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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission file number 1-9957
DIAGNOSTIC PRODUCTS CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2802182
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5700 WEST 96TH STREET
LOS ANGELES, CALIFORNIA 90045
(Address of principal executive offices)
Registrant's telephone number: (213) 776-0180
NO CHANGE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
The number of shares of Common Stock, no par value, outstanding as of
June 30, 1997, was 13,630,503.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data) Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
SALES $ 46,763 $ 43,369 $ 91,163 $ 86,615
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of sales 20,169 18,032 39,851 36,120
Selling 9,961 8,561 18,620 16,618
Research and development 4,732 4,484 9,488 8,868
General and administrative 5,821 4,102 11,347 8,751
Equity in income of affiliates (415) (357) (696) (803)
Investment income (187) (357) (502) (764)
-------- -------- -------- --------
Total costs and expenses 40,081 34,465 78,108 68,790
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 6,682 8,904 13,055 17,825
PROVISION FOR INCOME TAXES 1,790 2,340 3,500 4,760
-------- -------- -------- --------
NET INCOME $ 4,892 $ 6,564 $ 9,555 $ 13,065
======== ======== ======== ========
NET INCOME PER SHARE $ .35 $ .47 $ .69 $ .94
WEIGHTED AVERAGE SHARES
AND EQUIVALENTS OUTSTANDING 13,872 13,984 13,869 13,963
</TABLE>
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DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in Thousands) June 30, December 31,
1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,166 $ 13,781
Accounts receivable - net of allowance for
doubtful accounts of $84 and $76 49,339 45,631
Inventories 47,053 42,828
Prepaid expenses and other current assets 536 375
Deferred income taxes 3,663 3,663
--------- ---------
Total current assets 111,757 106,278
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 29,054 29,195
Machinery and equipment 48,584 46,043
Leasehold improvements 6,736 6,701
Construction in progress 621 700
--------- ---------
Total 84,995 82,639
Less accumulated depreciation and amortization 38,941 37,192
--------- ---------
Property, plant and equipment - net 46,054 45,447
SALES-TYPE AND OPERATING LEASES 25,449 22,056
DEFERRED INCOME TAXES 2,772 2,772
INVESTMENTS IN AFFILIATED COMPANIES 16,362 15,666
EXCESS OF COST OVER NET ASSETS ACQUIRED-
Net of amortization of $6,858 and $6,357 14,680 14,783
--------- ---------
TOTAL ASSETS $ 217,074 $ 207,002
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 13,223 $ 4,005
Accounts payable 13,166 13,024
Accrued liabilities 4,406 6,057
Income taxes payable 1,455 1,629
--------- ---------
Total current liabilities 32,250 24,715
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock - no par value, authorized 30,000,000 shares;
outstanding 13,630,503 shares and 13,597,124 shares 37,170 36,584
Retained earnings 153,866 147,579
Foreign currency translation adjustments (6,212) (1,876)
--------- ---------
Total shareholders' equity 184,824 182,287
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 217,074 $ 207,002
========= =========
</TABLE>
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DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
(Dollars in Thousands) Six Months Ended
----------------------
June 30,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 9,555 $ 13,065
Adjustments to reconcile net income to net cash flows from operating
activities:
Depreciation and amortization 7,008 7,053
Equity in undistributed income of
unconsolidated affiliates (696) (802)
Accounts receivable (5,423) (6,173)
Inventories (5,065) (5,432)
Prepaid expenses and other current assets (161) (168)
Accounts payable 1,603 (4,360)
Accrued liabilities (1,651) (1,710)
Income taxes payable (92) (633)
-------- --------
Net Cash Flows from Operating Activities 5,078 840
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES:
Additions to property, plant and equipment (5,537) (3,427)
Sales-type and operating leases (5,214) (5,407)
Investment in affiliated company (46) (481)
-------- --------
Net Cash from (used for) Investing Activities (10,797) (9,315)
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Borrowing 6,280 2,737
Proceeds from exercise of stock options 586 404
Cash dividends paid (3,268) (3,249)
-------- --------
Net Cash from (used for) Financing Activities 3,598 (108)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (494) (192)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,615) (8,775)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,781 16,519
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,166 $ 7,744
======== ========
</TABLE>
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DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1--BASIS OF PRESENTATION
The information for the six months ended June 30, 1997 and 1996 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
1996 annual report on Form 10-K as filed with the Securities and Exchange
Commission.
The results of operations for the six-month period ending June 30, 1997 are not
necessarily indicative of the results to be expected for the year ended December
31, 1997.
Net income per share has been computed using the weighted-average number of
common shares and common share equivalents outstanding during each period.
Common share equivalents represent the dilutive effect of outstanding stock
options.
In December 1997, the Company will be required to adopt Statement of Financial
Accounting Standard No. 128, "Earnings per Share." The provisions of this
statement will require a change in the method of calculating earnings per share
which will result in an insignificant difference from currently reported
earnings per share.
NOTE 2--INVENTORIES
Inventories by major categories are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Raw materials $18,592,000 $14,896,000
Work in process 17,489,000 17,472,000
Finished goods 10,972,000 10,460,000
----------- -----------
Total $47,053,000 $42,828,000
=========== ===========
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Sales of $46.8 million were achieved in the second quarter of 1997, an 8%
increase over the corresponding 1996 quarter. Record sales for the six months
were $91.2 million, an increase of 5% over 1996. Growth in sales of IMMULITE
instrumentation and reagents was partially offset by the continual decline of
the Company's mature RIA product line.
In periods when the U.S. dollar is strengthening, the effect of the translation
of the financial statements of the consolidated foreign affiliates is that of
lower sales, costs and net income. The stronger U.S. dollar in the second
quarter 1997 and the six months 1997 when compared to the corresponding 1996
periods resulted in lower reported sales of approximately 4% in both periods.
The effect on net income in both periods was less than 1%.
As of April 1, 1997, the Company acquired the distribution rights in France for
the Company's allergy and IMMULITE product lines. The former distributor will
continue to distribute the Company's radioimmunoassay (RIA) product line. Start
up costs for the second quarter for this French subsidiary were approximately
$500,000.
Cost of sales as a percentage of sales was 43% in the second quarter 1997 and
44% in the 1997 six months compared to 42% in the 1996 periods. The increased
1997 costs were primarily the result of the transactional effect of the
strengthening of the U.S. dollar in 1997.
Selling expenditures increased 16% in the 1997 second quarter compared to the
1996 quarter representing 21% and 20% of sales in the 1997 periods compared to
20% and 19% in the 1996 periods. These increased costs are a result of the
continual expansion of the marketing and sales effort, especially for the
IMMULITE system.
Research and development expenses as a percentage of sales were approximately
10% in the 1997 and 1996 periods.
General and administrative expenses as a percentage of sales were 12% in the
1997 periods compared to 9% and 10% in the 1996 periods. The increased costs in
1997 resulted primarily from the loss on the exchange rate recorded by the
European subsidiaries on the strengthening of the U.S. dollar. 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 the
nonconsolidated affiliates, principally the 45%-owned Italian affiliate.
The Company's effective tax rate includes Federal, state and foreign taxes. The
1997 rate of 27% approximates the 1996 rate.
The Company has adequate working capital and sources of capital to carry on its
current business and to meet its existing capital requirements. During the 1997
second quarter the Company increased its unsecured line of credit from $10
million to $20 million and has outstanding borrowing under the line of $6
million at June 30, 1997. Cash flow from operating activities was $5.1 million
in 1997 compared to $.8 million in 1996.
During 1996 and 1997 the Company has paid a quarterly cash dividend of $.12 per
share.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Shareholders was held on May 5, 1997. In
connection with the election of directors, each nominee received the following
votes:
<TABLE>
<CAPTION>
NOMINEE FOR WITHHELD
- ------- ---------- --------
<S> <C> <C>
Sigi Ziering 11,393,588 86,275
Sidney A. Aroesty 11,395,788 84,075
Marilyn Ziering 11,393,063 86,800
Maxwell H. Salter 11,389,067 90,796
James D. Watson 11,395,288 84,575
Michael Ziering 11,396,063 83,800
Frederick Frank 11,395,967 83,896
</TABLE>
The following votes were cast with respect to the approval of the 1997
Stock Option Plan:
<TABLE>
<S> <C>
For: 8,594,228
Against: 1,759,935
Abstain: 69,414
Broker Non-Votes: 1,056,286
</TABLE>
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.
<TABLE>
<S> <C>
DIAGNOSTIC PRODUCTS CORPORATION
(Registrant)
JULY 29, 1997 SIGI ZIERING
- ---------------------------------------- ------------------------------------------
Date Sigi Ziering, Ph.D., Chairman of the Board
Chief Executive Officer
JULY 29, 1997 JULIAN R. BOCKSERMAN
- ---------------------------------------- ------------------------------------------
Date Julian R. Bockserman, Vice President
Chief Financial Officer
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 11,166
<SECURITIES> 0
<RECEIVABLES> 49,339
<ALLOWANCES> 84
<INVENTORY> 47,053
<CURRENT-ASSETS> 111,757
<PP&E> 84,995
<DEPRECIATION> 38,941
<TOTAL-ASSETS> 217,074
<CURRENT-LIABILITIES> 32,250
<BONDS> 0
0
0
<COMMON> 37,170
<OTHER-SE> 147,654
<TOTAL-LIABILITY-AND-EQUITY> 217,074
<SALES> 91,163
<TOTAL-REVENUES> 91,163
<CGS> 39,851
<TOTAL-COSTS> 39,851
<OTHER-EXPENSES> 38,257
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,055
<INCOME-TAX> 3,500
<INCOME-CONTINUING> 9,555
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,555
<EPS-PRIMARY> .69
<EPS-DILUTED> 0
</TABLE>
