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 June 30, 2003
o	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
(State or other jurisdiction of
incorporation or organization) 95-2802182
(IRS Employer
Identification No.)

5700 West 96th Street
Los Angeles, California 90045
(Address of principal executive offices)

Registrant’s telephone number: (310) 645-8200

No change

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 [   ]

(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

YES [X] NO [   ]

The number of shares of Common Stock, no par value, outstanding as of August 1, 2003, was 28,747,432.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	ITEM I. FINANCIAL STATEMENTS
		CONSOLIDATED STATEMENTS OF INCOME
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
SIGNATURES
EXHIBIT INDEX
EX-31.1
EX-31.2
EX-32

PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2003			2002			2003			2002
		(Dollars In Thousands, except per share data)
SALES:
	Non-Affiliated Customers	$	88,186		$	76,102		$	168,433		$	143,553
	Unconsolidated Affiliates		7,765			8,434			14,398			15,623
	Total Sales		95,951			84,536			182,831			159,176
COST OF SALES			39,964			35,692			76,520			66,362
	Gross Profit		55,987			48,844			106,311			92,814
OPERATING EXPENSES:
Selling			15,622			13,448			31,055			26,598
Research and Development			10,047			9,319			20,050			18,030
General and Administrative			8,308			7,560			16,908			14,217
Equity in Income of Affiliates			(1,463	)		(1,118	)		(2,921	)		(1,830	)
OPERATING EXPENSES — NET			32,514			29,209			65,092			57,015
	OPERATING INCOME		23,473			19,635			41,219			35,799
Interest/Other Income — Net			124			610			153			431
INCOME BEFORE TAXES AND MINORITY INTEREST			23,597			20,245			41,372			36,230
PROVISION FOR INCOME TAXES			6,843			6,276			11,998			11,231
MINORITY INTEREST			132			(81	)		45			142
	NET INCOME	$	16,622		$	14,050		$	29,329		$	24,857
EARNINGS PER SHARE:
	BASIC	$	.58		$	.49		$	1.02		$	.87
	DILUTED	$	.56		$	.47		$	.99		$	.84
WEIGHTED-AVERAGE SHARES OUTSTANDING:
	BASIC		28,690			28,465			28,656			28,413
	DILUTED		29,659			29,723			29,576			29,625

See Accompanying Notes to Consolidated Financial Statements

2

DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)

		June 30,			December 31,
		2003			2002
		(Dollars in Thousands)
Assets
CURRENT ASSETS:
	Cash and cash equivalents	$	40,441		$	54,284
	Accounts receivable (including receivables from unconsolidated affiliates of $9,248 and $7,256, respectively) – net of allowance for doubtful accounts of $2,508 and $2,181, respectively		90,592			78,676
	Inventories		82,917			75,860
	Prepaid expenses and other current assets		8,282			5,542
	Deferred income taxes		5,518			5,616
	Total current assets		227,750			219,978
PROPERTY, PLANT, AND EQUIPMENT:
	Land and buildings		56,518			54,021
	Machinery and equipment		72,844			69,069
	Leasehold improvements		9,205			10,022
	Construction in progress		25,587			2,487
	Total		164,154			135,599
	Less accumulated depreciation and amortization		(69,254	)		(65,714	)
	Property, plant, and equipment – net		94,900			69,885
SALES-TYPE AND OPERATING LEASES – net			73,375			66,653
DEFERRED INCOME TAXES			1,367			1,367
INVESTMENTS IN AFFILIATED COMPANIES			27,054			22,245
GOODWILL – Net of accumulated amortization of $11,923 and $11,896			13,361			13,319
TOTAL ASSETS		$	437,807		$	393,447
Liabilities and Shareholders’ Equity
CURRENT LIABILITIES:
	Accounts payable	$	17,109		$	15,608
	Accrued liabilities		25,395			27,039
	Income taxes payable		6,861			4,955
	Notes payable		23,035			19,727
	Total current liabilities		72,400			67,329
MINORITY INTEREST			2,605			2,554
SHAREHOLDERS’ EQUITY:
	Common Stock–no par value, authorized 60,000,000 shares; outstanding 28,719,942 shares and 28,603,779 shares, respectively		62,531			60,807
	Retained earnings		307,118			281,228
	Accumulated other comprehensive loss		(6,847	)		(18,471	)
Total shareholders’ equity			362,802			323,564
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	437,807		$	393,447

See Accompanying Notes to Consolidated Financial Statements

3

DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

				Six Months Ended
				June 30,
				2003			2002
				(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income			$	29,329		$	24,857
		Adjustments to reconcile net income to net cash flows from operating activities:
			Depreciation and amortization		16,487			12,715
			Equity in undistributed income of unconsolidated affiliates		(2,474	)		(1,830	)
			Deferred income taxes		432
		Changes in operating assets and liabilities:
			Accounts receivable		(7,238	)		(10,764	)
			Inventories		(5,183	)		(4,788	)
			Prepaid expenses and other current assets		(1,768	)		(1,971	)
			Accounts payable		(1,864	)		(10,560	)
			Accrued liabilities		(2,963	)		6,416
			Income taxes payable		1,522			2,744
	Net cash flows from operating activities				26,280			16,819
CASH FLOWS USED FOR INVESTING ACTIVITIES:
		Additions to property, plant, and equipment			(27,881	)		(5,412	)
		Sales-type and operating leases			(11,068	)		(15,343	)
		Investment in affiliated companies			—			(946	)
	Net cash flows used for investing activities				(38,949	)		(21,701	)
CASH FLOWS FROM FINANCING ACTIVITIES:
		Borrowing of notes payable-net			1,320			1,581
		Proceeds from exercise of stock options			1,724			2,964
		Cash dividends paid			(3,439	)		(3,404	)
	Net cash flows from financing activities				(395	)		1,141
EFFECT OF EXCHANGE RATE CHANGES ON CASH					(779	)		1,402
NET DECREASE IN CASH AND CASH EQUIVALENTS					(13,843	)		(2,339	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD					54,284			31,834
CASH AND CASH EQUIVALENTS AT END OF PERIOD				$	40,441		$	29,495

See Accompanying Notes to Consolidated Financial Statements

4

DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1 – Basis of Presentation

The information for the three and six-month periods ended June 30, 2003 and 2002 has not been audited by independent public 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 2002 Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

The results of operations for the three and six-month periods ended June 30, 2003 are not necessarily indicative of the results to be expected for the year ending December 31, 2003. 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.

Pro Forma Stock-Based Compensation

The Company has stock option plans under which options have been granted at exercise prices equal to the market price at the date of grant. Options granted vest over periods of three to nine years and expire ten years from the date of grant.

Pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” the Company has elected to account for its employee stock options under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” which recognizes expense based on the intrinsic value at the date of grant. As stock options have been issued with exercise prices equal to the respective market prices at grant date, no compensation expense has resulted. In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No. 123,” which provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company elected to maintain the intrinsic method of accounting for stock options under APB No. 25. Had compensation cost for all options granted been determined based on the fair value at grant date consistent with SFAS No. 123, the Company’s net earnings and earnings per share would have been as follows:

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2003			2002			2003			2002
		(Amounts in Thousands, except per share data)
Net Earnings
As Reported		$	16,622		$	14,050		$	29,329		$	24,857
Pro Forma expense			(738	)		(673	)		(1,476	)		(1,346	)
Pro Forma		$	15,884		$	13,377		$	27,853		$	23,511
Net Earnings Per Share
Basic:
	As Reported	$	0.58		$	0.49		$	1.02		$	0.87
	Pro Forma Adjustment		(0.03	)		(0.02	)		(0.05	)		(0.04	)
	Pro Forma	$	0.55		$	0.47		$	0.97		$	0.83
	Diluted:

5

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2003			2002			2003			2002
	(Amounts in Thousands, except per share data)
As Reported	$	0.56		$	0.47		$	0.99		$	0.84
Pro Forma Adjustment		(0.02	)		(0.02	)		(0.05	)		(0.05	)
Pro Forma	$	0.54		$	0.45		$	0.94		$	0.79

Note 2 – Inventories

Inventories by major categories are summarized as follows:

	June 30,		December 31,
	2003		2002
	(Dollars in Thousands)
Raw materials	$	35,813	$	35,257
Work in process		36,398		30,814
Finished goods		10,706		9,789
Total	$	82,917	$	75,860

Note 3 – Comprehensive Income

Comprehensive income is summarized as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2003		2002		2003		2002
	(Dollars in Thousands)
Net income	$	16,622	$	14,050	$	29,329	$	24,857
Foreign currency translation adjustment		9,281		7,774		11,624		5,917
Comprehensive income	$	25,903	$	21,824	$	40,953	$	30,774

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.

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 manufactures 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, Croatia, Slovenia, Spain, The Netherlands, Belgium, Luxemborg, Finland, Norway, France, Australia, New Zealand, China, Brazil, Uruguay, Bolivia, 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:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2003		2002		2003		2002
	(Dollars in Thousands)
Sales:
IMMULITE (includes service)	$	85,173	$	71,683	$	160,827	$	133,987
Radioimmunoassay (“RIA”)		6,935		7,903		13,727		15,767
Other (Includes DPC and non-DPC products)		3,843		4,950		8,277		9,422
	$	95,951	$	84,536	$	182,831	$	159,176

6

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:

					DPC
					Biermann		DPC Medlab					Less:
			Euro/DPC Limited		(German		(Brazilian					Intersegment
	United States		(United Kingdom)		Group)*		Group)*			Other		Elimination			Total
	(Dollars in Thousands)
Three Months Ended June 30, 2003
Sales	$	61,455	$	16,804	$	13,012	$	7,742		$	22,025	$	(25,087	)	$	95,951
Net income (loss)		9,859		3,343		386		300			2,815		(81	)		16,622
Three Months Ended June 30, 2002
Sales	$	60,966	$	11,775	$	10,159	$	8,833		$	18,756	$	(25,953	)	$	84,536
Net income (loss)		8,873		2,660		453		(71	)		2,009		126			14,050

					DPC
					Biermann		DPC Medlab				Less:
			Euro/DPC Limited		(German		(Brazilian				Intersegment
	United States		(United Kingdom)		Group)*		Group)*		Other		Elimination			Total
	(Dollars in Thousands)
Six Months Ended June 30, 2003
Sales	$	118,133	$	31,877	$	25,687	$	13,944	$	43,169	$	(49,979	)	$	182,831
Net income (loss)		16,883		6,226		806		103		5,242		69			29,329
Six Months Ended June 30, 2002
Sales	$	116,007	$	21,540	$	19,229	$	16,235	$	34,338	$	(48,173	)	$	159,176
Net income (loss)		16,571		4,411		454		323		3,145		(47	)		24,857

					DPC
					Biermann		DPC Medlab				Less:
			Euro/DPC Limited		(German		(Brazilian				Intersegment
	United States		(United Kingdom)		Group)*		Group)*		Other		Elimination			Total
	(Dollars in Thousands)
Total Assets
June 30, 2003	$	461,136	$	53,076	$	52,810	$	27,241	$	80,030	$	(236,486	)	$	437,807
December 31, 2002		416,758		44,958		49,071		21,055		69,932		(208,327	)		393,447

•     DPC Biermann includes the Company’s operations in Germany, the Czech Republic, Poland, Croatia, and Slovenia. DPC Medlab includes the Company’s operations in Brazil, Uruguay, Venezuela, Costa Rica, Bolivia, and Panama.

Note 5 – New Accounting Pronouncements

In July 2002, the Financial Accounting Standards Board issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after

7

December 31, 2002. As required, the Company will apply provisions of SFAS No. 146 prospectively to exit or disposal activities, if any, initiated after December 31, 2002.

During November 2002, the Financial Accounting Standards Board issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which is an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34. The initial recognition and measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, and the disclosure requirements are effective for financial statements of periods ending after December 15, 2002. This interpretation addresses the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees, and also clarifies the requirements related to the recognition of a liability by a guarantor at the inception of a guarantee for the obligations the guarantor has undertaken in issuing that guarantee. The Company does not currently provide any third-party guarantees.

On April 30, 2003, the Financial Accounting Standards Board issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. The new guidance amends SFAS No. 133 for decisions made as part of the Derivatives Implementation Group (“DIG”) process that effectively required amendments to SFAS No. 133, and decisions made in connection with other FASB projects dealing with financial instruments and in connection with implementation issues raised in relation to the application of the definition of a derivative and characteristics of a derivative that contains financing components. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company is currently assessing the impact of SFAS No. 149 on its Consolidated Financial Statements.

In May, the Financial Accounting Standards Board issued SFAS No. 150 “Accounting for Financial Instruments with the Characteristics of Both Liabilities and Equities.” SFAS No. 150 establishes standards regarding the manner in which an issuer classifies and measures certain types of financial instruments having characteristics of both liabilities and equity. Pursuant to SFAS No. 150, such freestanding financial instruments (i.e., those entered into separately from an entity’s other financial instruments or equity transactions or that are legally detachable and separately exercisable) must be classified as liabilities or, in some cases, assets. In addition, SFAS No. 150 requires that financial instruments containing obligations to repurchase the issuing entity’s equity shares and, under certain circumstances, obligations that are settled by delivery of the issuer’s shares be classified as liabilities. The Statement is effective for financial instruments entered into or modified after May 31, 2003 and for other instruments at the beginning of the first interim period beginning after June 15, 2003. The Company does not currently have any financial instruments that will be impacted by SFAS No. 150.

Note 6 – Commitments and Contingent Liabilities

In the fourth quarter of 2002, the Company discovered internally that its Chinese subsidiary had made certain improper payments that may have violated foreign and U.S. laws. An independent investigation by the audit committee concluded that no senior management of the Company was involved and that there are no apparent similar issues with respect to the Company’s other foreign operations. The Company has implemented additional policies and procedures to ensure compliance with applicable laws and the Company is cooperating with the SEC in its review of this matter. The termination of the improper payments in China may have a significant adverse effect on sales in China. For the year ended December 31, 2002, the Chinese subsidiary had revenues of approximately $9.0 million, less than 3% of total sales. In the fourth quarter of 2002, the Company accrued $1.5 million for actual and estimated costs to resolve this matter. As of June 30, 2003, $1.4 million remains in the accrual. In addition, the Company recorded a charge of $1.4 million to its 2002 fourth quarter tax provision related to the possible non-deductibility of the payments in China. Additional legal expenses of approximately $750,000 have been incurred and charged to general and administrative expense during the six month period ended June 30, 2003.

8

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Except for the historical information contained herein, this report and the following discussion in particular contain forward-looking statements (identified by the words “estimate,” “project,” “anticipate,” “plan,” “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 Company’s ability to successfully market new and existing products;

• the Company’s ability to keep abreast of technological innovations and successfully incorporate them into new products;

• the Company’s current dependence on sole suppliers for key chemical components in the IMMULITE assays;

• the risks inherent in the development and release of new products, such as delays, unforeseen costs, technical difficulties, and regulatory approvals;

• competitive pressures, including technological advances and patents obtained by competitors;

• environmental risks related to substances regulated by various federal, state, and international laws;

• currency risks based on the relative strength or weakness of the U.S. dollar;

• domestic and foreign governmental health care regulation and cost containment measures;

• political and economic instability in certain foreign markets;

• changes in accounting standards promulgated by the Financial Accounting Standards Board, the Securities and Exchange Commission, or the American Institute of Certified Public Accountants; and

• the effects of governmental or other actions relating to certain payments by the Company’s Chinese subsidiary.

Results of Operations

The sale of IMMULITE products continues to drive the Company’s performance. The Company’s sales increased 13.5% in the second quarter of 2003 to $96.0 million compared to sales of $84.5 million in the second quarter of 2002. In the first six months of 2003, the Company’s sales increased 14.9% to $182.8 million from $159.2 million in the first six months of 2002. Sales of all IMMULITE products (instruments and reagents) in the second quarter of 2003 were $85.2 million, a 19% increase over the second quarter of 2002. In the first six months of 2003, sales of all IMMULITE products were $160.8 million, a 20% increase over the same period of 2002. Sales of IMMULITE products represented 89% of second quarter 2003 sales, compared to 85% of second quarter 2002 sales. In the first six months of 2003, sales of IMMULITE products represented 88% of sales versus 84% in the same period of 2002. Various categories of IMMULITE product line sales in the second quarter and in the first six months of 2003 and 2002 are shown in the following chart:

IMMULITE Product Line Sales

		Three Months ended June 30,							Six Months ended June 30,
		2003					2002		2003					2002
				% change							% change
		Sales		from 2002			Sales		Sales		from 2002			Sales
		(Dollars In Thousands)
IMMULITE 2000
	Reagents	$	46,132		39.8	%	$	32,992	$	87,427		44.5	%	$	60,508
	Instruments and Service		7,902		(5.8	%)		8,387		13,145		(12.6	%)		15,042
	Total	$	54,034		30.6	%	$	41,379	$	100,572		33.1	%	$	75,550
IMMULITE (including IMMULITE 1000)
	Reagents	$	26,629		4.2	%	$	25,548	$	51,885		6.3	%	$	48,821
	Instruments and Service		4,510		(5.2	%)		4,756		8,370		(13.0	%)		9,616
	Total	$	31,139		2.8	%	$	30,304	$	60,255		3.1	%	$	58,437
IMMULITE
Product Line Sales		$	85,173		18.8	%	$	71,683	$	160,827		20.0	%	$	133,987

9

The Company shipped a total of 201 IMMULITE systems during the second quarter of 2003, including 123 IMMULITE 2000 systems and 78 IMMULITE One and 1000 systems. The total base of IMMULITE systems shipped grew to 8,570, including 2,655 IMMULITE 2000 systems. In the second quarter of 2002 the Company shipped a total of 315 IMMULITE systems, including 183 IMMULITE 2000 systems.

The reduction in the number of instruments shipped resulted in lower instrument revenue in the second quarter of 2003 as compared to the second quarter of 2002. It is anticipated that for the year the Company will ship closer to 500 IMMULITE 2000 instruments rather than 600 previously expected. Instruments are placed in customer locations based on many different forms of agreements. In general, instruments are sold, rented, or placed in a customer’s laboratory with an agreement to purchase a certain amount of reagents. Instrument revenue will vary based on the method of instrument placement. In the United States, the Company has placed more instruments in the first six months of 2003 based on minimum reagent usage commitments which are reflected in reagent revenues only.

One measure of the penetration of reagent sales is the average amount of reagents sold per instrument shipped. It takes a number of weeks or months after an instrument is shipped for it to become fully functional with regard to reagent utilization. The Company calculates quarterly reagent utilization per instrument by dividing the reagent sales for the current quarter by the total number of instruments shipped as of the end of the previous quarter. For the second quarter of 2003, IMMULITE 2000 reagent utilization per instrument was $18,220 and IMMULITE reagent utilization per instrument was $4,562 as compared to the second quarter of 2002, when they were $17,174 and $4,736 respectively. Increases in utilization on the IMMULITE 2000 are in part a result of a larger test menu including Hepatitis B tests and the strength of the Euro relative to the dollar. The drop in average utilization per instrument on the IMMULITE is expected to continue as high volume IMMULITE installations are replaced with IMMULITE 2000’s and incremental IMMULITE placements go into lower volume environments.

Sales of the Company’s RIA products declined approximately 12% in the second quarter of 2003, representing 7% of sales, compared to 9% of sales in the second quarter of 2002. This trend is expected to continue. Sales of other DPC products, including non-IMMULITE allergy reagents, decreased by 24% from the second quarter of 2002 and fell to 3% of sales from 4% in 2002. Sales of non-DPC products, primarily through its consolidated international affiliates, decreased 22% in the second quarter of 2003 to $1.3 million or 1% of sales.

In the second quarter of 2003, sales to domestic customers grew by 19%, and increased to 29% of total sales, due to increased penetration into most customer segments, including a positive response to the Company’s Hepatitis B assays. Sales to foreign customers grew at 11%. Due to the significance of foreign sales (71% 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, and when the dollar weakens the effect is the opposite, higher sales and net income. In the second quarter of 2003, the strong Euro net of the weak Real had a positive impact on sales of approximately 7%. 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.

Gross profit as a percentage of sales increased to 58.3% in the second quarter of 2003 from 57.8% in the second quarter of 2002. The increase in gross margin was due in part to an increase in reagent sales, particularly IMMULITE 2000 reagent sales, relative to instrument sales and the strength of the Euro relative to the dollar, as a majority of the reagents are manufactured in the United States and their cost is based in dollars. In addition, sales to United States end users increased faster than those to third party distributors, which typically have lower gross margins. In the first six months of 2003 gross profit as a percentage of sales was 58.1%, slightly less than 58.3% in the first six months of 2002. Gross margins are also impacted by product mix, customer mix, and currency movements.

Selling expense increased by 16% in dollar terms and as a percentage of sales increased slightly to 16.3% in the second quarter of 2003 from 15.9% in 2002. In the first six months of 2003 selling expense increased by 17% and increased as a percent of sales as well, to 17.0% from 16.7% in 2002. The increase in selling expense was primarily related to the increase in sales and the strength of the Euro. Research and development expense increased by 8% in the second quarter of 2003 but decreased to 10.5% of sales in 2003 from 11.0% in the second quarter of 2002. In the first six months of 2003 research and development expense increased by 11% and decreased as a percent of sales to 11.0% from 11.3% in 2002.

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General and administrative expenses increased by 10% in the second quarter of 2003 compared to the second quarter of 2002 and decreased as a percentage of sales to 8.7% in 2003, from 8.9% in 2002. In the first six months of 2003 General and Administrative expenses increased 19% to 9.3% of sales from 8.9% in 2002. Included in general and administrative expenses in the first quarter of 2003 was approximately $650,000 in legal fees related to the Company’s internal investigation of certain payments by its Company’s Chinese subsidiary. Although a review of this matter is ongoing, those expenses were significantly lower at approximately $100,000 in the second quarter. It is anticipated that these expenses will continue to be lower in future periods. See note 6 of notes to consolidated financial statements for a discussion of the Chinese subsidiary matter. The strong Euro also resulted in higher 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 to $1.5 million in the second quarter of 2003 from $1.1 million in the second quarter of 2002, and in the first six months of 2003 this amount increased to $2.9 million from $1.8 million. The increases were due primarily to increased income in the Company’s Italian distributor.

Interest/other income-net includes interest income, interest expense, and foreign exchange transaction losses and gains. The net amount was income of $124,000 in the second quarter of 2003 versus income of $610,000 in 2002. This difference was driven in part by a $158,000 decrease in foreign currency transaction gains from a gain of $769,000 in 2002 to a gain of $611,000 in 2003, net of increases in interest paid and other expense of $326,000. Foreign currency transaction gains increased to $1.1 million in the first six months of 2003 from $687,000 in 2002 while interest paid and other expense increased to $959,000 in the first six months of 2003 from $258,000 in 2002.

The Company’s effective tax rate includes federal, state, and foreign taxes. The Company’s income tax rate decreased to 29.0% in the second quarter and first six months of 2003 from 31.0% in the second quarter and first six months of 2002.

Net income increased 18% to $16.6 million in the second quarter of 2003 or $.56 per diluted share from $14.1 million or $.47 per diluted share in the second quarter of 2002. Net income for the first six months of 2003 increased 18% to $29.3 million or $.99 per diluted share from $24.9 million or $.84 per diluted share in 2002.

Contractual Obligations and Commitments

Management’s beliefs regarding contractual obligations and commitments have not changed significantly from those disclosed in Item 7 of the Company’s annual report on form 10-K for the year ended December 31, 2001.

Critical Accounting Policies

Management’s beliefs regarding significant accounting policies have not changed significantly from those disclosed in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

Liquidity and Capital Resources

The Company has adequate working capital and sources of capital to carry on its current business and to meet its existing capital requirements. At June 30, 2003 and December 31, 2002, the Company had cash and cash equivalents of $40.4 million and $54.3 million, respectively. Net cash flow from operating activities was $26.3 million in the first six months of 2003 and $16.8 million in the first six months of 2002. The increase is a result of net income, depreciation and amortization, and other non-cash items of $8.0 million and a decrease in cash used by changes in operating assets and liabilities of $1.5 million. Additions to property, plant, and equipment in the first six months of 2003 were $27.9 million, compared to $5.4 million in the first six months of 2002. The increase was primarily due to the purchase of a new corporate headquarters building for approximately $22 million in cash. An additional $8-10 million is expected to be spent to fit out this building. It is anticipated that it will be occupied in early 2004. Cash flow used for the placement of IMMULITE systems under sales-type and operating leases was $11.1 million in the first six months of 2003 compared to $15.3 million in the first six months of 2002. These leases typically have periods ranging from three to five years. The Company increased borrowings in its foreign affiliates by $1.3 million in the first six months of 2003 and by $1.6 million in the first six months of 2002.

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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 has a $20 million domestic unsecured line of credit under which there were no borrowings outstanding at June 30, 2003 or December 31, 2002. The Company had other notes payable (consisting of bank borrowings by the Company’s foreign consolidated subsidiaries payable in their local currency, some of which are guaranteed by the Company) of $23.0 million at June 30, 2003 compared to $19.7 million at December 31, 2002. The Company received $1.7 million from the exercise of stock options in the first six months of 2003 versus $3.0 million in the first six months of 2002. The Company has paid a quarterly cash dividend of $.06 per share, on a split-adjusted basis, since 1995.

New Accounting Pronouncements

In July 2002, the Financial Accounting Standards Board issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. As required, the Company will apply provisions of SFAS No. 146 prospectively to exit or disposal activities, if any, initiated after December 31, 2002.

During November 2002, the Financial Accounting Standards Board issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which is an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34. The initial recognition and measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, and the disclosure requirements are effective for financial statements of periods ending after December 15, 2002. This interpretation addresses the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees, and also clarifies the requirements related to the recognition of a liability by a guarantor at the inception of a guarantee for the obligations the guarantor has undertaken in issuing that guarantee. The Company does not currently provide any third-party guarantees.

On April 30, 2003, the Financial Accounting Standards Board issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. The new guidance amends SFAS No. 133 for decisions made as part of the Derivatives Implementation Group (“DIG”) process that effectively required amendments to SFAS No. 133, and decisions made in connection with other FASB projects dealing with financial instruments and in connection with implementation issues raised in relation to the application of the definition of a derivative and characteristics of a derivative that contains financing components. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company is currently assessing the impact of SFAS No. 149 on the Consolidated Financial Statements.

In May, the Financial Accounting Standards Board issued SFAS No. 150 “Accounting for Financial Instruments with the Characteristics of Both Liabilities and Equities.” SFAS No. 150 establishes standards regarding the manner in which an issuer classifies and measures certain types of financial instruments having characteristics of both liabilities and equity. Pursuant to SFAS No. 150, such freestanding financial instruments (i.e., those entered into separately from an entity’s other financial instruments or equity transactions or that are legally detachable and separately exercisable) must be classified as liabilities or, in some cases, assets. In addition, SFAS No. 150 requires that financial instruments containing obligations to repurchase the issuing entity’s equity shares and, under certain circumstances, obligations that are settled by delivery of the issuer’s shares be classified as liabilities. The Statement is effective for financial instruments entered into or modified after May 31, 2003 and for other instruments at the beginning of the first interim period beginning after June 15, 2003. The Company does not currently have any financial instruments that will be impacted by SFAS No. 150.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change during the quarter ended June 30, 2003, from the disclosures about market risk provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

ITEM 4. CONTROLS AND PROCEDURES

Based on their evaluation of the Company’s disclosure controls and procedures as of June 30, 2003, the Chief Executive Officer and Chief Financial Officer of the Company have concluded that such disclosure controls and procedures were adequate and effective and designed to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities. There has been no change in the Company’s internal controls over financial reporting identified in connection with such evaluation that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

The following persons were elected Directors at the Annual Meeting of Shareholders held May 6, 2003:

	Votes Cast
	For		Withhold
Sidney A. Aroesty		22,204,632		4,021,468
Frederick Frank		21,480,821		4,745,279
Kenneth A. Merchant		26,104,211		121,889
Maxwell H. Salter		21,792,054		4,434,050
James D. Watson		21,781,692		4,444,408
Ira Ziering		21,937,082		4,289,018
Michael Ziering		21,957,582		4,268,518

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits

31.1	Certificate of Chief Executive Officer
31.2	Certificate of Chief Financial Officer
32.1	Section 906 Officer’s Certification

(b) Reports on Form 8-K.

     The Registrant filed a current report on Form 8-K to report on Item 7 and 9 on April 23, 2003.

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 Michael Ziering	President and Chief Executive Officer and Chairman of the Board (Principal Executive Officer) Director	August 12, 2003
/s/ James L. Brill James L. Brill	Vice President-Finance (Principal Financial and Accounting Officer)	August 12, 2003

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EXHIBIT INDEX

Exhibit
Number	Description
31.1	CERTIFICATE OF CHIEF EXECUTIVE OFFICER
31.2	CERTIFICATE OF CHIEF FINANCIAL OFFICER
32.1	SECTION 906 OFFICER’S CERTIFICATION