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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from_________________to_________________
Commission file number 1-9957
Diagnostic Products Corporation
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(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2802182
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5700 WEST 96TH STREET
LOS ANGELES, CALIFORNIA 90045
(Address of principal executive offices)
Registrant's telephone number: (213) 776-0180
NO CHANGE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
The number of shares of Common Stock, no par value, outstanding as of
September 30, 1997, was 13,662,023.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data) Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
------- ------- -------- --------
<S> <C> <C> <C> <C>
SALES $46,399 $43,359 $137,562 $129,974
------- ------- -------- --------
COSTS AND EXPENSES:
Cost of sales 20,485 19,868 60,336 55,988
Selling 9,174 9,111 27,794 25,729
Research and development 5,109 4,426 14,597 13,294
General and administrative 5,415 4,552 16,762 13,303
Equity in income of affiliates (114) (199) (810) (1,002)
Investment income (252) (380) (754) (1,144)
------- ------- -------- --------
Total costs and expenses 39,817 37,378 117,925 106,168
------- ------- -------- --------
INCOME BEFORE INCOME TAXES 6,582 5,981 19,637 23,806
PROVISION FOR INCOME TAXES 1,460 1,630 4,960 6,390
------- ------- -------- --------
NET INCOME $5,122 $ 4,351 $14,677 $17,416
======= ======= ======== ========
NET INCOME PER SHARE $ .37 $ .31 $1.06 $1.25
WEIGHTED AVERAGE SHARES
AND EQUIVALENTS OUTSTANDING 13,901 13,941 13,880 13,956
</TABLE>
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DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in Thousands) September 30, December 31,
1997 1996
------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 13,024 $ 13,781
Accounts receivable - net of allowance for
doubtful accounts of $108 and $76 49,786 45,631
Inventories 48,920 42,828
Prepaid expenses and other current assets 474 375
Deferred income taxes 3,663 3,663
-------- ---------
Total current assets 115,867 106,278
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 28,643 29,195
Machinery and equipment 50,332 46,043
Leasehold improvements 6,736 6,701
Construction in progress 839 700
-------- ---------
Total 86,550 82,639
Less accumulated depreciation and amortization 40,227 37,192
-------- ---------
Property, plant and equipment - net 46,323 45,447
SALES-TYPE AND OPERATING LEASES 25,608 22,056
DEFERRED INCOME TAXES 2,772 2,772
INVESTMENTS IN AFFILIATED COMPANIES 16,475 15,666
EXCESS OF COST OVER NET ASSETS ACQUIRED -
Net of amortization of $7,113 and $6,357 14,254 14,783
-------- ---------
TOTAL ASSETS $221,299 $ 207,002
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 13,508 $ 4,005
Accounts payable 13,532 13,024
Accrued liabilities 5,116 6,057
Income taxes payable 1,405 1,629
-------- ---------
Total current liabilities 33,561 24,715
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock - no par value, authorized
30,000,000 shares; outstanding 13,662,023 shares
and 13,597,124 shares. 37,760 36,584
Retained earnings 157,352 147,579
Foreign currency translation adjustments (7,374) (1,876)
-------- ---------
Total shareholders' equity 187,738 182,287
-------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $221,299 $ 207,002
======== =========
</TABLE>
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DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in Thousands) Nine Months Ended
September 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 14,677 $ 17,416
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 11,157 10,348
Equity in undistributed income of
unconsolidated affiliates (809) (1,002)
Accounts receivable (6,128) (2,435)
Inventories (7,217) (6,245)
Prepaid expenses and other current assets (99) (50)
Accounts payable 2,040 (3,464)
Accrued liabilities (941) (1,081)
Income taxes payable (138) (2,315)
-------- --------
Net Cash Flows from Operating Activities 12,542 11,172
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES:
Additions to property, plant and equipment (7,922) (6,654)
Sales-type and operating leases (7,551) (8,655)
Investment in affiliated company (46) (481)
-------- --------
Net Cash from (used for) Investing Activities (15,519) (15,790)
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Borrowing 6,605 8,072
Proceeds from exercise of stock options 1,176 614
Cash dividends paid (4,904) (4,876)
-------- --------
Net Cash from (used for) Financing Activities 2,877 3,810
EFFECT OF EXCHANGE RATE CHANGES ON CASH (657) (350)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (757) (1,158)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,781 16,519
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,024 $ 15,361
======== ========
</TABLE>
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<PAGE> 5
DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 -- BASIS OF PRESENTATION
The information for the nine months ended September 30, 1997 and 1996 has not
been audited by independent accountants, but includes all adjustments
(consisting of normal recurring accruals) which are, in the opinion of
management, necessary to a fair statement of the results for such periods.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to the requirements of the Securities and Exchange
Commission, although the Company believes that the disclosures included in these
financial statements are adequate to make the information not misleading.
The consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
1996 annual report on Form 10-K as filed with the Securities and Exchange
Commission.
The results of operations for the nine-month period ending September
30, 1997 are not necessarily indicative of the results to be expected for the
year ended December 31, 1997.
Net income per share has been computed using the weighted-average number of
common shares and common share equivalents outstanding during each period.
Common share equivalents represent the dilutive effect of outstanding stock
options.
In December 1997, the Company will be required to adopt Statement of Financial
Accounting Standard No. 128, "Earnings per Share." The provisions of this
statement will require a change in the method of calculating earnings per share
which will result in an insignificant difference from currently reported
earnings per share.
NOTE 2 -- INVENTORIES
Inventories by major categories are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Raw materials $19,015,000 $14,896,000
Work in process 17,967,000 17,472,000
Finished goods 11,938,000 10,460,000
----------- -----------
Total $48,920,000 $42,828,000
=========== ===========
</TABLE>
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<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales of $46.4 million were achieved in the third quarter of 1997, a 7% increase
over the corresponding 1996 quarter. Record sales for the nine months were
$137.6 million, an increase of 6% over 1996. Rapid growth in sales of IMMULITE
instrumentation and reagents was partially offset by the continual decline of
the Company's mature RIA product line.
In periods when the U.S. dollar is strengthening, the effect of the translation
of the financial statements of the consolidated foreign affiliates is that of
lower sales, costs and net income. The stronger U.S. dollar in the third quarter
1997 and the nine months 1997 when compared to the corresponding 1996 periods
resulted in lower reported sales of approximately 6% in the third quarter and 5%
in the nine month period. The effect on net income in both periods was less than
1%.
As of April 1, 1997, the Company acquired the distribution rights in France for
the Company's allergy and IMMULITE product lines. The former distributor will
continue to distribute the Company's radioimmunoassay (RIA) product line.
Losses, including start up costs, for the 1997 second and third quarters for
this French subsidiary were approximately $740,000.
Cost of sales as a percentage of sales was 44% in the 1997 third quarter and
nine month period compared to 46% in the 1996 third quarter and 43% in the 1996
nine month period. Selling expenditures as a percentage of sales were 20% in the
1997 third quarter and nine month period compared to 21% and 20% in the
corresponding 1996 periods.
Research and development expenses as a percentage of sales were approximately
11% in the 1997 third quarter and nine month period compared to 10% in the
corresponding 1996 periods.
General and administrative expenses as a percentage of sales were 12% in the
1997 periods compared to 11% and 10% in the 1996 periods. The increased costs in
1997 resulted primarily from the loss on the exchange rate recorded by the
European subsidiaries on the strengthening of the U.S. dollar. Included in
general and administrative expenses is the amortization of the excess of cost
over net assets acquired and minority interest.
Equity in income of affiliates represents the Company's share of earnings of the
nonconsolidated affiliates, principally the 45%-owned Italian affiliate.
The Company's effective tax rate includes Federal, state and foreign taxes. The
1997 rate of 25% is slightly less than the 1996 rate of 27%.
The Company has adequate working capital and sources of capital to carry on its
current business and to meet its existing capital requirements. During the 1997
second quarter the Company increased its unsecured line of credit from $10
million to $20 million and has $6 million outstanding at September 30, 1997.
Cash flow from operating activities was $12.5 million in 1997 compared to $11.1
million in 1996. Cash flow use for plant and equipment additions and renovations
was $7.9 million in 1997 and $6.7 million in 1996. Cash flow used for sales-type
and operating leases was $7.6 million in 1997 and $8.7 in 1996.
During 1996 and 1997 the Company has paid a quarterly cash dividend of $.12 per
share.
5
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K. None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIAGNOSTIC PRODUCTS CORPORATION
(Registrant)
OCTOBER 28, 1997 SIGI ZIERING
- ------------------------------- ------------------------------------------
Date Sigi Ziering, Ph.D., Chairman of the Board
Chief Executive Officer
OCTOBER 28, 1997 JULIAN R. BOCKSERMAN
- ------------------------------- ------------------------------------------
Date Julian R. Bockserman, Vice President
Chief Financial Officer
6
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 13,024
<SECURITIES> 0
<RECEIVABLES> 49,786
<ALLOWANCES> 108
<INVENTORY> 48,920
<CURRENT-ASSETS> 115,867
<PP&E> 86,550
<DEPRECIATION> 40,227
<TOTAL-ASSETS> 221,299
<CURRENT-LIABILITIES> 33,561
<BONDS> 0
0
0
<COMMON> 37,760
<OTHER-SE> 149,978
<TOTAL-LIABILITY-AND-EQUITY> 221,299
<SALES> 137,562
<TOTAL-REVENUES> 137,562
<CGS> 60,336
<TOTAL-COSTS> 60,336
<OTHER-EXPENSES> 57,589
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 19,637
<INCOME-TAX> 4,960
<INCOME-CONTINUING> 4,677
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,677
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 0
</TABLE>
