-----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, BN7A3YxSyldfBvhldW6Y2kpSPVY9JW6FkuqQIvgyeFpFUsFc2YoTRbvjiGnl25hY 9hbM4oJQ91x0/uTDjYJUDw== 0000950148-98-002368.txt : 19981029 0000950148-98-002368.hdr.sgml : 19981029 ACCESSION NUMBER: 0000950148-98-002368 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981028 SROS: NYSE 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: 98731973 BUSINESS ADDRESS: STREET 1: 5700 W 96TH ST CITY: LOS ANGELES STATE: CA ZIP: 90045 BUSINESS PHONE: 2137760180 10-Q 1 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 September 30, 1998 [ ] 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, 1998, was 13,800,737. ================================================================================ 2 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, --------------------------------- --------------------------------- 1998 1997 1998 1997 ------------- ------------- ------------- ------------- SALES ............................. $ 48,773 $ 46,399 $ 144,155 $ 137,562 ------------- ------------- ------------- ------------- COSTS AND EXPENSES: Cost of sales ................... 21,454 20,485 63,278 60,336 Selling ......................... 9,356 9,174 27,462 27,794 Research and development ........ 5,470 5,109 16,640 14,597 General and administrative ...... 5,422 5,300 17,328 16,451 Equity in income of affiliates .. (273) (114) (897) (810) Interest income-net ............. (141) (137) (349) (443) ------------- ------------- ------------- ------------- Total costs and expenses ........ 41,288 39,817 123,462 117,925 ------------- ------------- ------------- ------------- INCOME BEFORE INCOME TAXES ........ 7,485 6,582 20,693 19,637 PROVISION FOR INCOME TAXES ........ 2,090 1,460 6,000 4,960 ------------- ------------- ------------- ------------- NET INCOME ........................ $ 5,395 $ 5,122 $ 14,693 $ 14,677 ============= ============= ============= ============= EARNINGSPER SHARE: BASIC ........................... $ .39 $ .38 $ 1.07 $ 1.08 DILUTED ......................... .39 .37 1.06 1.06 AVERAGE SHARES OUTSTANDING: BASIC ........................... 13,792 13,646 13,772 13,624 DILUTIVE EFFECT OF STOCK OPTIONS 131 255 153 256 ------------- ------------- ------------- ------------- DILUTED ......................... 13,923 13,901 13,925 13,880 ============= ============= ============= =============
1 3 DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited)
(Dollars in Thousands) September 30, December 31, 1998 1997 ------------- ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 20,247 $ 20,372 Accounts receivable-net of allowance for doubtful accounts of $118 and $131 52,787 45,798 Inventories 53,639 49,038 Prepaid expenses and other current assets 512 405 Deferred income taxes 3,303 3,303 ------------- ------------- Total current assets 130,488 118,916 PROPERTY, PLANT AND EQUIPMENT: Land and buildings 35,006 30,854 Machinery and equipment 57,685 50,005 Leasehold improvements 7,135 7,075 Construction in progress 857 736 ------------- ------------- Total 100,683 88,670 Less accumulated depreciation and amortization 48,065 41,576 ------------- ------------- Property, plant and equipment - net 52,618 47,094 SALES-TYPE AND OPERATING LEASES 31,710 26,875 DEFERRED INCOME TAXES 1,442 1,442 INVESTMENTS IN AFFILIATES 14,542 13,905 EXCESS OF COST OVER NET ASSETS ACQUIRED- Net of amortization of $8,201 and $7,368 14,506 13,948 ------------- ------------- TOTAL ASSETS $ 245,306 $ 222,180 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 20,188 $ 15,547 Accounts payable 17,241 14,562 Accrued liabilities 4,927 5,986 Income taxes payable 3,524 (210) ------------- ------------- Total current liabilities 45,880 35,885 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common Stock-no par value, authorized 30,000,000 shares; outstanding 13,800,737 shares and 13,717,072 shares. 40,190 38,527 Retained earnings 169,015 159,278 Foreign currency translation adjustment (9,779) (11,510) ------------- ------------- Total shareholders' equity 199,426 186,295 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 245,306 $ 222,180 ============= =============
2 4 DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in Thousands) Nine Months Ended September 30, -------------------------------- 1998 1997 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 14,693 $ 14,677 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 15,006 11,157 Equity in undistributed income of unconsolidated affiliates (637) (809) Accounts receivable (5,549) (6,128) Inventories (3,527) (7,217) Prepaid expenses and other current assets (107) (99) Accounts payable 1,630 2,040 Accrued liabilities (1,059) (941) Income taxes payable 3,440 (138) ------------- ------------- Net Cash Flows from Operating Activities 23,890 12,542 CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES: Additions to property, plant and equipment (7,624) (7,922) Sales-type and operating leases (12,846) (7,551) Investment in affiliated companies (2,612) (46) ------------- ------------- Net Cash Flows from (used for) Investing Activities (23,082) (15,519) CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES: Borrowing 2,706 6,605 Proceeds from exercise of stock options 1,663 1,176 Cash dividends paid (4,956) (4,904) ------------- ------------- Net Cash Flows from (used for) Financing Activities (587) 2,877 EFFECT OF EXCHANGE RATE CHANGES ON CASH (346) (657) ------------- ------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (125) (757) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 20,372 13,781 ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20,247 $ 13,024 ============= =============
3 5 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, 1998 and 1997 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 1997 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, 1998 are not necessarily indicative of the results to be expected for the year ending December 31, 1998. Basic earnings per share is computed by dividing net income by the 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: (In Thousands)
September 30, December 31, 1998 1997 ------------- ------------- Raw materials $ 19,382 $ 17,814 Work in process 18,957 18,073 Finished goods 15,300 13,151 ------------- ------------- Total $ 53,639 $ 49,038 ============= =============
NOTE 3-COMPREHENSIVE INCOME Comprehensive income is summarized as follows: (In Thousands)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------- ------------------------------- 1998 1997 1998 1997 ------------- ------------- ------------- ------------- Net income $ 5,395 $ 5,122 $ 14,693 $ 14,677 Foreign currency translation adjustment 1,754 (1,162) 1,731 (5,498) ------------- ------------- ------------- ------------- Comprehensive income $ 7,149 $ 3,960 $ 16,424 $ 9,179 ============= ============= ============= =============
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. 4 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS For the third quarter and nine months ended September 30, 1998, the Company's sales increased 5.1% to $48.8 million and 4.8% to $144 million, respectively, compared to the comparable periods in 1997. Unit sales of IMMULITE test kits increased 32% and 27% in the third quarter and first nine months of 1998, respectively, over the comparable 1997 periods. The Company shipped 224 IMMULITE systems in the third quarter, including 59 of the new generation IMMULITE 2000 which was introduced in March 1998. For the nine month period, the Company shipped 468 IMMULITE One systems and 158 IMMULITE 2000 systems, bringing the total worldwide shipments of IMMULITE systems to approximately 3,700. The Company expects to have shipped approximately 300 IMMULITE 2000 systems (including 67 systems shipped in 1997) by year-end, while continuing to experience demand for the IMMULITE One. This installed base of instruments and an expanding test kit menu are expected to support continued growth in the coming year. Sales of the Company's mature RIA products declined approximately 9% in the 1998 third quarter compared to the 1997 third quarter. The Company expects RIA revenues to account for less than 25% of the total sales for the 1998 fiscal year (compared to 30% in 1997), so further declines in sales of this product line will have less of an impact on overall reported sales in the future. Sales to Asia (principally Korea), which represent approximately 10% of total sales, declined approximately 5% and 8% in the third quarter and first nine months of 1998, respectively, compared to the comparable periods in 1997, due to the economic instability of that region. Due to the significance of foreign sales, 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, such as during the past two years, the effect of the translation of the financial statements of consolidated foreign affiliates is generally that of lower sales and net income. Additionally, due to intense competition, the Company's foreign distributors are unable to increase prices to offset the negative effect when the U.S. dollar is strong. The value of the U.S. dollar relative to other currencies did not have a significant impact on results in the third quarter of 1998. Cost of sales remained at approximately 44% of sales in the third quarter and nine month periods of 1998 and 1997. Total operating expenses (selling, R&D, and G&A) as a percentage of sales decreased slightly in the third quarter from 42.2% in 1997 to 41.5% in 1998, reflecting the end of pre-launch expenses for the IMMULITE 2000 and modest operating leverage. For the nine month periods, total operating expenses as a percentage of sales decreased slightly from 42.8% in 1997 to 42.6% in 1998. 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 represents the Company's share of earnings of non-consolidated affiliates, principally the 45%-owned Italian distributor. Net interest income represents the excess of interest income and interest on equipment contracts over interest expense. The Company's effective tax rate includes Federal, state and foreign taxes. The tax provision increased from 25.3% of income before income taxes in the first nine months of 1997 to 29% in the comparable 1998 period due to utilization of net operating loss carryforwards and foreign tax credits in 1997 which are not available in 1998. Net income for the third quarter of 1998 increased 5.3% over the third quarter of 1997 due to the increase in sales. For the first nine months of 1998, however, net income increased nominally over the first nine months of 1997 due to the 12% decline in 1998 first quarter net income over the 1997 first quarter. LIQUIDITY The Company has adequate working capital and sources of capital (including an unused $20 million unsecured line of credit) to carry on its current business and to meet its existing and expected future capital requirements. Net cash flow from operating activities was $23.9 million in the first nine months of 1998 compared to $12.5 million in 1997. Additions to property, plant and equipment in 1998 were $7.6 million compared to $7.9 million in 1997. Cash used for the placement of IMMULITE systems under sales-type and operating 5 7 leases (for periods of generally three to five years) increased 70% from $7.6 million for the first nine months of 1997 to $12.8 million for the first nine months of 1998. The Company had notes payable (consisting of bank borrowings by the Company's foreign consolidated subsidiaries) of $20.2 million at September 30, 1998 compared to $15.6 million at December 31, 1997. The Company's foreign operations, particularly, at this time, its operations in Brazil, are subject to risks, such as currency devaluations, associated with political and economic instability. The Company's current quarterly cash dividend is $.12 per share. On October 14, 1998 the Company announced a plan under which it may repurchase up to one million shares of its common stock from time to time in open market transactions. The purchases may be discontinued at any time. The Company will utilize existing cash and bank borrowings to finance any such purchases. EURO CONVERSION The Company has significant sales in European countries (the "participating countries") which will be converting to a common legal currency (the "euro") beginning 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 will not be computed directly from one local currency to another. Instead, local currencies will be converted first to a euro denomination and then to the second local currency. The Company is in the early stages of assessing the potential impact of the euro conversion on its business and operations. The Company will initially address the euro conversion by creating a price list of its products in each participating country based on the euro to facilitate purchases in euro or local currency. The Company is also reviewing its information and business systems, and those of its European affiliates, to determine the modifications that will be necessary to process orders in the euro currency. 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. YEAR 2000 The Company has a program to address Year 2000 readiness of its information and business systems at the Los Angeles, DPC Cirrus and Euro DPC facilities, which account for the majority of its manufacturing and business operations. This program is more than half-way completed. The Company has tested all critical systems and has performed routine testing of work stations. Work stations that require corrective software have been identified and the Company's goal, subject to timely software manufacturer support, is to complete the remediation efforts by June 1999. The costs incurred to date and expected to be incurred in the future related to the evaluation and remediation efforts are not material. Independent of the Year 2000 issue, over the last 16 months the Company has been engaged in an ongoing program to upgrade its information systems. In September 1998, the Company commenced a testing and validation program of the information and business systems of certain of its foreign subsidiaries and its affiliates. The Company expects this program to be completed with respect to wholly owned affiliates by June 1999. Each affiliate is responsible for eval- uating and correcting its own computer systems. The Company presently believes that, with conversions to new computer systems and modifications to existing software, the Year 2000 issue will not pose significant operational problems for the Company. However, if such conversions and modifications are not completed timely by the Company or any of its affiliates, or by significant third parties with whom the Company does business, such as communications and power providers, the Year 2000 issue could have a material impact on the operations of the Company. The Company also has a program to determine whether its instrumentation products are Year 2000 compliant. The IMMULITE 2000 instrument, which the Company began shipping in March 1998, is Year 2000 compliant. The Company has determined that the IMMULITE One instrument is not Year 2000 compliant and has so informed the FDA. The software used in the IMMULITE One has a two-digit year field which must be changed to a four-digit field. As part of its routine, on-going software development, the Company is developing software for the IMMULITE One that will be Year 2000 compliant. The Company's goal is to be able to offer software and hardware upgrades to make the IMMULITE One Year 2000 compliant to its customers by March 31, 1999. The incremental costs incurred to date and expected to be incurred to upgrade the software are not material. 6 8 In addition to the software upgrades, some older instruments may require hardware modifications or replacements to make them Year 2000 compliant. The Company is working with its hardware vendors to be able to provide its customers with the necessary modifications or replacements. The Company is also providing customer support and customer satisfaction services to all of its customers regarding Year 2000 issues. The Company does not believe that costs related to hardware upgrades or replacements will be material. While the Company currently expects that it will be able to bring the IMMULITE One into Year 2000 compliance on a timely basis, if the Company encounters unforeseen problems or delays it could be subject to legal claims (with or without merit), increased warranty costs, or customer dissatisfaction which could result in a material adverse effect on the Company's business, financial condition and results of operations. FORWARD LOOKING STATEMENTS Except for the historical information contained herein, this report contains 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 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, euro conversions, Year 2000 issues and political and economic instability in certain foreign markets. PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION. SHAREHOLDER PROPOSALS If a shareholder submits a proposal at the Company's annual meeting of shareholders to be held in May 1999 otherwise than pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 and does not provide notice of such proposal to the Company by February 10, 1999, the holders of any proxy solicited by the Company's board of directors for use at such meeting will have discretionary authority to vote with respect to such proposal as to which timely notice is not given. 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) OCTOBER 28, 1998 /s/ SIGI ZIERING - --------------------------------- ------------------------------------------ Date Sigi Ziering, Ph.D., Chairman of the Board Chief Executive Officer OCTOBER 28, 1998 /s/ JULIAN R. BOCKSERMAN - --------------------------------- ------------------------------------------ Date Julian R. Bockserman, Vice President Chief Financial Officer 7 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 1 20,247 0 52,787 118 53,639 130,488 100,683 48,065 245,306 45,880 0 0 0 40,190 159,236 245,306 144,155 144,155 63,278 63,278 60,184 0 0 20,693 6,000 14,693 0 0 0 14,693 1.07 1.06
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