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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to_____________
Commission file number 1-9957
DIAGNOSTIC PRODUCTS CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2802182
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5700 WEST 96TH STREET
LOS ANGELES, CALIFORNIA 90045
(Address of principal executive offices)
Registrant's telephone number: (213) 776-0180
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 $312,000,000 as of February 27, 1998.
The number of shares of Common Stock, no par value, outstanding as of
February 27, 1998, was 13,767,037.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the 1998 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 which utilize state-of-the-art
technology derived from immunology and molecular biology, and automated
laboratory instruments which perform the tests. The Company's products are used
by hospital, 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 400 assays (tests) relate to the diagnosis and
management of thyroid disorders, anemia, reproductive disorders, diabetes,
allergies, bone metabolism, infectious diseases, substance abuse and certain
types of cancer. 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.
For information regarding forward looking statements contained in this
report and risks associated with the Company's business, see "Item 7.
Management's Discussion and Analysis of Financial condition and Results of
Operations - Forward Looking Statements."
IMMUNODIAGNOSTIC TEST KITS
DPC manufactures more than 400 immunodiagnostic test kits or "assays" which
utilize various technologies to detect and measure substances in a patient's
body fluids and tissues. The technologies used in DPC's assays include
chemiluminescence, which is used in the DPC IMMULITE system; radioimmunoassay
(RIA), which uses double antibody, coated tube and IRMA formats; enzyme
immunoassay (EIA), used in microplate and tube formats featuring a proprietary
liquid technology for allergy; immunohistochemistry; immunofluorescence; and
latex agglutination. Prior to 1992, DPC's core business was based on RIA
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 non-isotopic systems
based mainly on fluorescence (FIA) and enzyme (EIA) labels. Non-isotopic
technologies have the advantages of longer shelf life, no safety issues
associated with the use and disposal of radioactive materials, and ease of
automation. Currently, non-isotopic systems account for approximately 90% of the
market. DPC's major entry into this market was the IMMULITE system which uses
assays based on chemiluminescence technology. As a result of the growth in sales
of IMMULITE systems and other nonisotopic tests, sales of RIA products fell
below 30% of total sales in 1997.
IMMULITE assays and instruments represented 60% of sales in 1997 and
this upward trend is expected to continue. Because IMMULITE is a closed system
(it will not perform other manufacturers' tests), 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. DPC believes
that it has the most extensive menu offering of any automated instrument on the
market, especially those tests that when grouped together constitute a
decision-making panel for a specific disease state, such as thyroid and
fertility. At December 31, 1997, DPC had 81 IMMULITE assays available in the
international markets, of which 51 had been approved by the FDA for marketing in
the U.S. In addition, 31 of the most important assays on the newly developed
IMMULITE 2000 have been approved for marketing in the U.S. The Company's
research and development activities continue to be focused on expanding the
IMMULITE menu.
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DPC has concentrated on creating the most complete panels of tests for
specific disease states. Many of these disease states represent high-volume
opportunities in the marketplace, or unique and under-served disease categories
that allow DPC to fill a market niche. Many of DPC's tests are available in both
RIA and non-isotopic formats. Major clinical applications of DPC's test kits
include:
THYROID - The most frequent utilization of immunoassay techniques is
for the determination and monitoring of thyroid function. In 1997, DPC added
three more thyroid tests on the IMMULITE which gives it the advantage of having
the most extensive and unique thyroid panel consisting of 12 tests.
FERTILITY/INFERTILITY - DPC has been a longtime market leader in
fertility and infertility assays due, in great part, to the high degree of
difficulty in developing these challenging assays. To maintain its traditional
advantage in this field, a total of nine tests that fall in this category are
currently available on the IMMULITE automated instrument.
CANCER - Tumor markers are being widely accepted as an important
diagnostic tool. The most successful tumor marker is prostate specific antigen
(PSA), which is used for the diagnosis of prostate cancer in males. DPC is the
only company that offers three PSA markers in fully automated format on the
IMMULITE, including the unique 3rd Generation PSA assay, which has an
order-of-magnitude greater sensitivity than any other PSA assay currently
available. This level of sensitivity is increasingly accepted worldwide by
urologists who are discovering that post-surgical recurrence can now be detected
up to 18 months earlier than has been possible with previous technology. In
addition to PSA, DPC offers a total of 11 tumor markers on the IMMULITE, a
larger menu than any competitor.
INFECTIOUS DISEASES - A relatively new area for DPC is the development
of assays for the detection of infectious diseases, which is one of the fastest
growing segments of immunoassays. The Company developed 11 such assays during
the last two years and more are planned for 1998.
SMALL MOLECULES AND PEPTIDES - Some of the most difficult tests to
develop are those which measure small molecules and peptides. In this area are
tests for steroids, drugs of abuse, PTH and ACTH. In the field of small
molecules and peptides DPC has developed ten assays, including two which are
available in automated format only from DPC.
ALLERGY - Allergy testing comprises a worldwide market of approximately
$250 million with one company, Pharmacia-Upjohn, dominating the field for the
last 30 years. DPC, with its unique patented liquid technology, has established
itself as the second leading supplier of these test kits. DPC has approximately
300 tests for specific allergens (and panels) available in a semi-automated
microplate format. In response to requests from European customers for complete
automation of allergy tests, DPC has added the major large volume allergy
screening assays to the IMMULITE menu, bringing full automation to 13 allergy
tests and panels. These include such unique assays as Latex and ECP assay, the
latter an important tool for the diagnosis and management of asthma.
CYTOKINES - A new line of potentially important disease markers
currently under intensive investigation by researchers are the cytokines, often
referred to as "the hormones of the immune system." DPC is the only company that
offers these assays in automated format, and currently has five cytokine assays
on the IMMULITE system, with others in development. Studies in Europe have
indicated that certain cytokines are valuable tools for the management of
sepsis, a bacterial infection that often occurs in intensive care units. As a
result, these cytokine assays are being used routinely in intensive care units
in Germany, and the Company anticipates that interest in these assays will
spread to other parts of the world.
AUTOMATED LABORATORY INSTRUMENTATION
In addition to an extensive line of diagnostic test kits, DPC designs and
manufactures automated laboratory instruments which perform the tests and which
provide fast, accurate results, while reducing labor and reagent costs.
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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. 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.
Since its introduction in 1992, DPC has manufactured 3,120 IMMULITE
systems, 720 of which were shipped in 1997.
During 1997, DPC completed the development and pre-launch of its next
generation IMMULITE system. DPC commenced shipments of the new IMMULITE 2000 in
the first quarter of 1998. The IMMULITE 2000 is a high speed analyzer with a
throughput of up to 200 tests per hour which offers the medium to high-volume
laboratory increased efficiency in streamlining its testing workload. The
IMMULITE 2000 can run for a full 8-hour shift without the necessity of
replenishing the on-board supplies. 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 original IMMULITE unit. The IMMULITE 2000
includes advanced features such as primary tube sampling and proprietary
auto-dilution capability. The system can also be interfaced with robotic
laboratory sample-handling systems and can be connected to the customer's
computer for specification of the tests to be run on each sample as well as
recording the results. Another innovative feature of the IMMULITE 2000 is a
remote diagnostic capability which permits DPC's service facility to access any
IMMULITE 2000 worldwide for the purpose of diagnosing system problems. The
Company believes that the IMMULITE 2000 will complement the existing IMMULITE
and extend its life cycle.
In response to its customers' needs, DPC has the following automated
instruments in development:
- A smaller capacity IMMULITE 1000 unit which incorporates most of the
advanced features of the IMMULITE 2000 such as primary tubes and auto dilution.
This unit is aimed at the smaller labs and hospitals as a replacement for the
original IMMULITE introduced in 1992.
- The IMMUGOLD, a smaller instrument which can provide test results
within five to ten minutes for point-of-care applications, such as at the
hospital bed site, in intensive care units or in emergency rooms, where rapid
results are critical. The IMMUGOLD will utilize innovative proprietary
technology (patents applied for) and is targeted for delivery during 1999.
- An automated "walk away" allergy testing instrument based on the
unique and patented liquid-based technology used in DPC's current allergy
product line, which is targeted for introduction in late 1999.
In addition to the IMMULITE family of products, DPC also manufactures
and sells the following automated instruments:
AlaSTAT Microplate Allergy System - This system consists of a variety
of instruments which can be configured to provide the customer with varying
degrees of automation and test capacity. A totally automated walk-away system
consists of the MARK 5 robotic pipettor with BCR barcode reader, a computer with
proprietary MAXsoftware and a MAX automated microplate processor. This system
can process up to 768 wells in microplate format in an 8-hour shift. The
MAXsoftware performs data reduction, manages patient data and interfaces with
the customer's information system. The AlaSTAT system also offers a manual,
low-cost allergy testing system for small volume testing.
MARK 5 Robotic Pipettor - The MARK 5 is an open system which
accommodates tubes or plates in a limitless range of pipetting applications,
such as serial dilutions and multiple test combinations. The instrument uses
four probes to process up to 600 samples per hour.
The TipTech - is an open pipetting system that combines guaranteed
sample transfer with non-conductive disposable-tip technology to automate
pipetting of samples for applications requiring zero carry-over. Up to 12 plates
or a combination of tubes and plates may be processed in a single run.
The MARK 5 BCR - is a barcode reader with a random-access software
package which transports and identifies patient samples and can be integrated
with the MARK 5 robotic pipettor.
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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. R&D
capabilities in the United States include fully staffed departments in organic
synthesis, biochemistry, antisera/ hybridoma, protein chemistry, molecular
biology and infectious disease, method development, instrumentation and
software. The Company also conducts research and development activities at
facilities located in the United Kingdom, Germany, Japan (a 50%-owned joint
venture), and Italy (through its 45%-owned subsidiary). During the years ended
December 31, 1995, 1996 and 1997, the Company spent $16,135,000, $17,758,000 and
$19,710,000 on research and development, representing approximately 10%, 10% and
11% of sales.
MANUFACTURING AND SERVICE
The Company's principal test kit manufacturing facility is located in Los
Angeles, California. Approximately 25% 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
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 DPC affiliates in Germany
and China.
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 in the United Kingdom
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.
DPC's Los Angeles and New Jersey facilities are ISO 9001 certified.
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.
DPC provides technical support for all its products, including
reagents, instruments and software, via telephone and on-site service.
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 U.S. 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.
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The Company's products are sold on a world-wide basis through
distributors in 100 foreign countries. These distributors, including
consolidated distributors, also sell other manufacturer's products which are not
directly competitive with the Company's products. Foreign sales (including
export sales, sales to non-consolidated foreign affiliates and sales of
consolidated subsidiaries) represented approximately 79% in 1995, 80% in 1996
and 80% in 1997 of total sales, with sales in Europe accounting for
approximately 55%, 51% and 48% of total sales. See Notes 5 and 12 of Notes to
Consolidated Financial Statements for information regarding foreign operations.
Sales of test kits to customers and distributors are made against
individual purchase orders as well as through volume purchase arrangements.
Because of limited 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, leases or rents the IMMULITE
instrumentation to hospitals and reference laboratories which perform volume
testing. The Company's backlog at any date is usually insignificant and not a
meaningful indicator of future sales.
The Company's foreign operations are subject to various risks,
including exposure to currency fluctuations, political and economic instability
and trade restrictions. Because the Company's consolidated foreign distributors'
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 that it will either use an alternate
technology or that 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 and Japan, 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.
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
automated systems address 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.
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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 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, and Boehringer Mannheim. All 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, 1997, the Company (including its consolidated subsidiaries)
had 1467 employees, including 628 in manufacturing, 248 in research and
development, 362 in marketing and sales and 229 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, 1997:
<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 80 acres Owned Raw material processing
Randolph, New Jersey 36,700 sq. ft. Leased Research, manufacturing and
distribution
Glyn Rhonwy, Wales, UK 110,000 sq. ft. Owned Research, manufacturing and
distribution
Bad Nauheim, Germany 56,500 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 10,400 sq. ft. Owned Distribution
</TABLE>
- -------------------------
*Lease payments of $879,000 in 1997. Lease expires at December 31,
2002. See "Item 13. Certain Relationships and Related Transactions".
The Company believes that its facilities are adequate to meet its
foreseeable needs.
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 1997 and
1996.
<TABLE>
<CAPTION>
1997
------------------------------------------
High Low Dividend
---- --- --------
<S> <C> <C> <C>
First Quarter $ 33 1/2 $ 25 1/2 $ .12
Second Quarter 31 5/8 27 7/8 .12
Third Quarter 32 15/16 27 1/4 .12
Fourth Quarter 31 1/4 27 1/8 .12
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>
As of February 27, 1998, the Company had 475 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,
------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales $106,791 $126,453 $159,649 $176,832 $186,264
Net income 14,166 16,700 24,169 22,947 18,248
Earnings per share:
Basic 1.08 1.28 1.83 1.69 1.34
Diluted 1.02 1.20 1.75 1.65 1.32
Weighted average shares outstanding:
Basic 13,150 13,002 13,209 13,554 13,641
Diluted 13,955 13,902 13,847 13,926 13,876
Dividends per share $ .40 $ .40 $ .46 $ .48 $ .48
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Working capital $ 54,260 $ 60,704 $ 70,539 $ 81,563 $ 83,031
Total assets 137,149 152,735 189,462 207,002 222,180
Shareholders' equity 123,273 135,100 163,350 182,287 186,295
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's sales increased 5% in 1997 to $186 million compared to
sales of $177 million in 1996, which increased 11% over 1995. Sales of IMMULITE
instruments and assays have been the principal factor in sales growth in the
last three years. In 1997, sales of IMMULITE instruments and assays represented
60% of 1997 sales, compared to 50% of sales in 1996. Unit sales of IMMULITE test
kits grew 34% in 1997. As of December 31, 1997, 1996 and 1995, the Company had
shipped on a cumulative basis approximately 3,200, 2,400 and 1600, IMMULITE
instruments. These sales increases were partially offset by the expected
continuing decline in sales of RIA kits, which decreased from more than 50% of
sales in 1995 to approximately 30% of sales in 1997.
Foreign sales as a percentage of total sales were 80% in 1997 and 1996
and 79% in 1995, with Europe, the Company's principal foreign market,
representing 48%, 51% and 55% of sales in these respective years. 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. Based on comparative exchange rates in the immediately preceding year,
the translation adjustments resulted in approximately a 5% decrease in 1997
sales and a 1% decrease in 1996 sales, but a 5% increase in 1995 sales due to
the relatively weaker U.S. dollar in 1995 compared to 1994. 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.
Sales growth in 1997 was also restrained due to delays in the release
of the next generation IMMULITE instrument, the IMMULITE 2000. Originally
expected to be released in the second quarter of 1997, the IMMULITE 2000 was
released in the first quarter of 1998. The Company expects to ship approximately
400 IMMULITE 2000 systems during 1998, in addition to approximately 500 of the
original IMMULITE units.
Cost of sales increased 8% in 1997 and 9% in 1996, but as a percentage
of sales remained relatively constant over the last three years, representing
44%, 43% and 44% of sales in 1997, 1996 and 1995. 1997 cost of sales was
negatively impacted by the delay in the release of the IMMULITE 2000. In
addition, the change in product mix from primarily higher margin RIA kits to
lower margin IMMULITE instruments over the three-year period has reduced gross
margins compared to prior years. As a result of the anticipated increase in
instrument sales and declining RIA sales in 1998, the Company expects gross
margins in the range of 51% to 54% in 1998 (assuming no changes in the value of
the U.S. dollar).
Selling expense as a percentage of sales was 20%, 20% and 18% in 1997,
1996 and 1995. The expenditures increased by 7% in 1997 and by 20% in 1996
primarily to support the expansion of the IMMULITE product line and the launch
of the IMMULITE 2000. The major component of the increase in 1996 was the
inclusion of the Brazilian distributor (acquired September 1, 1995) for all of
1996, but for only four months in 1995.
Research and development expenditures increased 11% in 1997 and 10% in
1996 compared to the prior year. As a percentage of sales, research and
development expenditures were 11% in 1997, 10% in 1996 and 9% in 1995. The
dollar amount of these expenditures has increased to support the continuing
development of new IMMULITE instruments and the expansion of the IMMULITE assay
menu.
General and administrative expenses increased 20% in 1997 and 29% in
1996 over the prior year, representing 12%, 11% and 9% of sales in 1997, 1996
and 1995. The increase in 1997 was primarily due to currency exchange
transaction losses of $1.7 million and start-up costs associated with
establishing a distribution subsidiary in France. The major component of the
increase in 1996 was the inclusion of the Brazilian distributor (acquired
September 1, 1995) for all of 1996, but for only four months in 1995. Included
in general and administrative expenses is the amortization of the excess of cost
over net assets acquired (1997 - $984,000; 1996 - $984,000; 1995 - $920,000) and
minority interest (1997 - $574,000; 1996 - $513,000; 1995 - $246,000).
Equity in income of affiliates represents the Company's share of
earnings of non-consolidated affiliates, principally the 45%-owned Italian
distributor. This amount decreased by 15% in 1997 over 1996 primarily
9
<PAGE> 11
due to reduced net income of the Italian distributor due to the strong dollar.
This amount increased 14% in 1996 over 1995 primarily due to the higher net
income of the Italian distributor which had been depressed in prior years due to
economic problems in Italy and reductions in health care cost reimbursements.
Net interest income represents the excess of interest income and
interest on equipment contracts over interest expense. Net interest income in
1997 decreased by 54% over 1996 and by 19% in 1996 over 1995 due to increased
borrowings in these periods.
The Company's effective tax rate includes Federal, state and foreign
taxes. The effective tax rate has increased (1997 - 29%; 1996 - 28%; 1995 -
26%). During 1996 and 1995 the Company recognized tax benefits related to the
utilization of foreign and state net operating losses, which were substantially
reduced in 1997. The Company expects the 1998 effective tax rate to increase to
31%.
Net income decreased by 20.5% in 1997 to $18.248 million (10% of sales)
from $22,947 million (13% of sales) in 1996 due to the effects of the strong
U.S. dollar, costs and expenses which grew at a faster rate than sales, and the
delay in the release in the IMMULITE 2000. Net income was negatively impacted by
a $2.5 million increase in costs and expenses associated with the launch of the
IMMULITE 2000 which were not offset by IMMULITE 2000 sales and by $1.5 million
of start-up costs and operating losses associated with establishing a
distributor subsidiary in France. The Company expects that with the release of
the IMMULITE 2000 the downward trend in earnings will start to reverse itself in
the subsequent quarters of 1998. Net income decreased 5.7% in 1996 compared to
1995 due to increased selling, general and administrative expenses.
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. Standby letters
of credit outstanding under the line of credit totaled $3,125,000 at December
31, 1997. Cash flow from operating activities was $28.7 million in 1997, $18.7
million in 1996 and $23.6 million in 1995. Additions to property, plant and
equipment in 1997 increased by $2.5 million to $10.5 million compared to $8
million in each of 1996 and 1995 primarily due to expansion at the Company's
German subsidiary. The strong U.S. dollar in 1997 had the effect of reducing
cash by $4 million in 1997, compared with an increase of $246,000 in 1996 and
$1.5 million in 1995. The Company has no material commitments for capital
expenditures in 1998.
The Company's foreign consolidated subsidiaries had outstanding bank
loans of $15.5 million at December 31, 1997 and $4 million at December 31, 1996.
The terms of the loans are described in Note 6 of Notes to Consolidated
Financial Statements.
The Company pays a quarterly cash dividend which was $.10 per share in
the first quarter of 1995 and $.12 per share thereafter.
The Company has conducted a review of its computer systems to identify
those areas that could be affected by the "Year 2000" issue and is developing an
implementation plan to resolve the issue. The Company presently believes, with
modification to existing software and converting to new software, the Year 2000
problem will not pose significant operational problems and is not anticipated to
be material to its financial position or results of operations in any given
year.
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) that could cause actual results to differ materially. 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, 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.
10
<PAGE> 12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
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 1998 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 1998 Annual
Shareholders Meeting.
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 1998 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" and the section entitled
"Certain Transactions" of the Company's Proxy Statement for the 1998 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, 1996, and 1997.
Consolidated Statements of Income for the three years ended December
31, 1997. Consolidated Statements of Shareholders' Equity for the
three years ended December 31,
1997.
Consolidated Statements of Cash Flows for the three years ended
December 31, 1997.
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 (the "Company") as of December 31,
1996 and 1997, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. 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, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
February 18, 1998
12
<PAGE> 14
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
------------------------
ASSETS 1996 1997
--------- ---------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 13,781 $ 20,372
Accounts receivable--net of allowance
for doubtful accounts of $76 and $131 45,631 45,798
Inventories 42,828 49,038
Prepaid expenses and other current assets 375 405
Deferred income taxes 3,663 3,303
--------- ---------
Total current assets 106,278 118,916
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 29,195 30,854
Machinery and equipment 46,043 50,005
Leasehold improvements 6,701 7,075
Construction in progress 700 736
--------- ---------
Total 82,639 88,670
Less accumulated depreciation and amortization 37,192 41,576
--------- ---------
Property, plant and equipment-- net 45,447 47,094
SALES-TYPE AND OPERATING LEASES 22,056 26,875
DEFERRED INCOME TAXES 2,772 1,442
INVESTMENTS IN AFFILIATED COMPANIES 15,666 13,905
EXCESS OF COST OVER NET ASSETS ACQUIRED --
Net of amortization of $6,357 and $7,368 14,783 13,948
--------- ---------
TOTAL ASSETS $ 207,002 $ 222,180
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 4,005 $ 15,547
Accounts payable 13,024 14,562
Accrued liabilities 6,057 5,986
Income taxes payable 1,629 (210)
--------- ---------
Total current liabilities 24,715 35,885
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock-no par value, authorized 30,000,000
shares at December 31, 1996 and 1997; outstanding
13,597,124 shares and 13,717,072 shares 36,584 38,527
Retained earnings 147,579 159,278
Foreign currency translation adjustments (1,876) (11,510)
--------- ---------
Total shareholders' equity 182,287 186,295
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 207,002 $ 222,180
========= =========
</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,
---------------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
SALES $ 159,649 $ 176,832 $ 186,264
COSTS AND EXPENSES:
Cost of sales 70,528 76,698 83,078
Selling 29,188 35,135 37,520
Research and development 16,135 17,758 19,710
General and administrative 14,454 18,605 22,258
Equity in income of affiliates (1,407) (1,605) (1,363)
Interest income-net (1,828) (1,486) (687)
--------- --------- ---------
Total costs and expenses 127,070 145,105 160,516
--------- --------- ---------
INCOME BEFORE INCOME TAXES 32,579 31,727 25,748
PROVISION FOR INCOME TAXES 8,410 8,780 7,500
--------- --------- ---------
NET INCOME $ 24,169 $ 22,947 $ 18,248
========= ========= =========
EARNINGS PER SHARE:
BASIC $ 1.83 $ 1.69 $ 1.34
DILUTED 1.75 1.65 1.32
WEIGHTED AVERAGE
SHARES OUTSTANDING:
BASIC 13,209 13,554 13,641
DILUTED 13,847 13,926 13,876
</TABLE>
SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
14
<PAGE> 16
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in Thousands)
Common Stock
---------------------------- Retained
Shares Amount Earnings
----------- ------------ -----------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1995 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
Issuance of shares upon exercise of stock options 119,948 1,943
Cash dividends ($.48 per share) (6,549)
Net income 18,248
----------- ------------ -----------
BALANCE, DECEMBER 31, 1997 13,717,072 $ 38,527 $ 159,278
=========== ============ ===========
</TABLE>
SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
15
<PAGE> 17
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in Thousands) Year Ended December 31,
------------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24,169 $ 22,947 $ 18,248
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 11,155 14,440 15,270
Equity in undistributed income of
unconsolidated affiliates (504) (1,906) 1,761
Deferred income taxes (1,991) 216 1,690
Accounts receivable (6,343) (5,373) (2,543)
Inventories (6,715) (6,956) (7,475)
Prepaid expenses and other current assets 625 (17) (30)
Accounts payable (5,545) (3,490) 3,375
Accrued liabilities 584 349 (71)
Income taxes payable 2,564 (1,767) (1,725)
Income tax benefit received upon exercise
of certain stock options 5,604 294 150
-------- -------- --------
Net cash flows from operating activities 23,603 18,737 28,650
CASH FLOWS FROM (USED FOR)
INVESTING ACTIVITIES:
Additions to property, plant and equipment (8,060) (8,010) (10,542)
Sales-type and operating leases (11,510) (11,923) (11,572)
Investment in affiliated companies (1) (481) (46)
-------- -------- --------
Net cash from (used for) investing activities (19,571) (20,414) (22,160)
CASH FLOWS FROM (USED FOR)
FINANCING ACTIVITIES:
Borrowing 4,086 9,021
Proceeds from exercise of stock options 2,241 1,111 1,793
Cash dividends paid (6,074) (6,504) (6,549)
-------- -------- --------
Net cash from (used for) financing activities (3,833) (1,307) 4,265
EFFECT OF EXCHANGE RATE
CHANGES ON CASH 1,487 246 (4,164)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,686 (2,738) 6,591
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 14,833 16,519 13,781
-------- -------- --------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 16,519 $ 13,781 $ 20,372
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the year for income taxes $ 3,098 $ 9,863 $ 7,202
Cash paid during the year for interest $ 16 $ 225 $ 797
======== ======== ========
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 may not be reliable indicators of future
financial performance.
FINANCIAL INSTRUMENTS
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.
The fair value of the Company's financial instruments approximates cost
due to their short term nature, or, in the case of notes payable, because the
notes are at interest rates competitive with those that would be available to
the Company in the current market environment.
17
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1996 and 1997 is $5,300,000 and $14,500,000 of
short-term commercial paper.
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.
The Company reviews 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 future cash flows is less than the carrying amount of the
asset.
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. Foreign exchange translation adjustments are accumulated in a separate
component of shareholders' equity.
<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, 1996 and 1997, the Company had approximately
$7,000,000 and $8,950,000 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 ACQUISITIONS
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.
As of April 1, 1997, the Company acquired a 100% interest in DPC
France, SAS, the Company's French distributor for the IMMULITE product line.
NOTE 3 - INVENTORIES
Inventories by major categories are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31,
---------------------------
1996 1997
------- -------
<S> <C> <C>
Raw materials $14,896 $17,814
Work in process 17,472 18,073
Finished goods 10,460 13,151
------- -------
$42,828 $49,038
======= =======
</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 their estimated life, three to five years.
Sales-type and operating leases are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31,
------------------------
1996 1997
------- -------
<S> <C> <C>
Sales-type leases $ 5,437 $ 4,441
Operating leases 32,210 45,477
Less accumulated amortization 15,591 23,043
------- -------
Net 16,619 22,434
------- -------
Total $22,056 $26,875
======= =======
</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,
-------------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current assets $45,577 $45,764 $43,726
Property and other assets 33,377 40,587 34,498
------- ------- -------
Total assets $78,954 $86,351 $78,224
======= ======= =======
Current liabilities $37,019 $34,945 $36,754
Non-current liabilities 14,771 19,998 18,292
Shareholders' equity 27,164 31,408 23,178
------- ------- -------
Total liabilities and
shareholders' equity $78,954 $86,351 $78,224
======= ======= =======
Sales $61,218 $63,340 $60,501
======= ======= =======
Net income $ 3,619 $ 2,507 $ 804
======= ======= =======
</TABLE>
20
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company had sales to non-consolidated affiliates of $18,504,000 in
1995, $21,409,000 in 1996, and $21,993,000 in 1997, including sales to one
affiliate (Italy) of $10,034,000 in 1995, $11,251,000 in 1996, and $11,352,000
in 1997.
Included in the Company's accounts receivable are trade receivables
from non-consolidated affiliates of $11,078,000 at December 31, 1996 and
$7,124,000 at December 31, 1997.
The Company received dividends in 1997 of $1,078,000 from its Italian
affiliate. The Company's cumulative equity in undistributed earnings of
non-consolidated affiliated companies at December 31, 1997 is $10,804,000.
Additional income taxes payable on earnings of foreign affiliates, if remitted,
would be substantially offset by U.S. tax credits for foreign taxes paid.
NOTE 6 - NOTES PAYABLE
Notes payable consist of borrowings by certain of the Company's foreign
subsidiaries and are payable in the subsidiaries' local currency. The notes are
summarized as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31,
-------------------
1996 1997
------- -------
<S> <C> <C>
Notes payable to a bank in Germany, at an average
interest rate of approximately 5%, payable through 2006 $ 3,788 $11,318
Notes payable to a bank in France, at an interest rate
of approximately 5%, payable through April 2000 3,290
Other 217 939
------- -------
Total $ 4,005 $15,547
======= =======
</TABLE>
Aggregate future maturities of long-term debt outstanding at December 31, 1997
are $3,461,000 in 1998, $2,722,000 in 1999, $1,933,000 in 2000, $1,296,000 in
2001, $4,861,000 in 2002 and $1,274,000 thereafter. Interest expense was $16,000
in 1995, $225,000 in 1996 and $797,000 in 1997.
NOTE 7- 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 $1,883,000 in 1995, $2,202,000
in 1996 and $2,365,000 in 1997.
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 $391,000 in 1995. There was no
contribution in 1996 and 1997.
21
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) Year Ended December 31,
----------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
CURRENT:
Federal $ 7,076 $ 6,157 $ 3,992
State 220 730 708
Foreign 3,105 1,677 1,110
Deferred federal and
state income taxes (1,991) 216 1,690
------- ------- -------
Total provision for income taxes $ 8,410 $ 8,780 $ 7,500
======= ======= =======
</TABLE>
Temporary differences comprising the net deferred taxes shown on the
consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31,
----------------------
1996 1997
------ ------
<S> <C> <C>
State income taxes $ 695 $ 247
DPC Cirrus' net operating losses 1,591 639
Inventory 2,613 2,363
Depreciation 820 923
Other 716 573
------ ------
Total $6,435 $4,745
====== ======
</TABLE>
Included in the net deferred income taxes shown on the consolidated
balance sheets for 1997 and 1996 are deferred income tax assets of $4,814,000
and $6,646,000 and deferred income tax liabilities of $69,000 and $211,000.
At December 31, 1997, DPC Cirrus had net operating loss carry forwards
for Federal and state income tax purposes of approximately $1,733,000 and
$756,000 expiring at varying dates through 2001. Utilization of the Federal net
operating losses are subject to annual limitations of approximately $1,600,000.
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.
22
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
-----------------------------------------------------
1995 % 1996 % 1997 %
-------- --- -------- --- -------- ---
<S> <C> <C> <C> <C> <C> <C>
Provision for income taxes at statutory rate $ 11,403 35 $ 11,104 35 $ 9,012 35
State income taxes, net of federal tax benefit (1,440) (4) 397 1 456 2
Foreign income subject to tax other than
federal statutory rate 23 (487) (2) 40
Non-taxable earnings of FSC (1,013) (3) (1,073) (3) (952) (4)
Research and development tax credit (247) (1) (188) (403) (2)
Net foreign tax credit (111) (244) (1) (566) (2)
Equity in income of affiliates (492) (2) (562) (2) (477) (2)
Other 287 1 (167) 390 2
-------- -- -------- --- -------- --
Provision for income taxes $ 8,410 26 $ 8,780 28 $ 7,500 29
======== == ======== === ======== ==
</TABLE>
An income tax benefit during 1997, 1996 and 1995 related to the exercise or
early disposition of certain stock options reduced income taxes currently
payable by $150,000, $294,000 and $5,604,000 and was credited directly to
shareholders' equity.
NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES
The Company has exercised its option for the 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
now extends through December 31, 2002. Approximately $849,000 in 1995, $879,000
in 1996 and $879,000 in 1997 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, 1997 for both leases are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1998 1999 2000 2001 2002 Total
------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
$ 1,191 $1,191 $1,191 $1,191 $1,172 $5,936
</TABLE>
Rental expense under operating leases approximated $1,527,000 in 1995,
$1,783,000 in 1996 and $2,187,000 in 1997.
The Company has a supply contract with a vendor for chemical compounds
which are key components in the IMMULITE system. The Company has agreed to
guaranty the vendor's minimum payment obligations to another 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, 1996 or 1997 under the
guaranty.
23
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - EARNINGS PER SHARE
At December 31, 1997, the Company adopted Statement of Financial Accounting
Standard No. 128 ("SFAS"), "Earnings per Share". SFAS 128 replaces the
presentation of earnings per share ("EPS") with a presentation of basic EPS
based upon the weighted-average number of common shares for the period. It also
requires dual presentation of basic and diluted EPS for companies with "complex
capital structures", as defined. EPS for the current and prior periods has been
presented in conformity with the provisions of SFAS 128. The following table is
a reconciliation of the weighted-average shares used in the computation of basic
and diluted EPS for the income statement periods presented herein.
<TABLE>
<CAPTION>
(Shares in Thousands) Year Ended December 31,
----------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Basic 13,209 13,554 13,641
Assumed exercise of stock options 638 372 235
------ ------ ------
Diluted 13,847 13,926 13,876
====== ====== ======
</TABLE>
Net income as presented in the consolidated income statement is used as the
numerator in the EPS calculation for both the basic and diluted computations.
NOTE 11 - 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.
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), which was effective as
of January 1, 1996, the fair value of option grants is estimated on the date of
grant using the Black-Scholes option-pricing model for proforma footnote
purposes with the following assumptions used for grants in all years; dividend
yield of 1.6%, risk-free interest rate of from 5.7% to 6.9% and expected option
life of 3 to 10 years. Expected volatility was assumed to be 22.7% in 1995 and
1996, and 38.6% in 1997. Forfeiture rate was assumed to be 16.4% in 1995 and
1996 and 5% in 1997.
24
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Weighted Weighted
Number Average Average
Of Exercise Fair
Shares Price Value
--------- ----- ---------
<S> <C> <C> <C>
Options outstanding,
December 31, 1994 995,321 $ 18.51
Granted 152,000 34.73 $ 13.39
Exercised (158,491) 15.15
Canceled (29,220) 20.41
---------
Options outstanding,
December 31, 1995
(315,562 exercisable) 959,610 21.79
Granted 104,500 33.36 10.35
Exercised (53,073) 16.22
Canceled (29,524) 25.47
---------
Options outstanding,
December 31, 1996
(379,453 exercisable) 981,513 23.21
Granted 413,500 29.46 13.79
Exercised (199,948) 14.94
Canceled (54,525) 27.91
---------
Options outstanding, 1,220,540 25.92
December 31, 1997 =========
(349,656 exercisable)
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Range of Number Average Average Number Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices at 12/31/97 Life Price at 12/31/97 Price
- --------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$10-19.99 132,100 3.74 years $18.65 80,080 $18.74
20-29.99 867,340 7.26 years 24.69 186,406 20.75
30-39.99 266,100 5.93 years 34.16 82,670 33.13
40-49.99 5,000 8.33 years 41.53 500 41.53
</TABLE>
At December 31, 1997 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.
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.
Pursuant to the plans and the separate agreement, 1,916,040 shares of
common stock are reserved for issuance upon the exercise of options.
25
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As permitted by SFAS 123, the Company has chosen to continue accounting
for stock options at their intrinsic value. Accordingly, no compensation expense
has been recognized for its stock option compensation plans. Had the fair value
method of accounting been applied to the Company's stock option plans, the
tax-effected impact would be as follows:
<TABLE>
<CAPTION>
(Thousands of dollars
except per share amounts) 1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Net income as reported $24,169 $22,947 $18,248
Compensation expense from
stock options 34 89 318
------- ------- -------
Net income adjusted $24,135 $22,858 $17,930
Adjusted earnings per share-diluted $ 1.74 $ 1.64 $ 1.29
</TABLE>
This proforma impact only takes into account options granted since January 1,
1995 and is likely to increase in future years as additional options are granted
and amortized ratably over the vesting period.
NOTE 12 - 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,
France), and Rest of World (Australia, China, Brazil, Uruguay, Venezuela). The
Company's operations and identifiable assets by geographical area are as
follows:
<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>
26
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<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
=========
(Dollars in Thousands) December 31, 1997
---------------------------------------------------------------------
Rest
United States Europe of World Eliminations Consolidated
------------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales $ 80,273 $ 77,538 $ 28,453 $ 186,264
Transfer between geographical areas 34,524 2,222 56 $ (36,802)
--------- --------- --------- --------- ---------
Net sales $ 114,797 79,760 $ 28,509 $ (36,802) $ 186,264
========= ========= ========= ========= =========
Operating income,
before equity in income of affiliates $ 22,314 $ 636 $ 1,435 $ 24,385
========= ========= ========= ========= =========
Identifiable assets $ 108,484 $ 86,985 $ 28,853 $ (16,047) $ 208,275
========= ========= ========= ========= =========
Investment in affiliates 13,905
---------
$ 222,180
=========
</TABLE>
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
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995 $ 7,381 $ 6,907 $13,047 $27,335
1996 5,949 7,171 12,929 26,049
1997 3,466 8,277 14,509 26,252
</TABLE>
27
<PAGE> 29
SUPPLEMENTARY FINANCIAL DATA
Unaudited quarterly financial information for the years December 31, 1996 and
1997 is summarized as follows:
(In Thousands, Except per Share Data)
<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
Earnings per share:
Basic .48 .48 .32 .41 1.69
Diluted .47 .47 .31 .40 1.65
Weighted Average
Shares Outstanding:
Basic 13,532 13,544 13,555 13,586 13,554
Diluted 13,942 13,984 13,941 13,837 13,926
Quarter Ended
------------------------------------------------------------
March 31 June 30 September 30 December 31
1997 1997 1997 1997 Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales $ 44,400 $ 46,763 $ 46,399 $ 48,702 $186,264
Gross profit 24,718 26,594 25,914 25,960 103,186
Income taxes 1,710 1,790 1,460 2,540 7,500
Net income 4,663 4,892 5,122 3,571 18,248
Earnings per share:
Basic .34 .36 .38 .26 1.34
Diluted .34 .35 .37 .26 1.32
Weighted Average
Shares Outstanding:
Basic 13,605 13,622 13,646 13,690 13,641
Diluted 13,867 13,872 13,901 13,869 13,876
</TABLE>
28
<PAGE> 30
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 17, 1998
------------------------------------------
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 17, 1998
- --------------------------------- and Chief Executive
Sigi Ziering Officer (Principal
Executive Officer)
/s/ Michael Ziering Director March 17, 1998
- ---------------------------------
Michael Ziering
/s/ Sidney A. Aroesty Director March 17, 1998
- ---------------------------------
Sidney A. Aroesty
/s/ Maxwell H. Salter Director March 17, 1998
- ---------------------------------
Maxwell H. Salter
/s/ James D. Watson Director March 17, 1998
- ---------------------------------
James D. Watson
/s/ Frederick Frank Director March 17, 1998
- ---------------------------------
Frederick Frank
/s/ Julian R. Bockserman Vice President-- March 17, 1998
- --------------------------------- Finance (Principal
Julian R. Bockserman Financial and Accounting
Officer)
</TABLE>
29
<PAGE> 31
EXHIBIT INDEX
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 (9)
21 Subsidiaries of Registrant
23 Independent Auditors' Consent
27 Financial Data Schedule (For EDGAR filing only)
- -----------------------
* 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)
(9) Incorporated by reference to Registrant's Annual Report on Form
10-K for the year ended December 31, 1996. (File No. 1-9957)
30
<PAGE> 1
EXHIBIT 21
DIAGNOSTIC PRODUCTS CORPORATION AND SUBSIDIARIES
EXHIBIT 21
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%
DPCHolding 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%
DPC France, SAS France 100%
Tianjin De Pu (DPC) China 100%
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 Statements Nos.
2-81631, 33-17575, 33-43043 and 33-34665 on Form S-8 of our report dated
February 18, 1998, included in this Annual Report on Form 10-K of Diagnostic
Products Corporation for the year ended December 31, 1997.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 20,372
<SECURITIES> 0
<RECEIVABLES> 45,798
<ALLOWANCES> 131
<INVENTORY> 49,038
<CURRENT-ASSETS> 118,916
<PP&E> 88,670
<DEPRECIATION> 41,576
<TOTAL-ASSETS> 222,180
<CURRENT-LIABILITIES> 35,885
<BONDS> 0
0
0
<COMMON> 38,527
<OTHER-SE> 147,768
<TOTAL-LIABILITY-AND-EQUITY> 222,180
<SALES> 186,264
<TOTAL-REVENUES> 186,264
<CGS> 83,078
<TOTAL-COSTS> 83,078
<OTHER-EXPENSES> 77,438
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 25,748
<INCOME-TAX> 7,500
<INCOME-CONTINUING> 18,248
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,248
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.32
</TABLE>
