lynch Fundamental Growth Fund (132,792)
ING Pilgrim International Value Fund 596
Davis Series Financial Fund 120
Merrill Lynch Global Small Cap Fund 2,918
Merrill Lynch Natural Resources Trust 12
Merrill Lynch Healthcare Fund 2,918
Merrill Lynch Small Cap Value Fund 6,835
Phoenix Real Estate Securities Fund (951)
MFS Utilities Fund 18
Van Kampen Growth & Income Fund 727
DIANON Systems, Inc. Common Stock 691,491
-----------
Net Realized and Unrealized loss on investments $ (476,992)
===========
4. PLAN TERMINATION
----------------
Although it has not expressed any intention to do so, the Company may terminate
the Plan at any time subject to the terms of ERISA. Upon termination, the
accounts of all participants would become fully vested and Plan assets would be
allocated to the participants of the Plan as specified in the Plan agreement.
5. PARTY-IN-INTEREST TRANSACTIONS
------------------------------
Certain Plan investments are shares of DIANON Systems, Inc.'s stock and shares
of funds managed by Merrill Lynch Trust Company, FSB. DIANON Systems, Inc. is
the plan sponsor, and Merrill Lynch Trust Company, FSB is the custodian, as
defined by the Plan. Therefore, these transactions qualify as party-in-interest.
10
DIANON SYSTEMS, INC. 401(K) RETIREMENT PLAN
Notes to Financial Statements
December 31, 2001
6. TAX STATUS
----------
The Plan received a favorable determination letter from the Internal Revenue
Service dated June 14, 1995 stating that the Plan is in compliance with the
requirements for a qualified plan under Section 401(a) of the Internal Revenue
Code and is exempt from federal income taxes under the provisions of Section
501(a) of the Internal Revenue Code. Effective January 1, 1998, the Plan was
amended for eligibility requirements, but maintained its tax exempt status.
However, the Plan has not received an updated determination letter. The Plan
Administrator believes that the Plan is currently designed and is being operated
in compliance with the applicable requirements of the Internal Revenue Code.
The Company intends to amend and restate the Plan by adopting the Merrill Lynch
Special/Flexible Prototype Defined Contribution Plan (the "ML M&P Plan") within
the remedial amendment period for amending the Plan to comply with the Uruguay
Round Agreements Act, the Small Business Job Protection Act of 1996, the
Taxpayer Relief Act of 1997, and the Internal Revenue Service Restructuring and
Reform Act of 1998 ("GUST") as specified in Section 19.04 of Internal Revenue
Service ("IRS") Revenue Procedure 2000-20 (or subsequent IRS guidance) (the
"Extended Remedial Amendment Period"). To continue to maintain the Plan's
qualified status under the Internal Revenue Code, the Company will amend and
restate the Plan during the Extended Remedial Amendment Period by adopting the
ML M&P Plan, as approved by the IRS, and will submit the Plan to the IRS for a
determination letter.
7. RECONCILIATION TO FORM 5500
---------------------------
The following is a reconciliation of net assets available for benefits per the
accompanying financial statements to the Form 5500:
December 31, December 31,
2001 2000
------------ ------------
Net assets available for benefits per the financial statements $12,347,081 $10,366,520
Employer and employee contributions receivable (205,097) (54,983)
----------- -----------
Net assets available for benefits per the Form 5500 $12,141,984 $10,311,537
=========== ===========
11
Schedule I
DIANON SYSTEMS, INC. 401(K) RETIREMENT PLAN
Schedule of Assets (Held at End of Year)
As of December 31, 2001
EIN #06-1128081
Plan #001
Identity Current
of Issue Description of Investment Value
-------------------------------- ----------------------------------------------- -------------------
* Merrill Lynch Trust Company, FSB Merrill Lynch Retirement Preservation Trust $ 2,794,390
* Merrill Lynch Trust Company, FSB Merrill Lynch Equity Index Trust 2,407,732
* Merrill Lynch Trust Company, FSB Massachusetts Investors Trust 1,592,188
* Merrill Lynch Trust Company, FSB John Hancock Bond Fund 812,679
* Merrill Lynch Trust Company, FSB Merrill Lynch Balanced Capital Fund 404,698
* Merrill Lynch Trust Company, FSB MFS Emerging Growth Fund 1,138,347
* Merrill Lynch Trust Company, FSB Merrill Lynch Global Allocation Fund 404,200
* Merrill Lynch Trust Company, FSB Merrill Lynch Growth Fund -
* Merrill Lynch Trust Company, FSB Alger MidCap Growth Retirement Portfolio 38,732
* Merrill Lynch Trust Company, FSB Merrill Lynch Fundamental Growth Fund 294,802
* Merrill Lynch Trust Company, FSB ING Pilgrim International Value Fund 25,368
* Merrill Lynch Trust Company, FSB Davis Series Financial Fund 13,651
* Merrill Lynch Trust Company, FSB Merrill Lynch Global Small Cap Fund 34,443
* Merrill Lynch Trust Company, FSB Merrill Lynch Natural Resources Trust 189
* Merrill Lynch Trust Company, FSB Merrill Lynch Healthcare Fund 90,473
* Merrill Lynch Trust Company, FSB Merrill Lynch Small Cap Value Fund 63,195
* Merrill Lynch Trust Company, FSB Phoenix Real Estate Securities Fund 24,186
* Merrill Lynch Trust Company, FSB MFS Utilities Fund 913
* Merrill Lynch Trust Company, FSB Van Kampen Growth & Income Fund 24,104
* DIANON Systems, Inc. Common Stock DIANON Systems, Inc. Common Stock,
25,373 shares 1,542,696
* Participant Loans Loan Fund** 366,962
* Merrill Lynch Trust Company, FSB Pending Settlement Fund 63,155
-----------
$12,137,103
===========
* Denotes a party-in-interest to the Plan.
** Interest rates on loans ranged from 5.5% to 9.5% and maturity dates to
June 25, 2030.
The accompanying notes to financial statements are an integral part of this
schedule.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this annual report to be signed on its behalf by the undersigned hereunto
duly authorized.
DIANON Systems, Inc.
401(k) Retirement Plan
By: /s/ David R. Schreiber
-------------------------------------
David R. Schreiber
Date: May 15, 2002
EXHIBITS
23.1 Consent of Arthur Andersen LLP
99.1 Letter to Commission purusant to Temporary Note 3T