-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ARkmynCN0/HmlDeCLAlZ+uwpmLawud7Kj+nJ9N37IKWJJyLYY7l7IxMdLM/TD1pq zjMLAdpc8QvZQJ4iV4P6mw== 0000950148-01-500611.txt : 20010514 0000950148-01-500611.hdr.sgml : 20010514 ACCESSION NUMBER: 0000950148-01-500611 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIAGNOSTIC PRODUCTS CORP CENTRAL INDEX KEY: 0000702259 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 952802182 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09957 FILM NUMBER: 1629180 BUSINESS ADDRESS: STREET 1: 5700 W 96TH ST CITY: LOS ANGELES STATE: CA ZIP: 90045 BUSINESS PHONE: 3106458200 10-Q 1 v72315e10-q.txt FORM 10-Q 1 ================================================================================ 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 March 31, 2001 [ ] 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 (IRS 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 March 31, 2001, was 13,973,824. ================================================================================ 1 2 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 March 31, --------------------------------- 2001 2000 ------------ ---------- SALES $ 67,797 $ 59,184 COST OF SALES 29,016 26,289 -------- -------- Gross Profit 38,781 32,895 -------- -------- OPERATING EXPENSES: Selling 12,112 10,801 Research and Development 8,302 6,193 General and Administrative 6,527 6,574 Equity in Income of Affiliates (855) (495) -------- -------- OPERATING EXPENSES -NET 26,086 23,073 -------- -------- OPERATING INCOME 12,695 9,822 Interest/Other Expense -Net (87) (244) -------- -------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 12,608 9,578 PROVISION FOR INCOME TAXES 3,833 2,969 MINORITY INTEREST 223 318 -------- -------- NET INCOME $ 8,552 $ 6,291 ======== ======== EARNINGS PER SHARE: BASIC $ .61 $ .46 DILUTED .59 .46 WEIGHTED AVERAGE SHARES OUTSTANDING: BASIC 13,946 13,681 DILUTED 14,526 13,735
2 3 DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited)
(Dollars in Thousands) March 31, December 31, 2001 2000 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 19,087 $ 26,395 Accounts receivable - net of allowance for doubtful accounts of $504 and $750 74,070 68,222 Inventories 59,761 60,247 Prepaid expenses and other current assets 306 528 Deferred income taxes 2,881 2,881 --------- --------- Total current assets 156,105 158,273 PROPERTY, PLANT AND EQUIPMENT: Land and buildings 35,830 37,394 Machinery and equipment 65,432 66,137 Leasehold improvements 7,257 7,242 Construction in progress 9,499 3,607 --------- --------- Total 118,018 114,380 Less accumulated depreciation and amortization 62,137 61,367 --------- --------- Property, plant and equipment - net 55,881 53,013 SALES-TYPE AND OPERATING LEASES - net 38,947 40,582 DEFERRED INCOME TAXES 2,536 2,536 INVESTMENTS IN AFFILIATED COMPANIES 14,249 13,465 EXCESS OF COST OVER NET ASSETS ACQUIRED -- Net of accumulated amortization of $10,995 and $10,735 12,311 12,615 --------- --------- TOTAL ASSETS $ 280,029 $ 280,484 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 14,749 $ 15,557 Accounts payable 22,523 24,987 Accrued liabilities 7,352 11,409 Income taxes payable 4,225 1,507 --------- --------- Total current liabilities 48,849 53,460 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common Stock-no par value, authorized 30,000,000 shares; outstanding 13,973,824 shares and 13,918,394 shares, respectively 46,594 44,838 Retained earnings 215,347 208,465 Accumulated other comprehensive loss (30,761) (26,279) --------- --------- Total shareholders' equity 231,180 227,024 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 280,029 $ 280,484 ========= =========
3 4 DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in Thousands) Three Months Ended March 31, -------------------------- 2001 2000 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 8,552 $ 6,291 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 6,292 4,379 Equity in undistributed income of unconsolidated affiliates (855) (495) Changes in operating assets and liabilities: Accounts receivable (8,043) (6,370) Inventories (842) (702) Prepaid expenses and other current assets 222 190 Accounts payable 92 943 Accrued liabilities (4,057) (1,977) Income taxes payable 2,876 723 -------- -------- Net cash flows from operating activities 4,237 2,982 -------- -------- CASH FLOWS USED FOR INVESTING ACTIVITIES: Additions to property, plant, and equipment (7,665) (498) Sales-type and operating leases (4,131) (4,268) Investment in affiliated companies (480) (104) -------- -------- Net cash used for investing activities (12,276) (4,870) -------- -------- CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES: Borrowing (repayment) of notes payable 692 (1,131) Proceeds from exercise of stock options 1,756 320 Cash dividends paid (1,670) (1,641) -------- -------- Net cash from (used for) financing activities 778 (2,452) -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (47) 275 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (7,308) (4,065) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 26,395 14,547 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,087 $ 10,482 ======== ========
4 5 DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 - BASIS OF PRESENTATION The information for the three months ended March 31, 2001 and 2000 has not been audited by independent accountants, but includes all adjustments (consisting of normal recurring accruals) that 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 2000 Annual Report on Form 10-K as filed with the Securities and Exchange Commission. The results of operations for the three-month period ended March 31, 2001 are not necessarily indicative of the results to be expected for the year ending December 31, 2001. Basic earnings per share is computed by dividing net income by the weighed-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) March 31, December 31, 2001 2000 --------- ------------ Raw materials $ 24,987 $ 23,381 Work in process 22,225 23,862 Finished goods 12,549 13,004 -------- -------- Total $59,761 $60,247 ======= =======
NOTE 3 - COMPREHENSIVE INCOME Comprehensive income is summarized as follows:
(Dollars in Thousands) Three Months Ended March 31, ------------------------------ 2001 2000 ----------- ----------- Net income $ 8,552 $ 6,291 Foreign currency translation adjustment (4,482) (1,039) -------- -------- Comprehensive income $ 4,070 $ 5,252 ======== ========
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. 5 6 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 to run 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, Luxemborg, Finland, Norway, France, Australia, New Zealand, China, Brazil, Uruguay, Venezuela, Costa Rica, Panama, Sweden, Latvia, Lithuania, Estonia, and Denmark. 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 March 31, -------------------------- 2001 2000 --------- ------- Sales: IMMULITE $53,859 $44,071 Radioimmunoassay (RIA) 8,638 9,044 Other 5,300 6,069 -------- -------- $ 67,797 $ 59,184 ======== ========
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 ------ -------- --------- ---------- ----- ----------- ----- (Dollars in Thousands) Three Months Ended March 31, 2001 Sales $ 49,502 $ 8,775 $ 8,575 $ 6,932 $ 13,546 $(19,533) $ 67,797 Net income (loss) 6,481 1,346 288 506 631 (700) 8,552 Three Months Ended March 31, 2000 Sales $ 39,927 $ 7,739 $ 7,958 $ 6,570 $ 12,527 $(15,537) $ 59,184 Net income (loss) 4,447 1,106 (150) 405 183 300 6,291
*DPC Biermann includes the Company's operations in Germany, the Czech Republic, and Poland. DPC Medlab includes the Company's operations in Brazil, Uruguay, Venezuela, Costa Rica, and Panama. NOTE 5 - NEW ACCOUNTING PRONOUNCEMENT 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 adopted SFAS 133 on January 1, 2001. 6 7 As defined under SFAS 133, the Company's use of derivatives is limited to foreign currency contracts entered into to manage or reduce foreign currency market risk resulting from the sale of inventory in US dollars to its owned foreign distributors. The Company enters into these contracts with only major financial institutions, which minimizes its risk of credit loss. The Company's policies do not permit active trading of or speculation in derivative financial instruments. The Company's policy is to hedge major foreign currency cash flow exposures, principally in Europe, through foreign exchange forward contracts and options, and is permitted under such policies to hedge up to 100% of such cash flows. The Company designates such foreign currency contracts as cash flow hedging instruments under SFAS 133. The Company had foreign exchange contracts outstanding to purchase the equivalent of approximately $4.0 million and approximately $6.0 million US dollars at January 1, 2001 and March 31, 2001, respectively, with an average duration of less than three months. The fair value of such contracts at both January 1, 2001 and March 31, 2001 was insignificant. Additionally, the amount of hedge ineffectiveness for the three-month period ended March 31, 2001 was insignificant. Accordingly, the impact of adopting SFAS 133 did not have a significant impact on the consolidated financial position, consolidated results of operations, or consolidated cash flows of the Company. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company's sales increased 14.6% in the first quarter of 2001 to $67.8 million compared to sales of $59.2 million in the first quarter of 2000. Sales of all IMMULITE products (instruments and reagents) in the first quarter of 2001 were $53.9 million, a 22% increase over the first quarter of 2000. Sales of IMMULITE products represented 79% of first quarter 2001 sales, compared to 74% of first quarter 2000 sales. IMMULITE reagents represented $42.4 million of 2001 first quarter sales, a 31% increase. Sales of IMMULITE systems (including service revenue) were $11.5 million, down 1% from the first quarter of 2000. The Company shipped a total of 253 IMMULITE systems during the 2001 first quarter, including 161 IMMULITE 2000 systems and 92 IMMULITE One systems. The total base of IMMULITE systems shipped grew to 6,208, including 1,176 of the IMMULITE 2000 systems. Sales of the Company's mature RIA products declined approximately 5% in the first quarter of 2001, representing 13% of sales, compared to 15% of sales in the first quarter of 2000. This trend is expected to continue. Sales of other DPC products, including allergy reagents, decreased by 16% from the first quarter of 2000 to 5% of 2001 first quarter sales down from 7% in the first quarter in 2000, due primarily to the sale of the Milenia product line in Germany. Sales of non-DPC products through its consolidated international affiliates decreased 16% in the first quarter of 2001 to $1.9 million or 3% of sales. Due to the significance of foreign sales (73% of total sales), in particular in Europe and Brazil, 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. In the first quarter of 2001, the strong dollar had a 6% negative impact on sales. 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. In the first quarter of 2001, sales to domestic customers grew at 37%, to 27% of total sales, due in part to increased penetration of large accounts, while sales to foreign customers grew at 8%. Gross profit as a percentage of sales increased from 56% in the first quarter 2000 to 57% in the first quarter 2001, driven in part by manufacturing efficiencies on higher levels of production and a shift in sales mix to higher margin reagents from systems. The Company believes that because it sells to its affiliates in dollars, a strengthening dollar as well as potential increases in product sales through distribution agreements in the United States could put pressure on gross margins in the future. 7 8 Selling expense increased by 12% in dollar terms but, as a percentage of sales, remained consistent at approximately 18% in the first quarter of 2001 and 2000. Research and development expense increased by 34% to 12.2% of sales from 10.5% of sales in the first quarter of 2000, due to expenditures related to the development of allergy testing on the IMMULITE 2000 and the initiation of development on the Company's next generation instrument. It is expected that expenditures will be in this dollar range for the remainder of the year. General and administrative expenses decreased slightly in the first quarter of 2001 compared to the 2000 first quarter, and decreased as a percentage of sales from 11.1% in 2000 to 9.6% in 2001. The amortization of the excess of cost over net assets acquired is included in the category of general and administrative expenses. Equity in income of affiliates represents the Company's share of earnings of non-consolidated affiliates, principally the 45%-owned Italian distributor. This amount increased from $495,000 in the first quarter of 2000 to $855,000 in the first quarter of 2001. Interest/other expense-net includes interest income, interest expense, and foreign exchange transaction losses and gains. The net expense decreased by approximately $150,000 in the first quarter of 2001 from the first quarter of 2000 due primarily to an increase in interest income. In the first quarter of 2001, the Company incurred foreign currency transaction losses of approximately $420,000, compared with approximately $440,000 in the first quarter of 2000. The Company's effective tax rate includes Federal, state, and foreign taxes. The Company's tax rate decreased to 30.4% in the first quarter of 2001 from 31.0 % in the first quarter of 2000. Net income increased 36% to $8.6 million in the first quarter of 2001 or $.59 per diluted share from $6.3 million or $.46 per diluted share in the first quarter of 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 flows from operating activities were $4.2 million in the first quarter of 2001 and $3.0 million in the first quarter of 2000. Additions to property, plant, and equipment in the first quarter of 2001 were $7.7 million compared to $0.5 million in the first quarter of 2000, due in part to the construction of a new facility in New Jersey. Cash used for the placement of IMMULITE systems under sales-type and operating leases was $4.1 million in the first quarter of 2001 compared to $4.3 million in the first quarter of 2000. These leases have periods ranging from three to five years and are designated as sales type if their terms are non-cancelable. The Company used cash to reduce borrowings by $0.7 million in the 2001 first quarter compared to $1.1 million in the 2000 first quarter. The Company's foreign operations are subject to risks, such as currency devaluations, associated with political and economic instability. See discussion above under "Results of Operations." The Company purchased real property in New Jersey in 2000 at a cost of approximately $2.8 million. The Company is constructing an 85,000 square foot manufacturing facility on this property over the next several years at an estimated cost of $12 million. As of March 31, 2001, $4.1 million had been expended. The Company has no other material commitments for capital expenditures in 2001. The Company has a $20 million domestic unsecured line of credit under which there were no borrowings outstanding at March 31, 2001 or December 31, 2000. As of March 31, 2001, the Company had $381,000 of standby letters of credit under the line. The Company had notes payable (consisting of bank borrowings by the Company's foreign consolidated subsidiaries payable in their respective local currency, some of which are guaranteed by the Company) of $14.7 million at March 31, 2001 compared to $15.6 million at December 31, 2000. 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 March 31, 2001, the Company had repurchased 218,288 shares at a cost of $4.5 million. The Company utilized existing cash to finance the purchases. Additional repurchases, if any, will depend on the prevailing market price of the common stock and could require bank borrowings. In the first quarter of 2000, the Company sold a building in the United Kingdom. The sales price was $1.5 million dollars, with a book value at the time of sale of $1.3 million. 8 9 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 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 in 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 that 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, it is not permissible for the Company to predict the precise implications of the Euro conversion on its operations. The Company has implemented a plan to convert or upgrade certain of its European subsidiaries to a similar computer software system that will allow them to operate in the European currency environment and to create a central repository for all European information. The Company anticipates the software conversion will be completed in the fourth quarter of 2001, with an expected cost of approximately $1.0 million. Through March 31, 2001, the Company had expended approximately $300,000. 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) that 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 March 31, 2001, from the disclosures about market risk provided in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. 9 10 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 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) /s/ Michael Ziering President and May 11, 2001 - --------------------- Chief Executive Officer and Michael Ziering Chairman of the Board (Principal Executive Officer) Director /s/ James L. Brill Vice President-Finance May 11, 2001 - --------------------- (Principal Financial and James L. Brill Accounting Officer) 10 -----END PRIVACY-ENHANCED MESSAGE-----