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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 September 30, 1996
[ ] 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: (213) 776-0180
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, 1996, was 13,560,644.
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PART I. FINANCIAL INFORMATION
ITEM 1. 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,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
SALES $ 43,359 $ 40,530 $ 129,974 $ 118,265
--------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of sales 19,868 19,066 55,988 53,299
Selling 9,111 6,951 25,729 20,357
Research and development 4,426 3,970 13,294 11,917
General and administrative 4,552 3,337 13,303 10,651
Equity in income of affiliates (199) (125) (1,002) (740)
Investment income (380) (610) (1,144) (1,280)
--------- --------- --------- ---------
Total costs and expenses 37,378 32,589 106,168 94,204
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 5,981 7,941 23,806 24,061
PROVISION FOR INCOME TAXES 1,630 2,050 6,390 6,260
--------- --------- --------- ---------
NET INCOME $ 4,351 $ 5,891 $ 17,416 $ 17,801
========= ========= ========= =========
NET INCOME PER SHARE $ .31 $ .43 $ 1.25 $ 1.29
WEIGHTED AVERAGE SHARES
AND EQUIVALENTS OUTSTANDING 13,941 13,846 13,956 13,838
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DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
September 30, December 31,
1996 1995
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 15,361 $ 16,519
Accounts receivable - net of allowance for
doubtful accounts of $89 and $77 42,794 40,802
Inventories 41,580 35,521
Prepaid expenses and other current assets 408 358
Deferred income taxes 3,451 3,451
--------- ---------
Total current assets 103,594 96,651
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 27,827 27,553
Machinery and equipment 44,352 38,607
Leasehold improvements 6,701 6,635
Construction in progress 925 836
Total 79,805 73,631
--------- ---------
Less accumulated depreciation and amortization 35,403 31,707
--------- ---------
Property, plant and equipment - net 44,402 41,924
SALES-TYPE AND OPERATING LEASES 20,611 18,128
DEFERRED INCOME TAXES 3,200 3,200
INVESTMENTS IN AFFILIATED COMPANIES 14,762 13,279
EXCESS OF COST OVER NET ASSETS ACQUIRED -
Net of amortization of $6,111 and $5,373 15,173 16,280
--------- ---------
TOTAL ASSETS $ 201,742 $ 189,462
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 7,976
Accounts payable 12,847 $ 16,969
Accrued liabilities 4,627 5,708
Income taxes payable 1,078 3,435
--------- ---------
Total current liabilities 26,528 26,112
SHAREHOLDERS' EQUITY:
Common Stock - no par value, authorized 30,000,000 shares;
outstanding 13,560,644 shares and 13,524,051 shares 35,793 35,179
Retained earnings 143,676 131,136
Foreign currency translation adjustments (4,255) (2,965)
--------- ---------
Total shareholders' equity 175,214 163,350
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 201,742 $ 189,462
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DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollars in Thousands) Nine Months Ended
September 30,
-------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 17,416 $ 17,801
Adjustments to reconcile net income to net cash flows from operating
activities:
Depreciation and amortization 5,216 4,363
Equity in undistributed income of
unconsolidated affiliates (1,002) 243
Accounts receivable (2,435) (3,940)
Inventories (6,245) (3,957)
Prepaid expenses and other current assets (50) 370
Accounts payable (3,464) (7,077)
Accrued liabilities (1,081) (1,151)
Income taxes payable (2,315) 1,052
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Net Cash Flows from Operating Activities 6,040 7,704
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES:
Additions to property, plant and equipment (6,654) (5,264)
Sales-type and operating leases (3,523) (3,719)
Investment in affiliated company (481) (1)
-------- --------
Net Cash from (used for) Investing Activities (10,658) (8,984)
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Borrowing 8,072
Proceeds from exercise of stock options 614 6,363
Cash dividends paid (4,876) (4,453)
-------- --------
Net Cash from (used for) Financing Activities 3,810 1,910
EFFECT OF EXCHANGE RATE CHANGES ON CASH (350) 491
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,158) 1,121
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 16,519 14,833
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,361 $ 15,954
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DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 -- BASIS OF PRESENTATION
The information for the nine months ended September 30, 1996 and 1995 has not
been audited by independent 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 generally accepted accounting principles
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
1995 annual report on Form 10-K as filed with the Securities and Exchange
Commission.
The results of operations for the nine-month period ending September 30, 1996
are not necessarily indicative of the results to be expected for the year ended
December 31, 1996.
Net income per share has been computed using the weighted-average number of
common shares and common share equivalents outstanding during each period.
Common share equivalents represent the dilutive effect of outstanding stock
options.
NOTE 2 -- INVENTORIES
Inventories by major categories are summarized as follows:
September 30, December 31,
1996 1995
---- ----
Raw materials $14,617,000 $11,414,000
Work in process 17,003,000 14,567,000
Finished goods 9,960,000 9,540,000
----------- -----------
Total $41,580,000 $35,521,000
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales of $43.4 million were achieved in the third quarter of 1996, a 7% increase
over the third quarter 1995. Sales for the nine months were a record $130
million, a 10% increase over 1995. The sales increases are principally a result
of the continuing increased worldwide acceptance of the fully automated, random
access IMMULITE system. The system is expected to account for the greatest
amount of growth of all the Company's product lines for the foreseeable future.
In periods when the U.S. dollar is strengthening, the effect of translation of
the financial statements of the consolidated foreign affiliates is that of lower
sales, costs and net income. The stronger U.S. dollar in the third quarter 1996
when compared to the third quarter 1995 resulted in lower reported sales of
approximately 1.5% and lower reported net income of .4%. The stronger U.S.
dollar in the nine months 1996 when compared to the 1995 period resulted in
lower reported sales of approximately 1.8% and lower reported net income of .5%.
Despite the 7% growth in sales in the third quarter of 1996 compared to the
third quarter of 1995, sales were flat when compared to the second quarter of
1996 due to continued pressure on healthcare expenditures in Europe,
particularly in Germany, one of the Company's major markets in Europe, which
affected both unit sales and profit margins. Net income declined to 10% and 13%
of sales in the three and nine month periods of 1996 compared to 15% of sales in
the comparable 1995 periods. This decline was due to the greater rate of growth
of selling and general and administrative expenses compared to sales growth.
Cost of sales as a percentage of sales were 46% in the third quarter 1996 and
43% in the 1996 nine-month period compared to 47% and 45% in the comparable 1995
periods. Cost of sales as a percentage of sales increased to 46% in the third
quarter of 1996 compared to 42% in the first and second quarters of 1996. In the
third quarter 1996, lower gross profit margins were a result of the continuing
shift of product mix to the IMMULITE product line which, when the instruments
and reagents are combined, has lower margins than the traditional RIA products.
Profit margins for the IMMULITE products also reflected increasingly strong
price competition.
Selling costs increased 31% and 26% in the third quarter and nine months of 1996
over 1995. The major component of this increase was due to the inclusion of the
Brazilian distributor (acquired September 1, 1995) for all of 1996 but only one
month in the 1995 periods. Selling costs as a percentage of sales were 21% in
the third quarter 1996 and 20% in the 1996 nine-month period compared to 17% in
the comparable 1995 periods. The remainder of the increased costs are a result
of the continued expansion of the marketing and sales effort for the IMMULITE
product line and in preparation for the launch of the IMMULITE 2000 in 1997.
Research and development expenses increased 11% in the 1996 third
quarter over 1995. In the 1996 nine-month period, the expenses increased 12%
over 1995. These expenditures have increased to support the IMMULITE system. In
the 1996 and 1995 third quarter and nine-month periods, the research and
development costs as a percentage of sales were 10% in each period.
General and administrative costs increased in the third quarter and nine months
of 1996 over 1995. The major component of this increase was due to the inclusion
of the Brazilian distributor (acquired September 1, 1995) for all of 1996 but
only one month in the 1995 periods. General and administrative expenses were
about 10% of sales in the 1996 third quarter and nine-month period compared to
8% and 9% in the comparable 1995 periods. Included in general and administrative
expenses is the amortization of the excess of cost over net assets acquired and
minority interest.
Equity in income of affiliates, which increased 59% in the 1996 third quarter
compared to the 1995 quarter and increased 35% in the 1996 nine-month period
over the 1995 period, represents the Company's share of earnings of
nonconsolidated affiliates, principally the 45%-owned Italian affiliate.
Profitability in Italy which in prior quarters had declined was modestly higher
in the 1996 third quarter and nine months when compared to 1995. The other
affiliates reported increases in their third quarter and nine months net income.
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The Company's effective tax rate includes Federal, state and foreign taxes. The
1996 rate of 27% approximates the 1995 rate of 26%.
The Company has adequate working capital and sources of capital (including a $10
million unsecured line of credit, $7 million unused at September 30, 1996) to
carry on its current business and to meet its existing capital requirements.
Cash flow from operating activities was $6.0 million in 1996 nine months as
compared to $7.7 million in 1995 period.
During the first quarter of 1995, the Company paid a quarterly cash dividend of
$.10 per share. Commencing with the second quarter of 1995, the quarterly
dividend was increased to $.12 per share.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 1990 Stock Option Plan, as amended
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)
OCTOBER 29, 1996 SIGI ZIERING
- -------------------------------------- ---------------------------------------------
Date Sigi Ziering, Ph.D., Chairman of the Board
Chief Executive Officer
OCTOBER 29, 1996 JULIAN R. BOCKSERMAN
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Date Julian R. Bockserman, Vice President
Chief Financial Officer
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