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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the year ended December 31, 1996
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _____________
Commission file number 1-9957
Diagnostic Products Corporation
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2802182
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5700 WEST 96TH STREET
LOS ANGELES, CALIFORNIA 90045
(Address of principal executive offices)
Registrant's telephone number: (213) 776-0180
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, no par value New York Stock Exchange
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 ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $333,000,000 as of March 14, 1997.
The number of shares of Common Stock, no par value, outstanding as of March
14, 1997, was 13,612,343.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the 1997 Annual Shareholders Meeting are
incorporated by reference into Part III of this report.
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PART I
ITEM 1. BUSINESS
Diagnostic Products Corporation ("DPC" or the "Company") develops, manufactures
and markets medical immunodiagnostic test kits and related instrumentation which
utilize state-of-the-art technology derived from immunology and molecular
biology. The Company's products are used by hospitals, clinical, veterinary,
research, and forensic laboratories and doctors' offices to obtain precise and
rapid identification and measurement of hormones, drugs, viruses, bacteria and
other substances present in body fluids and tissues at infinitesimal
concentrations. The principal clinical applications of the Company's more than
300 assays (tests) relate to diagnosis of thyroid conditions and anemia; testing
for pregnancy, fertility and fetal well-being; management of diabetes and
certain types of cancer; drugs of abuse testing; rapid diagnosis of infectious
diseases, including sexually transmitted diseases; allergy testing; and
diagnosis of a variety of disorders due to hormone and steroid imbalances. The
Company believes that it is the market leader in fertility testing, with the
most comprehensive line of kits currently available. The Company's kits are used
for in vitro testing, meaning the tests are performed outside of the body,
typically in a test tube. The Company, with its affiliated research and
development and manufacturing facilities in the United Kingdom, Japan, Germany,
China and Italy, markets its products through a national sales force and through
a worldwide distribution network covering 100 countries.
Unless the context otherwise requires, the terms "DPC" and the "Company"
include the Company's consolidated subsidiaries.
THE IMMULITE -- A FULLY INTEGRATED SYSTEM
With the acquisition of Cirrus Diagnostics Inc. in May 1992, the Company entered
the marketplace for fully automated, nonisotopic diagnostic instrumentation
systems, the most rapidly growing segment of the immunoassay market. The
IMMULITE system is an automated, random-access, computer-based instrument which
performs immunoassays utilizing chemiluminescent technology. The IMMULITE system
is totally automated with respect to sample and conjugate handling, incubation,
washing and substrate addition. Printed reports are generated by the system's
external computer for each sample. The system has the potential for total
random-access immunoassays (meaning that the system can perform any test, or
combination of tests, on any patient sample at any time) with capacity for
walk-away processing of up to 120 samples per hour.
Whereas DPC's RIA tests can be performed on equipment manufactured by many
different companies, IMMULITE is a closed system; that is, it can only
accommodate IMMULITE assays. Accordingly, one of the most important factors in
the successful marketing of the IMMULITE system is the ability to offer a broad
menu of assays which can be performed on the system. During 1996, the Company
developed 15 assays for the IMMULITE system, bringing the total number of
IMMULITE assays to 67, 36 of which have been approved by the FDA for marketing
in the United States. DPC currently offers the most complete panel of assays
available in the key areas of thyroid, fertility and cancer testing. IMMULITE
products also include allergy panels and assays for infectious diseases.
IMMULITE reagents and instruments accounted for approximately 50% of total
revenues in 1996.
The patented solid-phase wash technology and chemiluminescent detection
method employed in the IMMULITE system enables the Company to improve the
sensitivity of tests used on the IMMULITE system. An assay's sensitivity is the
smallest amount of a substance which it can detect.
In 1996, DPC introduced the IMMULITE 2000 continuous random access analyzer,
the next step in the evolution of DPC's IMMULITE family. The IMMULITE 2000,
utilizing the same chemiluminescent technology, is a high speed analyzer with a
throughput of up to 200 tests per hour, offering the medium to high-volume
laboratory increased efficiency in streamlining their testing workload. In
addition, this increased throughput will allow DPC to participate in a
higher-volume segment of the market where the average reagent use per analyzer
exceeds that of the present IMMULITE unit. The IMMULITE 2000 includes advanced
features such as primary tube sampling and proprietary auto-dilution capability.
The Company believes that the introduction of the 2000 will complement the
existing IMMULITE and extend its life cycle.
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RIA PRODUCTS
Prior to 1992, DPC's core business was based on RIA (radioimmunoassay)
technology, which utilizes radioisotopes to achieve high levels of test
specificity and sensitivity. RIA tests are labor intensive and must be performed
by skilled technicians. During the 1970's and 1980's, the RIA market increased
significantly and the Company developed one of the most extensive lines of RIA
kits available.
In the early 1980's, the market began to shift to nonisotopic systems based
mainly on florescence (FIA) and enzyme (EIA) labels. Currently, nonisotopic
systems account for approximately 90% of the market. As a result of the
acceptance of the Company's IMMULITE system and other non-isotopic tests, sales
of RIA products fell below 50% of total sales in 1996 for the first time since
inception.
While the immunoassay market is increasing worldwide, the RIA segment of
this market, in general and for DPC, has been decreasing. This decline reflects
concerns regarding the disposal of radioactive materials used in RIA tests and
demands for labor-saving, automated immunodiagnostic systems which utilize
nonisotopic tests. Even though the worldwide market for RIA is contracting, DPC
has continued to achieve good sales levels in this segment and expects RIA to
continue to be an important market for the Company. The Company's strategy for
the RIA market includes the following:
- Exploit markets which have been abandoned by competitors;
- Exploit niche markets by developing products aimed at readily identified
market needs; and
- Exploit certain foreign markets, where demand for RIA tests is still
growing due to the lower labor and reagent costs and the availability of
the gamma counting equipment necessary to perform the tests. See
"Marketing and Sales."
ALLERGY TESTING
An important market segment to which the Company has devoted significant
development and marketing resources is the area of allergy testing. While this
market is dominated by Pharmacia of Sweden, the Company believes that its
technology is competitive in this large and growing market. DPC offers three
distinct methodologies for its AlaSTAT allergy product line based on a patented
liquid-handling technology: (i) the traditional RIA format, (ii) a tube
methodology for smaller laboratories preferring nonisotopic methodologies, and
(iii) a microplate-based system for larger laboratories desiring full
automation. In addition, the IMMULITE system offers a fully automated test for
total IgE, a latex allergy test and a pivotal screening test (AlaTOP), the most
widely used first line test for allergies.
The number of specific allergens which the DPC methodologies can handle is
rapidly expanding. During 1996, DPC obtained FDA approval to market 61 new tests
for allergens in the tube and microplate formats. New products released in 1996
include WinMAX software, which increases the capacity of high-volume instrument
systems, and AlaBLOT, a Western blot technology that helps confirm patient
reactivity to individual allergenic proteins.
RESEARCH AND DEVELOPMENT ACTIVITIES
The Company devotes substantial resources to research and development to update
and improve its existing products, as well as to develop new products. Because
of the importance of being able to offer an extensive menu of assays on the
IMMULITE system, approximately 80% of research and development activities in
1996 related to the development of IMMULITE assays and instrumentation. The
Company expects similar levels in the coming year. The Company conducts research
and development activities at facilities located in Los Angeles, Randolph, New
Jersey, the United Kingdom, Germany, Japan (a 50%-owned joint venture), and
Italy (through its 45%-owned subsidiary). During the years ended December 31,
1994, 1995 and 1996, the Company spent $13,404,000, $16,135,000 and $17,758,000
on research and development, representing approximately 11%, 10% and 10% of
sales.
MANUFACTURING AND SERVICE
The Company's principal test kit manufacturing facility is located in Los
Angeles, California. Approximately 17% of test kit production is conducted at
the EURO/DPC facility in the United Kingdom. The Company's European
manufacturing facilities enable the Company to maintain its competitiveness in
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the EEC by minimizing import duties and freight charges and by reducing the
effects of currency exchange fluctuations. Certain kits are also manufactured in
Japan by the Company's 50%-owned joint venture, and by the DPC Biermann GmbH
facility in Germany.
The IMMULITE system instrumentation is assembled at the Company's facility
in New Jersey. Component parts, such as computer hardware, are supplied by
original equipment manufacturers. The Company provides a one year warranty which
covers parts and labor. The IMMULITE system is certified by Underwriter's
Laboratories Inc. (UL). The Company's and its distributors' technical service
personnel install new units, train customers in the use of the system, and
provide maintenance and service for the instrumentation.
The EURO/DPC Instrumentation Division manufactures diagnostic
instrumentation and develops associated software used in the allergy product
lines. These instruments include the TipTech; the MARK 5, an automated pipettor;
the MicroLite 3 pipetting aid; and the MARK 5 BCR barcode reader. Certain
components of the IMMULITE instrument are also manufactured in Wales.
Certain of the Company's proprietary instruments and software are
manufactured by OEMs, including AlaSTAT Microplate instrumentation, gamma
counters used with RIA tests, and spectrophotometers used with certain EIA
tests. The Company is not dependent on any outside supplier and believes that
alternate sources are readily available.
In 1996, DPC's Los Angeles facility received ISO 9001 certification, an
internationally recognized manufacturing standard. In December 1990, Euro/DPC,
the Company's wholly owned manufacturing subsidiary in Wales, was the first
immunodiagnostics company in the world to be certified under British Standard BS
5750 (also known as International Standard ISO 9002 and European Standard EN
29002), a rigorous British quality assurance program which is the forerunner of
a uniform manufacturing code for the European Economic Community. In 1995, DPC
Cirrus received ISO 9001 certification.
MARKETING AND SALES
The Company markets its diagnostic kits to hospital, clinical, forensic,
research, reference and veterinary laboratories, to doctors' offices, and to
U.S. government agencies. The Company markets its products in the United States
directly to laboratories and hospitals through its own sales force. The Company
sells to the doctors' office market through a network of independent
distributors as well as through its own sales force. Sales personnel and
distributors are trained to demonstrate the Company's product line in the
customer's laboratory and are supported by the Company's Los Angeles and New
Jersey-based technical services departments. Foreign sales are handled by the
Company's distributors including consolidated distributors.
The Company's products are sold on a world-wide basis through distributors
in 100 foreign countries. During 1996, DPC expanded in high growth areas such as
South America (Brazil, Venezuela and Uruguay) and Eastern Europe (Czech
Republic, Croatia, Poland and Slovakia).
The Company's distributors, including consolidated distributors, also sell
other manufacturer's products which are not directly competitive with the
Company's products. Foreign sales (including sales of consolidated subsidiaries)
represented approximately 76% in 1994, 79% in 1995, and 80% in 1996 of total
sales with sales in Europe accounting for approximately 54%, 55% and 51% of
total sales, respectively. See Notes 5 and 10 of Notes to Consolidated Financial
Statements for information regarding foreign operations.
The consolidated financial statements include the accounts of those
distributors in which the Company has a greater than 50% ownership interest. The
Company had sales to nonconsolidated affiliated distributors of $12,119,000 in
1994, $18,504,000 in 1995, and $21,409,000 in 1996, including sales to Medical
Systems S.p.A. (Italy) of $6,005,000 in 1994, $10,034,000 in 1995, and
$11,251,000 in 1996..
Sales of test kits to customers and distributors are made against individual
purchase orders rather than through volume purchase arrangements. Because of the
typically short shelf life of diagnostic kits, the Company's customers and
distributors tend to order frequently, based on their short-term needs. Products
are shipped directly from the Company's facilities in Los Angeles and Wales and
are generally delivered domestically within 24 hours and overseas within 48
hours of receipt of order. The Company sells the IMMULITE instrumentation to
hospitals and reference laboratories which perform volume testing. Most of
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the instruments are placed under a sales-type or operating lease basis. The
Company's backlog at any date is usually insignificant and not a meaningful
indicator of future sales.
Foreign sales are subject to inherent risks including exposure to currency
fluctuations, political and economic instability and trade restrictions. Because
the Company's consolidated foreign distributor's sales are in the local
currency, the Company's consolidated financial results are affected by foreign
currency translation adjustments (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 1 of Notes to
Consolidated Financial Statements). In addition, the price competitiveness of
the Company's products abroad is impacted by the relative strength or weakness
of the U.S. dollar.
PROPRIETARY AND OTHER RIGHTS
Substantially all of the Company's products are based on proprietary
technologies and know-how. The Company holds patents on the washing process used
in the IMMULITE system which expire in 2009. In 1988, the Company was issued a
U.S. patent for its novel liquid-based amplification methodology which forms the
basis of the AlaSTAT product lines. The Company also holds a patent for its
neonatal test kit procedure which expires in 1998. The Company also obtains
licenses for chemical components and technologies used in certain of its assays.
Patents which may be granted to others in the future could inhibit the
Company's expansion or entry into certain areas, or require it to pay royalty
fees to do so. Because of rapid technological developments in the
immunodiagnostic industry with concurrent extensive patent coverage and the
rapid rate of issuance of new patents, certain of the Company's products may
involve controversy concerning infringement of existing patents or patents which
may be issued in the future.
The Company purchases certain chemical compounds which are key components in
the IMMULITE system pursuant to agreements effective February 9, 1995 with
Lumigen, Inc. and Tropix, Inc. The Company has the right for ten years to
purchase certain specified chemical compounds from Lumigen or, in certain
circumstances, from Tropix, which are the sole suppliers of these chemical
compounds. Tropix also agreed to supply the Company with certain other chemical
compounds for use in veterinary kits for ten years. Upon expiration of the ten
year supply agreement, the Company believes it will either use an alternate
technology or it will enter into a new supply arrangement.
GOVERNMENT REGULATION
The Company's business is affected by government regulations both in the United
States and abroad, in particular Western Europe, aimed at containing the cost of
medical services. These regulations have generally had the effect of inhibiting
the traditionally robust growth rate of the immunodiagnostic industry. In
particular, the profitability of the Company's Italian distributor (in which the
Company has a 45% interest) has been adversely affected by government reductions
in health care cost reimbursements. Similar reductions could affect other major
European markets. The Company believes that in vitro diagnostic (IVD) testing is
an important tool for reducing health expenditures. By providing early diagnosis
and therapy management, IVD tests can reduce the high costs of hospitalization,
surgery and recovery. In response to cost containment measures, hospitals and
laboratories have consolidated and have sought to increase productivity by
replacing high cost labor with automated testing systems. The Company's
IMMULITE system addresses these market needs. The Company also seeks to develop
more rapid and sensitive tests which can eliminate the need for redundant
testing, such as DPC's Third Generation TSH assay.
Manufacturers of immunodiagnostic tests and other clinical products intended
for use as human diagnostics are governed by FDA regulations as well as
regulations of state agencies and foreign countries. A new in vitro product that
is "substantially equivalent" to one already on the market can generally be sold
in the United States after it is cleared for marketing by the FDA. Most of the
Company's products fall within the "substantially equivalent" category. Certain
medically critical in vitro diagnostic products and totally new in vitro
diagnostic products for which there are no equivalents on the market, must be
cleared by the FDA after in-depth review which normally takes about two years
prior to marketing. The
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Company's products can be marketed without regulatory approval in most foreign
countries. Japan and France have their own approval procedures.
The Company's Los Angeles manufacturing facilities are licensed by the
California Department of Health Services and must be operated in conformance
with the FDA's Good Manufacturing Practices governing medical devices. The
Company is regulated by the California Department of Health Services with
respect to its possession and use of radioactive substances and by the U.S. Drug
Enforcement Agency with respect to the use and storage of controlled drugs and
pharmaceuticals.
COMPETITION
The Company competes on a worldwide basis with a number of large corporations
which sell diversified lines of products, including immunodiagnostic products,
for laboratory, medical and hospital use, and which have substantially greater
resources than the Company. There are currently over 30 domestic suppliers of
immunodiagnostic kits. Most of the leading suppliers are broad-based health care
companies such as Abbott Diagnostics (Abbott Laboratories), Chiron and Johnson &
Johnson. The Company's major competitors in Europe include Pharmacia/Upjohn
(Sweden), Hoffman-La Roche (Switzerland) and Boehringer Mannheim (Germany). The
Company believes that competition with respect to immunoassay tests is based on
quality, service, product convenience and price, and that product innovation is
an important source for change in market share.
Many companies worldwide manufacture and sell automated immunodiagnostic
systems. The Company's principal competitors are Abbott Diagnostics, Chiron,
Sanofi, and Bayer. Abbott Diagnostics is the market leader in nonisotopic assays
and semiautomated instruments. Most of these companies are substantially larger
and have greater resources than the Company. The principal competitive factors
in automated systems are size of menu (the number of assays which can be
performed on the system), ease of use, and price (equipment cost, service and
reagent cost). The Company's IMMULITE System currently offers one of the widest
menus of any automated system and the Company is focusing its development
efforts on expanding this menu.
EMPLOYEES
As of December 31, 1996, the Company (including its consolidated subsidiaries)
had 1325 employees, including 564 in manufacturing, 238 in research and
development, 330 in marketing and sales and 193 in administration. None of the
Company's employees are represented by a labor union and the Company considers
its employee relations to be good. The Company has experienced no significant
problems in recruiting qualified technical and operational personnel.
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ITEM 2. PROPERTIES
The following is a list of significant properties owned and leased by the
Company and its consolidated subsidiaries as of December 31, 1996:
<TABLE>
<CAPTION>
Location Size Owned/Leased Uses
- -------- ---- ------------ ----
<S> <C> <C> <C>
Los Angeles, California 116,000 sq. ft. Leased * Corporate offices, manufacturing, warehousing,
distribution, and research and development
Los Angeles, California 48,000 sq. ft. Owned Adjacent to Corporate Offices,
manufacturing and warehousing
Gorman, California 40 acres Owned Raw material processing
Randolph, New Jersey 33,000 sq. ft. Leased Research, manufacturing and
distribution
Glyn Rhonwy, Wales, UK 110,000 sq. ft. Owned Research, manufacturing and
distribution
Bad Nauheim, Germany 28,675 sq. ft. Owned Research and distribution
Humbeek-Grimbergen, Belgium 5,000 sq. ft. Owned Distribution
Apeldoorn, Netherlands 10,500 sq. ft. Owned Distribution
Breda, Netherlands 7,000 sq. ft. Leased Distribution
Madrid, Spain 10,161 sq. ft. Leased Distribution
Melbourne, Australia 7,600 sq. ft. Owned Distribution
</TABLE>
- ---------------
* Lease payments of $879,000 in 1996. Lease expires at December 31, 1997,
with a five-year renewal option. See "Item 13. Certain Relationships and
Related Transactions".
The Company believes that its facilities are adequate to meet its
foreseeable needs.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the last fiscal year, no matter was submitted to a
vote of the security holders.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is listed on the New York Stock Exchange and is
traded under the symbol DP.
The following table sets forth the quarterly high and low price of the
Company's Common Stock and quarterly dividends per share paid during 1996 and
1995.
<TABLE>
<CAPTION>
1996
---------------------------------------------
High Low Dividend
-------- -------- --------
<S> <C> <C> <C>
First Quarter $ 40 5/8 $ 34 1/2 $ .12
Second Quarter 42 7/8 36 7/8 .12
Third Quarter 39 5/8 33 5/8 .12
Fourth Quarter 37 3/4 25 .12
</TABLE>
<TABLE>
<CAPTION>
1995
---------------------------------------------
High Low Dividend
-------- -------- --------
<S> <C> <C> <C>
First Quarter $ 34 3/4 $ 24 1/4 $ .10
Second Quarter 40 3/8 34 .12
Third Quarter 44 7/8 35 3/4 .12
Fourth Quarter 39 1/4 33 1/2 .12
</TABLE>
As of March 14, 1997, the Company had 529 holders of record of its Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
(In Thousands, except per Share Data)
INCOME STATEMENT DATA
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales $103,489 $106,791 $126,453 $159,649 $176,832
Net income 17,289 14,166 16,700 24,169 22,947
Net income per share 1.26 1.04 1.24 1.75 1.65
Average shares outstanding 13,706 13,627 13, 508 13,847 13,926
Dividends per share $ .32 $ .40 $ .40 $ .46 $ .48
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Working capital $ 55,534 $ 54,260 $ 60,704 $70,539 $81,563
Total assets 134,323 137,149 152,735 189,462 207,002
Shareholders' equity 119,544 123,273 135,100 163,350 182,287
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's sales increased 11% in 1996 to $177 million, following a 26%
increase in 1995 to $160 million. Notwithstanding the continuing severe
restrictions placed worldwide on health care expenditures, the Company reported
double-digit 1996 and 1995 sales increases principally as a result of the
increased worldwide acceptance of the fully automated, random access IMMULITE
system. In 1996, the Company shipped approximately 800 IMMULITE units bringing
the cummulative total shipped to 2,400 units. The IMMULITE system is expected to
continue to account for the greatest amount of growth of all the Company's
product lines for the foreseeable future. IMMULITEreagents and instruments
accounted for approximately 50% of total sales in 1996. The Company introduced
the next generation IMMULITE 2000 system in 1996 and expects this product to
contribute to sales in the second half of 1997.
Although RIA kits continue to generate profitable sales, this product line
has matured and on a worldwide basis is experiencing a slow decline. Sales
growth from IMMULITE products in 1995 and 1996 were, and in the future are
expected to be, partially offset by declines in RIA sales. In 1996,
approximately 80% of the Company's sales were non-US (compared to 79% in 1995
and 76% in 1994), with Europe being the Company's principal foreign market,
accounting for 51% of total sales (compared to 55% in 1995 and 54% in 1994). The
Company is also expanding into the growing markets of South America, Eastern
Europe and the Far East.
In periods when the US dollar is strengthening, the effect of the
translation of the financial statements of the consolidated foreign affiliates
is that of lower sales and net income. The stronger US dollar in 1996 (when
compared to 1995) has resulted in lower reported sales and net income of
approximately 1%. The weaker US dollar in 1995 when compared to 1994 resulted in
higher reported 1995 sales of 5% and higher net income of 3%.
In 1996, cost of sales as a percentage of sales was 43% compared to 44% in
1995 and 1994. Lower margin instrument sales as a percentage of sales will
continue to increase so that it is unlikely that gross margins will return to
the historical levels achieved when the Company was primarily a reagent
manufacturer.
Selling expense as a percentage of sales was 20% in 1996, 18% in 1995 and
19% in 1994. The major component of this increase was due to the inclusion of
the Brazilian distributor (acquired September 1, 1995) for all of 1996 but only
four months in the 1995 period. The remainder of the increased costs are a
result of the continued expansion of the marketing and sales effort for the
IMMULITE product line and in preparation for the launch of the IMMULITE 2000 in
1997.
Research and development expenditures as a percentage of sales were 10% in
1996 and 1995 and 11% in 1994. The dollar amount of these expenditures have
increased to support the IMMULITE systems.
General and administrative expenses as a percentage of sales were 11% in
1996, 9% in 1995 and 11% in 1994. The major component of this increase was due
to the inclusion of the Brazilian distributor (acquired September 1, 1995) for
all of 1996 but only four months in the 1995 period. Included in general and
administrative expenses is the amortization of the excess of cost over net
assets acquired (1994, $888,000; 1995, $920,000 and 1996, $984,000) and in 1995
and 1996 minority interest (1995, $246,000; 1996, $513,000).
Equity in income of affiliates represents the Company's share of earnings of
nonconsolidated affiliates, principally the 45%-owned Italian affiliate whose
1996 net income was higher than in 1995. Profitability in previous years in
Italy had been adversely influenced by reduced sales caused by serious economic
problems and reductions in health care cost reimbursements.
Investment income consists of interest income on the Company's cash and cash
equivalents and interest on equipment contracts.
The Company's effective tax rate includes Federal, state and foreign taxes.
The 1996 rate of 28% compares to 26% in 1995 and 1994. The lower rate in 1995
and 1994 results principally from the benefit of state net operating loss
carryforwards for DPC Cirrus and foreign tax credits, respectively.
The Company has adequate working capital and sources of capital (including
an unused $10 million unsecured line of credit) to carry on its current business
and to meet its existing capital requirements. Cash flow from operating
activities was $18.7 million in 1996, $23.6 million in 1995 and $20.7 million in
1994.
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Cash flow used for plant and equipment additions and renovations was $8 million
in 1996, $8.1 million in 1995 and $4.5 million in 1994. Cash flow used for
sales-type and operating leases was $11.9 million in 1996, $11.5 million in 1995
and $6.2 million in 1994.
During 1994 and the first quarter of 1995, the Company paid a cash dividend
of $.10 per share. Commencing with the second quarter of 1995, the quarterly
dividend was increased to $.12 per share. During 1994, the Company repurchased
190,800 shares of its Common Stock in the open market at a cost of $3,728,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 for a listing of the consolidated financial statements and
supplementary data filed with this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The required information is hereby incorporated herein by reference to the
sections entitled "Election of Directors" and "Executive Officers" of the
Company's Proxy Statement for the 1997 Annual Shareholders Meeting.
ITEM 11. EXECUTIVE COMPENSATION
The required information is hereby incorporated herein by reference to the
sections entitled "Election of Directors-Compensation of Directors", "Executive
Compensation" and "Compensation and Stock Option Committee Interlocks and
Insider Participation" of the Company's Proxy Statement for the 1997 Annual
Shareholders Meeting.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The required information is hereby incorporated herein by reference to the
section entitled "Ownership of Common Stock" of the Company's Proxy Statement
for the 1997 Annual Shareholders Meeting.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The required information is hereby incorporated herein by reference to the
second paragraph of the section entitled "Compensation and Stock Option
Committee Interlocks and Insider Participation" of the Company's Proxy Statement
for the 1997 Annual Shareholders Meeting.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of Report:
1. Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1995, and 1996.
Consolidated Statements of Income for the three years ended
December 31, 1996. Consolidated Statements of Shareholders' Equity
for the three years ended December 31, 1996.
Consolidated Statements of Cash Flows for the three years ended
December 31, 1996.
Notes to Consolidated Financial Statements
2. Supplementary Financial Data.
3. Exhibits - See "Exhibit Index" which appears after the signature page
of this report.
(b) Reports on Form 8-K - None.
11
<PAGE> 13
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders:
We have audited the accompanying consolidated balance sheets of Diagnostic
Products Corporation and its subsidiaries as of December 31, 1995 and 1996, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Diagnostic Products Corporation and
its subsidiaries at December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
February 19, 1997
12
<PAGE> 14
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------------
1995 1996
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 16,519 $ 13,781
Accounts receivable--net of allowance
for doubtful accounts of $77 and $76 40,802 45,631
Inventories 35,521 42,828
Prepaid expenses and other current assets 358 375
Deferred income taxes 3,451 3,663
-------- --------
Total current assets 96,651 106,278
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 27,553 29,195
Machinery and equipment 38,607 46,043
Leasehold improvements 6,635 6,701
Construction in progress 836 700
-------- --------
Total 73,631 82,639
Less accumulated depreciation and amortization 31,707 37,192
-------- --------
Property, plant and equipment-- net 41,924 45,447
SALES-TYPE AND OPERATING LEASES 18,128 22,056
DEFERRED INCOME TAXES 3,200 2,772
INVESTMENTS IN AFFILIATED COMPANIES 13,279 15,666
EXCESS OF COST OVER NET ASSETS ACQUIRED --
Net of amortization of $5,373 and $6,357 16,280 14,783
-------- --------
TOTAL ASSETS $189,462 $207,002
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES:
Notes payable $ 4,005
Accounts payable $ 16,969 13,024
Accrued liabilities 5,708 6,057
Income taxes payable 3,435 1,629
-------- --------
Total current liabilities 26,112 24,715
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock-no par value, authorized 30,000,000
shares at December 31, 1995 and 1996; outstanding
13,524,051 shares and 13,597,124 shares. 35,179 36,584
Retained earnings 131,136 147,579
Foreign currency translation adjustments (2,965) (1,876)
-------- --------
Total shareholders' equity 163,350 182,287
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $189,462 $207,002
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
13
<PAGE> 15
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, except per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
SALES $126,453 $159,649 $176,832
COSTS AND EXPENSES:
Cost of sales 55,836 70,528 76,698
Selling 23,481 29,188 35,135
Research and development 13,404 16,135 17,758
General and administrative 13,303 14,454 18,605
Equity in income of affiliates (1,592) (1,407) (1,605)
Investment income (619) (1,828) (1,486)
-------- -------- --------
Total costs and expenses 103,813 127,070 145,105
-------- -------- --------
INCOME BEFORE INCOME TAXES 22,640 32,579 31,727
PROVISION FOR INCOME TAXES 5,940 8,410 8,780
-------- -------- --------
NET INCOME $ 16,700 $ 24,169 $ 22,947
======== ======== ========
NET INCOME PER SHARE $1.24 $1.75 $1.65
WEIGHTED AVERAGE SHARES
AND EQUIVALENTS OUTSTANDING 13,508 13,847 13,926
</TABLE>
SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
14
<PAGE> 16
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common Stock
----------------------------- Retained
Shares Amount Earnings
---------- ------- --------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1994 13,083,980 $30,623 $101,546
Issuance of shares upon exercise of stock options 59,700 439
Repurchase and retirement of shares (190,800) (3,728)
Cash dividends ($.40 per share) (5,205)
Net income 16,700
---------- ------- --------
BALANCE, DECEMBER 31, 1994 12,952,880 27,334 113,041
Issuance of shares upon exercise of stock options 571,171 7,845
Cash dividends ($.46 per share) (6,074)
Net income 24,169
---------- ------- --------
BALANCE, DECEMBER 31, 1995 13,524,051 35,179 131,136
Issuance of shares upon exercise of stock options 73,073 1,405
Cash dividends ($.48 per share) (6,504)
Net income 22,947
---------- ------- --------
BALANCE, DECEMBER 31, 1996 13,597,124 $36,584 $147,579
========== ======= ========
</TABLE>
SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
15
<PAGE> 17
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $16,700 $24,169 $22,947
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 8,107 11,155 14,440
Equity in undistributed income of
unconsolidated affiliates (1,524) (504) (1,906)
Accounts receivable (5,423) (6,343) (5,373)
Inventories (655) (6,715) (6,956)
Prepaid expenses and other current assets 228 625 (17)
Deferred income taxes 441 (1,991) 216
Accounts payable 940 (5,545) (3,490)
Accrued liabilities 1,448 584 349
Income taxes payable 404 2,564 (1,767)
Income tax benefit received upon exercise
of certain stock options 38 5,604 294
------- ------- -------
Net cash flows from operating activities 20,704 23,603 18,737
CASH FLOWS FROM (USED FOR)
INVESTING ACTIVITIES:
Additions to property, plant and equipment (4,528) (8,060) (8,010)
Sales-type and operating leases (6,201) (11,510) (11,923)
Investment in affiliated companies (1) (481)
------- ------- -------
Net cash from (used for) investing activities (10,729) (19,571) (20,414)
CASH FLOWS FROM (USED FOR)
FINANCING ACTIVITIES:
Borrowing 4,086
Proceeds from exercise of stock options 401 2,241 1,111
Cash dividends paid (5,205) (6,074) (6,504)
Repurchase of common stock (3,728)
------- ------- -------
Net cash from (used for) financing activities (8,532) (3,833) (1,307)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH 506 1,487 246
------- ------- -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,949 1,686 (2,738)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 12,884 14,833 16,519
------- ------- -------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $14,833 $16,519 $13,781
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the year for income taxes $ 4,754 $ 3,098 $ 9,863
======= ======= =======
BUSINESS ACQUISITION:
Fair value of assets acquired $10,741
Liabilities assumed (10,740)
-------
Cash paid $ 1
=======
</TABLE>
SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
16
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Diagnostic
Products Corporation and its majority-owned subsidiaries after elimination of
intercompany accounts and transactions. Investments in non-majority-owned
companies are accounted for using the equity method.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's future operating results are dependent on its ability to research,
develop, manufacture and market innovative products that meet customers' needs.
Inherent in this process are a number of risks that the Company must
successfully manage in order to achieve favorable operating results.
The Company's products which are sold in the United States, whether
manufactured in the United States or elsewhere require product clearance by the
United States Food and Drug Administration.
The operations of the Company involve the use of substances regulated under
various Federal, state and international laws governing the environment.
Environmental costs are presently not material in the Company's operations or
financial position.
A portion of the Company's research and development activities, its
corporate headquarters and other manufacturing operations are located near major
earthquake faults. The ultimate impact on the Company is unknown, but operating
results could be materially affected in the event of a major earthquake. The
Company is partially insured for such losses and interruptions caused by
earthquakes.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Although the Company believes that it has the products and resources needed
for continuing success, future revenue and margin trends cannot be reliably
predicted and may cause the Company to adjust its operations. Because of the
foregoing factors, recent trends should not be considered reliable indicators of
future financial performance.
BASIS OF PRESENTATION
A recently adopted financial accounting standard requires the review of
long-lived assets and certain identifiable intangibles for impairment whenever
events or changes in circumstance indicate that the carrying amount of an asset
may not be recoverable. An impairment loss is recognized when the sum of the
future cash flows is less than the carrying amount of the asset. Adoption of the
standard during the year ended December 31, 1996 did not have a material effect
on the Company's financial statements.
CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash equivalents and trade receivables. The Company's
cash equivalents are in high quality securities placed with major banks.
Concentrations of credit risk with respect to receivables are limited due to the
large number of customers and their dispersion across worldwide geographic
areas. The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral.
17
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NET INCOME PER SHARE
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.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents. Included in cash and cash
equivalents at December 31, 1995 and 1996 is $12,600,000 and $5,300,000 of
short-term commercial paper. The carrying value of the cash and cash equivalents
approximates fair value.
INVENTORIES
Inventories are stated at the lower of cost, determined on the first-in,
first-out basis, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost, less accumulated depreciation
and amortization which is computed using straight-line and declining-balance
methods over the estimated useful lives (5 to 50 years) of the related assets.
Leasehold improvements are amortized over the shorter of their estimated useful
lives or the term of the lease.
INVESTMENTS IN AFFILIATED COMPANIES
Investments in affiliated companies represent equity investments in foreign
distributors in which the Company owns a 50% or less equity interest. The
investments are stated at cost plus advances, plus the Company's equity in the
undistributed net income since acquisition, less amortization of the excess of
cost over the net assets acquired.
EXCESS OF COST OVER NET ASSETS ACQUIRED
Excess of cost over net assets acquired arose as a result of the purchase of
certain of the Company's foreign distributors. The excess of cost over net
assets acquired is being amortized over 20 years using the straight-line method.
The Company periodically reviews excess cost over net assets acquired to assess
recoverability; impairments would be recognized in operating results if a
permanent diminution in value were to occur.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries and affiliates are translated
into U.S. dollars at the exchange rate prevailing at the balance sheet date, and
income and expense accounts at the weighted average rate in effect during the
year.
18
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOREIGN EXCHANGE INSTRUMENTS
The Company hedges specific foreign currency exposures by purchasing foreign
exchange contracts. Such foreign exchange contracts are generally entered into
by the Company's European subsidiaries. The subsidiaries purchase forward dollar
contracts to hedge firm commitments to acquire inventory for resale. The Company
does not engage in speculation. The Company's foreign exchange contracts do not
subject the Company to exchange rate movement risk as any gains or losses on
these contracts are offset by gains or losses on the transactions being hedged.
The foreign exchange contracts have varying maturities which generally do not
exceed one year. At December 31, 1995 and 1996, the Company had approximately
$15,000,000 and $7,000,000 of foreign exchange contracts outstanding, the
carrying value of which does not differ significantly from their fair value.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
INCOME TAXES
Deferred income taxes represent the tax consequences on future years of
differences between the income tax basis of assets and liabilities and their
basis for financial reporting purposes.
NOTE 2 - BUSINESS ACQUISTIONS
As of September 1, 1995, the Company acquired a 56% equity interest in DPC
Medlab Produtos Medico Hospitalares Ltda., the Company's Brazilian distributor.
As of March 1, 1996, the Company acquired a 50% equity interest in D.P.C.-N.
Tsakiris S.A., the Company's Greek distributor.
NOTE 3 - INVENTORIES
Inventories by major categories are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31,
----------------------------
1995 1996
------- -------
<S> <C> <C>
Raw materials $11,414 $14,896
Work in process 14,567 17,472
Finished goods 9,540 10,460
------- -------
$35,521 $42,828
======= =======
</TABLE>
19
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - SALES-TYPE AND OPERATING LEASES
In addition to outright sales, the Company places IMMULITE instruments with
customers under sales-type and operating leases for periods generally from three
to five years.
For operating leases, the cost of the equipment is amortized on a
straight-line basis over three to five years.
Sales-type and operating leases are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31,
-----------------------------
1995 1996
------- -------
<S> <C> <C>
Sales-type leases $ 5,472 $ 5,437
Operating leases 20,697 32,210
Less accumulated amortization 8,041 15,591
------- -------
Net 12,656 16,619
------- -------
Total $18,128 $22,056
======= =======
</TABLE>
NOTE 5 - INVESTMENT IN AFFILIATED COMPANIES
The Company has equity interests in four non-consolidated foreign affiliates.
The affiliates distribute the Company's products in their countries. The
countries and the Company's ownership interest are as follows: Portugal, 40%;
Italy, 45%; Sweden, 50%; and Greece, 50%.
The Company has a joint venture formed for the purpose of marketing and
manufacturing the Company's immunodiagnostic test kits in Japan. The joint
venture (Nippon DPC Corporation), owned equally by the Company and Dainippon Ink
and Chemicals, Incorporated is being funded with capital contributed and debt
guaranteed by Dainippon Ink and Chemicals, Incorporated and technology by the
Company.
The following represents condensed financial information for all of the
Company's investments in non-consolidated affiliated companies, and the results
of their operations.
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31,
---------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Current assets $41,595 $45,577 $45,764
Property and other assets 26,653 33,377 40,587
------- ------- -------
Total assets $68,248 $78,954 $86,351
======= ======= =======
Current liabilities $31,084 $37,019 $34,945
Non-current liabilities 14,626 14,771 19,998
Shareholders' equity 22,538 27,164 31,408
------- ------- -------
Total liabilities and
shareholders' equity $68,248 $78,954 $86,351
======= ======= =======
Sales $58,471 $61,218 $63,340
======= ======= =======
Net income $ 3,971 $ 3,619 $ 2,507
======= ======= =======
</TABLE>
20
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company had sales to non-consolidated affiliates of $12,119,000 in 1994,
$18,504,000 in 1995 and $21,409,000 in 1996, including sales to one affiliate
(Italy) of $6,005,000 in 1994, $10,034,000 in 1995 and $11,251,000 in 1996.
Included in the Company's accounts receivable are trade receivables from
non-consolidated affiliates of $6,016,000 at December 31, 1995 and $11,078,000
at December 31, 1996.
The Company received dividends in 1994 of $872,000 from its Italian
affiliate. The Company's cumulative equity in undistributed earnings of
non-consolidated affiliated companies at December 31, 1996 is $13,474,000.
Deferred taxes are not provided for undistributed earnings as these amounts are
intended to be reinvested.
NOTE 6 - PENSION AND PROFIT SHARING PLANS
The Company has a money purchase pension plan covering substantially all U.S.
employees over 21 years of age. Contributions under the pension plan are made
annually in an amount equal to 10% of the compensation of all participants for
such year. Contributions to the pension plan were $1,469,000 in 1994, $1,883,000
in 1995, and $2,202,000 in 1996.
The Company has a profit sharing plan covering substantially all U.S.
employees over 21 years of age. Contributions under the profit sharing plan for
any year are made at the discretion of the Board of Directors of the Company,
but not in excess of 15% of the compensation of all participants for such year.
The contribution to the profit sharing plan was $479,000 in 1994 and $391,000 in
1995. There was no contribution in 1996.
NOTE 7 - INCOME TAXES
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) Year Ended December 31,
----------------------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
CURRENTLY PAYABLE:
Federal $ 3,194 $ 7,076 $ 6,157
State 737 220 730
Foreign 1,568 3,105 1,677
Deferred federal and
state income taxes 441 (1,991) 216
------- ------- -------
Total provision for income taxes $ 5,940 $ 8,410 $ 8,780
======= ======= =======
</TABLE>
Temporary differences comprising the net deferred taxes shown on the
consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31,
---------------------------
1995 1996
------- -------
<S> <C> <C>
State income taxes $ 19 $ 695
DPC Cirrus' net operating losses 2,501 1,591
Inventory 2,650 2,613
Depreciation 612 820
Other 869 716
------- -------
Total $ 6,651 $ 6,435
======= =======
</TABLE>
21
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Included in the net deferred income taxes shown on the consolidated balance
sheets for 1995 and 1996 are deferred tax assets of $6,832,000 and $6,646,000
and deferred tax liabilities of $181,000 and $211,000.
At December 31, 1996, DPC Cirrus had net operating loss carryforwards for
Federal and state income tax purposes of approximately $3,433,000 and $4,288,000
expiring at varying dates through 2001. Utilization of the Federal net operating
losses are subject to annual limitations of approximately $2,000,000.
The Federal and state income tax asset related to DPC Cirrus' net operating
losses has been recorded in the accompanying consolidated financial statements.
This reflects the Company's belief, on the basis of available evidence, that the
DPC Cirrus net operating loss carry forwards will be realized.
A reconciliation between the provision for income taxes computed by applying
the federal statutory tax rate to income before income taxes and the actual
provision for income taxes is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Year Ended December 31,
----------------------------------------------------
1994 % 1995 % 1996 %
------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Provision for income taxes at statutory rate $7,924 35 $11,403 35 $11,104 35
State income taxes, net of federal tax benefit 479 2 (1,440) (4) 397 1
Foreign income subject to tax other than
federal statutory rate 577 2 23 (487) (2)
Non-taxable earnings of FSC (904) (4) (1,013) (3) (1,073) (3)
Research and development tax credit (175) (1) (247) (1) (188)
Net foreign tax credit (1,768) (8) (111) (244) (1)
Equity in income of affiliates (557) (2) (492) (2) (562) (2)
Other 364 2 287 1 (167)
------------ ------------- -----------
Provision for income taxes $5,940 26 $ 8,410 26 $8,780 28
============ ============= ===========
</TABLE>
An income tax benefit during 1994, 1995 and 1996 related to the exercise or
early disposition of certain stock options reduced income taxes currently
payable by $38,000, $5,604,000 and $294,000 and was credited directly to
shareholders' equity.
NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES
The Company has entered into a noncancelable operating lease for a portion of
its Los Angeles manufacturing facility with a partnership comprised of two
officers/shareholders of the Company and their four children, who are also
shareholders and one of whom is an officer and a director. The agreement extends
through December 31, 1997, with a five-year renewal option. Approximately
$818,000 in 1994, $849,000 in 1995 and $879,000 in 1996 was paid under the
facility lease agreement.
DPC Cirrus has entered into a noncancelable operating lease for its
Randolph, New Jersey manufacturing facility. The agreement extends through
November 30, 2002, with a five-year renewal option. Future minimum lease
commitments as of December 31, 1995 for both leases are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1998 1999 2000 2001 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,085 $ 206 $ 206 $ 206 $ 206 $ 189 $ 2,098
</TABLE>
Rental expense under operating leases approximated $1,340,000 in 1994,
$1,527,000 in 1995 and $1,783,000 in 1996.
Notes payable includes a borrowing ($3,788,000 at 5.5% interest) by the
Company's German subsidiary, due in semi-annual installments through March 2006
collateralized by certain buildings at that facility.
22
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Also included in notes payable is a working capital borrowing ($217,000 at
12% interest) by the Company's China subsidiary collateralized by the building
of that facility.
The Company has a supply contract with a vendor for chemical compounds,
which are key components in the IMMULITE system. For several years the vendor
had been involved in multiple legal proceedings both domestically and
internationally with another company, which had challenged the vendor's patent
and other rights to these compounds and other technology. Pursuant to a 1995
settlement agreement, the Company will have the right for ten years to purchase
the chemical compounds currently in use. As part of the agreement, the Company
will guaranty the vendor's minimum payment obligations to the other company in
the amount of $1,000,000 in each of 1995 and 1996 and $600,000 in each of the
next eight years. There were no amounts disbursed in 1995 or 1996 under the
guaranty.
NOTE 9 - STOCK OPTION PLANS
Under the Company's stock option plans, incentive stock options may be granted
and are exercisable at prices not less than 100% of the fair market value on the
date of the grant (110% with respect to optionees who are 10% or more
shareholders of the Company). Under the plans, non-qualified stock options may
be granted and are exercisable at prices not less than 85% of fair market value
at the date of grant. Options become exercisable after one year in installments
(3 to 9 years) and may be exercised on a cumulative basis at any time before
expiration. Options expire no later than ten years from the date of grant (five
years with respect to optionees who are 10% or more shareholders). The following
table summarizes option activity for the plans:
<TABLE>
<CAPTION>
Option prices Shares
---------------- ---------
<S> <C> <C>
OPTIONS OUTSTANDING, JANUARY 1, 1994 3.16 - 39.125 1,020,971
Options granted 18.50 - 23.50 107,500
Options exercised 4.375 - 19.00 (59,700)
Options canceled 7.625 - 28.50 (73,450)
---------------- ---------
OPTIONS OUTSTANDING, DECEMBER 31, 1994 3.16 - 39.125 995,321
Options granted 25.25 - 40.00 152,000
Options exercised 3.16 - 28.375 (158,491)
Options canceled 16.25 - 28.375 (29,220)
---------------- ---------
OPTIONS OUTSTANDING, DECEMBER 31, 1995 $ 10.375 - 40.00 959,610
Options granted 25.50 - 41.875 104,500
Options exercised 10.375 - 27.875 (53,073)
Options canceled 19.00 - 38.50 (29,524)
---------------- ---------
OPTIONS OUTSTANDING, DECEMBER 31, 1996 $10.375 - 41.875 981,513
================ =========
</TABLE>
In November 1985, the Company granted to its Chief Executive Officer, a
non-qualified, 10-year stock option for 500,000 shares at $7.50 per share (fair
market value at date of grant). The option was exercised during 1995.
During 1995, 103,320 shares of outstanding Common Stock were received by the
Company as consideration for the exercise of options for 509,800 shares.
During 1995, options for 152,000 shares were granted at a weighted average
price of $34.73. During 1996, options for 104,500 shares were granted at a
weighted average price of $33.36.
23
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1996 the Company had a non-qualified option outstanding for
50,000 shares under a separate agreement at an exercise price of $30.75 per
share.
Pursuant to the plans and the separate agreement, 1,071,254 shares of common
stock are reserved for issuance upon the exercise of options and options for
429,453 shares were exercisable at December 31, 1996.
The Company has adopted the disclosure-only provisions of the accounting
standard, "Accounting for Stock-Based Compensation." Accordingly, no
compensation expense has been recognized for the 1995 and 1996 stock option
grants. The fair value of options granted during 1995 and 1996 on the date of
grant is estimated as $13.39 (1995) and $10.35 (1996) using the Black-Scholes
option-pricing model with the following assumptions: dividend yield 1.6%,
volatility 22.7%, risk-free interest rates from 5.7% to 6.9%, forfeiture rate of
16.4% and expected life of 3 to 10 years. Pro-forma compensation expense did not
affect net income per share in 1995 or 1996.
24
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SEGMENT INFORMATION
The Company manufactures and sells medical diagnostic kits and related
instrumentation. The kits and instruments are sold to hospitals, medical
centers, clinics, physicians, and other clinical laboratories. The Company's
operating locations include the United States, Europe (United Kingdom, Germany,
Czech Republic, Poland, Spain, Netherlands, Belgium, Luxembourg, Finland), and
Rest of World (Australia, China, Brazil). The Company's operations and
identifiable assets by geographical area are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31, 1994
-------------------------------------------------------------------
Rest
United States Europe of World Eliminations Consolidated
------------- ------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales $ 67,716 $ 52,933 $ 5,804 $126,453
Transfer between geographical areas 18,620 2,040 (20,660)
-------- -------- ------- --------- --------
Net sales $ 86,336 54,973 $ 5,804 $ (20,660) $126,453
======== ======== ======= ========= ========
Operating income,
before equity in income of
affiliates $ 19,837 $ 691 $ 520 $ 21,048
======== ======== ======= ========= ========
Identifiable assets $ 73,604 $ 65,370 $9,889 $ (8,903) $139,960
======== ======== ======= =========
Investment in affiliates 12,775
--------
$152,735
========
</TABLE>
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31, 1995
-------------------------------------------------------------------
Rest
United States Europe of World Eliminations Consolidated
------------- ------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales $ 78,293 $ 70,081 $ 11,275 $159,649
Transfer between geographical areas 25,165 3,930 (29,095)
-------- -------- ------- --------- --------
Net sales $103,458 $ 74,011 $ 11,275 $ (29,095) $159,649
======== ======== ======= ========= ========
Operating income,
before equity in income of
affiliates $ 24,041 $ 6,117 $ 1,014 $ 31,172
======== ======== ======= ========= ========
Identifiable assets $ 93,423 $ 75,750 $ 22,246 $ (15,236) $176,183
======== ======== ======= =========
Investment in affiliates 13,279
--------
$189,462
========
</TABLE>
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31, 1996
-------------------------------------------------------------------
Rest
United States Europe of World Eliminations Consolidated
------------- ------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales $ 79,635 $ 72,830 $ 24,367 $ 176,832
Transfer between geographical areas 31,299 1,462 105 (32,866)
-------- -------- -------- --------- ---------
Net sales $110,934 $ 74,292 $ 24,472 $ (32,866) $ 176,832
======== ======== ======== ========= =========
Operating income,
before equity in income of
affiliates $ 25,758 $ 2,638 $ 1,726 $ 30,122
======== ======== ======== ========= =========
Identifiable assets $ 96,914 $ 83,571 $ 27,063 $ (16,212) 191,336
======== ======== ======== =========
Investment in affiliates 15,666
---------
$ 207,002
=========
</TABLE>
25
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's export sales to unaffiliated customers are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) Western South Other Total
Europe America Exports Exports
------ ------- ------- -------
<C> <C> <C> <C> <C>
1994 $7,964 $8,968 $8,128 $25,060
1995 7,381 6,907 13,047 27,335
1996 5,949 7,171 12,929 26,049
</TABLE>
SUPPLEMENTARY FINANCIAL DATA
Unaudited quarterly financial information for the years December 31, 1995 and
1996 is summarized as follows:
(In Thousands, Except per Share Data)
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------
March 31 June 30 September 30 December 31
1995 1995 1995 1995 Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales $ 39,201 $ 38,534 $ 40,530 $ 41,384 $159,649
Gross profit 21,939 21,563 21,464 24,155 89,121
Income taxes 2,150 2,060 2,050 2,150 8,410
Net income 5,805 6,105 5,891 6,368 24,169
Net income per share .42 .44 .43 .46 1.75
Average shares outstanding 13,683 13,986 13,846 13,874 13,847
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------
March 31 June 30 September 30 December 31
1996 1996 1996 1996 Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales $ 43,246 $ 43,369 $ 43,359 $ 46,858 $176,832
Gross profit 25,158 25,337 23,491 26,148 100,134
Income taxes 2,420 2,340 1,630 2,390 8,780
Net income 6,501 6,564 4,351 5,531 22,947
Net income per share .47 .47 .31 .40 1.65
Average shares outstanding 13,942 13,984 13,941 13,837 13,926
</TABLE>
26
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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
By: /s/ Sigi Ziering March 24, 1997
--------------------------------------------
Sigi Ziering, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ Sigi Ziering Chairman of the Board March 24, 1997
- ---------------------------------------- and Chief Executive
Sigi Ziering Officer (Principal
Executive Officer)
/s/ Michael Ziering Director March 24, 1997
- ---------------------------------------
Michael Ziering
/s/ Marilyn Ziering Director March 24, 1997
- ---------------------------------------
Marilyn Ziering
/s/ Sidney A. Aroesty Director March 24, 1997
- ---------------------------------------
Sidney A. Aroesty
/s/ Maxwell H. Salter Director March 24, 1997
- ---------------------------------------
Maxwell H. Salter
/s/ James D. Watson Director March 24, 1997
- ---------------------------------------
James D. Watson
/s/ Frederick Frank Director March 24, 1997
- ---------------------------------------
Frederick Frank
/s/ Julian R. Bockserman Vice President-- March 24, 1997
- --------------------------------------- Finance (Principal
Julian R. Bockserman Financial and Accounting
Officer)
</TABLE>
27
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<S> <C>
3.1 Amended and Restated Articles of Incorporation (6)
3.2 Bylaws, as amended (6)
4.1 Stock Certificate (4)
*10.1 1981 Employee Stock Option Plan, as amended (2)
*10.2 Retirement Benefits Agreement with Sigi Ziering (3)
10.3 Form of Indemnification Agreement with Officers and Directors (1)
*10.4 1990 Stock Option Plan (5)
10.5 Standard Industrial Lease with 5700 West 96th Street, general partnership, dated
February 18, 1991 (5)
*10.6 Consulting Agreement with Sidney Aroesty dated December 14, 1994 (7)
*10.7 Description of Consulting Arrangement with Dr. James D. Watson (7)
*10.8 Description of Consulting Arrangement with Frederick Frank (8)
*10.9 1997 Stock Option Plan
11 Computation of Net Income per share
21 Subsidiaries of Registrant
23 Independent Auditors' Consent
27 Financial Data Schedule (For EDGAR filing only)
</TABLE>
- --------------------------
* Management contracts, compensation plans or
arrangements
(1) Incorporated by reference to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1988. (File No. 1-9957)
(2) Incorporated by reference to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1991. (File No. 1-9957)
(3) Incorporated by reference to Registrant's Registration
Statement on Form S1 (File No. 2-77287) filed on May 3,
1982.
(4) Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1988.
(File No. 1-9957)
(5) Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1990.
(File No. 1-9957)
(6) Incorporated by reference to Registrant's Quarterly
Report on From 10-Q for the quarter ended June 30,
1992. (File No. 1-9957)
(7) Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994.
(File No. 1-9957)
(8) Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995.
(File No. 1-9957)
28
<PAGE> 1
EXHIBIT 10.9
DIAGNOSTIC PRODUCTS CORPORATION
1997 STOCK OPTION PLAN
1. PURPOSE
The purpose of the Diagnostic Products Corporation 1997 Stock Option
Plan (the "Plan") is to further the interests of Diagnostic Products
Corporation (the "Company") and its Subsidiaries by strengthening the desire of
Employees to continue their relationship with the Company and its Subsidiaries
and by inducing individuals to become Employees of the Company and its
Subsidiaries through stock options to be granted hereunder. Options granted
under the Plan are either options intending to qualify as "incentive stock
options" within the meaning of Section 422 of the Code or non-qualified stock
options.
2. DEFINITIONS
Whenever used herein the following terms shall have the following
meanings, respectively:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Committee" shall mean a Committee of at least two directors
appointed by the Board, or if no such committee has been appointed reference to
"Committee" shall be deemed to refer to the Board.
(d) "Common Stock" shall mean the Company's Common Stock, no par
value per share, as described in the Company's Articles of Incorporation, as
amended from time to time.
(e) "Company" shall mean Diagnostic Products Corporation, a
California corporation.
(f) "Employee" shall mean in connection with Non-Qualified
Options, any officer, employee, consultant or advisor of the Company or any
Subsidiary or Parent Corporation of the Company, and any director of the
Company who is not an employee of the Company or any Subsidiary or Parent
Corporation of the Company, it being understood that the Committee may in its
discretion also grant Options to induce individuals to become and remain as
Employees and that such persons, for purposes of receiving Non-Qualified
Options hereunder, shall be deemed "Employees." In connection with Incentive
Options under this Plan, the term Employee shall mean any individual who is
employed, within the meaning of Section 3401 of the Code, by the Company or any
Subsidiary or Parent Corporation of the Company.
<PAGE> 2
(g) "Fair Market Value Per Share" of the Company's Common Stock
shall mean if the Company's Common Stock is publicly traded the mean between
the highest and lowest quoted selling prices of the Common Stock on the date of
the grant of the Option or, if not available, the mean between the bona fide
bid and asked prices of the Common Stock on the date of the grant of the
Option. In any situation not covered above or if there were no sales on the
date of the grant of an Option, the Fair Market Value Per Share shall be
determined by the Committee in good faith based on uniform principles
consistently applied.
(h) "Incentive Option" shall mean an Option granted under the Plan
which is designated as and qualifies as an incentive stock option within the
meaning of Section 422 of the Code.
(i) "Non-Qualified Option" shall mean an Option granted under the
Plan which is designated as a non-qualified stock option or which does not
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(j) "Option" shall mean an Incentive Option or a Non-Qualified
Option. Each Option shall be evidenced by a written agreement executed by the
Company which shall set forth the terms and conditions of such Option.
(k) "Optionee" shall mean any Employee who has been granted an
Option under the Plan.
(l) "Parent Corporation" shall have the meaning set forth in
Section 424(e) of the Code.
(m) "Permanent Disability" shall mean termination of employment
with the Company or any Subsidiary or Parent Corporation of the Company with
the consent of the Company or such Subsidiary by reason of permanent and total
disability within the meaning of Section 22(e)(3) of the Code.
(n) "Plan" shall mean the Diagnostic Products Corporation 1997
Stock Option Plan, as from time to time amended.
(o) "Subsidiary", in the case of Incentive Options, shall have the
meaning set forth in Section 424(f) of the Code (generally, 50% or more owned
subsidiaries), and in the case of Non-Qualified Options, shall have the meaning
of "subsidiary" in Rule 405 of Regulation C under the Securities Act of 1933,
as amended (generally, a controlled affiliate).
3. ADMINISTRATION
(a) The Plan shall be administered either by the Board or, in the
discretion of the Board, by a Committee; provided, however, that if a Committee
has been appointed by the Board, the Board may take any action permitted to be
taken by the Committee with respect to grants or other actions affecting
Options for executive officers or directors of the Company. The Board may from
time to time
2
<PAGE> 3
appoint members of the Committee in substitution for or in addition to members
previously appointed and may fill vacancies.
(b) Any action of the Committee with respect to the administration
of the Plan shall be taken by majority vote or by unanimous written consent of
its members.
(c) Subject to the provisions of the Plan, the Committee shall
have the authority to construe and interpret the Plan, to define the terms used
herein, to determine the Optionees, the time or times an Option may be
exercised and the number of shares which may be exercised at any one time, to
prescribe, amend and rescind rules and regulations relating to the Plan, to
approve and determine the duration of leaves of absence which may be granted to
participants without constituting a termination of their employment for
purposes of the Plan, and to make all other determinations necessary or
advisable for the administration of the Plan. The Committee's authority shall
include, without limitation, the right, in its discretion, to accelerate the
exercisability of Options or reprice or exchange Options with the consent of
the Optionee. All determinations and interpretations made by the Committee
shall be conclusive and binding on all Employees and on their guardians, legal
representatives and beneficiaries.
(d) The Company will indemnify and hold harmless the members of
the Board and the Committee from and against any and all liabilities, costs and
expenses incurred by such persons as a result of any act, or omission to act,
in connection with the performance of such persons' duties, responsibilities
and obligations under the Plan, other than such liabilities, costs and expenses
as may result from the gross negligence, bad faith, willful misconduct and/or
criminal acts of such persons.
4. NUMBER OF SHARES SUBJECT TO PLAN
The stock to be offered under the Plan shall consist of up to
1,000,000 shares of the Company's Common Stock. If any Option granted
hereunder shall expire or terminate for any reason without having been
exercised in full, the unpurchased shares subject thereto shall again be
available for purposes of this Plan.
5. ELIGIBILITY AND PARTICIPATION
(a) The Committee shall determine the Employees to whom Options
shall be granted, the time or times at which such Options shall be granted and
the number of shares to be subject to each Option. An Employee who has been
granted an Option may, if he is otherwise eligible, be granted an additional
Option or Options if the Committee shall so determine. An Employee may be
granted Incentive Options or Non-Qualified Options or both under the Plan.
(b) In no event shall the aggregate fair market value (determined
as of the time an Incentive Option is granted) of shares subject to Incentive
Options held by an Optionee (granted under the Plan or under any other plan of
the Company) that first become exercisable in any calendar year exceed
$100,000. The
3
<PAGE> 4
portion of any purported Incentive Option which exceeds such limitation shall
be deemed to be a Non-Qualified Option.
6. PURCHASE PRICE
The purchase price of each share covered by an Option shall be
determined by the Committee on the date of grant; provided, however, that the
purchase price of each share covered by each Incentive Option shall not be less
than 100% of the Fair Market Value Per Share of the Common Stock of the Company
on the date the Incentive Option is granted; and provided, further, that if at
the time an Incentive Option is granted the Optionee owns or would be
considered to own by reason of Section 424(d) of the Code more than 10% of the
total combined voting power of all classes of stock of the Company or any
Subsidiary or Parent Corporation of the Company, the purchase price of the
shares covered by such Incentive Option shall not be less than 110% of the Fair
Market Value Per Share of the Common Stock on the date the Incentive Option is
granted.
7. DURATION OF OPTIONS
The expiration date of an Option shall not exceed 10 years from the
date on which the Option was granted, and shall be subject to earlier
termination as provided herein; provided, however, that if at the time an
Incentive Option is granted the Optionee owns or would be considered to own by
reason of Section 424(d) of the Code more than 10% of the total combined voting
power of all classes of stock of the Company or any Subsidiary or Parent
Corporation of the Company, such Incentive Option shall expire not more than 5
years from the date the Incentive Option is granted.
8. EXERCISE OF OPTIONS
An Option shall be exercisable in installments or otherwise upon such
terms as the Committee shall in its discretion determine. An Optionee may
purchase less than the total number of shares for which the Option is
exercisable, provided that the exercise of an Option shall not include any
fractional shares. As a condition to the exercise, in whole or in part, of any
Option, the Committee may in its sole discretion require the Optionee to pay,
in addition to the purchase price of the shares covered by the Option, an
amount equal to any federal, state and local taxes that the Committee has
determined are required to be paid in connection with the exercise of such
Option in order to enable the Company to claim a deduction or otherwise.
Furthermore, if any Optionee disposes of any shares of stock acquired by
exercise of an Incentive Option prior to the expiration of either of the
holding periods specified in Section 422(a)(1) of the Code, the Optionee shall
pay to the Company, or the Company shall have the right to withhold from any
payments to be made to the Optionee, an amount equal to any federal, state and
local taxes that the Committee has determined are required to be paid in
connection with the exercise of such Option in order to enable the Company to
claim a deduction or otherwise.
4
<PAGE> 5
9. METHOD OF EXERCISE
(a) To the extent that the right to purchase shares has accrued,
Options may be exercised from time to time by giving written notice to the
Company stating the number of shares with respect to which the Option is being
exercised, accompanied by payment in full of the purchase price for the number
of shares being purchased and, if applicable, any federal, state or local taxes
required to be paid in accordance with the provisions of Section 8 hereof.
(b) Payment of the purchase price for any shares pursuant to the
exercise of an Option may be made in cash or by check or, in connection with
subparagraphs (i) through (iv) where expressly approved by the Committee in
advance, in its discretion, and where permitted by law:
(i) by cancellation of indebtedness of the Company to the
Optionee;
(ii) by surrender of shares of Common Stock that have been
owned by the Optionee for at least six months;
(iii) by tender of a full recourse promissory note, which
note shall be secured by the shares being purchased, contain such
terms as may be approved by the Committee and bear interest at a rate
sufficient to avoid imputation of income under Sections 483 and 1274
of the Code;
(iv) by waiver of compensation due or accrued to the Optionee
for services rendered;
(v) provided that a public market for the Company's Common
Stock exists:
(1) through a "same day sale" commitment from the
Optionee and a broker-dealer that is a member of the National
Association of Securities Dealers (an "NASD Dealer") whereby
the Optionee irrevocably elects to exercise the Option and to
sell a portion of the shares so purchased to pay for the
purchase price, and whereby the NASD Dealer irrevocably
commits to forward the purchase price directly to the Company;
or
(2) through a "margin" commitment from the
Optionee and a NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the shares so
purchased to the NASD Dealer in a margin account as security
for a loan from the NASD Dealer in the amount of the purchase
price, and whereby the NASD Dealer irrevocably commits to
forward the purchase price directly to the Company; or
(vi) by any combination of the foregoing.
5
<PAGE> 6
If payment is made with shares of Common Stock, the Optionee, or other
person entitled to exercise the Option, shall deliver to the Company
certificates representing the number of shares of Common Stock in payment for
the shares being purchased, duly endorsed for transfer to the Company and, if
requested by the Committee, a representation and warranty in writing that he
has good and marketable title to the shares represented by the certificate(s),
free and clear of all liens and encumbrances. The value of the shares of
Common Stock tendered in payment for the shares being purchased shall be their
Fair Market Value Per Share on the date of the Optionee's exercise.
(c) Notwithstanding the foregoing, the Company shall have the
right to postpone the time of delivery of the shares for such period as may be
required for it to comply, with reasonable diligence, with any applicable
listing requirements of any national securities exchange or any federal, state
or local law. If an Optionee, or other person entitled to exercise an Option,
fails to accept delivery of or fails to pay for all or any portion of the
shares requested in the notice of exercise, upon tender of delivery thereof,
the Committee shall have the right to terminate his Option with respect to such
shares.
10. NON-TRANSFERABILITY OF OPTIONS
(a) Except as otherwise expressly provided in Section 10(b) and in
the agreement which evidences the Option, as the same may be amended, no Option
granted under the Plan shall be assignable or transferable by the Optionee,
either voluntarily or by operation of law, otherwise than by will or the laws
of descent and distribution, and shall be exercisable during his lifetime only
by the Optionee.
(b) The Committee may permit Non-Qualified Options to be
transferred pursuant to a domestic relations order or to members of the
Optionee's immediate family, charitable institutions, or trusts or other
entities whose beneficiaries or beneficial owners are members of the Optionee's
immediate family and/or charitable institutions, pursuant to such conditions
and procedures as the Committee may establish. Any permitted transfer shall be
subject to the condition that the Committee receive evidence satisfactory to it
that the transfer is being made pursuant to a domestic relations order, or for
estate and/or tax planning purposes on a gratuitous or donative basis and
without consideration (other than nominal consideration). Notwithstanding the
foregoing, Incentive Options shall be subject to any and all transfer
restrictions under the Code.
11. CONTINUANCE OF EMPLOYMENT
Nothing contained in the Plan or in any Option granted under the Plan
shall confer upon any Optionee any rights with respect to the continuation of
his status as an Employee of the Company or any Subsidiary or Parent
Corporation of the Company or interfere in any way with the right of the
Company or any Subsidiary or Parent Corporation of the Company at any time to
terminate such
6
<PAGE> 7
relationship or to increase or decrease the compensation of the Optionee from
the rate in existence at the time of the grant of an Option.
12. TERMINATION OF EMPLOYEE STATUS OTHER THAN BY DEATH OR PERMANENT
DISABILITY
Except as expressly approved by the Committee with respect to any
Non-Qualified Option granted hereunder and set forth in the agreement
evidencing such Option, if an Optionee ceases to be an Employee for any reason
other than his death or Permanent Disability, any Options granted to him under
the Plan shall terminate not later than three months from the date on which
such Optionee ceases to be an Employee unless such Optionee has been rehired by
the Company and is an Employee on such date. Until the termination of the
Option, the Optionee may exercise any Option granted to him but only to the
extent such Option was exercisable on the date he ceased to be an Employee and
provided that such Option has not expired or otherwise terminated as provided
herein. A leave of absence approved in writing by the Committee shall not be
deemed a termination for purposes of this Section, but no Option may be
exercised during any such leave of absence, except during the first 90 days
thereof. The fact that the Optionee may receive payment from the Company or
any Subsidiary of the Company after termination of Employee status for vacation
pay, for services rendered prior to termination, for salary in lieu of notice,
or for other benefits shall not affect the termination date.
13. DEATH OR PERMANENT DISABILITY OF OPTIONEE
Except as expressly approved by the Committee with respect to any
Non-Qualified Option granted hereunder and set forth in the agreement
evidencing such Option, if an Optionee shall die at a time when he is an
Employee or if the Optionee shall cease to be an Employee by reason of
Permanent Disability, any Options granted to him under this Plan shall
terminate not later than one year after the date of his death or termination of
Employee status due to Permanent Disability unless by its terms it shall expire
before such date or otherwise terminate as provided herein, and shall only be
exercisable to the extent that it would have been exercisable on the date of
his death or termination due to Permanent Disability. In the case of death,
the Option may be exercised by the person or persons to whom the Optionee's
rights under the Option shall pass by will or by the laws of descent and
distribution.
14. STOCK PURCHASE NOT FOR DISTRIBUTION
Each Optionee shall, by accepting the grant of an Option under the
Plan, represent and agree, for himself and his transferees by will or the laws
of descent and distribution, that all shares of stock purchased upon exercise
of the Option will be received and held without a view to distribution except
as may be permitted by the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder. After each notice of exercise of any
portion of an Option, if requested by the Committee, the person entitled to
exercise the Option must agree in writing that
7
<PAGE> 8
the shares of stock are being acquired in good faith without a view to
distribution.
15. PRIVILEGES OF STOCK OWNERSHIP
No person entitled to exercise any Option granted under the Plan shall
have any of the rights or privileges of a shareholder of the Company with
respect to any shares of Common Stock issuable upon exercise of such Option
until such person has become the holder of record of such shares. No
adjustment shall be made for dividends or distributions of rights in respect of
such shares if the record date is prior to the date on which such person
becomes the holder of record, except as provided in Section 16 hereof.
16. ADJUSTMENTS
(a) If the number of outstanding shares of Common Stock of the
Company are increased or decreased, or if such shares are exchanged for a
different number or kind of shares or securities of the Company through
reorganization, merger, recapitalization, reclassification, stock dividend,
stock split, combination of shares, or other similar transaction, the aggregate
number of shares of Common Stock subject to the Plan as provided in Section 4
hereof and the shares of Common Stock subject to issued and outstanding Options
under the Plan shall be appropriately and proportionately adjusted by the
Committee. Any such adjustment in the outstanding Options shall be made
without change in the aggregate purchase price applicable to the unexercised
portion of the Option but with an appropriate adjustment in the price for each
share or other unit of any security covered by the Option.
(b) Notwithstanding the provisions of subsection (a) of this
Section, the Plan and each outstanding Option shall terminate on the effective
date of the dissolution or liquidation of the Company or any reorganization,
merger or consolidation with one or more corporations or entities as a result
of which the Company is not the surviving corporation, or any sale of all or
substantially all the assets of the Company, or the sale (by merger or
otherwise) of more than 80% of the then outstanding Common Stock, unless the
surviving or acquiring corporation or other entity agrees to assume, or
substitute equivalent awards for, all outstanding Options; provided that the
Committee may, in its sole discretion, accelerate the vesting of any
outstanding Option or give notice of such event to Optionees prior to the
effective date of such event.
(c) Adjustments under this Section shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. No fractional shares of stock
shall be issued under the Plan or in connection with any such adjustment.
17. AMENDMENT AND TERMINATION OF PLAN
(a) The Board of Directors of the Company may from time to time,
with respect to any shares at the time not subject to Options, suspend or
terminate the Plan or amend or revise the terms
8
<PAGE> 9
of the Plan; provided that any amendment of the Plan shall be approved by the
shareholders of the Company if the amendment would (i) increase the number of
shares of Common Stock which may be issued under the Plan, except as permitted
under the provisions of Section 16 hereof, or (ii) materially modify the
requirements as to eligibility for participation in the Plan.
(b) No amendment, suspension or termination of the Plan shall,
without the consent of the Optionee, alter or impair any rights or obligations
under any Option theretofore granted to such Optionee under the Plan.
(c) The terms and conditions of any Option granted to an Optionee
under the Plan may be modified or amended only by a written agreement executed
by the Optionee and the Company.
18. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon adoption by the Board of
Directors of the Company and approval by the Company's shareholders; provided,
however, that prior to approval of the Plan by the Company's shareholders, but
after adoption by the Board of Directors, Options may be granted under the Plan
subject to obtaining the shareholders' approval of the adoption of the Plan.
Notwithstanding the foregoing, shareholders' approval must occur no later than
12 months after the date of adoption of the Plan by the Board of Directors.
19. TERM OF PLAN
No Option shall be granted pursuant to the Plan after 10 years from
the earlier of the date of adoption of the Plan by the Board of Directors of
the Company or the date of approval of the Plan by the Company's shareholders.
The Plan was adopted by the Board on February 14, 1997. The Plan was
approved by the shareholders on ______________, 1997.
9
<PAGE> 1
EXHIBIT 11
DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1994 1995 1996
------------ ----------- -----------
<S> <C> <C> <C>
Primary earnings per share:
Average common stock outstanding 13,002,218 13,208,942 13,553,973
Average dilutive common stock
options outstanding 1,176,009 1,274,127 956,051
Shares assumed to be repurchased
under treasury stock method at
an average market price of:
$ 20.91 (670,258)
35.93 (635,816)
36.53 (584,141)
------------ ----------- -----------
TOTAL 13,507,969 13,847,253 13,925,883
============ =========== ===========
NET INCOME $ 16,700,000 $24,169,000 $22,947,000
============ =========== ===========
PER COMMON SHARE AMOUNT $ 1.24 $1.75 $1.65
============ =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 21
DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
SUBSIDIARIES
<TABLE>
<CAPTION>
Name Place of Incorporation % Ownership
- ---- ---------------------- -----------
<S> <C> <C>
DPC Cirrus Inc. USA/Delaware 100%
EURO/DPC Limited United Kingdom 100%
Diagnostic Products International, Inc. Barbados 100%
DPC Holding GmbH Germany 100%
DPC Biermann GmbH Germany 100%
DPC Czech s.r.o. Czech Republic 100%
DPC d.o.o. Zagreb Croatia 50%
DPC Polska sp.z.o.o. Poland 100%
Diagnostic Products Corporation Netherlands 100%
Benelux B.V.
Diagnostic Products Corporation Netherlands 100%
Nederland B.V.
Diagnostic Products Corporation Belgium 100%
Belgium b.v.b.A./s.p.r.l.
DPC Finland Oy Finland 100%
Bio-Mediq DPC Pty. Ltd. Australia 100%
DPC Dipesa, S.A. Spain 100%
Tianjin De Pu (DPC) China 90%
Biotechnological and Medical
Products, Inc.
DPC Medlab Produtos Medico Brazil 56%
Hospitalares Ltda.
DPC Venezuela C.A. Venezuela 56%
DPC Medlab de Uruguay S.A. Uruguay 56%
Nippon DPC Corporation USA/California 50%
DPC Skafte AB Sweden 50%
D.P.C.-N. Tsakiris S.A. Greece 50%
Medical Systems, S.p.A. Italy 45%
Amerlab, Lda. Portugal 40%
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
2-81631, 33-17575 and 33-43043 on Form S-8 of our report dated February 19,
1997, included in this Annual Report on Form 10-K of Diagnostic Products
Corporation for the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 13,781
<SECURITIES> 0
<RECEIVABLES> 45,631
<ALLOWANCES> 76
<INVENTORY> 42,828
<CURRENT-ASSETS> 106,278
<PP&E> 82,639
<DEPRECIATION> 37,192
<TOTAL-ASSETS> 207,002
<CURRENT-LIABILITIES> 24,715
<BONDS> 0
0
0
<COMMON> 36,584
<OTHER-SE> 145,703
<TOTAL-LIABILITY-AND-EQUITY> 207,002
<SALES> 176,832
<TOTAL-REVENUES> 176,832
<CGS> 76,698
<TOTAL-COSTS> 76,698
<OTHER-EXPENSES> 68,407
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 31,727
<INCOME-TAX> 8,780
<INCOME-CONTINUING> 22,947
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,947
<EPS-PRIMARY> 1.65
<EPS-DILUTED> 0
</TABLE>
