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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from_______________ to_______________
Commission file number 1-9957
DIAGNOSTIC PRODUCTS CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2802182
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5700 WEST 96TH STREET
LOS ANGELES, CALIFORNIA 90045
(Address of principal executive offices)
Registrant's telephone number: (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
March 31, 1998, was 13,774,737.
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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
March 31,
------------------------
1998 1997
-------- --------
<S> <C> <C>
SALES $ 46,104 $ 44,400
-------- --------
COSTS AND EXPENSES:
Cost of sales 20,395 19,682
Selling 9,012 8,659
Research and development 5,409 4,756
General and administrative 5,926 5,443
Equity in income of affiliates (344) (281)
Interest income-net (118) (232)
-------- --------
Total costs and expenses 40,280 38,027
-------- --------
INCOME BEFORE INCOME TAXES 5,824 6,373
PROVISION FOR INCOME TAXES 1,720 1,710
-------- --------
NET INCOME $ 4,104 $ 4,663
======== ========
EARNINGS PER SHARE:
BASIC $ .30 $ .34
DILUTED .30 .34
AVERAGE SHARES OUTSTANDING:
BASIC 13,746 13,605
DILUTIVE EFFECT OF STOCK OPTIONS 161 262
-------- --------
DILUTED 13,907 13,867
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</TABLE>
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DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
(Dollars in Thousands) March 31, December 31,
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 17,589 $ 20,372
Accounts receivable-net of allowance for
doubtful accounts of $142 and $131 48,466 45,798
Inventories 50,112 49,038
Prepaid expenses and other current assets 257 405
Deferred income taxes 3,303 3,303
--------- ---------
Total current assets 119,727 118,916
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 32,404 30,854
Machinery and equipment 52,659 50,005
Leasehold improvements 7,121 7,075
Construction in progress 944 736
--------- ---------
Total 93,128 88,670
Less accumulated depreciation and amortization 43,519 41,576
--------- ---------
Property, plant and equipment - net 49,609 47,094
SALES-TYPE AND OPERATING LEASES 26,466 26,875
DEFERRED INCOME TAXES 1,442 1,442
INVESTMENTS IN AFFILIATED COMPANIES 13,984 13,905
EXCESS OF COST OVER NET ASSETS ACQUIRED-
Net of amortization of $7,644 and $7,368 15,368 13,948
--------- ---------
TOTAL ASSETS $ 226,596 $ 222,180
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 16,271 $ 15,547
Accounts payable 13,221 14,562
Accrued liabilities 6,174 5,986
Income taxes payable 1,441 (210)
Total current liabilities 37,107 35,885
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock-no par value, authorized 30,000,000 shares;
outstanding 13,774,737 shares and 13,717,072 shares 39,683 38,527
Retained earnings 161,733 159,278
Foreign currency translation adjustment (11,927) (11,510)
--------- ---------
Total shareholders' equity 189,489 186,295
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 226,596 $ 222,180
========= =========
</TABLE>
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DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
(Dollars in Thousands) Three Months Ended
March 31,
---------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,104 $ 4,663
Adjustments to reconcile net income to net cash flows from operating
activities:
Depreciation and amortization 3,762 3,026
Equity in undistributed income of
unconsolidated affiliates (79) (281)
Accounts receivable (2,673) (4,930)
Inventories (740) (3,063)
Prepaid expenses and other current assets 148 230
Accounts payable (1,505) 1,523
Accrued liabilities 188 (456)
Income taxes payable 1,490 (277)
-------- --------
Net Cash Flows from Operating Activities 4,695 435
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,597) (2,761)
Sales-type and operating leases (2,077) (2,354)
Investment in affiliated company (2,612) (646)
-------- --------
Net Cash from (used for) Investing Activities (7,286) (5,761)
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Borrowing 544 669
Proceeds from exercise of stock options 1,156 290
Cash dividends paid (1,649) (1,632)
-------- --------
Net Cash from (used for) Financing Activities 51 (673)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (243) (357)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,783) (6,356)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 20,372 13,781
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,589 $ 7,425
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</TABLE>
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DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1--BASIS OF PRESENTATION
The information for the three months ended March 31, 1998 and 1997 has not been
audited by independent accountants, but includes all adjustments (consisting of
normal recurring accruals) which are, in the opinion of management, necessary to
a fair statement of the results for such periods.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to the requirements of the Securities and Exchange
Commission, although the Company believes that the disclosures included in these
financial statements are adequate to make the information not misleading.
The consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
1997 annual report on Form 10-K as filed with the Securities and Exchange
Commission.
The results of operations for the three-month period ending March 31, 1998 are
not necessarily indicative of the results to be expected for the year ended
December 31, 1998.
Basic earnings per share is computed by dividing net income by the
weighted-average number of shares outstanding. Diluted earnings per share
includes the dilutive effect of stock options.
NOTE 2--INVENTORIES
Inventories by major categories are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- -----------
<S> <C> <C>
Raw materials $17,226,000 $17,814,000
Work in process 19,315,000 18,073,000
Finished goods 13,571,000 13,151,000
----------- -----------
Total $50,112,000 $49,038,000
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</TABLE>
NOTE 3--COMPREHENSIVE INCOME
In June of 1997, the financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130 "Reporting Comprehensive Income." The
statement, which the Company adopted in the first quarter of 1998, establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general-purpose financial statements. Comprehensive income is
summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net income $ 4,104,000 $ 4,663,000
Foreign currency translation adjustment (417,000) (3,390,000)
----------- -----------
Comprehensive income $ 3,687,000 $ 1,273,000
=========== ===========
</TABLE>
The Company does not provide for U.S. income taxes on foreign currency
translation adjustments because it does not provide for such taxes on
undistributed earnings of foreign subsidiaries.
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<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's sales increased 4% in the first quarter of 1998 to $46.1 million
compared to sales of $44.4 million in the first quarter of 1997. Sales of
IMMULITE instruments and assays have been the principal factor in sales growth.
Unit sales of IMMULITE test kits increased 21% over the 1997 first quarter,
offsetting the continuing decline in sales of RIA kits. The Company commenced
commercial shipments of its next generation IMMULITE 2000 system in early March
1998 and anticipates shipping 400 of the systems to customer sites during 1998.
These shipments did not make a meaningful contribution to first quarter results.
The Company has received FDA marketing clearance for 31 tests for this system
and expects increased demand for these kits for the remainder of the year as
customers begin to ramp-up their use of the systems.
Due to the significance of foreign sales, the Company is subject to currency
risks based on the relative strength or weakness of the U.S. dollar. In periods
when the U.S. dollar is strengthening, the effect of the translation of the
financial statements of consolidated foreign affiliates is that of lower sales
and net income. The U.S. dollar continued to strengthen in the first quarter of
1998. Had the value of the U.S. dollar relative to other currencies remained
constant with the first quarter of 1997, sales for the 1998 first quarter would
have increased 7% over the same period a year ago, and net income would have
been marginally higher. Due to intense competition, the Company's foreign
distributors have been unable to increase prices to offset the negative effect
of the strong U.S. dollar.
In February 1998, the Company acquired its distributor in Norway. This firm had
1997 sales of approximately $3 million. The Company also recently appointed new
independent distributors in Russia, India and Malaysia.
Cost of sales increased 4% in the first quarter of 1998 compared to the first
quarter of 1997, but as a percentage of sales remained level at approximately
44% of sales.
Selling expense as a percentage of sales remained at 19.5% for the first quarter
of both 1997 and 1998. The expenditures increased by 4.1% in 1998 primarily to
support the expansion of the IMMULITE product line and the launch of the
IMMULITE 2000.
Research and development expenditures increased 13.7% in the first quarter of
1998 compared to the prior year period. As a percentage of sales, research and
development expenditures were 11.7% in 1998 and 10.7% in 1997. The dollar amount
of these expenditures increased to support the continuing development of the
IMMULITE 2000, the expansion of the IMMULITE assay menu, and the development of
a new point-of-care analyzer, the ImmuGold, which is planned for market
introduction in late 1999.
General and administrative expenses increased 8.9% in the first quarter of 1998
over the prior year period, representing 12.9% and 12.3% of sales, respectively.
Included in general and administrative expenses is the amortization of the
excess of cost over net assets acquired and minority interest.
Equity in income of affiliates represents the Company's share of earnings of
non-consolidated affiliates, principally the 45%-owned Italian distributor.
Net interest income represents the excess of interest income and interest on
equipment contracts over interest expense.
The Company's effective tax rate includes Federal, state and foreign taxes. The
consolidated tax rate increased from 26.8% in the first quarter of 1997 to 29.5%
in the first quarter of 1998. In the prior year the Company benefited from net
operating loss carryforwards from a foreign subsidiary which were fully utilized
during 1997.
Net income decreased by 12% in the first quarter of 1998, representing 8.9% of
sales compared to 10.5% of sales in 1997 due primarily to the effects of the
strong U.S. dollar on the operating results of foreign subsidiaries, continuing
losses at the French distributor and increased investments in R&D.
The Company has adequate working capital and sources of capital (including an
unused $20 million unsecured line of credit) to carry on its current business
and to meet its existing capital requirements. Cash flow from operating
activities was $4.7 million in the first quarter of 1998 compared to $.4 million
in 1997. Additions to property, plant and equipment in 1998 were $2.6 million
compared to $2.8 million in 1997. The Company has no material commitments for
capital expenditures in 1998.
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<PAGE> 7
The Company's foreign consolidated subsidiaries had outstanding bank loans of
$16.3 million at March 31, 1998 and $15.5 million at March 31, 1997.
During 1997 and 1998 the Company paid a quarterly cash dividend of $.12 per
share.
FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, this report contains
forward looking statements (identified by the words "estimate," "project,"
"anticipate," "expect," "intend," "believe," "hope" and similar expressions)
which are based upon Management's current expectations and speak only as of the
date made. These forward looking statements are subject to risks, uncertainties
and factors that could cause actual results to differ materially from the
results anticipated in the forward looking statements. These risks and
uncertainties include the degree of customer demand for the Company's products,
customer acceptance of the IMMULITE 2000 and other new products, the Company's
ability to keep abreast of technological innovations, the risks inherent in the
development and release of new products (such as delays, unforeseen costs and
technical difficulties), competitive pressures, currency risks based on the
relative strength or weakness of the U.S. dollar, health care regulation and
cost containment measures, and political and economic instability in certain
foreign markets.
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)
APRIL 29, 1998 /s/ SIGI ZIERING
- ------------------------------- -------------------------------
Date Sigi Ziering, Ph.D.,
Chairman of the Board
Chief Executive Officer
APRIL 29, 1998 /s/ 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 17,589
<SECURITIES> 0
<RECEIVABLES> 48,466
<ALLOWANCES> 142
<INVENTORY> 50,112
<CURRENT-ASSETS> 119,727
<PP&E> 93,128
<DEPRECIATION> 43,519
<TOTAL-ASSETS> 226,596
<CURRENT-LIABILITIES> 37,107
<BONDS> 0
0
0
<COMMON> 39,683
<OTHER-SE> 149,806
<TOTAL-LIABILITY-AND-EQUITY> 226,596
<SALES> 46,104
<TOTAL-REVENUES> 46,104
<CGS> 20,395
<TOTAL-COSTS> 20,395
<OTHER-EXPENSES> 19,885
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,824
<INCOME-TAX> 1,720
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,104
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
