SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 31, 1997
OR
[ ] 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 000-19392
DIANON SYSTEMS, INC.
(exact name of registrant as specified in its charter)
Delaware 06-1128081
(State of incorporation) (IRS Employer Identification No.)
200 Watson Blvd, Stratford, CT 06497
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (203) 381-4000
NOT APPLICABLE
(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 Issuer's Common Stock, $.01 par value, outstanding on
May 5, 1997 was 6,437,476 shares.
Exhibit Index is on page 15 of 16 pages.
<PAGE>
DIANON SYSTEMS, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
- ---------------------------- --------
<S> <C> <C>
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1997 3
and December 31, 1996
Consolidated Statements of Operations for the 4
three months ended March 31, 1997 and 1996
Consolidated Statements of Stockholders' Equity 5
for the twelve months ended December 31, 1996 and
the three months ended March 31, 1997
Consolidated Statements of Cash Flows for the 6
three months ended March 31, 1997 and 1996
Notes to Consolidated Financial Statements 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 8-12
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II OTHER INFORMATION
- -------------------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 13
Signatures 14
Exhibit Index 15
</TABLE>
<PAGE>
DIANON SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,566,608 $ 7,488,590
Accounts receivable, net of
allowances of $1,027,705
and $1,056,920, respectively 13,366,168 15,426,221
Prepaid expenses and employee advances 1,074,135 1,189,139
Prepaid and refundable income taxes -- 329,371
Inventory 604,359 662,567
Deferred income tax asset 677,277 677,277
--------------------------------
Total current assets 25,288,547 25,773,165
--------------------------------
PROPERTY AND EQUIPMENT, at cost
Laboratory and office equipment 12,581,716 12,233,989
Leasehold improvements 3,634,207 3,612,198
Less - accumulated depreciation
and amortization (9,138,911) (8,606,176)
--------------------------------
7,077,012 7,240,011
--------------------------------
INTANGIBLE ASSETS, net of accumulated
amortization of $3,045,357 and
$2,991,286, respectively 550,242 604,313
DEFERRED INCOME TAX ASSET 458,465 458,465
OTHER ASSETS 419,339 459,696
--------------------------------
TOTAL ASSETS $ 33,793,605 $ 34,535,650
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 976,840 $ 1,903,448
Accrued employee bonuses,
commissions and payroll 1,167,750 1,504,430
Accrued employee stock purchase plan 741,717 549,540
Current portion of capitalized
lease obligations 26,696 26,107
Current portion of note payable 412,167 650,154
Other accrued expenses 4,651,804 3,081,481
--------------------------------
Total current liabilities 7,976,974 7,715,160
--------------------------------
LONG-TERM PORTION OF CAPITALIZED LEASE
OBLIGATIONS 62,644 69,611
DEFERRED INCOME TAX LIABILITY 201,951 201,951
--------------------------------
TOTAL LIABILITIES 8,241,569 7,986,722
--------------------------------
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share,
20,000,000 shares authorized,
6,749,638 and 6,712,774 shares
issued and outstanding at March 31,
1997 and December 31, 1996, respectively 67,496 67,128
Additional paid-in capital 28,197,383 27,965,560
Accumulated earnings/(deficit) 63,880 (554,317)
Common stock held in treasury, at cost -
334,196 and 117,196 shares at March 31,
1997 and December 31, 1996, respectively (2,776,723) (929,443)
--------------------------------
TOTAL STOCKHOLDERS' EQUITY 25,552,036 26,548,928
================================
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 33,793,605 $ 34,535,650
================================
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these balance sheets.
<PAGE>
DIANON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
----------- -----------
<S> <C> <C>
NET REVENUES $15,601,155 $12,418,819
COST OF SALES 7,872,499 6,138,888
----------- -----------
Gross Profit 7,728,656 6,279,931
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,217,482 5,067,181
RESEARCH AND DEVELOPMENT
EXPENSES 507,705 806,901
----------- -----------
Income from Operations 1,003,469 405,849
INTEREST INCOME 91,890 124,545
INTEREST EXPENSE 10,803 24,201
----------- -----------
Income Before Provision for Income Taxes 1,084,556 506,193
PROVISION FOR INCOME TAXES 466,359 217,663
----------- -----------
Net Income $ 618,197 $ 288,530
=========== ===========
Weighted Average Shares Outstanding 6,835,289 6,248,926
----------- -----------
Primary and Fully Diluted Earnings Per Share $ .09 $ .05
=========== ===========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
<PAGE>
DIANON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 AND
THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
Additional Acquired for Shareholder
Common Stock Paid-In Accumulated Treasury, Note
Shares Amount Capital Deficit at Cost Receivable Total
------------------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 6,311,451 $63,115 $26,609,657 ($2,724,433) ($200,000) ($296,000) $23,452,339
Stock options exercised 23,621 236 107,476 -- -- -- 107,712
Exercise of warrants
net of exercise costs 377,702 3,777 1,536,540 -- 2,478,889 -- 4,019,206
Common stock acquired
for treasury -- -- -- -- (3,208,332) -- (3,208,332)
Extinguishment of share-
holder note receivable -- -- (296,000) -- -- 296,000 --
Stock compensation
expense - stock options -- -- 7,887 -- -- -- 7,887
Net Income -- -- -- 2,170,116 -- -- 2,170,116
--------- ------- ----------- ----------- ----------- --------- -----------
BALANCE, December 31, 1996 6,712,774 67,128 27,965,560 (554,317) (929,443) -- 26,548,928
Stock options exercised 20,724 207 94,294 -- -- -- 94,501
Stock grants 16,140 161 137,529 -- -- -- 137,690
Common stock acquired for
treasury -- -- -- -- (1,847,280) -- (1,847,280)
Net Income -- -- -- 618,197 -- -- 618,197
--------- ------- ----------- ----------- ----------- --------- -----------
BALANCE, March 31, 1997 6,749,638 $67,496 $28,197,383 $ 63,880 ($2,776,723) $ -- $25,552,036
========= ======= =========== =========== =========== ========= ===========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
<PAGE>
DIANON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES: ----------- ------------
<S> <C> <C>
Net income $ 618,197 $ 288,530
Adjustments to reconcile net income to net
cash provided by (used in) operations -
Non-cash charges
Depreciation and amortization 657,927 497,088
Loss on the disposal of fixed assets 28,378 18,845
Investment write-down -- 4,053
Changes in other current assets
and liabilities
Decrease (increase) in accounts receivable 2,060,053 (1,328,664)
Decrease in prepaid expenses
and employee advances 444,375 433,819
Decrease (increase) in inventory 58,208 (41,064)
Decrease (increase) in other assets 28,417 (4,443)
Increase (decrease) in accounts payable
and accrued liabilities 499,213 (551,319)
----------- ------------
Net cash provided by (used in)
operating activities 4,394,768 (683,155)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (131,396) (541,080)
Construction in Progress (325,900) --
Proceeds from the sale of stock held for
investment -- 57,530
Proceeds from the disposal of fixed assets -- 7,500
----------- ------------
Net cash (used in) investing activities (457,296) (476,050)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of note payable (237,987) (223,939)
Repayments of capitalized lease obligations (6,378) (15,171)
Purchase of common stock acquired for treasury (1,847,280) (67,500)
Stock grants and stock options exercised 232,191 --
----------- ------------
Net cash (used in) financing activities (1,859,454) (306,610)
----------- ------------
Net increase (decrease) in cash and
cash equivalents 2,078,018 (1,465,815)
CASH AND CASH EQUIVALENTS, beginning of period 7,488,590 10,990,231
----------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 9,566,608 $ 9,524,416
=========== ============
Supplemental cash flow disclosures:
Cash paid during the period:
Interest $ 10,867 24,272
Income Taxes 200 458
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
<PAGE>
DIANON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY - The consolidated balance sheet as of March 31, 1997, the
related consolidated statements of operations and consolidated statement
of cash flows for the three months ended March 31, 1997 and 1996, and the
related consolidated statements of stockholders' equity for the twelve
months ended December 31, 1996 and the three months ended March 31, 1997
have been prepared by DIANON Systems, Inc. (the "Company") without audit.
In the opinion of management, all adjustments necessary to present fairly
the financial position, results of operations and cash flows at March 31,
1997 and 1996 have been made. During the interim periods reported on, the
accounting policies followed are in conformity with generally accepted
accounting principles and are consistent with those applied for annual
periods and described in the Company's annual report filed on Form 10-K
with the Securities and Exchange Commission on March 31, 1997 (the "Annual
Report").
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
consolidated financial statements be read in conjunction with the
financial statements included in the Company's Annual Report for the year
ended December 31, 1996. The results of operations for the three months
ending March 31, 1997 and 1996 are not necessarily indicative of the
operating results for the full years.
2. DESCRIPTIVE ANALYSIS - The descriptive analysis contained herein compares
the financial results of the first three months ended March 31 for the
years 1997 and 1996. To accommodate the comparison of pertinent financial
information the following terms will be used to denote the respective
periods:
The First Quarter 1997 - current three months ended March 31, 1997
The First Quarter 1996 - three months ended March 31, 1996
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
RESULTS OF OPERATIONS
- ---------------------
O NET REVENUES
Net revenues were $15.6 million during the First Quarter 1997, an increase of
$3.2 million or 26% from the First Quarter 1996. Increased revenues were
attributable to increased market penetration by the Company's anatomic pathology
testing services. The increase in anatomic pathology testing services in the
First Quarter 1997 over the comparable period of 1996 was offset to some extent
by a decrease in clinical chemistry and hospital based tissue testing services.
O COST OF SALES
Cost of sales, which consists primarily of salaries and wages, laboratory
supplies, outside services, logistics (primarily shipping and handling), and
depreciation expense, was $7.9 million during the First Quarter 1997, an
increase of $1.7 million or 28% from the First Quarter 1996. Salaries and wages
were approximately $2.6 million in the First Quarter 1997, an increase of
$604,000 or 31% from the First Quarter 1996. This increase was principally due
to increased laboratory and physician employment incurred to support new
anatomic pathology testing services. Laboratory supplies were approximately $1.5
million in the First Quarter 1997, an increase of $197,000 or 15% from the First
Quarter 1996. This increase was the result of increased sales volume and
increased costs for reagents used for some of the Company's testing services.
Logistics were $1.7 million in the First Quarter 1997, an increase of $789,000
or 84% from the First Quarter 1996. The increase in logistic costs was
principally due to supporting new anatomic pathology testing services. As a
percentage of net revenues, cost of sales increased to 50% during the First
Quarter 1997 from 49% during the First Quarter 1996.
O GROSS PROFIT
Gross profits were $7.7 million during the First Quarter 1997, an increase of
$1.4 million or 23% from the First Quarter 1996. The Company's gross profit
margin decreased to 50% in the First Quarter 1997 from 51% in the First Quarter
1996. The decrease in gross profit margin was due to the continued erosion of
the average unit price reimbursed for certain clinical chemistry testing
services and the higher costs associated with providing anatomic pathology
testing services.
The clinical laboratory industry, which includes both clinical chemistry and
anatomic pathology, has seen steady downward pressure on prices exerted by both
government and private third party payors. Also, payment for services such as
those provided by the Company is and likely will continue to be affected by
periodic reevaluations made by payors concerning which services to reimburse and
which to cease reimbursing. The reduction in reimbursement rates, particularly
by Medicare, has generally decreased the average unit price for most of the
Company's clinical chemistry services each year. In keeping with this trend, as
part of Omnibus Budget Reconciliation Act of 1993 ("OBRA `93"), Congress reduced
over time the national cap on Medicare laboratory fee schedules. This national
cap has been lowered each year and now is 76% of the national median. OBRA `93
also eliminated the annual updates of Medicare laboratory fee schedules for the
years 1994 and 1995. In 1996, however, the fee schedule update was 3.2% and the
Health Care Financing Administration ("HCFA") has recently announced that the
fee schedule update for 1997 will be 2.7%. However, the corresponding expected
national cap increase of 2.7% may not be fully realized due to a recalculation
of national medians necessitated by conversion in some carrier areas to a single
statewide fee schedule.
With respect to the Company's tissue testing services which are not reimbursed
under the Medicare laboratory fee schedules, the Medicare fees for these
services also generally declined with the implementation of the resource based
relative value scale ("RBRVS") system which went into effect in 1992 and was
fully phased in by the end of 1996. The Medicare RBRVS payment for each service
is calculated by multiplying the total relative value units ("RVU's")
established for the service by a conversion factor that is set by law. The
<PAGE>
number of RVU's assigned to each service is in turn calculated by adding three
separate components, including one representing the relative work values. In
1996, HCFA completed a five-year review of the work value component and, as a
result, revised the work value amount assigned to many physician services. In
addition, based on a default formula established in law, the 1997 conversion
factor for nonsurgical services dropped 0.8% from 1996 to $33.8454 per
conversion factor. The changes resulting from the five-year review, combined
with the conversion factor reductions, resulted in an overall decrease in
payments for pathology services of approximately 5.7% beginning January 1, 1997.
Also, HCFA reduced the number of physician fee schedule payment localities from
210 to 89, effective January 1, 1997. Connecticut was one of the states that
HCFA moved to a single payment locality. This modification created a 3.2%
decrease in the RBRVS geographic adjustment factor for physicians located in
Western Connecticut, where the Company's primary operations are located. In the
past, implementation of the RBRVS program has had the effect of reducing prices,
and thus the gross profit, of the Company. The recent substantial RBRVS
adjustments are likely to continue this trend.
Furthermore, as a result of the Social Security Act amendments of 1994, Medicare
is required to revise the formula for calculating the practice expense component
of the physicians' Medicare fee schedule from the current historical basis to a
resource basis beginning January 1, 1998. Some concern has been expressed by
physician specialty groups that the data HCFA plans to use for these revisions
is not adequate and that HCFA's methodology could result in specialty practice
expenses being underestimated. At this point, HCFA is considering a variety of
options for calculating practice expense revisions. It is possible that certain
changes HCFA might make would have a significant negative affect on
reimbursement, and thus gross profit, for anatomic pathology testing services.
Practice expenses currently account for approximately 42% of the physicians'
Medicare fee schedule payment amount.
Any future changes in government and other third-party payor reimbursement which
may come about as a consequence of an enactment of health care reform or of
deficit reduction legislation also likely will continue the downward pressure on
prices and make the market for clinical laboratory services more competitive.
The Medicare proposal contained in the President's fiscal year 1998 budget
offers an indication of the direction future Medicare reform legislation may
take with respect to clinical laboratory services. The President's proposed
budget would not modify the national cap on Medicare clinical chemistry
laboratory fee schedules or eliminate annual updates; however, it would
establish competitive bidding for clinical chemistry laboratory services. If the
President's proposal failed to realize savings of at least 20% for a given year
through the competitive bidding process, the Secretary of the Department of
Health and Human Services ("HHS") would reduce Medicare's fees for laboratory
services to achieve this targeted savings. Furthermore, the President's support
for competitive bidding has rekindled efforts within HCFA to initiate a Medicare
demonstration project to test the savings potential of competitive bidding for
Part B clinical chemistry laboratory services. If ultimately adopted, either
through federal legislation or through HCFA policy, these changes likely would
have an adverse impact on the Company's revenues, and thus its gross profit.
Moreover, the Congress has voiced concern that the President's budget does not
yield sufficient savings to balance the budget in 2002. As a result, the
Congress is likely to propose additional savings measures, especially in the
Medicare program. H.R. 2491, the Balanced Budget Act of 1995, passed by Congress
and vetoed by President Clinton in December 1995, offers some indication of
additional savings measures that Congress may propose in the future. Although
H.R. 2491 would not have established competitive bidding for clinical chemistry
laboratory services, it instead proposed that a failsafe budget mechanism be
used if projected savings were not realized in Medicare service expenditures.
This failsafe mechanism might have further reduced reimbursement for Medicare
clinical chemistry laboratory services and physician services (including the
Company's anatomic pathology testing service). In addition, H.R. 2491 would have
further reduced the national cap on Medicare clinical chemistry laboratory fee
schedules to 65% of the national median in 1997. It also would have eliminated
annual updates in the Medicare clinical chemistry laboratory fee schedules until
fiscal year 2002.
Both the Medicare proposal contained in the President's fiscal year 1998 budget
and H.R. 2491 would revise the Medicare program substantially to permit
beneficiaries to choose between traditional fee-for-service Medicare and several
non-traditional Medicare options, including managed care plans and
provider-sponsored organization plans. These non-traditional Medicare plans
would have considerable discretion in determining whether and how to cover and
<PAGE>
reimburse clinical laboratory services and to limit the number of labs with
which they deal. Although neither proposal would require Medicare beneficiaries
to pay 20% of the fee for each clinical laboratory service, nothing in the
proposals would prohibit non-traditional Medicare plans from implementing such a
requirement.
Both proposals also would implement a single conversion factor for physician
services. In 1998, this single conversion factor would likely be slightly higher
than the current conversion factor for pathologists. If enacted, this increase
may favorably affect or, more likely, offset to some degree the adverse impact
of the other developments described above on revenues from the Company's
anatomic pathology testing services.
Finally, the Medicare proposal contained in the President's fiscal year 1998
budget contains measures to establish market-oriented purchasing for Medicare,
including prospective payment systems for out-patient hospital services, home
health care, and nursing home care, and the use of global payments and flexible
purchasing. Although the details of these proposals are yet to be developed, if
implemented, they probably would increase pressure on pricing in the clinical
laboratory industry and may have an adverse impact on the Company's revenues.
Medicare changes along the lines just described are possible this year. Because
of the uncertainties about the exact nature of any changes which may ultimately
be adopted, the Company currently is unable to predict their ultimate impact on
the clinical laboratory industry generally or on the Company in particular. Even
apart from federal legislative action, reforms may occur at the state level and
changes are occurring in the marketplace as a result of market pressures,
including the increasing number of patients covered by some form of managed
care. In the past, the Company has offset a substantial portion of the impact of
price decreases and coverage changes through the achievement of economies of
scale and other strategies such as more favorable purchase contracts and the
introduction of alternative technologies. However, if price decreases (for
example arising from the proposed Medicare changes discussed above) or coverage
changes were to be rapidly and fully implemented, they would be likely to have
an adverse impact on gross profits from the Company's testing services until
management was able to mitigate such impact.
O SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $6.2 million during the First
Quarter 1997, an increase of $1.2 million or 23% from the First Quarter 1996. As
a percentage of net revenues, selling, general and administrative expenses
decreased to 40% in the First Quarter 1997 from 41% in the First Quarter 1996.
Amortization expenses were $66,000 in the First Quarter 1997, a decrease of
$2,000 or 4% from the First Quarter 1996.
Severance costs of approximately $159,000 were recorded in the First Quarter
1997. No similar charges were recorded in the First Quarter 1996.
Investment write-downs of $4,000 were recorded in the First Quarter 1996 to
write-down the investment in common stock of a publicly traded company to market
value as the loss in value was deemed other than temporary in accordance with
the Statement of Financial Accounting Standard 115, "Accounting for Certain
Investments on Debt and Equity Securities". No similar charges were recorded in
the First Quarter 1997. The Company sold its remaining shares in the First
Quarter 1997.
O RESEARCH AND DEVELOPMENT
Research and development expenses were $508,000 in the First Quarter 1997, a
decrease of $299,000 or 37% from the First Quarter 1996. Research and
development expenses include the costs of building the Company's database and
the review, analysis and clinical evaluation of existing as well as new
technologies. This decrease in 1997 is primarily due to the completion in 1996
of the major portion of expenditures for the development of the new anatomic
pathology services. During the First Quarter 1997, the Company reorganized its
research and development technology activities.
<PAGE>
O INTEREST INCOME
The Company's interest income was $92,000 for the First Quarter 1997, a decrease
of $33,000 or 26% from the First Quarter 1996. Cash and cash equivalents as of
March 31, 1997 was $10.0 million of which $8.0 million was invested compared to
$10.0 million for the comparable period in 1996.
O INTEREST EXPENSE
Interest expense was $11,000 for the First Quarter 1997, a decrease of $13,000
or 55% from the First Quarter 1996. The decrease in interest expense was due to
the pay-down of a portion of the $3.5 million term loan obtained in July of 1993
which bears interest at 6% per year.
O PROVISION FOR INCOME TAXES
Provision for income tax expense was $466,000 for the First Quarter 1997, an
increase of $249,000 or 114% from the First Quarter 1996. The effective tax rate
was 43% during the First Quarter 1997 and the First Quarter 1996.
O NET INCOME
As a result of the foregoing, the First Quarter 1997 net income was $618,000, an
increase of $330,000 or 114% from the First Quarter 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of March 31, 1997, the Company had total cash and cash equivalents of
approximately $10.0 million which was invested in a fund holding U. S. Treasury
securities with maturities of less than three months.
The Company had working capital of $17.3 million at March 31, 1997 compared to
$18.1 million at December 31, 1996, and the working capital ratio was 3.2 to 1
at March 31, 1997 compared to 3.4 to 1 at December 31, 1996.
Domestic trade receivables, net, were $13.2 million as of March 31, 1997, a
decrease of $2.1 million or 14% from December 31, 1996. During the First Quarter
1997, the average number of days sales in domestic trade receivables was
approximately 82 days as compared to 74 days for the comparable period of 1996.
The increase in average number of days sales was a result of increased volume in
the Company's anatomic pathology testing services and increased complexity of
billing for anatomic pathology testing services. The average number of days
sales has decreased from 94 days for the month of December 1996 to 75 days for
the month of March 1997. This decrease was result of significantly reducing
domestic accounts receivable from $15.2 million as of December 31, 1996 to $13.2
million as of March 31, 1997.
Capital expenditures during the First Quarter 1997 were approximately $457,000.
In July 1993, the Company obtained a $3.5 million term loan from a bank that
bears interest at 6% per year and is payable over a 47 month period. During
1995, the term loan agreement was modified to revise certain financial
covenants, including those with respect to tangible net worth and debt service
coverage requirements and limitation on certain expenditures. During the First
Quarter 1997, there were no changes in the Company's existing debt agreements.
The Company has outstanding under such term loan principal in the amount of
approximately $412,000 as of March 31, 1997.
As of March 31, 1997, the Company had purchased 334,196 shares of Common Stock
as required by its Employee Stock Purchase Plan ("ESPP"). During the fourth
quarter of 1996, the Company's Board of Directors authorized additional share
repurchases costing up to $2.0 million. As of March 31, 1997, the Company has
acquired shares costing $1.8 million. In April 1997, the Company's Board of
Directors again authorized additional share repurchases costing up to $2.0
million.
The Company believes that cash flows from operations and available cash and cash
equivalents are adequate to fund the Company's operations for the foreseeable
future.
<PAGE>
RISK FACTORS; FORWARD LOOKING STATEMENTS
- ----------------------------------------
The Management's Discussion and Analysis contain forward looking statements
regarding the Company's future plans, objectives, and expected performance.
These statements are based on assumptions that the Company believes are
reasonable, but are subject to a wide range of risks and uncertainties, and a
number of factors could cause the Company's actual results to differ materially
from those expressed in the forward-looking statements referred to above. These
factors include, among others, the uncertainties in reimbursement rates and
reimbursement coverage of various tests sold by the Company to beneficiaries of
the Medicare program; possibility of being deemed to be not in compliance with
Federal or state regulatory requirements; the uncertainties relating to the
ability of the Company to convince physicians and/or managed care organizations
to use the Company as a provider of anatomic pathology testing services; the
ability of the Company to maintain superior quality relative to its competitors;
the ability of the Company to maintain its hospital-based business in light of
the competitive pressures and changes occurring in hospital healthcare delivery;
the uncertainties relating to states erecting barriers to the performance of
anatomic national laboratories, small specialized laboratories and well
established local pathologists; and the uncertainties which would arise if
integrated delivery systems closed to outside providers emerged as the dominant
form of health care delivery.
<PAGE>
PART II OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a Exhibits
(11.1) Statement regarding computation of per share earnings
is not required because the relevant computation can be
determined from the material contained in the Financial
Statements included herein.
(27.1) Financial Data Schedule
b Report on Form 8-K. No reports on Form 8-K were filed during
the First Quarter 1997.
<PAGE>
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.
DIANON Systems, Inc.
/s/ KEVIN C. JOHNSON
-----------------------------------
May 9, 1997
By: Kevin C. Johnson
President and
Chief Executive Officer
(Principal Executive Officer)
/s/ DAVID R. SCHREIBER
-----------------------------------
May 9, 1997
By: David R. Schreiber
Senior Vice President, Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
PAGE
----
27.1 Financial Data Schedule (filed herewith) 16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 9,567
<SECURITIES> 0
<RECEIVABLES> 13,366
<ALLOWANCES> 1,028
<INVENTORY> 604
<CURRENT-ASSETS> 25,289
<PP&E> 7,077
<DEPRECIATION> 9,139
<TOTAL-ASSETS> 33,794
<CURRENT-LIABILITIES> 7,977
<BONDS> 0
0
0
<COMMON> 67
<OTHER-SE> 25,485
<TOTAL-LIABILITY-AND-EQUITY> 33,794
<SALES> 15,601
<TOTAL-REVENUES> 15,601
<CGS> 7,872
<TOTAL-COSTS> 7,872
<OTHER-EXPENSES> 6,725
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> 1,085
<INCOME-TAX> 466
<INCOME-CONTINUING> 618
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 618
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
