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, 2000
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 06615
(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 registrant's Common Stock, $.01 par value, outstanding
on April 21, 2000 was 7,145,098 shares.
<PAGE>
DIANON SYSTEMS, INC.
AND SUBSIDIARIES
INDEX
Part I FINANCIAL INFORMATION PAGE NO.
- ---------------------------- --------
Item 1. FINANCIAL STATEMENTS
Balance Sheets as of March 31, 2000
and December 31, 1999. 3
Income Statements for the three months
ended March 31, 2000 and 1999. 4
Statements of Stockholders' Equity for the three months
ended March 31, 2000 and 1999. 5
Statements of Cash Flows for the three months
ended March 31, 2000 and 1999. 6
Notes to Financial Statements. 7-8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-11
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 12
Part II OTHER INFORMATION
- --------------------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 13
Signatures 14
2
<PAGE>
DIANON SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 10,280,855 $ 9,761,047
Accounts receivable, net of allowances of $1,106,596 and
$1,010,266, respectively 20,568,974 19,477,904
Prepaid expenses and employee advances 937,684 1,074,877
Inventory 1,285,420 911,473
Deferred income tax asset 773,909 986,471
------------ ------------
Total current assets 33,846,842 32,211,772
------------ ------------
PROPERTY AND EQUIPMENT, at cost
Laboratory and office equipment 12,444,985 12,142,415
Leasehold improvements 4,785,766 4,648,703
Less - accumulated depreciation and amortization (12,173,675) (11,433,539)
------------ ------------
5,057,076 5,357,578
------------ ------------
INTANGIBLE ASSETS, net of accumulated amortization of
$4,054,921 and $3,852,204 respectively 12,651,563 12,854,280
DEFERRED INCOME TAX ASSET 1,445,167 1,422,723
OTHER ASSETS 237,085 242,572
------------ ------------
TOTAL ASSETS $ 53,237,733 $ 52,088,925
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,693,122 $ 1,642,065
Accrued employee compensation 735,733 1,103,903
Accrued income taxes payable 963,256 751,056
Current portion of capitalized lease obligations 29,964 31,109
Other accrued expenses 3,596,509 3,434,209
------------ ------------
Total current liabilities 7,018,584 6,962,342
------------ ------------
LONG-TERM LIABILITIES:
Long-term note payable 5,500,000 6,000,000
Long-term deferred tax liability 210,625 313,783
Long-term portion of capitalized lease obligations 39,522 47,238
------------ ------------
Total Liabilities 12,768,731 13,323,363
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share, 20,000,000 shares
authorized, 7,124,001 and 7,060,749 shares issued and
outstanding at March 31, 2000 and December 31, 1999, respectively 71,240 70,608
Additional paid-in capital 29,800,816 29,428,647
Retained earnings 11,088,370 9,828,769
Common stock held in treasury, at cost -- 51,316 and 58,734
shares at March 31, 2000 and December 31, 1999, respectively (491,424) (562,462)
------------ ------------
Total stockholders' equity 40,469,002 38,765,562
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 53,237,733 $ 52,088,925
============ ============
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these balance sheets.
3
<PAGE>
DIANON SYSTEMS, INC.
INCOME STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2000 and 1999
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2000 1999
----------- -----------
Net revenues $22,078,913 $15,856,721
Cost of sales 12,747,168 9,187,602
----------- -----------
GROSS PROFIT 9,331,745 6,669,119
Selling, general and administrative expenses 6,884,469 5,172,072
Amortization of intangible assets 202,716 47,557
Research & development expenses 171,810 118,727
----------- -----------
INCOME FROM OPERATIONS 2,072,750 1,330,766
Interest income, net 44,227 161,274
----------- -----------
INCOME BEFORE PROVISION FOR
INCOME TAXES 2,116,977 1,492,040
Provision for income taxes 857,376 619,197
----------- -----------
NET INCOME $ 1,259,601 $ 872,843
=========== ===========
EARNINGS PER SHARE
BASIC $.18 $.13
DILUTED $.17 $.13
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 7,040,376 6,533,757
DILUTED 7,597,009 6,716,461
The accompanying notes to consolidated financial
statements are an integral part of these statements.
4
<PAGE>
DIANON SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Common Stock
Common Stock Paid-In Retained Acquired for Treasury
Shares Amount Capital Earnings Shares Amount Total
----------- ----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998 6,808,729 $68,088 $27,398,120 $5,697,710 (222,019) ($1,780,854) $31,383,064
Employee stock purchase plan -- -- (2,332) -- 646 5,213 2,881
Stock grants 1,155 11 9,951 -- -- -- 9,962
Common stock acquired for treasury -- -- -- -- (54,000) (436,951) (436,951)
Retired shares (50,000) (500) (393,250) -- 50,000 393,750 --
Net income -- -- -- 872,843 -- -- 872,843
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, March 31, 1999 6,759,884 $67,599 $27,012,489 $6,570,553 (225,373) ($1,818,842) $31,831,799
=========== =========== =========== =========== =========== =========== ===========
BALANCE, December 31, 1999 7,060,749 $70,608 $29,428,647 $9,828,769 (58,734) ($562,462) $38,765,562
Stock options exercised 62,507 625 399,293 -- -- -- 399,918
Employee stock purchase plan -- -- (37,081) -- 7,418 71,038 33,957
Stock grants 745 7 9,957 -- -- -- 9,964
Net income -- -- -- 1,259,601 -- -- 1,259,601
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, March 31, 2000 7,124,001 $71,240 $29,800,816 $11,088,370 (51,316) ($491,424) $40,469,002
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
5
<PAGE>
DIANON SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,259,601 $ 872,843
Adjustments to reconcile net income to net
cash provided by operations -
Non-cash charges
Depreciation and amortization 942,852 692,390
Provision for bad debts 200,000 --
Stock compensation expense 9,964 9,962
Changes in other current assets and liabilities
(Decrease) increase in accounts payable and accrued liabilities (45,771) 1,452,443
(Increase) decrease in accounts receivable (1,291,070) 253,998
Decrease (increase) in prepaid expenses and employee advances 76,226 (17,934)
(Increase) decrease in inventory (373,947) 104,406
Decrease (increase) in other assets 256,572 (188,500)
------------ ------------
Net cash provided by operating activities 1,034,427 3,179,608
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (439,633) (397,571)
------------ ------------
Net cash used in investing activities (439,633) (397,571)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of note payable (500,000) --
Repayments of capitalized lease obligations (8,861) (2,285)
Purchase of common stock acquired for treasury -- (436,951)
Employee stock purchase plan 33,957 2,881
Stock options exercised 399,918 --
------------ ------------
Net cash used in financing activities (74,986) (436,355)
------------ ------------
Net increase in cash and cash equivalents 519,808 2,345,682
CASH AND CASH EQUIVALENTS, beginning of period 9,761,047 12,126,076
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 10,280,855 $ 14,471,758
============ ============
Supplemental cash flow disclosures:
Cash paid during the period:
Interest $ 107,727 $ 7,735
Income Taxes 557,171 311,350
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
6
<PAGE>
DIANON SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. The Company - The consolidated financial statements as of and for the three
months ended March 31, 2000 and 1999 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 for such periods have been made, and the interim
accounting policies followed are in conformity with generally accepted
accounting principles and are consistent with those applied for annual
periods as described in the Company's annual report for the year ended
December 31, 1999, previously filed on Form 10-K with the Securities and
Exchange Commission (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, 1999.
The results of operations for the three months ended March 31, 2000 and 1999
are not necessarily indicative of the operating results for the full years.
2. Acquisitions - Effective May 1, 1999, the Company acquired substantially all
the assets of an outpatient OB/GYN laboratory with locations in Woodbury and
New City, New York ("Kyto Meridien Diagnostics, L.L.C." or "KMD"). The
acquisition price was approximately $13.0 million and was financed through a
combination of available cash and drawdowns of the Company's credit line, as
well as through the issuance of Common Stock. The purchase price was
primarily allocated to customer lists ($7.5 million), goodwill ($5.6
million), lab and office equipment ($400,000), and client receivables
($400,000), partially offset by accrued liabilities ($930,000). The
acquisition has been accounted for pursuant to the purchase method of
accounting.
Pro forma net revenue for the three months ended March 31, 1999, adjusted as
if the acquisition of KMD had occurred January 1, 1999 approximates $18.6
million. Pro forma net income and earnings per share would not differ
materially from reported amounts.
7
<PAGE>
DIANON SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
3. Earnings per share - Basic earnings per share have been computed based on the
weighted average number of common shares outstanding during each year.
Diluted earnings per share have been computed based on the weighted average
number of common shares and common equivalent shares outstanding during each
year. Common equivalent shares outstanding include the common equivalent
shares calculated for warrants and stock options under the treasury stock
method. Below is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for the first quarter 2000
and 1999.
<TABLE>
<CAPTION>
FIRST QUARTER FIRST QUARTER
2000 1999
------------- -------------
<S> <C> <C>
BASIC EARNING PER SHARE:
Weighted-average number of common shares outstanding 7,040,376 6,533,757
DILUTIVE EFFECT OF:
Stock options 556,633 182,704
------------- -------------
DILUTED EARNINGS PER SHARE:
Weighted-average number of common shares outstanding 7,597,009 6,716,461
============= =============
NET INCOME $1,259,601 $872,843
============= =============
BASIC EARNINGS PER SHARE $0.18 $0.13
============= =============
DILUTED EARNINGS PER SHARE $0.17 $0.13
============= =============
</TABLE>
Options to purchase 1,000 shares of common stock at $18.75 per share were
outstanding as of March 31, 2000 but were not included in the computation of
diluted earnings per share because the options' exercise price was greater
than the average market price of common shares.
Options to purchase 297,456 shares of common stock at prices ranging from
$8.125 to $12.25 per share were outstanding as of March 31, 1999 but were not
included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of common
shares.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
The descriptive analysis contained herein compares the financial results of the
three months ended March 31, 2000 ("First Quarter 2000") to the three months
ended March 31, 1999 ("First Quarter 1999").
The Company's results of operations in the First Quarter 2000 reflect favorable
volume and mix increases in certain product lines, continued reductions in
selling, general, administrative and other operating expenses, as a percentage
of sales, and the acquisition of Kyto Meridien Diagnostics, L.L.C. ("KMD") in
May 1999.
RESULTS OF OPERATIONS
- ---------------------
o NET REVENUES
Net revenues increased 39% to $22.1 million in the First Quarter 2000 from $15.9
million in the First Quarter 1999. This increase reflects the acquisition of KMD
in May of 1999, volume increases in certain product lines, the successful
negotiation and introduction in 1999 of several capitated contracts, and the
effects of an increase in Medicare reimbursement for certain of the Company's
tests.
The clinical laboratory industry, which includes both clinical chemistry and
anatomic pathology, has seen steady and continuing downward pressure on prices
exerted by both government and private third-party payers. Payment for services
such as those provided by the Company is and will likely continue to be affected
by periodic reevaluations made by payers concerning which services to reimburse
or cease reimbursing. Over time, Congress has reduced the national cap on
Medicare laboratory fee schedules (under which the Company's clinical chemistry
services are reimbursed) to 74% of the national median. In addition, the
Balanced Budget Act of 1997 ("BBA") freezes fee schedule payments (i.e., no
updates) for the 1998-2002 period.
The President's fiscal year 2001 budget proposes to limit the Medicare
laboratory fee schedule update to the Consumer Price Index minus 1%. The budget
proposal also would reduce lab payments by 30% for four specific lab tests which
the Administration claims Medicare pays significantly more for than the private
sector. The four tests include two tests that are performed by the Company:
prostate-specific antigen and bacterial urine culture. If adopted, this
reduction in payments could have an adverse impact on the Company's revenues. In
addition, as in past years, the President's budget proposes to reinstate a 20%
beneficiary co-payment on Medicare lab tests. It is uncertain whether any or all
of the President's proposals regarding laboratory services will be included in
the final budget negotiated with Congress.
Beginning in 1998, Medicare began covering screening pap smears for certain
Medicare beneficiaries, and the Balanced Budget Refinement Act of 1999 ("BBRA")
required the Secretary of Health and Human Services ("HHS") to establish a
national minimum payment amount equal to $14.60 for diagnostic or screening pap
smear laboratory tests furnished on or after January 1, 2000. Previously, the
national payment cap for a pap smear was approximately $7.15. The BBRA also
encouraged the Health Care Financing Administration ("HCFA") to institute an
appropriate increase in the payment rate for new cervical cancer screening
technologies that have been approved by the FDA as significantly more effective
than a conventional pap smear, such as the technologies used by the Company. The
addition of Medicare coverage for these tests and higher reimbursement for
certain types of these tests have provided additional revenues for the Company.
With respect to the Company's anatomic pathology services, which are not
reimbursed under the Medicare laboratory fee schedules, Medicare reimbursement
amounts 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.
Beginning with the Medicare physician fee schedule regulation that became
effective on January 1, 1999, HCFA recalculated physician practice expenses, a
key component of the RBRVS, to reflect resource consumption rather than
historical charge data. While the actual impact of this change, when fully
implemented, on the pathology revenues of
9
<PAGE>
any specific laboratory, including the Company, will depend on the mix of
pathology services furnished, HCFA had estimated that the new system would
decrease the Medicare revenue for pathologists 13% once it was fully phased in
at the end of 2002. However, in the physician fee schedule regulation published
on November 2, 1999, and effective January 1, 2000, HCFA increased the
conversion factor used to calculate physician payments by approximately 5.5% and
made several changes in the payment methodology for physician services,
including a modification specific to pathology that had a positive impact. As a
result of these changes, HCFA now estimates the impact of the practice expense
recalculation will ultimately result in only a 6% decrease for pathology
services. In addition, other revisions to payment policies under the physician
fee schedule for the year 2000 resulted in increases in the RBRVS fee schedule
payment amounts for the pathology codes for some of the most common tests
historically performed by the Company.
HCFA also has announced that effective January 1, 2001, independent labs may no
longer bill Medicare or the patient for the technical component ("TC") of
physician pathology services furnished to Medicare beneficiaries who are
hospital inpatients. Independent labs would still be able to bill and be paid
for the TC of physician pathology services provided to beneficiaries who are in
non-hospital settings, but for the TC of services provided to a hospital
inpatient, the independent lab will have to make arrangements with the hospital
in order to receive payment. Starting July 1, 2000, under new rules for hospital
outpatient reimbursement (see following paragraph), independent labs also likely
will be limited to billing the hospital for the TC of any pathology services
furnished to hospital outpatients.
The Balanced Budget Act of 1997 ("BBA") contains measures to establish
market-oriented purchasing for Medicare, including prospective payment systems
("PPS") for hospital outpatient services, home health care, and nursing home
care. Of these systems, only the skilled nursing facility ("SNF") PPS has been
implemented, and since the Company does only minimal clinical laboratory testing
for SNF patients, this change is not expected to materially affect the Company's
business. On April 7, 2000, HCFA published a final rule to implement the
hospital outpatient PPS. This rule, which will be effective July 1, 2000, would
segregate clinical laboratory and physician services from the hospital
outpatient PPS rates, but would include the technical component of surgical
pathology services in the rate.
The Company's Form 10-K for the year ended December 31, 1999, previously filed
with the Securities and Exchange Commission, contains additional information
regarding the complex area of reimbursement.
o COST OF SALES
Cost of sales, which consists primarily of payroll, laboratory supplies, outside
services, logistics and depreciation expense, increased to $12.7 million in the
First Quarter 2000 from $9.2 million in the First Quarter 1999. As a percentage
of revenues, cost of sales was 58% for both the First Quarter 2000 and the First
Quarter 1999.
For the First Quarters 2000 and 1999, while percentages were similar, salaries
and wages increased to $6.0 million in 2000 from $3.7 million in 1999, primarily
reflecting the acquisition of KMD. Overhead expenses (including building rent,
utilities, and depreciation) increased to $3.1 million in 2000 from $2.8 million
in 1999. Logistics expenses increased to $1.7 million from $1.4 million in 2000
and 1999, respectively and lab supplies increased to $2.0 million from $1.3
million for the corresponding periods.
o GROSS PROFIT
Gross profit totaled $9.3 million in First Quarter 2000 versus $6.7 million in
First Quarter 1999, reflecting a gross profit margin of 42% for both the First
Quarter 2000 and the First Quarter 1999.
o SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For the First Quarters 2000 and 1999, selling, general and administrative
expenses increased to $6.9 million in 2000 from $5.2 million in 1999. While
absolute expenses increased, they decreased as a percentage of sales to 31% in
the First Quarter 2000 from 33% in the First Quarter 1999.
The expense increases were primarily due to higher commissions associated with
obtaining new sales; and from increased risk management, medical and other
insurance costs due to the acquisition of additional facilities and employees.
10
<PAGE>
o AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets increased to $203,000 in the First Quarter
2000 from $48,000 in the First Quarter 1999. This increase was associated with
the acquisition of KMD.
o RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased to $172,000 in the First Quarter
2000 from $119,000 in the First Quarter 1999. This increase is primarily the
result of the development of the Carepath program, a disease management
information service for patients, physicians and managed care organizations.
o INCOME FROM OPERATIONS
Income from operations increased to $2.1 million in the First Quarter 2000 from
$1.3 million in the First Quarter 1999. The increase in operating income
reflects the increase in sales.
Earnings before interest, taxes, depreciation and amortization ("EBITDA") for
the first quarter 2000 and 1999 are as follows:
First Quarter First Quarter
2000 1999
------------- -------------
EBITDA 3,015,601 2,023,155
EBITDA as a percentage of sales 13.7% 12.8%
o NET INTEREST INCOME
Net interest income decreased to $44,000 in the First Quarter 2000 from $161,000
in the First Quarter 1999, due to lower income received on less cash invested,
and the interest expense related to borrowings drawn from the Company's line of
credit which began in April 1999.
o PROVISION FOR INCOME TAXES
The provision for income taxes reflects a 40.5% and 41.5% effective tax rate in
First Quarter 2000 and First Quarter 1999, respectively, totaling $857,000 and
$619,000, respectively. The lower effective tax rate is due primarily to state
rate changes.
o NET INCOME
For the first quarters 2000 and 1999, net income increased 44% to $1.3 million
in 2000 from $873,000 in 1999. Basic earnings per share increased to $0.18 per
share in 2000 from $0.13 per share in 1999, while diluted earnings per share
increased to $0.17 per share in 2000 from $0.13 per share in 1999.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 2000, the Company had total cash and cash equivalents of $10.3
million, substantially all of which was invested in a fund holding U.S. Treasury
securities with maturities of less than three months. Working capital was $26.8
million and $25.2 million as of March 31, 2000 and December 31, 1999,
respectively, and the current ratios were 4.8:1 and 4.6:1, respectively.
Accounts receivable totaled $20.6 million as of March 31, 2000 representing
approximately 84 days of sales outstanding, compared to $19.5 million or 86 days
as of December 31, 1999.
Capital expenditures for the first quarter 2000 and 1999 totaled $440,000 and
$398,000, respectively.
Effective February 17, 1998, the Company entered into a three-year, $15 million
line of credit agreement with a bank.
11
<PAGE>
The agreement includes various provisions regarding borrowings under the
facility, including those related to financial covenants. As of March 31, 2000,
$5.5 million had been drawn down against this line for the acquisition of KMD.
The Company's Board of Directors authorized the repurchase of approximately 1.7
million shares of the Company's Common Stock, on the open market or in private
transaction. Total expenditures for share repurchases is limited to $12.0
million. The remaining authorized repurchases as of March 31, 2000 is
approximately 1.4 million shares and $9.2 million in total expenditures.
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.
RISK FACTORS; FORWARD LOOKING STATEMENTS
- ----------------------------------------
The Management's Discussion and Analysis contains 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; the 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
national anatomic national laboratories, together with the competitive pressures
from 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not subject to market risk with respect to its cash and cash
equivalents since substantially all amounts are invested in a fund holding U.S.
Treasury securities with maturities of less than three months.
12
<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 (filed herewith).
(b) Reports:
No reports on Form 8-K were filed during the First Quarter 2000.
13
<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
April 24, 2000 --------------------------------------
By: Kevin C. Johnson
President and
Chief Executive Officer
(Principal Executive Officer)
/s/ DAVID R. SCHREIBER
April 24, 2000 --------------------------------------
By: David R. Schreiber
Senior Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000779282
<NAME> DIANON SYSTEMS, INC.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 10,281
<SECURITIES> 0
<RECEIVABLES> 20,569
<ALLOWANCES> 1,107
<INVENTORY> 1,285
<CURRENT-ASSETS> 33,847
<PP&E> 17,231
<DEPRECIATION> 12,174
<TOTAL-ASSETS> 53,238
<CURRENT-LIABILITIES> 7,019
<BONDS> 0
0
0
<COMMON> 71
<OTHER-SE> 40,398
<TOTAL-LIABILITY-AND-EQUITY> 53,238
<SALES> 22,079
<TOTAL-REVENUES> 22,079
<CGS> 12,747
<TOTAL-COSTS> 12,747
<OTHER-EXPENSES> 7,259
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 108
<INCOME-PRETAX> 2,117
<INCOME-TAX> 857
<INCOME-CONTINUING> 1,260
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,260
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.17
</TABLE>
