Back to GetFilings.com




1
================================================================================

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, 1999

[ ] 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: (310) 645-8200


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. [ ]

The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $213,863,000 as of March 7, 2000.

The number of shares of Common Stock, no par value, outstanding as of
March 7, 2000, was 13,676,754.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the 2000 Annual Shareholders Meeting
are incorporated by reference into Part III of this report.

================================================================================

2
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, Germany, and China, markets its products through a national
sales force and through a worldwide distribution network covering over 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 early 1980's, the RIA market
increased significantly, and the Company developed one of the most extensive
lines of RIA kits available.

In the 1980's, the market began to shift to non-isotopic systems using
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, sales of RIA products as a percentage of total sales have been steadily
declining for several years, to 17% of sales in 1999.

IMMULITE assays and instruments represented 54%, 63% and 70% of sales in
1997, 1998 and 1999 respectively. 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, 1999, DPC had 103 IMMULITE
assays available in the international markets, of which 69 had been cleared for
marketing by the FDA in the U.S. In addition, 35 out of a total of 48 of the
most important assays on the newly developed second generation IMMULITE 2000
have been released for sale in the U.S. The Company's research and development
activities continue to be focused on expanding the IMMULITE and IMMULITE 2000
menus.

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



1
3

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. The IMMULITE systems have
the advantage of having the most extensive and unique thyroid panel consisting
of 11 tests. The IMMULITE thyroid panels include Third Generation TSH for
initial testing and assays for routine follow-up testing such as Free T4, T3,
and even Anti-TPO.

REPRODUCTIVE HORMONES - 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 10 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 Third Generation PSA assay, which has an
order-of-magnitude greater sensitivity than any other PSA assay currently
available. DPC offers a total of 13 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 has developed 14 such assays on
the IMMULITE system.

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 as of December 31, 1999. These include such unique assays as
Latex and ECP assay, the latter an important tool for the diagnosis and
management of asthma. In 1998, DPC decided to focus on continuing to convert key
allergen panels to IMMULITE format and to discontinue work on a separate allergy
system.

INFLAMMATORY MARKERS - 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.

DPC has obtained exclusive rights from XOMA Corporation to market an
automated immunoassay for a marker of inflammation due to infection, termed
Lipopolysaccharide Binding Protein (LBP). This marker of systemic exposure to
gram negative bacteria is an acute phase protein that is produced by the liver.
Elevated blood levels of LBP have been reported in patients with a wide variety
of conditions, including abdominal infections, meningococcemia, systemic
inflammatory response syndrome, ulcerative colitis, Crohn's disease, hemolytic
uremic syndrome, hemorrhage due to trauma, and cardiopulmonary bypass
procedures. An IMMULITE assay for LBP is now undergoing clinical evaluations.

CARDIAC - Cardiovascular disease is the leading cause of morbidity and
mortality in developed nations and represents a $300 million dollar worldwide
market. Cardiac biomarkers are quickly assuming a critical role in directing and
confirming the physician's diagnostic, prognostic and therapeutic options
required to manage the heart attack patient. DPC has recently introduced the
IMMULITE Turbo platform with accelerated test throughput provided by a simple
upgrade of the existing IMMULITE software. CK-MB, Myoglobin and Troponin test
results are rapidly delivered in 15 minutes. The proprietary biochemical design
of the new reagent system combined with the accelerated throughput of the
IMMULITE Turbo facilitates rapid test results for time dependent therapeutic
decision.



2
4

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.

The IMMULITE system is an automated, random-access, computer-driven
instrument that 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.

DPC commenced shipments of the next generation 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 shift without the necessity of replenishing the on-board
supplies. This increased throughput allows 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 a 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 that 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 customers' needs, DPC is developing the IMMUGOLD, a smaller
instrument which can provide test results within five 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, patented proprietary technology which will offer a number of
advantages over current immunodiagnostic technologies. The assays used in this
system are homogeneous, eliminating the need for a wash step, which is common to
other immunoassay systems. The biosensor and all necessary reagents are included
in a single, self-contained cartridge. The hands-off nature of the technology
makes it possible to design an inexpensive and simple-to-operate analyzer
requiring minimal training. The Company expects to begin alpha site testing for
this new system in the second quarter of 2000.

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 WinMAX software and a MAX automated microplate processor. This
system can process up to 768 wells in microplate format in an 8-hour shift. The
WinMAX software 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 MARK 5 is used in biotechnology,
pharmaceutical, drug testing, allergy testing, clinical and veterinary
laboratories.

Mark 5 HSS System - The Mark 5 HSS is a special adaptation of the MARK 5
system that provides an easy, effective means of automating immunohistochemistry
slide staining procedures. This open system can be used for the immunoperoxidase
staining of tissue sections using DPC's ImmuStain product line, as well as
numerous other reagents and protocols available from any manufacturer. Each run
can accommodate up to 100 slides and more than 1000 primary antibodies.



3
5

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. During the years ended December 31, 1997, 1998 and 1999, the Company
spent $19,710,000, $22,342,000 and $24,550,000 on research and development,
representing approximately 11% of sales, respectively.


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 European Economic Community (EEC) by minimizing import duties and freight
charges and by reducing the effects of currency exchange fluctuations. Certain
kits are also manufactured 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 systems are listed 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 MARK 5, an automated pipettor; the
MicroLite 3 pipetting aid; and the MARK 5 BCR barcode reader. Certain components
of the IMMULITE and Immulite 2000 instruments are also manufactured in Wales.

Certain of the Company's 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 registered.
Euro/DPC Limited, the Company's wholly owned manufacturing subsidiary in Wales,
was the first immunodiagnostics company in the world to be registered under
British Standard BS 5750. EURO/DPC is now registered to ISO 9001 and EN 46001
standards.

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 and through a
distribution agreement entered into in January, 2000 with Dade Behring. The
agreement with Dade Behring provides it with the exclusive right to distribute
IMMULITE products to Novation customers. Novation is the supply company for VHA.
Inc. and the University HealthSystem Consortium, two national health care
alliances, and manages $12 billion in annual supply purchases through 4,200
organizations. 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.

In 1999, DPC was selected as an approved vendor for Shared Services
Healthcare Inc. of Atlanta, GA, a large group purchasing organization (GPO)
which supports approximately 600 hospital members with an equal number of
alternate site memberships. The purchasing program provides member facilities
with the opportunity to purchase laboratory supplies in volume and capital
equipment. The Company and its joint venture partner in Japan are selling the
assets of the joint venture to a third party, IATRON Laboratories Inc. (IATRON).
The Company will continue to distribute its products in Japan through IATRON.



4
6

The Company's products are sold on a worldwide basis through distributors
in over 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 80% of total sales in the last three
fiscal years. Europe accounted for approximately 48%, 46% and 47% of total sales
in 1997, 1998 and 1999 respectively. 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.
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. In 1998 the Company received notices that the U.S.
Patent office intends to grant patents on the biosensor technology used in the
IMMUGOLD instrument and on certain features of the IMMULITE 2000. The Company
holds various U.S. and foreign patents including patents on the washing process
used in the IMMULITE system which expire in 2009 and for its novel liquid-based
amplification methodology which forms the basis of the AlaSTAT product lines.
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 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.



5
7

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 clearance in most foreign countries.
Japan and France have their own review 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.

Given the Company's high proportion of sales to the European Union (EU)
countries, the Company has undertaken the necessary steps to comply with the EU
In-Vitro Diagnostic Directive (IVDD). The Company expects to be fully compliant
with all relevant aspects of the EU IVDD by June 7, 2000 and therefore be
qualified to apply the "CE Mark" to most of it's IVD kits and instruments as
mandated by the EU.


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. The Company's major competitors are broad-based health
care companies such as Roche Diagnostics, Abbott Diagnostics (Abbott
Laboratories), Bayer, Johnson & Johnson, and Pharmacia/Upjohn (Sweden). 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 manufacture and sell automated immunodiagnostic systems in
the global marketplace. The Company's principal competitors are Abbott
Diagnostics, Bayer and Roche Diagnostics. 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, 1999, the Company (including its consolidated subsidiaries)
had 1,711 employees, including 767 in manufacturing, 284 in research and
development, 381 in marketing and sales and 279 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.



6
8

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, 1999:




Location Size Owned/Leased Uses
- ----------------------------- --------------- ------------ ---------------------------------

Los Angeles, California 116,000 sq. ft. Leased(1) Corporate offices, manufacturing,
warehousing, distribution, and
research and development

Los Angeles, California 60,000 sq. ft. Owned Adjacent to Corporate offices,
manufacturing and warehousing

Gorman, California 80 acres Owned Raw material processing

Randolph, New Jersey 59,000 sq. ft. Leased(2) Research, manufacturing and
distribution

Glyn Rhonwy, Wales, UK 110,000 sq. ft. Owned Research, manufacturing and
distribution

Paris, France 8,200 sq. ft. Leased Distribution

Sao Paulo, Brazil 12,700 sq. ft. Leased Distribution

Bad Nauheim, Germany 56,500 sq. ft. Owned Distribution

Humbeek-Grimbergen, Belgium 5,000 sq. ft. Owned Distribution

Breda, Netherlands 27,500 sq. ft. Owned Distribution

Madrid, Spain 10,200 sq. ft. Leased Distribution

Melbourne, Australia 10,400 sq. ft. Owned Distribution

Tianjin, China 21,500 sq. ft. Owned Manufacturing and distribution

Oslo, Norway 8,000 sq. ft. Owned Distribution

Goteborg, Sweden 9,600 Sq. ft. Owned Distribution


- --------------

(1) Annual lease payments of $1,373,000. Leases expire in 2002. See
"Item 13. Certain Relationships and Related Transactions."

(2) Annual lease payments of $477,000. Leases expire in 2002.

In 2000 the Company intends to purchase land in New Jersey on which it
will build a new 88,000 square foot manufacturing facility for the IMMULITE
instrumentation. The construction is expected to be completed by the time the
current New Jersey lease expires. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources." With these additions, the Company believes that its
facilities will be 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.



7
9

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 1999 and
1998.



1999
-------------------------------------
High Low Dividend
--------- -------- --------

First Quarter $ 35 5/16 $ 23 7/8 $ .12

Second Quarter 31 1/2 21 7/8 .12

Third Quarter 29 1/4 24 11/16 .12

Fourth Quarter 28 3/8 22 1/2 .12




1999
-------------------------------------
High Low Dividend
--------- -------- --------

First Quarter $ 30 13/16 $ 26 1/2 $ .12

Second Quarter 32 7/8 26 5/8 .12

Third Quarter 29 3/8 24 3/8 .12

Fourth Quarter 31 1/8 20 3/8 .12


As of March 7, 2000, the Company had 378 holders of record of its Common Stock.


ITEM 6. SELECTED FINANCIAL DATA

(In Thousands, except per Share Data)

INCOME STATEMENT DATA



Year Ended December 31,
----------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------

Sales $159,649 $176,832 $186,264 $196,643 $216,193
Net income 24,169 22,947 18,248 20,213 20,488

Earnings per share:
Basic 1.83 1.69 1.34 1.47 1.50
Diluted 1.75 1.65 1.32 1.46 1.49

Weighted average shares
outstanding:
Basic 13,209 13,554 13,641 13,746 13,671
Diluted 13,847 13,926 13,876 13,881 13,771

Dividends per share $ .46 $ .48 $ .48 $ .48 $ .48



BALANCE SHEET DATA



Year Ended December 31,
----------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------


Working capital $ 70,539 $ 81,563 $ 83,031 $ 81,001 $ 88,799
Total assets 189,462 207,002 222,180 246,224 250,494
Shareholders' equity 163,350 182,287 186,295 200,172 206,897




8
10

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


FORWARD LOOKING STATEMENTS

Except for the historical information contained herein, this report and
the following discussion in particular contain forward looking statements
(identified by the words "estimate," "project," "anticipate," "plan," "expect,"
"intend," "believe," "hope" and similar expressions) which are based upon
Management's current expectations and speak only as of the date made. These
forward looking statements are subject to risks, uncertainties and factors that
could cause actual results to differ materially from the results anticipated in
the forward looking statements. These risks and uncertainties include the degree
of customer demand for the Company's products, customer acceptance of the
IMMULITE 2000 and other new products, the Company's ability to keep abreast of
technological innovations, the risks inherent in the development and release of
new products (such as delays, unforeseen costs and technical difficulties),
competitive pressures, currency risks based on the relative strength or weakness
of the U.S. dollar, health care regulation and cost containment measures, Year
2000 issues and political and economic instability in certain foreign markets.


RESULTS OF OPERATIONS

The Company's sales increased 10% in 1999 to $216.2 million compared to
sales of $196.6 million in 1998, a 6% increase over 1997 sales. 1999 sales of
all IMMULITE products (instruments and reagents) were $150.7 million, a 22%
increase over 1998. Sales of IMMULITE products represented 70% of 1999 sales,
63% of 1998 sales and 54% of 1997 sales.

1999 sales of the Company's original IMMULITE instrument, the IMMULITE
One, related reagents and service were $113.4 million, a 3% increase over 1998.
Sales of IMMULITE One reagents were up 4% to $90.8 million, while instrument
sales were down 4% to $17.7 million. The next generation IMMULITE 2000
instrument, which became commercially available in March 1998, had sales
including reagents of $37.3 million in 1999, a 163% increase over 1998 sales of
$14.2 million. The IMMULITE 2000 has a longer sales process than the IMMULITE
One due to the higher sales price. The Company has also experienced a longer
time delay between instrument placement and the ramp-up of reagent sales.

As of December 31, 1999, 1998 and 1997, the Company had shipped on a
cumulative basis approximately 4,900, 4,000 and 3,100 IMMULITE instruments,
respectively. This installed base of instruments and an expanding test kit menu
are expected to support continued growth in the coming years.

Sales of the Company's mature RIA products declined approximately 11% in
1999, and represented 17% of 1999 sales compared to 22% of 1998 sales and 26% of
1997 sales. This trend is expected to continue. Sales of other DPC products,
including allergy reagents, decreased 5% to $17.7 million in 1999, compared to
$18.7 million in 1998. The Company also experienced a decrease in sales of
non-DPC products through its consolidated international affiliates from $11.4
million in 1998 to $9.9 million in 1999, due to the discontinuation of non-DPC
OEM products previously sold by those affiliates. It is anticipated that the
sale of non-DPC products will continue to decline.

Sales in Brazil accounted for approximately 11% of total sales in 1999,
1998 and 1997. As a result of the devaluation of the Brazilian currency in
January 1999, the Company raised its prices in local currency, making its
products more expensive in Brazil than they were prior to the devaluation.
However to date this has not had a significant impact on unit sales.

Sales to foreign customers as a percentage of total sales were
approximately 80% in each of 1999, 1998 and 1997. Europe, the Company's
principal foreign market, represented 47%, 46% and 48% of sales in 1999, 1998
and 1997, respectively. Sales in Germany have decreased to $31.5 million in 1999
from $34.4 million in 1998 and $38.8 million in 1997 due in part to a reduction
in non-DPC product sales and changes in reimbursment policies of the German
government for medical testing. 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 due to the
strong U.S. dollar had a 9% negative impact



9
11

on 1999 sales, 7% of which related to the relative currency movement in Brazil.
In 1998 there was a 1% negative impact on sales and in 1997 there was a 5%
negative impact on sales. Due to intense competition, the Company's foreign
distributors are generally unable to increase prices to offset the negative
effect when the U.S. dollar is strong.

Cost of sales have remained stable at approximately 45% of sales in 1999,
1998, and 1997.

Total operating expenses (Selling, Research and Development, and General
and Administration) as a percentage of sales remained fairly stable at
approximately 42% in 1999, 1998 and 1997. However selling expense has marginally
declined and research and development has remained consistent as a percent of
sales, reflecting the Company's continuing commitment to product development.

Equity in income of affiliates represents the Company's share of earnings
of non-consolidated affiliates, principally the 45%-owned Italian distributor.
This amount increased 13% in 1999 relative to 1998 and decreased 7% in 1998
relative to 1997 primarily due to fluctuations in earnings of the Italian
distributor.

Net interest and other income represents the excess of interest income and
interest on equipment contracts over interest expense and other amounts of
income and expense. Net interest income and other income increased 34% in 1999
due to decreased borrowings and declined 52% in 1998 from 1997 due to increased
borrowings in 1998.

The Company's effective tax rate (31% in 1999; 28% in 1998 and 29% in
1997) includes Federal, state and foreign taxes.

Net income for 1999 (9% of sales) increased 1% over 1998 due to increased
contribution from unconsolidated affilitates and increases in other income. Net
income for 1998 (10% of sales) increased 11% over 1997 (10% of sales) due to
lower operating expenses as a percentage of sales and less of a negative impact
from foreign currency transaction and translation adjustments.


LIQUIDITY

The Company has adequate working capital and sources of capital to carry
on its current business and to meet its existing capital requirements. Net cash
flow from operating activities was $28.0 million in 1999, $32.9 million in 1998
and $28.5 million in 1997. Additions to property, plant and equipment in 1999
were $9.0 million compared to $11.2 million in 1998 and $10.5 million in 1997.
Cash used for the placement of IMMULITE systems under sales-type and operating
leases (for periods of generally three to five years) increased 44% from $11.6
million in 1997 to $16.7 million in 1998 reflecting an increase in this type of
IMMULITE placements and decreased to $15.1 million in 1999 reflecting a decrease
in this type of IMMULITE placements.

In late 1998, the Company acquired land in the The Netherlands and
commenced construction of a 27,500 square foot building to replace the existing
properties. The total cost of the land and building was $2.4 million. The
Company expects to purchase land in New Jersey in 2000 at a cost of
approximately $2.8 million. The Company plans to construct an 88,000 square foot
manufacturing facility on this property over the next several years at a cost of
approximately $7.6 million. The Company has no other material commitments for
capital expenditures in 2000.

The Company has a $20 million unsecured line of credit under which there
were no borrowings outstanding at December 31, 1999, 1998 and 1997. Standby
letters of credit under the line of credit totaled $3,100,000 at December 31,
1997 and $2,000,000 at December 31, 1998. There were no standby letters of
credit outstanding at December 31, 1999. The Company had notes payable
(consisting of bank borrowings by the Company's foreign consolidated
subsidiaries payable in the local currency some of which are guaranteed by the
U.S. parent company) of $15.8 million at December 31, 1999 compared to $21.2
million at December 31, 1998 and $15.5 million at December 31, 1997. The terms
of the loans are described in Item 7A. Quantitative and Qualitive Disclosure
About Market Risk.

The Company's foreign operations, particularly, at this time, its
operations in Brazil, are subject to risks, such as currency devaluations,
associated with political and economic instability.

The Company has paid a quarterly cash dividend of $.12 per share since
1995.

On October 14, 1998 the Company announced a plan under which it could
repurchase up to one million shares of its Common Stock from time to time in
open market transactions. At December 31, 1999 the Company had repurchased
218,288 shares at a cost of $4,528,000. The Company utilized existing cash to
finance the purchases.



10
12

EURO CONVERSION

The Company has significant sales to European countries (the
"participating countries") which began converting to a common legal currency
(the "euro") on January 1, 1999. During the transition period of January 1, 1999
to January 1, 2002, public and private parties may pay for goods and services
using either the euro or the local currency. During the transition period,
conversion rates will not be computed directly from one local currency to
another. Instead, local currencies will be converted first to a euro
denomination and then to the second local currency.

The Company is in the early stages of assessing the potential impact of
the euro conversion on its business and operations. The Company has created a
price list of its products in each participating country based on the euro to
facilitate purchases in euro or local currency. The Company is also reviewing
its information and business systems, and those of its European affiliates, to
determine the modifications that will be necessary to process orders in the euro
currency. Due to the existence of many unknown variables at this early stage, it
is not at this time possible for the Company to predict the precise implications
of the euro conversion on its operations.


YEAR 2000

The Company completed implementation of its year 2000 remediation plan on
a timely basis, and such remediation plan as implemented addresses all critical
systems. It is not aware of any adverse effects of year 2000 issues on it,
including its systems and operations. It has no information that indicates that
a significant vendor may be unable to sell to the Company; a significant
customer may be unable to purchase from the Company; or a significant service
provider may be unable to provide services to the Company, in each case because
of year 2000 compliance problems.

The Company has completed a program to determine whether its
instrumentation products are Year 2000 compliant. The Company's website contains
a regularly updated product compliance status page which customers can access to
obtain information regarding the compliance status of their DPC products.

The Company is also providing customer support and customer satisfaction
services to all of its customers regarding Year 2000 issues. The IMMULITE 2000
instrument, which the Company began shipping in March 1998, is Year 2000
compliant. The Company determined that the IMMULITE One instrument was not Year
2000 compliant and so informed the FDA. The software used in the IMMULITE One
has a two-digit year field which must be changed to a four-digit field. As part
of its routine, on-going software development, the Company developed software
for the IMMULITE One that was Year 2000 compliant. The Company offered to its
customers software and hardware upgrades to make all its products compliant. A
relatively few older products are not compliant and will not be upgraded due to
obsolescence. The costs incurred to upgrade products have not been significant.
Although the Company is not aware of any year 2000 readiness issues affecting it
at this time, there can be no assurance that issues, not yet apparent, will not
arise during the year 2000 and beyond.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to certain market risks arising from transactions
in the normal course of its business, principally risk associated with interest
rate and foreign currency fluctuations.


INTEREST RATE RISK

The Company periodically invests its excess cash in short-term
high-quality commercial paper. At December 31, 1999, the Company had $7,600,000
invested in such securities which yielded an average annual return of 5.60%. The
average maturity of these investments is less than one month.



11
13

Additionally, the Company has debt obligations at its foreign subsidiaries
that have fixed interest rates and mature on various dates. Substantially all of
the Company's debt obligations are denominated in European currencies. The table
below presents principal cash flows and related interest rates by fiscal year of
maturity:

NOTES PAYABLE INFORMATION DECEMBER 31, 1999
(U.S. Dollars in Thousands)



Expected Year of Maturity
-------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total
------- ------- ------- ------- ------- ---------- -------

GERMANY - MARK:
Variable rate notes $ 1,787 $ 1,228 $ 1,186 $ 1,186 $ 1,186 $ 2,422 $ 8,995
Average interest rate 4.90% 4.80% 4.80% 4.80% 4.80% 4.60%

FRANCE - FRANC:
Fixed rate notes 1,148 504 487 456 214 2,809
Average interest rate 4.40% 4.65% 4.78% 4.74% 5.08%

NETHERLANDS - GUILDER:
Fixed rate notes 1,010 1,010
Average interest rate 4.30%

SPAIN - PESETA:
Fixed rate notes 754 172 180 187 195 83 1,571
Average interest rate 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%

CHINA - RMB:
Fixed rate notes 217 217
Average interest rate 7.67%

NORWAY - SEK:
Fixed rate notes 31 31 31 31 31 353 508
Average interest rate 9.35% 9.35% 9.35% 9.35% 9.35% 9.35%

AUSTRALIA - AUST.$:
Fixed rate notes 646 646
Average interest rate 6.00%
------- ------- ------- ------- ------- ------- -------
$ 5,593 $ 1,935 $ 1,884 $ 1,860 $ 1,626 $ 2,858 $15,756
======= ======= ======= ======= ======= ======= =======



FOREIGN CURRENCY RISK

The Company may periodically enter into foreign currency contracts in
order to manage or reduce foreign currency market risk. The Company's policies
do not permit active trading of or speculation in, derivative financial
instruments. The Company's policy is to hedge major foreign currency cash
exposures through foreign exchange forward contracts. The Company enters into
these contracts with only major financial institutions, which minimizes its risk
of credit loss. A discussion of the Company's primary market risk exposures and
the management of those exposures is presented below.

The Company generates revenues and costs that can fluctuate with changes
in foreign currency exchange rates when transactions are denominated in
currencies other than the local currency. The Company manufactures its products
principally in the United States and the United Kingdom, and sells product to
distributors, many of which are owned by the Company, throughout the world.
Products sold from the United States are denominated in US dollars and products
sold from the United Kingdom are denominated in pounds sterling. The
distributors in turn have foreign currency risk related to their product
purchases. Many of the Company's owned distributors purchase forward currency
contracts to offset currency exposures related to these purchase commitments.



12
14

The table below provides information as of December 31, 1999 concerning
the Company's forward currency exchange contracts related to certain commitments
of its subsidiaries denominated in foreign currencies. The table presents the
contractual amount, the weighted-average expiration date, the weighted-average
contract exchange rates and the fair value for its currency contracts
outstanding.


FOREIGN CURRENCY EXCHANGE CONTRACTS OUTSTANDING DECEMBER 31, 1999



(000's)
U.S. Dollar
(000's) Weighted-Average Fair Value at Weighted-
U.S. Dollar Forward Contract December 31, Average
Local Currency Amount Buy Rate per U.S. Dollar 1999 Maturity Date
-------------- ---------- -------------------- ------------ -------------

Contracts for
Purchase of U.S.
Dollars:
Deutsche Mark $3,500 1.82 DEM $3,704 February 23, 2000
French Franc $1,200 6.04 FRF $1,274 July 1, 2000
Australian Dollar $ 150 1.55 AUS $ 147 January 21, 2000




(000's)
U.K. Pounds
(000's) Weighted-Average Fair Value at Weighted-
U.K. Pound Forward Contract December 31, Average
Local Currency Amount Buy Rate per U.K. Pound 1999 Maturity Date
-------------- ---------- ------------------- ------------ -------------

Contracts for
Purchase of
U.K. Pounds:
French Franc L 80 9.14 FRF L 90 March 1, 2000



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.



13
15

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 "Ownership of Common Stock -
Section 16 (a) Beneficial Ownership Reporting Compliance", and "Executive
Officers" of the Company's Proxy Statement for the 2000 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 and Related Transactions" of the Company's Proxy Statement
for the 2000 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 2000 Annual Shareholders Meeting.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The required information is hereby incorporated herein by reference to the
section entitled "Compensation and Stock Option Committee Interlocks and Insider
Participation and Related Transactions" of the Company's Proxy Statement for the
2000 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, 1998 and 1999.

Consolidated Statements of Income for the three years ended
December 31, 1999.

Consolidated Statements of Shareholders' Equity for the three
years ended December 31, 1999.

Consolidated Statements of Cash Flows for the three years
ended December 31, 1999.

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 - The Company filed a form 8-K, date of event reported
December 17, 1999, on December 27, 1999, which reported on Item 5, other events.



14
16

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,
1998 and 1999, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1999. 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 auditing standards generally accepted
in the United States of America. 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, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States of America.



/s/ DELOITTE & TOUCHE LLP
- ----------------------------------



Los Angeles, California
February 17, 2000



15
17

CONSOLIDATED BALANCE SHEETS



(Dollars in Thousands)
December 31,
-------------------------
1998 1999
--------- ---------

ASSETS

CURRENT ASSETS:
Cash and cash equivalents $ 18,650 $ 14,547
Accounts receivable--net of allowance
for doubtful accounts of $136 and $504 50,440 55,018
Inventories 54,078 59,439
Prepaid expenses and other current assets 580 548
Deferred income taxes 3,305 2,844
--------- ---------
Total current assets 127,053 132,396
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 35,878 34,968
Machinery and equipment 60,196 66,050
Leasehold improvements 7,135 7,222
Construction in progress 351 1,064
--------- ---------
Total 103,560 109,304
Less accumulated depreciation and amortization 49,348 55,886
--------- ---------
Property, plant and equipment -- net 54,212 53,418
SALES-TYPE AND OPERATING LEASES 33,372 35,070
DEFERRED INCOME TAXES 2,005 2,685
INVESTMENTS IN AFFILIATED COMPANIES 15,509 13,159
EXCESS OF COST OVER NET ASSETS ACQUIRED --
Net of accumulated amortization of $7,368 and $8,478 14,073 13,766
--------- ---------
TOTAL ASSETS $ 246,224 $ 250,494
========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Notes payable $ 21,178 $ 15,756
Accounts payable 15,306 15,790
Accrued liabilities 6,218 8,090
Income taxes payable 3,350 3,961
--------- ---------
Total current liabilities 46,052 43,597
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock-no par value, authorized 30,000,000
shares at December 31, 1998 and 1999; outstanding
13,661,594 shares and 13,672,754 shares respectively 37,531 37,816
Retained earnings 172,900 186,826
Accumulated other comprehensive income (10,259) (17,745)
--------- ---------
Total shareholders' equity 200,172 206,897
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 246,224 $ 250,494
========= =========


SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.



16
18


CONSOLIDATED STATEMENTS OF INCOME



(In Thousands, except per Share Data)
Year Ended December 31,
-----------------------------------------
1997 1998 1999
-------- -------- --------

SALES $186,264 $196,643 $216,193
COST OF SALES 83,078 87,068 96,504
-------- -------- --------
Gross Profit 103,186 109,575 119,689
-------- -------- --------
OPERATING EXPENSES:
Selling 37,520 37,757 40,949
Research and Development 19,710 22,342 24,550
General and Administrative 21,684 22,486 25,911
Equity in Income of Affiliates (1,363) (1,262) (1,421)
-------- -------- --------
OPERATING EXPENSES - NET 77,551 81,323 89,989
-------- -------- --------
OPERATING INCOME 25,635 28,252 29,700
Interest/Other Income -Net 687 331 443
-------- -------- --------
INCOME BEFORE INCOME TAXES 26,322 28,583 30,143
AND MINORITY INTEREST
PROVISION FOR INCOME TAXES 7,500 8,000 9,073
MINORITY INTEREST 574 370 582
-------- -------- --------
NET INCOME $ 18,248 $ 20,213 $ 20,488
======== ======== ========

EARNINGS PER SHARE:
BASIC $ 1.34 $ 1.47 $ 1.50
DILUTED $ 1.32 $ 1.46 $ 1.49

WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 13,641 13,746 13,671
DILUTED 13,876 13,881 13,771



SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



17
19

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY




(Dollars in Thousands) Common Stock
------------------------ Retained Accumulated Other Comprehensive
Shares Amount Earnings Comprehensive Income Income
---------- -------- -------- -------------------- -------------

BALANCE, DECEMBER 31, 1996 13,597,124 $ 36,584 $147,579 $ (1,876)

Comprehensive income:
Net income 18,248 $ 18,248
Other comprehensive income
Foreign currency translation adjustment (9,634) (9,634)
--------
Total comprehensive income $ 8,614
========
Issuance of shares upon exercise
of stock options 119,948 1,943
Cash dividends ($.48 per share) (6,549)
---------- -------- -------- --------
BALANCE, DECEMBER 31, 1997 13,717,072 38,527 159,278 (11,510)

Comprehensive income:
Net income 20,213 $ 20,213
Other comprehensive income
Foreign currency translation adjustment 1,251 1,251
--------
Total comprehensive income $ 21,464
========
Issuance of shares upon exercise
of stock options 152,810 3,308
Repurchase and cancellation of shares (208,288) (4,304)
Cash dividends ($.48 per share) (6,591)
---------- -------- -------- --------
BALANCE, DECEMBER 31, 1998 13,661,594 37,531 172,900 (10,259)

Comprehensive income
Net income 20,488 $ 20,488
Other comprehensive income
Foreign currency translation adjustment (7,486) (7,486)
--------
Total comprehensive income $ 13,002
========
Issuance of shares upon exercise
of stock options 21,160 509
Repurchase and cancellation of shares (10,000) (224)
Cash dividends ($.48 per share) (6,562)
---------- -------- -------- --------
BALANCE, DECEMBER 31, 1999 13,672,754 $ 37,816 $186,826 $(17,745)
========== ======== ======== ========



SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.



18
20

CONSOLIDATED STATEMENTS OF CASH FLOWS



(Dollars in Thousands) Year Ended December 31,
--------------------------------------
1997 1998 1999
-------- -------- --------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18,248 $ 20,213 $ 20,488
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 15,270 19,364 16,205
Equity in income of affiliates 1,761 (1,604) (1,192)
Deferred income taxes 1,690 (565) (219)
Changes in operating assets and liabilities:
Accounts receivable (2,543) (3,426) (7,501)
Inventories (7,475) (4,165) (6,088)
Prepaid expenses and other current assets (30) (175) 32
Accounts payable 3,375 (264) 3,964
Accrued liabilities (71) 232 1,872
Income taxes payable (1,725) 3,288 451
-------- -------- --------
Net cash flows from operating activities 28,500 32,898 28,012
-------- -------- --------
CASH FLOWS FROM (USED FOR)
INVESTING ACTIVITIES:
Additions to property, plant and equipment (10,542) (11,174) (9,037)
Sales-type and operating leases (11,572) (16,687) (15,088)
Investment in affiliated companies (46) (2,612) 1,387
-------- -------- --------
Net cash from (used for) investing activities (22,160) (30,473) (22,738)
-------- -------- --------
CASH FLOWS FROM (USED FOR)
FINANCING ACTIVITIES:
Borrowing (repayment) of notes payable 9,021 3,685 (2,828)
Repurchase of common stock (4,304) (224)
Proceeds from exercise of stock options 1,793 3,008 422
Income tax benefit received upon exercise
of certain stock options 150 300 87
Cash dividends paid (6,549) (6,591) (6,562)
-------- -------- --------
Net cash from (used for) financing activities 4,415 (3,902) (9,105)
-------- -------- --------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH (4,164) (245) (272)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 6,591 (1,722) (4,103)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 13,781 20,372 18,650
-------- -------- --------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 20,372 $ 18,650 $ 14,547
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the year for income taxes $ 7,202 $ 6,035 $ 8,681
-------- -------- --------
Cash paid during the year for interest $ 797 $ 1,824 $ 1,068
======== ======== ========



SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.



19
21

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 ("DPC" or "The Company") 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 to 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.


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, 1998 and 1999 is $12,500,000 and $7,600,000
respectively of short-term commercial paper.


INVENTORIES

Inventories are stated at the lower of cost, determined on the first-in,
first-out basis, or market.



20
22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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 measured
by the difference in the estimated value and the carrying value of the related
asset, 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 represents the difference between
investment cost and underlying fair value of assets purchased. It 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; an impairment would be recognized if a
permanent diminution in value were determined to have occurred.


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.


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 or anticipated 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, 1998 and
1999, the Company had approximately $19,900,000 and $5,000,000 of foreign
exchange contracts outstanding, the carrying value of which does not differ
significantly from their fair value.


REVENUE RECOGNITION

The Company recognizes sales of its instruments and kits upon shipment to the
customer unless its equipment is rented or leased in which case revenue is
recognized over the life of the rental or lease agreement. Service contract
revenue is recognized over the related contract life.


RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred.



21
23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


INCOME TAXES

Deferred income taxes represent the income tax consequences on future years of
differences between the income tax basis of assets and liabilities and their
basis for financial reporting purposes multiplied by the applicable statutory
tax rate.


PROSPECTIVE ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board (the "Board") issued
Statement of Financial Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement, as amended by SFAS No. 137,
establishes requirements for recording and reporting derivative financial
instruments including hedging transactions and will be adopted by the Company on
January 1, 2001. The Company is in the process of evaluating the impact, if any,
that will result from implementing SFAS No. 133.


RECLASSIFICATIONS

Minority Interest in accompanying 1998 and 1997 consolidated statements of
income has been reclassified to conform to 1999 classifications. Previously,
Minority Interest was included in General and Administrative expenses. The
effect of separately stating Minority Interest was to decrease General and
Administrative expenses by $370,000 and $574,000 for the years ended December
31, 1998 and 1997, respectively.

NOTE 2 - BUSINESS ACQUISITIONS

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.

As of January 1, 1998, the Company acquired a 100% interest in Diagnostic
Products DPC Norway, AS, the Company's Norwegian distributor.

As of July 1, 1998, the Company's Brazilian distributor acquired a
majority interest in DPC Medlab Centroamerica S.A., the Company's distributor in
Costa Rica, Honduras, El Salvador, Guatemala and Panama.

As of January 1, 1999, the Company acquired an additional 50% interest in
DPC Skafte AB (Sweden). As of January 1, 1999, the Company owns 100% of DPC
Skafte AB.


NOTE 3 - INVENTORIES

Inventories by major categories are summarized as follows:



(Dollars in Thousands) December 31,
--------------------
1998 1999
------- -------

Raw materials $19,235 $22,499
Work in process 19,317 19,165
Finished goods 15,526 17,775
------- -------
$54,078 $59,439
======= =======



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 lives, which range from three to five
years.



22
24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Sales-type and operating leases are summarized as follows:



(Dollars in Thousands) December 31,
--------------------
1998 1999
------- -------

Sales-type leases $ 3,390 $ 2,074

Operating leases 64,172 69,606
Less accumulated amortization 34,190 36,610
------- -------
Net 29,982 32,996
------- -------
Total $33,372 $35,070
======= =======



NOTE 5 - INVESTMENT IN AFFILIATED COMPANIES

The Company has equity interests in three 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%; and Greece, 50%.

The Company formed a joint venture 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 ("DIC") is being operated with capital contributed
and debt guaranteed by Dainippon Ink and Chemicals, Incorporated and technology
by the Company. The Company and DIC have subsequently decided to sell the assets
of the joint venture to a third party. The Company will continue to distribute
its products in Japan through the third party purchaser, IATRON Laboratories
Inc.

The following represents condensed financial information for all of the
Company's investments in non-consolidated affiliated companies and its joint
venture in Japan, and the results of their operations.

The information presented includes the 50% owned DPC Skafte AB "Sweden",
for the years ended December 31, 1997 and 1998. For 1999, DPC Skafte AB is 100%
owned and consolidated, and therefore is not included with non-consolidated
affiliated companies.



(Dollars in Thousands) December 31,
----------------------------------------
1997 1998 1999
------- ------- -------

Current assets $43,726 $48,609 $37,359
Property and other assets 34,498 39,244 38,120
------- ------- -------
Total assets $78,224 $87,853 $75,479
======= ======= =======
Current liabilities $36,754 $43,199 $38,115
Non-current liabilities 18,292 24,065 19,987
Shareholders' equity 23,178 20,589 17,377
------- ------- -------
Total liabilities and
shareholders' equity $78,224 $87,853 $75,479
======= ======= =======
Sales $60,501 $62,227 $64,491
======= ======= =======
Net income $ 804 $ 470 $ 3,899
======= ======= =======


The Company had sales to non-consolidated affiliates of $21,993,000 in
1997, and $22,318,000 in 1998, and $27,885,000 in 1999, including sales to one
affiliate (Italy) of $11,352,000 in 1997, $11,889,000 in 1998, and $16,858,000
in 1999.

Included in the Company's accounts receivable are trade receivables from
non-consolidated affiliates of $5,766,000 at December 31, 1998 and $6,032,000 at
December 31, 1999.



23
25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The Company's cumulative equity in undistributed earnings of
non-consolidated affiliated companies at December 31, 1999 is $10,751,000. It is
anticipated that additional income taxes payable on earnings, if undistributed,
of foreign affiliates, 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:



(Dollars in Thousands) December 31,
--------------------
1998 1999
------- -------

Notes payable to a bank in Germany, at an average
interest rate of approximately 5%, payable through 2006 $12,327 $ 8,995

Notes payable to a bank in France, at an interest rate
of approximately 5%, payable through 2004 3,232 2,809

Notes payable to a bank in Spain at an interest rate
of approximately 4% payable through 2004 2,065 1,571

Notes payable to a bank in the Netherlands at an
interest rate of approximately 4% payable through 2019 1,981 1,010

Other 1,573 1,371
------- -------
Total $21,178 $15,756
======= =======


Aggregate future maturities of long-term debt outstanding at December 31, 1999
are $5,593,000 in 2000, $1,935,000 in 2001, $1,884,000 in 2002, $1,860,000 in
2003, $1,626,000 in 2004, and $2,858,000 thereafter. Interest expense was
$797,000 in 1997, $1,824,000 in 1998, and $1,068,000 in 1999.

The Company also has a line of credit in the amount of $20 million which matures
in May of 2000. No borrowings were outstanding as of December 31, 1999, 1998 and
1997 under the line.


NOTE 7 - EMPLOYEE BENEFIT PLANS

The Company has a defined contribution 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
$2,365,000 in 1997, $2,484,000 in 1998 and $2,989,000 in 1999.

The Company has a defined contribution 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. There were no contributions in 1997, 1998 or 1999.

As of January 1, 2000, the Company merged the assets of its pension plan
and its profit sharing plan. The terms and conditions of the merged plan are
comparable to the existing plans except that employees may also make
contributions to the plan under the provisions of section 401 (k) of the
Internal Revenue Code.



24
26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8 - INCOME TAXES

The provision for income taxes is summarized as follows:



(Dollars in Thousands) Year Ended December 31,
----------------------------------
1997 1998 1999
------- ------- -------

CURRENT:
Federal $ 3,992 $ 5,937 $ 6,135
State 708 421 (71)
Foreign 1,110 2,207 3,228
Deferred federal and
state income taxes 1,690 (565) (219)
------- ------- -------
Total provision for income taxes $ 7,500 $ 8,000 $ 9,073
======= ======= =======



Temporary differences comprising the net deferred taxes shown on the
consolidated balance sheets are as follows:



(Dollars in Thousands) December 31,
------------------
1998 1999
------ ------

State income taxes $ 147 $ 75
DPC Cirrus' net operating losses 62 289
Inventory 2,520 2,275
Depreciation 990 857
DPC Cirrus' research and development
credit carry forwards 1,081 1,668
Other 510 365
------ ------
Total $5,310 $5,529
====== ======



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:



(Dollars in Thousands) Year Ended December 31,
-------------------------------------------------
1997 % 1998 % 1999 %
------------ ------------ --------------

Provision for income taxes at statutory rate $9,012 35 $9,875 35 $10,346 35
State income taxes, net of federal tax benefit 456 2 (141) (1) 120 1
Foreign income subject to tax other than
federal statutory rate 40 (35) 491 2
Non-taxable earnings of FSC (952) (4) (943) (3) (956) (3)
Research and development tax credit (403) (2) (866) (3) (738) (3)
Net foreign tax credit (566) (2) (195) (1) (200) (1)
Equity in income of affiliates (477) (2) (442) (2) (497) (2)
Other 390 2 747 3 507 2
------------ ------------ --------------
Provision for income taxes $7,500 29 $8,000 28 $ 9,073 31
============ ============ ==============




25
27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


An income tax benefit during 1999, 1998 and 1997 related to the exercise or
early disposition of certain stock options reduced income taxes currently
payable by $87,000, $300,000 and $150,000 and was credited directly to
shareholders' equity.


NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES

The Company has a noncancelable operating lease for a portion of its Los Angeles
manufacturing facility with a partnership comprised of persons who are executive
officers, directors and/or shareholders of the Company. The agreement extends
through December 31, 2002. Approximately $879,000 in 1997, $966,000 in 1998, and
$966,000 in 1999 was paid by the Company 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, 1999 for both leases are as follows:



(Dollars in Thousands) 2000 2001 2002 Total
------ ------ ------ ------

$1,850 $1,725 $1,434 $5,009


Rental expense under operating leases approximated $2,187,000 in 1997,
$2,673,000 in 1998 and $3,107,000 in 1999.

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
annual amount of $600,000 through 2004.


NOTE 10 - EARNINGS PER SHARE

Earnings per share (EPS) is presented in accordance with the provisions of SFAS
No. 128, "Earnings per Share". The following table is a reconciliation of the
weighted-average shares used in the computation of basic and diluted EPS for the
income statements presented herein.



(Shares in Thousands) Year Ended December 31,
----------------------------------
1997 1998 1999
------ ------ ------

Basic 13,641 13,746 13,671
Assumed exercise of stock options 235 135 100
------ ------ ------
Diluted 13,876 13,881 13,771
====== ====== ======


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.



26
28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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). Additionally 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 SFAS No. 123, "Accounting for Stock-Based
Compensation", 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 pro forma footnote purposes with the following
assumptions used for grants in all years; dividend yield of 1.7%, risk-free
interest rate of from 4.4% to 5.9% and expected option life of 3 to 10 years.
Expected volatility was assumed to be 38.6% in 1997, 36.9% in 1998 and 27.1% in
1999. Forfeiture rate was assumed to be 5% in 1997, 1998 and 1999.



Weighted Weighted
Number Average Average
of Exercise Fair
Shares Price Value
--------- --------- ---------

Options outstanding,
December 31, 1996
(379,453 exercisable) 981,513 $23.21
Granted 413,500 29.46 $13.79
Exercised (119,948) 14.94
Canceled (54,525) 27.91
---------
Options outstanding,
December 31, 1997
(349,656 exercisable) 1,220,540 25.92
Granted 222,000 26.83 10.87
Exercised (152,810) 19.69
Canceled (66,540) 30.46
---------
Options outstanding,
December 31, 1998
(350,373 exercisable) 1,223,190 26.62
Granted 182,000 26.25 9.76
Exercised (21,160) 19.76
Canceled (32,700) 25.62
---------
Options outstanding,
December 31, 1999
(480,870 exercisable) 1,351,330 $ 26.55
========= =========




27
29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The following table summarizes information about stock options outstanding
at December 31, 1999:



Weighted Weighted Weighted
Range of Number Average Average Number Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices at 12/31/99 Life Price at 12/31/99 Price
- ------------ ----------- ----------- -------- ----------- ---------

$10.00-19.99 57,200 4.03 years $18.39 29,960 $18.33
20.00-29.99 1,119,630 6.88 years 25.58 364,460 23.95
30.00-39.99 172,500 4.73 years 35.28 85,850 35.49
40.00-49.99 2,000 6.32 years 41.88 600 41.88


Pursuant to the plans, 1,701,750 shares of common stock are reserved for
issuance upon the exercise of options.

As permitted by SFAS No. 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:



(Dollars in Thousands, except per Share Data)
1997 1998 1999
------- ------- -------

Net income as reported $18,248 $20,213 $20,488
Compensation expense from
stock options 318 740 1,152
------- ------- -------
Net income adjusted $17,930 $19,473 $19,336
Adjusted earnings per share-diluted $ 1.29 $ 1.40 $ 1.40



This proforma impact only takes into account options granted subsequent to
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 AND PRODUCT LINE INFORMATION

The Company considers its manufactured instruments and medical
immunodiagnostic test kits as one operating segment as defined under SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information" as
the kits are required to run the instruments and utilize similar technology and
instrument manufacturing processes. The Company manufacturers its instruments
and kits principally from facilities in the United States and the United
Kingdom. Kits and instruments are sold to hospitals, medical centers, clinics,
physicians, and other clinical laboratories throughout the world through a
network of distributors including consolidated distributors located in the
United Kingdom, Germany, Czech Republic, Poland, Spain, The Netherlands,
Belgium, Luxembourg, Finland, Norway, France, Estonia, Sweden, Australia, China,
Brazil, Uruguay, Venezuela, Costa Rica, Honduras, El Salvador, Guatemala and
Panama.



28
30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The Company sells its instruments and immunodiagnostic test kits under several
product lines. Product line sales information is as follows:



Year Ended December 31,
----------------------------------------
1997 1998 1999
-------- -------- --------

Sales:
IMMULITE $100,127 $123,861 $150,714
Radioimmunoassay ("RIA") 48,936 42,565 37,813
Other 37,201 30,217 27,666
-------- -------- --------
$186,264 $196,643 $216,193
======== ======== ========



The Company is organized and managed by geographic area. Transactions between
geographic segments are accounted for as normal sales for internal reporting and
management purposes with all intercompany amounts eliminated in consolidation.
Sales are attributed to geographic area based on the location from which the
instrument or kit is shipped to the customer. Information reviewed by the
Company's chief operating decision maker on significant geographic segments, as
defined under SFAS No. 131, is prepared on the same basis as the consolidated
financial statements and is as follows:



(Dollars in Thousands) December 31, 1999
--------------------------------------------------------------------------------------------------
Euro/DPC DPC
Limited Biermann DPC Medlab Less:
United (United (German (Brazilian Intersegment
States Kingdom) Group) Group) Other Elimination Total
--------- --------- --------- ---------- --------- ------------ ---------

Sales $ 148,443 $ 29,323 $ 31,471 $ 24,472 $ 47,187 $ (64,703) $ 216,193
Operating expenses 54,623 6,395 10,017 6,969 13,406 91,410
Interest income
(expense), net 3,791 (512) (628) (1,441) (767) 443
Minority interest 582 582
Provision (benefit) for
income taxes expense 5,847 1,173 (227) 1,189 1,091 9,073
Net income (loss) 15,086 2,680 (382) 743 2,061 300 20,488
Segment assets:
Long-lived assets 50,156 17,916 19,520 10,250 22,871 (5,300) 115,413
Total assets 250,119 38,710 30,119 19,892 46,237 (134,583) 250,494
Capital expenditures 2,816 5,172 8,673 2,086 11,589 (2,940) 27,396




29
31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(Dollars in Thousands) December 31, 1998
--------------------------------------------------------------------------------------------------
Euro/DPC DPC
Limited Biermann DPC Medlab Less:
United (United (German (Brazilian Intersegment
States Kingdom) Group) Group) Other Elimination Total
--------- --------- --------- ---------- --------- ------------ ---------

Sales $ 127,936 $ 27,468 $ 34,425 $ 24,081 $ 38,926 $ (56,193) $ 196,643
Operating expenses 46,875 6,070 9,465 7,268 12,907 82,585
Interest income
(expense), net 4,508 (800) (970) (1,675) (732) 331
Minority Interest 370 370
Provision (benefit) for
income taxes expense 5,793 1,269 (253) 358 833 8,000
Net income (loss) 16,214 2,820 (417) 471 1,325 (200) 20,213
Segment assets:
Long-lived assets 52,937 16,869 19,138 12,851 20,871 (5,500) 117,166
Total assets 239,509 36,230 32,753 19,704 41,896 (123,868) 246,224
Capital expenditures 4,293 3,305 9,869 4,594 11,879 (3,500) 30,440






(Dollars in Thousands) December 31, 1997
--------------------------------------------------------------------------------------------------
Euro/DPC DPC
Limited Biermann DPC Medlab Less:
United (United (German (Brazilian Intersegment
States Kingdom) Group) Group) Other Elimination Total
--------- --------- --------- ---------- --------- ------------ ---------

Sales $ 114,797 $ 24,033 $ 38,789 $ 19,672 $ 32,342 $ (43,369) $ 186,264
Operating expenses 46,016 4,178 11,787 6,160 10,773 78,914
Interest income
(expense), net 4,013 (700) (728) (1,233) (665) 687
Minority Interest 574 574
Provision (benefit) for
income taxes expense 6,390 487 (609) 222 1,010 7,500
Net income (loss) 15,601 1,917 (919) 730 219 700 18,248
Segment assets:
Long-lived assets 52,060 15,715 13,421 10,847 14,779 (5,000) 101,822
Total assets 219,081 31,277 24,766 25,690 32,345 (110,979) 222,180
Capital expenditures 6,595 1,339 1,175 4,261 5,041 (2,800) 15,611




30
32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The Company's export sales to unaffiliated customers are summarized as follows:



(Dollars in Thousands) Western South Other Total
Europe America Exports Exports
------- -------- -------- -------

1997 $ 3,466 $ 8,277 $14,509 $26,252
1998 2,794 8,406 13,701 24,901
1999 3,771 6,635 14,691 25,097




SUPPLEMENTARY FINANCIAL DATA


Unaudited quarterly financial information for the years ended December 31, 1998
and 1999 is summarized as follows:




(In Thousands, Except per Share Data)

Quarter Ended
-----------------------------------------------------------------
March 31, June 30, September 30, December 31, Year Ended
1998 1998 1998 1998 1998
-------- -------- ------------ ----------- ----------

Sales $ 46,104 $ 49,278 $ 48,773 $ 52,488 $196,643
Gross profit 25,709 27,849 27,319 28,698 109,575
Income taxes
1,720 2,190 2,090 2,000 8,000
Net income 4,104 5,194 5,395 5,520 20,213
Earnings per share:
Basic .30 .38 .39 .40 1.47
Diluted .30 .37 .39 .40 1.46

Weighted Average
Shares Outstanding:
Basic 13,746 13,779 13,792 13,669 13,746
Diluted 13,907 13,944 13,923 13,749 13,881





Quarter Ended
-----------------------------------------------------------------
March 31, June 30, September 30, December 31, Year Ended
1999 1999 1999 1999 1999
-------- -------- ------------ ----------- ----------



Sales $ 50,466 $ 54,593 $ 53,693 $ 57,441 $216,193
Gross profit 27,260 30,433 29,048 32,948 119,689
Income taxes 1,790 2,150 1,740 3,393 9,073
Net income 4,100 5,512 4,791 6,085 20,488
Earnings per share:
Basic .30 .40 .35 .45 1.50
Diluted .30 .40 .35 .44 1.49

Weighted Average
Shares Outstanding:
Basic 13,669 13,673 13,671 13,673 13,671
Diluted 13,818 13,739 13,780 13,747 13,771




31
33

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 29, 2000
------------------------------------
Sigi Ziering, Chairman of the Board



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.




NAME TITLE DATE
- ----------------------------- --------------------- --------------

/s/ Sigi Ziering Chairman of the Board March 29, 2000
- -----------------------------
Sigi Ziering

/s/ Michael Ziering President and March 29, 2000
- ----------------------------- Chief Executive Officer
Michael Ziering (Principal Executive Officer)
Director

/s/ Sidney A. Aroesty Chief Operating Officer March 29, 2000
- ----------------------------- Director
Sidney A. Aroesty

/s/ Maxwell H. Salter Director March 29, 2000
- -----------------------------
Maxwell H. Salter

/s/ James D. Watson Director March 29, 2000
- -----------------------------
James D. Watson

/s/ Frederick Frank Director March 29, 2000
- -----------------------------
Frederick Frank

/s/ James L. Brill Vice President -- March 29, 2000
- ----------------------------- Finance (Principal
James L. Brill Financial and Accounting
Officer)




32
34

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 as amended(7)
10.5 Standard Industrial Lease with 5700 West 96th Street, general
partnership, dated February 18, 1991(5)
*10.6 1997 Stock Option Plan as amended(7)
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 S-1 (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 Quarterly Report on Form
10-Q for the quarter ended September 30, 1999. (File No. 1-9957)



33