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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 September 30, 2000
[ ] 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 1-9957
Diagnostic Products Corporation
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2802182
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5700 WEST 96TH STREET
LOS ANGELES, CALIFORNIA 90045
(Address of principal executive offices)
Registrant's telephone number: (310) 645-8200
NO CHANGE
(Former name, former address and former fiscal year,
if changed since last report)
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 Common Stock, no par value, outstanding as of
September 30, 2000, was 13,862,029.
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PART I. FINANCIAL INFORMATION.
ITEM I. FINANCIAL STATEMENTS.
DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
SALES $ 60,579 $ 53,693 $ 183,408 $ 158,752
COST OF SALES 26,695 24,645 81,849 72,011
--------- --------- --------- ---------
Gross Profit 33,884 29,048 101,559 86,741
--------- --------- --------- ---------
OPERATING EXPENSES:
Selling 10,657 9,961 32,732 29,823
Research and Development 6,465 6,151 19,714 18,097
General and Administrative 6,200 6,026 19,494 18,134
Equity in Income of Affiliates (158) (185) (1,256) (1,069)
--------- --------- --------- ---------
OPERATING EXPENSES - NET 23,164 21,953 70,684 64,985
--------- --------- --------- ---------
OPERATING INCOME 10,720 7,095 30,875 21,756
Interest/Other Income (Expense) - Net (1,040) (239) (1,047) (958)
--------- --------- --------- ---------
INCOME BEFORE TAXES
AND MINORITY INTEREST 9,680 6,856 29,828 20,798
PROVISION FOR INCOME TAXES 2,875 1,740 9,004 5,680
MINORITY INTEREST 408 325 1,107 715
--------- --------- --------- ---------
NET INCOME $ 6,397 $ 4,791 $ 19,717 $ 14,403
========= ========= ========= =========
EARNINGS PER SHARE:
BASIC $ 0.46 $ 0.35 $ 1.44 $ 1.05
DILUTED 0.45 0.35 1.41 1.05
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 13,812 13,671 13,740 13,671
DILUTED 14,243 13,780 13,952 13,779
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DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in Thousands) September 30, December 31,
2000 1999
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,354 $ 14,547
Accounts receivable-net of allowance for
doubtful accounts of $761 and $504 68,442 55,018
Inventories 60,166 59,439
Prepaid expenses and other current assets 488 548
Deferred income taxes 2,844 2,844
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Total current assets 144,294 132,396
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 36,193 34,968
Machinery and equipment 65,502 66,050
Leasehold improvements 7,242 7,222
Construction in progress 396 1,064
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Total 109,333 109,304
Less accumulated depreciation and amortization 58,534 55,886
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Property, plant and equipment - net 50,799 53,418
SALES-TYPE AND OPERATING LEASES 36,929 35,070
DEFERRED INCOME TAXES 2,685 2,685
INVESTMENTS IN AFFILIATED COMPANIES 14,174 13,159
EXCESS OF COST OVER NET ASSETS ACQUIRED-
Net of accumulated amortization of $10,442 and $9,627 12,867 13,766
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TOTAL ASSETS $ 261,748 $ 250,494
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 14,112 $ 15,756
Accounts payable 20,051 15,790
Accrued liabilities 8,295 8,090
Income taxes payable 1,228 3,961
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Total current liabilities 43,686 43,597
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock-no par value, authorized 30,000,000 shares;
outstanding 13,862,029 shares and 13,672,754 shares 42,075 37,816
Retained earnings 201,601 186,826
Accumulated other comprehensive loss (25,614) (17,745)
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Total shareholders' equity 218,062 206,897
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 261,748 $ 250,494
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DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands) Nine Months Ended
September 30,
-------------------------
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,717 $ 14,403
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 15,108 13,369
Equity in undistributed income of affiliates (1,256) (1,069)
Changes in operating assets and liabilities:
Accounts receivable (15,751) (7,925)
Inventories (3,022) (2,224)
Prepaid expenses and other current assets 60 11
Accounts payable 6,771 4,046
Accrued liabilities 205 (930)
Income taxes payable (2,498) 2,083
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Net cash flows from operating activities 19,334 21,764
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CASH FLOWS USED FOR INVESTING ACTIVITIES:
Additions to property, plant and equipment (7,436) (5,726)
Sales-type and operating leases (12,938) (12,817)
Investments in affiliated companies (115) 517
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Net cash used for investing activities (20,489) (18,026)
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CASH FLOWS USED FOR FINANCING ACTIVITIES:
Borrowings (repayments) of notes payable - net 310 (2,150)
Repurchase of common stock -- (224)
Proceeds from exercise of stock options 4,259 413
Cash dividends paid (4,942) (4,922)
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Net cash flows used for financing activities (373) (6,883)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH (665) (916)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (2,193) (4,061)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 14,547 18,650
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,354 $ 14,589
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DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The information for the three months and nine month periods ended September 30,
2000 and 1999 has not been audited by independent public accountants, but
includes all adjustments (consisting of normal recurring accruals) which are,
in the opinion of management, necessary to a fair statement of the results for
such periods.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been omitted pursuant to the requirements
of the Securities and Exchange Commission, although the Company believes that
the disclosures included in these financial statements are adequate to make the
information not misleading.
The consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
1999 annual report on Form 10-K as filed with the Securities and Exchange
Commission.
The results of operations for the nine-month period ended September 30, 2000 are
not necessarily indicative of the results to be expected for the year ending
December 31, 2000.
Basic earnings per share is computed by dividing net income by the
weighted-average number of shares outstanding. Diluted earnings per share
includes the dilutive effect of stock options.
NOTE 2--INVENTORIES
Inventories by major categories are summarized as follows:
(Dollars in Thousands)
September 30, December 31,
2000 1999
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Raw materials $24,582 $22,499
Work in process 22,526 19,165
Finished goods 13,058 17,775
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Total $60,166 $59,439
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NOTE 3--COMPREHENSIVE INCOME
Comprehensive income is summarized as follows:
(Dollars in Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net income $ 6,397 $ 4,791 $ 19,717 $ 14,403
Foreign currency translation adjustment (3,871) 1,190 (7,869) (6,303)
-------- -------- -------- --------
Comprehensive income $ 2,526 $ 5,981 $ 11,848 $ 8,100
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The Company does not provide for U.S. income taxes on foreign currency
translation adjustments because it does not provide for such taxes on
undistributed earnings of foreign subsidiaries.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4--SEGMENT AND PRODUCT LINE INFORMATION
The Company considers its manufactured instruments and medical immunodiagnostic
test kits as one operating segment as the kits are required in the use of the
instruments and utilize similar technology and instrument manufacturing
processes. The Company manufacturers its instruments and kits principally from
facilities in the United States and the United Kingdom. Kits and instruments are
sold to hospitals, medical centers, clinics, physicians, and other clinical
laboratories throughout the world through a network of distributors including
consolidated distributors located in the United Kingdom, Germany, Czech
Republic, Poland, Spain, The Netherlands, Belgium, Luxembourg, Finland, Norway,
France, Australia, New Zealand, China, Brazil, Uruguay, Venezuela, Costa Rica,
Sweden, and Estonia.
The Company sells its instruments and immunodiagnostic test
kits under several product lines. Product line sales information is as follows:
(Dollars in Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
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Sales:
IMMULITE $ 48,072 $ 38,221 $141,443 $108,744
Radioimmunoassay ("RIA") 8,106 9,095 25,903 29,030
Other 4,401 6,377 16,062 20,978
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$ 60,579 $ 53,693 $183,408 $158,752
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The Company is organized and managed by geographic area. Transactions between
geographic segments are accounted for as normal sales for internal reporting and
management purposes with all intercompany amounts eliminated in consolidation.
Sales are attributed to geographic area based on the location from which the
instrument or kit is shipped to the customer. Information reviewed by the
Company's chief operating decision maker on significant geographic segments is
prepared on the same basis as the consolidated financial statements and is as
follows:
Euro/DPC DPC
Limited Biermann DPC Medlab Less:
United (United (German (Brazilian Intersegment
States Kingdom) Group) Group) Other Elimination Total
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(Dollars in Thousands)
Three Months Ended September 30, 2000
Sales $ 42,591 $ 7,618 $ 7,155 $ 8,105 $ 11,321 $(16,211) $ 60,579
Net income (loss) 4,451 1,342 (358) 519 (57) 500 6,397
Three Months Ended September 30, 1999
Sales $ 39,416 $ 6,549 $ 7,263 $ 6,689 $ 11,498 $(17,722) $ 53,693
Net income (loss) 3,803 619 (190) 415 444 (300) 4,791
Nine Months Ended September 30, 2000
Sales $126,585 $ 23,626 $ 22,646 $ 22,058 $ 37,183 $(48,690) $183,408
Net income (loss) 14,184 3,754 (578) 1,410 1,147 (200) 19,717
Nine Months Ended September 30, 1999
Sales $107,436 $ 21,041 $ 23,518 $ 18,286 $ 34,898 $(46,427) $158,752
Net income (loss) 8,533 2,857 (408) 910 1,711 800 14,403
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NOTE 5--NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133, as amended,
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires an entity to recognize all derivatives as either
assets or liabilities on the balance sheet and measure those instruments at fair
value. The Company does not expect the initial adoption of SFAS 133 to have a
material effect on its operations or financial position. The Company is required
to adopt SFAS 133 on January 1, 2001.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"). SAB 101, as amended,
summarizes certain of the SEC's views in applying generally accepted accounting
principles to revenue recognition in financial statements. At this time, the
Company does not expect the adoption of SAB 101 to have a material effect on the
operations or financial position. The Company is required to adopt SAB 101 in
the fourth quarter of fiscal 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's sales increased 12.8% in the third quarter ended September 30,
2000 to $60.6 million compared to sales of $53.7 million in the third quarter of
1999. Sales increased 15.5% to $183.4 million in the first nine months of 2000
from $158.8 million in the first nine months of 1999. Sales of all IMMULITE
products in the three and nine months ended September 30, 2000 were $48.1
million and $141.4 million, increases of 25.8% and 30.1% over the corresponding
periods of 1999. Sales of IMMULITE products represented 77.1% of sales in the
first nine months of 2000, compared to 68.5% of sales in the first nine months
of 1999.
IMMULITE reagents represented $36.1 million of 2000 third quarter sales, a 26.6%
increase over the third quarter of 1999 and $105.4 million of sales in the first
nine months of 2000, a 28.3% increase over the first nine months of 1999. Sales
of IMMULITE systems (including service and parts) were $12.0 million in the
2000 third quarter, up 23.4% over the third quarter of 1999. In the first nine
months of 2000, sales of IMMULITE systems (including service and parts)
increased 36.1% to 36.0 million compared to the first nine months of 1999. The
Company shipped a total of 244 IMMULITE systems during the third quarter of
2000, including 123 IMMULITE 2000 systems and 121 IMMULITE One systems. The
total base of IMMULITE systems shipped grew to approximately 5,640, including
approximately 980 of the IMMULITE 2000 systems.
Sales of the Company's mature RIA products declined approximately 10.9% and
10.8% in the three and nine month periods of 2000, representing 13.4% and 14.1%
of sales compared to approximately 16.9% and 18.3% of sales in each of the three
and nine month periods of 1999. This decline in RIA sales is likely to continue.
Sales of other DPC products, including allergy reagents, represented about 4%
and 7% of sales in each of the three and nine months periods ended September 30,
2000. Sales of non-DPC products decreased 33% and 28% in the three and nine
month periods of 2000 over the corresponding 1999 periods to approximately 3% of
sales, due to the discontinuation of non-DPC OEM products previously sold by
some consolidated international affiliates.
The weakness in the Euro relative to the U.S. dollar was the primary reason for
foreign currency exchange losses of $983,000 in the third quarter and $1,281,000
in the first nine months of 2000 which is included in Interest/)Other Income
(Expense)-Net. In the first quarter of 1999 the Company experienced a foreign
currency exchange loss of $536,000 related primarily to the devaluation of the
Brazilian Real relative to the U.S. dollar.
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Due to the significance of foreign sales (approximately 76% of total sales), in
particular in Europe, the Company is subject to currency risks based on the
relative strength or weakness of the U.S. dollar. In periods when the U.S.
dollar is strengthening the effect of the translation of the financial
statements of consolidated foreign affiliates is that of lower sales and net
income. Had the value of the U.S. dollar relative to other currencies remained
constant with the third quarter of 1999, sales for the three and nine month
periods of 2000 would have increased an additional 5.8% and 4.8% over the 1999
periods. Net income in the three and nine month periods of 2000 would have been
about 1% greater than the amount reported. Due to intense competition, the
Company's foreign distributors are generally unable to increase prices to offset
the negative effect when the U.S. dollar is strong.
Cost of sales as a percentage of sales decreased from approximately 45.9% and
45.4% in the three and nine months ended September 30, 1999, to 44.1% and 44.6%
in the corresponding 2000 periods, due in part to an increase in the percentage
of IMMULITE 2000 reagent sales, which generally have higher gross margins.
The Company believes that because it sells to its affiliates in dollars, a
strengthening dollar as well as a potential increase in product sales through a
distribution agreement in the United States could put pressure on gross margins
in the future.
Selling, Research and Development and general and administrative expenses all
increased in absolute dollars in the third quarter and the first nine months of
2000 relative to the third quarter and the first nine months of 1999, but
decreased as a percentage of sales.
Equity in income of affiliates represents the Company's share of earnings of
non-consolidated affiliates, principally the 45%-owned Italian distributor.
The Company's effective tax rate includes Federal, state and foreign taxes
representing its estimate of the effective tax rate for 2000.
LIQUIDITY
The Company has adequate working capital and sources of capital to carry on its
current business and to meet its existing capital requirements. Net cash flow
from operating activities was $19.3 million in the first nine months of 2000 and
$21.9 million in the first nine months of 1999. The increase in net income was
more than offset by the increase in accounts receivable which in part reflected
increased equipment sales on extended payment terms. Additions to property,
plant and equipment in the first nine months of 2000 were $7.4 million compared
to $5.7 million in the first nine months of 1999. Cash flow used for the place-
ment of IMMULITE systems under sales-type and operating leases was $12.9 million
in the first nine months of 2000 compared to $12.8 million in the first nine
months of 1999. The Company increased borrowings by $0.3 million in the 2000
first nine months and decreased borrowings by $2.2 million in the 1999 first
nine months.
The Company's foreign operations are subject to risks, such as currency
devaluations, associated with political and economic instability. See discussion
under "Results of Operations".
The Company purchased real property in New Jersey in June of 2000 at a cost of
approximately $2.6 million. The Company plans to construct an 80,000 square foot
manufacturing facility on this property over the next several years at a cost
between $10 million and $12 million. The Company has no other material
commitments for capital expenditures in 2000.
The Company has a $20 million unsecured line of credit under which there were no
borrowings outstanding at September 30, 2000. The Company has other notes
payable (consisting of bank borrowings by the Company's foreign consolidated
subsidiaries payable in the local currency some of which are guaranteed by the
Company) of $14.1 million at September 30, 2000 compared to $15.8 million at
December 31, 1999.
The Company has paid a quarterly cash dividend of $.12 per share since 1995.
On October 14, 1998 the Company announced a plan under which it could repurchase
up to one million shares of its common stock from time to time in open market
transactions. Through September 30, 2000 the Company had repurchased a total of
218,288 shares at a cost of $4.5 million. The Company utilized existing cash to
finance such purchases. Additional purchases, if any, will depend on the
prevailing
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market price of the Common Stock and could require bank borrowings. The Company
has not purchased any of its shares in 2000.
In the first quarter of 2000 the Company sold a building in the United Kingdom.
The sale price was $1.5 million dollars, with a book value at the time of sale
of $1.3 million.
EURO CONVERSION
The Company has significant sales to European countries (the "participating
countries") which began converting to a common legal currency (the "Euro") on
January 1, 1999. During the transition period of January 1, 1999 to January 1,
2002, public and private parties may pay for goods and services using either the
Euro or the local currency. During the transition period, conversion rates are
not computed directly from one local currency to another. Instead, local
currencies are converted first to a Euro denomination and then to the second
local currency. Beginning January 2002, new Euro-denominated bills and coins
become legal currency and all former currencies will, over the ensuing months,
be withdrawn from circulation. The ultimate conversion to the Euro will
eliminate currency exchange risk among the participating countries.
The Company sells its products in the participating countries through affiliated
and non-affiliated distributors which determine sales prices in their respective
territories. The use of a single currency in the participating countries may
affect this variable pricing in the various European markets because of price
transparency. Nevertheless, other market factors such as local taxes, customer
preferences and product assortment may reduce the need for price equalization.
The Company has significant sales in Europe and is currently evaluating the
business implications of the conversion to the Euro, including the need to adapt
internal systems to accommodate Euro-denominated transactions, the competitive
implications of cross border price transparency, the impact on existing
marketing programs, and other strategic implications. Due to the existence of
many unknown variables at this early stage, it is not at this time possible for
the Company to predict the precise implications of the Euro conversion on its
operations.
FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, this report contains
forward looking statements (identified by the words "estimate," "project,"
"anticipate," "expect," "intend," "believe," "hope" and similar expressions)
which are based upon management's current expectations and speak only as of the
date made. These forward looking statements are subject to risks, uncertainties
and factors that could cause actual results to differ materially from the
results anticipated in the forward looking statements. These risks and
uncertainties include the degree of customer demand for the Company's products,
customer acceptance of the IMMULITE 2000 and other new products, the Company's
ability to keep abreast of technological innovations, the risks inherent in the
development and release of new products (such as delays, unforeseen costs and
technical difficulties), competitive pressures, currency risks based on the
relative strength or weakness of the U.S. dollar, health care regulation and
cost containment measures, political and economic instability in certain foreign
markets, and the impact of the conversion to the Euro.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change during the quarter ended September 30, 2000,
from the disclosures about market risk provided in the Company's Annual Report
on Form 10-K for the year ended December 31, 1999.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K. None.
SIGNATURES
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.
DIAGNOSTIC PRODUCTS CORPORATION
(Registrant)
NOVEMBER 13, 2000 MICHAEL ZIERING
- ------------------------------------ -----------------------------------------
Date Michael Ziering, President
Chief Executive Officer
NOVEMBER 13, 2000 JAMES L. BRILL
- ------------------------------------ -----------------------------------------
Date James L. Brill,
Chief Financial Officer
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