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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the year ended December 31, 2000
[ ] 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 (IRS 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 $574,646,356 as of March 9, 2001.
The number of shares of Common Stock, no par value, outstanding as of March
9, 2000, was 13,939,574.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the 2001 Annual Shareholders Meeting are
incorporated by reference into Part III of this report.
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PART I
ITEM 1. BUSINESS
Diagnostic Products Corporation ("DPC" or the "Company") develops,
manufactures, and markets medical immunodiagnostic test kits that utilize
state-of-the-art technology derived from immunology and molecular biology and
automated laboratory instruments that 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 manufacturing facilities in the United States, the United
Kingdom, 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" that
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-enhanced enzyme immunoassay, that is used in the DPC IMMULITE
product line; radioimmunoassay (RIA), that uses double antibody, coated tube,
and IRMA formats; enzyme immunoassay (EIA), used in microplate; and tube formats
featuring a proprietary liquid technology for allergy, immunofluorescence, and
latex agglutination. In fiscal year 2000, RIA tests accounted for 14% of sales
and allergy and other tests accounted for 8% of sales. Note 12 of the Notes to
Consolidated Financial Statements contains additional information concerning
sales by product line over the last three fiscal years.
IMMULITE assay instruments and service represented 63%, 70%, and 78% of
sales in 1998, 1999, and 2000 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
that 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, 2000, DPC had 98
IMMULITE assays available in the international markets; the FDA in the U.S. had
cleared 72 for sale. In addition, 49 out of a total of 63 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, under-served disease categories that
allow DPC to fill a market niche. Many of DPC's tests are available in both RIA
and non-isotopic formats.
Major clinical applications of DPC's test kits include:
THYROID - The most frequent utilization of immunoassay techniques is for the
determination and monitoring of thyroid function. 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 assays. To maintain its traditional advantage in
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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 of our
competitors.
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 15 such assays on
the IMMULITE system.
ALLERGY - Allergy testing comprises a worldwide market of approximately $200
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 customer demand 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, 2000. These include such unique assays as Latex and ECP, the latter
an important tool for the diagnosis and management of asthma. The Company
expects to implement allergy testing on the IMMULITE 2000 during the second half
of 2001.
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.
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.
The growing emphasis on risk assessment for cardiovascular disease has led
to the routine measurement of cholesterol levels, for example, but also to a
widespread demand for additional tests capable of improving the clinician's
ability to assess a patient's prospects in this regard. Homocysteine and High
Sensitivity CRP are prominent among the state-of-the-art tests in this field.
DPC has implemented both of these as automated, random-access assays, and is
actively investigating other tests that may prove clinically useful. DPC has
received a license from Axis-Shield of the UK for the method of analysis for the
measurement of homocysteine.
THERAPEUTIC DRUG MONITORING (TDM) - There is a large market for assays
designed for the routine measurement of therapeutic drugs. For many drugs,
regular monitoring is essential to ensure that blood levels are maintained
within a narrow therapeutic range: high enough to be clinically effective, but
not so high as to induce toxic side effects. Among DPC's offerings on the
IMMULITE and IMMULITE 2000 are assays for several of the most common
anti-epileptic drugs, namely, Phenobarbitol, Phenytoin, Carbamazepine, and
Valproic Acid, which are used to control various types of seizure.
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AUTOMATED LABORATORY INSTRUMENTATION
In addition to an extensive line of diagnostic test kits, DPC designs and
manufactures automated laboratory instruments that perform the tests and that
provide fast, accurate results, while reducing labor and reagent costs.
The IMMULITE system, first introduced in 1992, 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 that 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 that 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 complements the
existing IMMULITE and has extended its life cycle.
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 and
technologies. In addition to developing and adding allergy testing capabilities
to the IMMULITE 2000, the Company's research and development activities include
the development of the next generation IMMULITE system and new operating
software for both the IMMULITE and the IMMULITE 2000. 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, software, and
technology development. During the years ended December 31, 1998, 1999 and 2000,
the Company spent $22,342,000, $24,550,000, and $26,464,000 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 30% 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 Union (EEU) by minimizing import duties and freight
charges and by reducing the effects of currency exchange fluctuations. Certain
kits are also manufactured by DPC in China.
DPC Cirrus, the Company's facility in New Jersey, designs and manufactures
IMMULITE instrumentation and engages in software development. Component parts,
such as computer hardware, are supplied by original equipment manufacturers. The
Company provides a one-year warranty that covers parts and labor. Underwriter's
Laboratories Inc. (UL) list the IMMULITE systems. 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
certain components of the IMMULITE and IMMULITE 2000 instruments that are then
assembled into the final instrument in New Jersey.
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 also registered to ISO 9001 and EN 46001
standards.
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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 products to hospital, clinical, forensic, research,
reference, and veterinary laboratories, as well as doctors' offices and 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. Dade
Behring has the exclusive right to distribute IMMULITE products to Novation
customers. Novation is the supply company for the Veterans Hospital
Administration, Inc. and the University HealthSystem Consortium, two national
health care alliances, and manages $12 billion in annual supply purchases
through 4,200 organizations. In addition, in association with Dade Behring, DPC
was added to agreements with Consorta and HPG. 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) that
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'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 that 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 sales in 1998, 79% in 1999, and
76% in 2000. Europe accounted for approximately 46%, 47%, and 44% of total sales
in 1998, 1999, and 2000, 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 that 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 respective local currencies, the Company's consolidated financial results
are affected by foreign currency translation adjustments (see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 1 of Notes to Consolidated Financial Statements). In addition, the price
competitiveness of the Company's products abroad is impacted by the relative
strength or weakness of the U.S. dollar.
PROPRIETARY AND OTHER RIGHTS
Substantially all of the Company's products are based on proprietary
technologies and know-how. The Company holds various U.S. and foreign patents,
including patents on the washing process used in the IMMULITE system that expire
in 2009 and patents on 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 that 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 that
may be issued in the future.
The Company purchases certain chemical compounds that 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, that 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
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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, such as DPC's Third Generation TSH assay, that can eliminate
the need for redundant testing.
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 that 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 was fully compliant with all
relevant aspects of the EU IVDD on June 7, 2000 and therefore was qualified to
apply the "CE Mark" to most of it's IVD kits and instruments as mandated by the
EU.
COMPETITION
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 competes on a worldwide
basis with a number of large corporations that sell diversified lines of
products, including immunodiagnostic products, for laboratory, medical, and
hospital use.
There are currently over 30 domestic suppliers of immunodiagnostic kits. The
Company believes that competition in immunoassay testing is based on quality,
service, product convenience, and price and that product innovation is an
important source for change in market share.
The principal competitive factors in automated systems are size of menu (the
number of assays that 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, 2000, the Company (including its consolidated
subsidiaries) had 1,767 employees, including 724 in manufacturing, 274 in
research and development, 512 in marketing and sales, and 257 in administration.
None of the Company's employees are represented by a labor union, and the
Company considers its employee relations to be good. The Company has experienced
no significant problems in recruiting qualified technical and operational
personnel.
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ITEM 2. PROPERTIES
The following is a list of significant properties owned and leased by the
Company and its consolidated subsidiaries as of December 31, 2000:
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
Los Angeles, California 9,000 sq. ft. Leased(1) Sales offices
Los Angeles, California 16,500 sq. ft. Leased(1) Warehousing
Gorman, California 80 acres Owned Raw material processing
Randolph, New Jersey 59,000 sq. ft. Leased(2) Research, manufacturing, and distribution
Morris Plains, New Jersey 26 acres Owned Land for future manufacturing facility
Glyn Rhonwy, Wales, U.K. 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 Research and 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 15,500 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
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(1) Aggregate annual lease payments of $1,274,000. Leases expire in 2002.
See "Item 13. Certain Relationships and Related Transactions."
(2) Annual lease payments of $485,000. Leases expire in 2001 and 2002.
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During 2000 the Company purchased land in New Jersey to build a new 85,000
square foot manufacturing facility for the IMMULITE instrumentation. The
construction is expected to be completed by the time the current New Jersey
lease expires at the end of 2002. 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.
ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the last fiscal year, no matter was submitted
to a vote of the security holders.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is listed on the New York Stock Exchange and
is traded under the symbol DP.
The following table sets forth the quarterly high and low price of the
Company's Common Stock and quarterly dividends per share paid during 2000 and
1999.
2000
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High Low Dividend
--------- --------- ---------
First Quarter $24 3/16 $21 13/16 $ .12
Second Quarter 31 7/8 22 7/8 .12
Third Quarter 54 13/16 31 7/8 .12
Fourth Quarter 59 9/16 38 13/16 .12
1999
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High Low Dividend
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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
As of March 12, 2001, the Company had 308 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,
----------------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
Sales $176,832 $186,264 $196,643 $216,193 $247,867
Net income 22,947 18,248 20,213 20,488 28,250
Earnings per share:
Basic 1.69 1.34 1.47 1.50 2.05
Diluted 1.65 1.32 1.46 1.49 2.01
Weighted average shares
outstanding:
Basic 13,554 13,641 13,746 13,671 13,777
Diluted 13,926 13,876 13,881 13,771 14,074
Dividends per share $ .48 $ .48 $ .48 $ .48 $ .48
BALANCE SHEET DATA
Year Ended December 31,
----------------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
Working capital $ 81,563 $ 83,031 $ 81,001 $ 88,799 $104,812
Total assets 207,002 222,180 246,224 250,494 280,484
Shareholders' equity 182,287 186,295 200,172 206,897 227,024
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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, and
political and economic instability in certain foreign markets.
RESULTS OF OPERATIONS
The Company's sales increased 15% in 2000 to $247.9 million compared to
sales of $216.2 million in 1999, a 10% increase over 1998 sales. 2000 sales of
all IMMULITE products (instruments and reagents) were $193.1 million, a 28%
increase over 1999. In 1999, sales of all IMMULITE products were $150.7 million,
a 22% increase over 1998. Sales of IMMULITE products represented 78% of 2000
sales, 70% of 1999 sales, and 63% of 1998 sales.
2000 sales of the Company's original IMMULITE instrument, the IMMULITE One,
related reagents, and service were $123.0 million, an 8% increase over 1999.
Sales of IMMULITE One reagents increased 6% to $96.4 million, while instrument
sales were up 11% to $19.6 million. The IMMULITE 2000 instrument, which became
commercially available in March 1998, had sales including reagents of $70.1
million in 2000, an 88% increase over 1999 sales of $37.3 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, 2000, 1999, and 1998, the Company had shipped on a
cumulative basis approximately 5,900, 4,900, and 4,000 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
2000 and represented 14% of 2000 sales, compared to 17% of 1999 sales and 22% of
1998 sales. This trend is expected to continue.
Sales of other DPC products, including allergy reagents, decreased 21% to
$13.9 million in 2000, compared to $17.7 million in 1999. The Company also
experienced a decrease in sales of non-DPC products through its consolidated
international affiliates from $10.0 million in 1999 to $7.1 million in 2000, 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.
Domestic sales in 2000 increased 27% over 1999, reflecting in part the
Company's success with larger customers and purchasing organizations. Sales in
Brazil accounted for approximately 11% of total sales in 2000, 1999, and 1998.
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
76%, 79%, and 80% in each of 2000, 1999, and 1998. Europe, the Company's
principal foreign market, represented 44%, 47%, and 46% of sales in 2000, 1999,
and 1998, respectively. Sales in Germany have decreased to $30.1 million in 2000
from $31.5 million in 1999 and $34.4 million in 1998 due in part to a reduction
in non-DPC product sales and changes in reimbursement policies of the German
government for medical testing. In addition, the Deutsche Mark weakened relative
to the U.S. Dollar, which further contributed to the decline.
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 5%
negative impact on 2000 sales. In 1999 there was a 9% negative impact on sales.
9
11
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 has remained stable at approximately 45% of sales in 2000,
1999, and 1998.
Total operating expenses (Selling, Research and Development, and General and
Administration) as a percentage of sales fell to 39% in 2000, from 42% in 1999
and 1998, although all categories increased annually in absolute dollars to
support the increased levels of sales.
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 24% in 2000 relative to 1999 and 13% in 1999 relative to 1998
primarily due to increased 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 to $666,000
in 2000, from $443,000 in 1999 and $331,000 in 1998.
The Company's effective tax rate (30% in 2000 and 1999, and 28% in 1998)
includes Federal, State, and foreign taxes.
Minority interest represents the 44% interest in the Company's Brazilian
distributor held by a third party. Increases in this amount reflect increases in
the profitability of the Brazilian distributor.
Net income for 2000 increased 38% over 1999 primarily due to increases in
sales that were greater than percentage increases in operating expenses. Net
income for 1999 increased 1% over 1998 due to increases in operating income
being offset by increases in the tax rate and minority interest.
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
flows from operating activities were $39.3 million in 2000, $28.0 million in
1999, and $32.9 million in 1998. Additions to property, plant, and equipment in
2000 were $9.6 million compared to $9.0 million in 1999 and $11.2 million in
1998. Cash used for the placement of IMMULITE systems under sales-type and
operating leases (for periods of generally three to five years) decreased from
$16.7 million in 1998 to $15.1 million in 1999 reflecting a decrease in this
type of IMMULITE placements and an increase to $18.0 million in 2000 reflecting
an increase in this type of IMMULITE placements.
In late 1998, the Company acquired land in 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. In 2000,
the Company purchased land in New Jersey at a cost of approximately $2.8
million. The Company is constructing an 85,000 square foot manufacturing
facility on this property at an estimated cost of approximately $12 million. The
Company is replacing its computer system in Los Angeles and certain of its
European affiliates at a cost of approximately $3 million in 2000. The Company
has no other material commitments for capital expenditures in 2001.
The Company has a $20 million unsecured line of credit. Standby letters of
credit under the line of credit totaled $386,000 and $2,000,000 at December 31,
2000 and 1998, respectively. There were no standby letters of credit outstanding
at December 31, 1999. No other borrowings were outstanding at December 31, 2000,
1999, and 1998 under the line of credit. 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 $15.6 million at December 31, 2000 compared to $15.8
million at December 31, 1999 and $21.2 million at December 31, 1998. The terms
of the loans are described in "ITEM 7A. Quantitative and Qualitative Disclosures
About Market Risk."
The Company's foreign operations 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. Additional purchases, if any, will depend on the
prevailing market price of the common stock. The Company has not purchased any
of its shares in 2000.
10
12
In the first quarter of 2000, the Company sold a building in the U.K. that
it had leased to a third party. The sales price was $1.5 million dollars, with a
book value at the time of sale of $1.3 million.
In the fourth quarter of 2000, the Company sold its Milenia product line in
Germany for $1.1 million with a book value of $640,000. Revenues from the
Milenia line were approximately $500,000 a quarter.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133, as amended,
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires an entity to recognize all derivatives as either
assets or liabilities on the balance sheet and measure those instruments at fair
value. The Company adopted SFAS 133 on January 1, 2001. The initial adoption of
SFAS 133 will not have a material effect on the Company's consolidated financial
statements or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements"("SAB 101"), as amended, summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. SAB 101 did not have a material effect on the Company's
consolidated financial statements or revenue recognition policies.
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 local currency. During the transition period, conversion rates are not
computed directly from one local currency to another. Instead, local currencies
are converted first to a Euro denomination and then to the second local
currency. Beginning in January 2002, new Euro-denominated bills and coins become
legal currency and all former currencies will, over the ensuing months, be
withdrawn from circulation. The ultimate conversion to the Euro will eliminate
currency exchange risk among the participating countries.
The Company sells its products in the participating countries through
affiliated and non-affiliated distributors that determine sales prices in their
respective territories. The use of a single currency in the participating
countries may affect this variable pricing in the various European markets
because of price transparency. Nevertheless, other market factors such as local
taxes, customer preferences, and product assortment may reduce the need for
price equalization.
The Company has significant sales in Europe and is currently evaluating the
business implications of the conversion to the Euro, including the need to adapt
internal systems to accommodate Euro-denominated transactions, the competitive
implications of cross-border price transparency, the impact on existing
marketing programs, and other strategic implications. Due to the existence of
many unknown variables, it is not possible for the Company to predict the
precise implications of the Euro conversion on its operations. The Company has
implemented a plan to convert or upgrade certain of its European subsidiaries to
a similar computer software system that will allow them to operate in the
European currency environment and to create a central repository for all
European information. The Company anticipates the software conversion will be
completed in the fourth quarter of 2001, with an expected cost of approximately
$1,000,000.
11
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ITEM7A. 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, 2000, the Company had $14,700,000 invested in
such securities, which yielded an average annual return of 6.10%. The average
maturity of these investments is less than one month.
Additionally, the Company has debt obligations at its foreign subsidiaries
that have primarily 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, 2000
(U.S. Dollars in Thousands)
Expected Year of Maturity
---------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 THEREAFTER TOTAL
---------- ---------- ---------- ---------- ---------- ---------- ----------
GERMANY - MARK:
Variable rate notes $ 1,497 $ 1,466 $ 1,466 $ 1,466 $ 1,466 $ 805 $ 8,166
Average interest rate 6.26% 6.18% 6.18% 6.18% 5.90% 5.90%
FRANCE - FRANC:
Fixed rate notes 895 910 910 730 251 3,696
Average interest rate 5.36% 5.36% 5.39% 5.66% 6.16%
SPAIN - PESETA:
Fixed rate notes 1,685 166 176 187 81 2,295
Average interest rate 5.75% 5.75% 5.75% 5.75% 5.75%
NETHERLANDS - GUILDER:
Fixed rate notes 852 852
Average interest rate 5.75%
AUSTRALIA - AUST.$:
Fixed rate notes 548 548
Average interest rate 6.78%
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 5,477 $ 2,542 $ 2,552 $ 2,383 $ 1,798 $ 805 $ 15,557
========== ========== ========== ========== ========== ========== ==========
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
12
14
Company's owned distributors purchase forward currency contracts to offset
currency exposures related to these purchase commitments.
The table below provides information as of December 31, 2000 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 values for its currency contracts outstanding.
FOREIGN CURRENCY EXCHANGE CONTRACTS OUTSTANDING DECEMBER 31, 2000
(000's)
Equivalent
U.S. Dollar
(000's) Weighted-Average Value at
U.S. Dollar Forward Contract December 31, 2000 Weighted-Average
Local Currency Amount Buy Rate per U.S. Dollar Exchange Rates Maturity Date
----------------- ------------ -------------------- ------------------ --------------------
Contracts for
Purchase of
U.S. Dollars:
Deutsche Mark $1,500 2.16DEM $1,562 February 19, 2001
French Franc $ 460 7.03FRF $ 465 Apri l5, 2001
Australian Dollar $ 150 1.81AUS $ 149 January 25, 2001
Nether. Guilder $1,000 2.38NLG $1,019 February 20, 2001
(000's)
Equivalent
U.K. Pound
(000's) Weighted-Average Value at
U.K. Pound Forward Contract December 31, 2000 Weighted-Average
Local Currency Amount Buy Rate per U.K. Pound Exchange Rates Maturity Date
----------------- ------------ -------------------- ------------------ --------------------
Contracts for
Purchase of
U.K. Pounds:
French Franc Pound Sterling 60 10.42 FRF Pound Sterling 61 March 5, 2001
(000's)
Equivalent
EURO
(000's) Weighted-Average Value at December
EURO Forward Contract 31, 2000 Weighted-Average
Local Currency Amount Buy Rate per EURO Exchange Rates Maturity Date
----------------- ------------ -------------------- ------------------ --------------------
Contracts for
Purchase of
EUROs:
British Pound 611 1.64 Euro 640 November 15, 2001
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.
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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"; "Ownership of Common Stock - Section
16 (a) Beneficial Ownership Reporting Compliance"; and "Executive Officers" of
the Company's Proxy Statement for the 2001 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 2001 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 2001 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
2001 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, 1999 and 2000.
Consolidated Statements of Income for the three years ended
December 31, 2000.
Consolidated Statements of Shareholders' Equity for the three
years ended December 31, 2000.
Consolidated Statements of Cash Flows for the three years ended
December 31, 2000.
Notes to Consolidated Financial Statements
2. Supplementary Financial Data.
3. Exhibits - See "Exhibit Index" which appears after the signature page
of this report.
(b) Reports on Form 8-K - none filed in the fourth quarter of 2000.
14
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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,
1999 and 2000 and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 2000. 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 as of December 31, 1999 and 2000 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
February 16, 2001
15
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CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
December 31,
-----------------------------
1999 2000
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 14,547 $ 26,395
Accounts receivable - net of allowance
for doubtful accounts of $504 and $750, respectively 55,018 68,222
Inventories 59,439 60,247
Prepaid expenses and other current assets 548 528
Deferred income taxes 2,844 2,881
----------- -----------
Total current assets 132,396 158,273
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 34,968 37,394
Machinery and equipment 66,050 66,137
Leasehold improvements 7,222 7,242
Construction in progress 1,064 3,607
----------- -----------
Total 109,304 114,380
Less accumulated depreciation and amortization 55,886 61,367
----------- -----------
Property, plant and equipment - net 53,418 53,013
SALES-TYPE AND OPERATING LEASES - net 35,070 40,582
DEFERRED INCOME TAXES 2,685 2,536
INVESTMENTS IN AFFILIATED COMPANIES 13,159 13,465
EXCESS OF COST OVER NET ASSETS ACQUIRED --
Net of accumulated amortization of $9,627 and $10,735 13,766 12,615
----------- -----------
TOTAL ASSETS $ 250,494 $ 280,484
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 15,756 $ 15,557
Accounts payable 15,790 24,987
Accrued liabilities 8,090 11,409
Income taxes payable 3,961 1,507
----------- -----------
Total current liabilities 43,597 53,460
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock-no par value, authorized 30,000,000
shares at December 31, 1999 and 2000; outstanding
13,672,754 shares and 13,918,394 shares, respectively 37,816 44,838
Retained earnings 186,826 208,465
Accumulated other comprehensive loss (17,745) (26,279)
----------- -----------
Total shareholders' equity 206,897 227,024
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 250,494 $ 280,484
=========== ===========
SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
16
18
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, except per Share Data)
Year Ended December 31,
--------------------------------------------
1998 1999 2000
---------- ---------- ----------
SALES $ 196,643 $ 216,193 $ 247,867
COST OF SALES 87,068 96,504 110,522
---------- ---------- ----------
Gross Profit 109,575 119,689 137,345
---------- ---------- ----------
OPERATING EXPENSES:
Selling 37,757 40,949 44,364
Research and Development 22,342 24,550 26,464
General and Administrative 22,486 25,911 26,415
Equity in Income of Affiliates (1,262) (1,421) (1,755)
---------- ---------- ----------
OPERATING EXPENSES -NET 81,323 89,989 95,488
---------- ---------- ----------
OPERATING INCOME 28,252 29,700 41,857
Interest/Other Income -Net 331 443 666
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 28,583 30,143 42,523
AND MINORITY INTEREST
PROVISION FOR INCOME TAXES 8,000 9,073 12,864
MINORITY INTEREST 370 582 1,409
---------- ---------- ----------
NET INCOME $ 20,213 $ 20,488 $ 28,250
========== ========== ==========
EARNINGS PER SHARE:
BASIC $ 1.47 $ 1.50 $ 2.05
DILUTED $ 1.46 $ 1.49 $ 2.01
WEIGHTED AVERAGE
SHARES OUTSTANDING:
BASIC 13,746 13,671 13,777
DILUTED 13,881 13,771 14,074
SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
17
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in Thousands) Common Stock
----------------------- Retained Accumulated Other Comprehensive
Shares Amount Earnings Comprehensive Loss Income
---------- -------- ------------ ------------------ -------------
BALANCE, JANUARY 1, 1998 13,717,072 $ 38,527 $ 159,278 $(11,510)
Comprehensive income:
Net income 20,213 $ 20,213
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
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)
Comprehensive income:
Net income 28,250 $ 28,250
Foreign currency translation adjustment (8,534) (8,534)
-----------
Total comprehensive income $ 19,716
===========
Issuance of shares upon exercise
of stock options 245,640 7,022
Cash dividends ($.48 per share) (6,611)
---------- -------- ------------ --------
BALANCE, DECEMBER 31, 2000 13,918,394 $ 44,838 $ 208,465 $(26,279)
========== ======== ============ ========
SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
18
20
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands) Year Ended December 31,
--------------------------------------------
1998 1999 2000
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,213 $ 20,488 $ 28,250
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 19,364 16,205 18,792
Equity in income of affiliates (1,604) (1,192) (1,755)
Deferred income taxes (565) (219) 112
Income tax benefit received upon exercise
of certain stock options 300 87 1,219
Changes in operating assets and liabilities:
Accounts receivable (3,426) (7,501) (15,162)
Inventories (4,165) (6,088) (2,683)
Prepaid expenses and other current assets (175) 32 20
Accounts payable (264) 3,964 11,842
Accrued liabilities 232 1,872 3,319
Income taxes payable 3,299 451 (2,233)
---------- ---------- ----------
Net cash flows from operating activities 33,198 28,099 41,721
---------- ---------- ----------
CASH FLOWS FROM (USED FOR)
INVESTING ACTIVITIES:
Additions to property, plant and equipment (11,174) (9,037) (9,574)
Sales-type and operating leases (16,687) (15,088) (18,004)
Investment in affiliated companies (2,612) 1,387) 846
---------- ---------- ----------
Net cash from (used for) investing activities (30,473) (22,738) (26,732)
---------- ---------- ----------
CASH FLOWS FROM (USED FOR)
FINANCING ACTIVITIES:
Borrowing (repayment) of notes payable 3,685 (2,828) 921
Repurchase of common stock (4,304) (224) --
Proceeds from exercise of stock options 3,008 422 5,803
Cash dividends paid (6,591) (6,562) (6,611)
---------- ---------- ----------
Net cash from (used for) financing activities (4,202) (9,192) 103
---------- ---------- ----------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH (245) (272) (3,254)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,722) (4,103) 11,848
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 20,372 18,650 14,547
---------- ---------- ----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 18,650 $ 14,547 $ 26,395
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the year for income taxes $ 6,035 $ 8,681 $ 12,257
========== ========== ==========
Cash paid during the year for interest $ 1,824 $ 1,068 $ 1,011
========== ========== ==========
SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
19
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPALS 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. Minority interest represents the 44% of the Company's Brazilian
subsidiary not owned.
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.
The Company purchases certain chemical compounds that 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, that 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.
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, 1999 and 2000 is $7,600,000 and $14,700,000
respectively of short-term commercial paper.
20
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVENTORIES
Inventories are stated at the lower of cost, determined on the first-in,
first-out basis, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment is stated at cost, less accumulated
depreciation and amortization, which is computed using straight-line and
declining-balance methods over the estimated useful lives (5 to 50 years) of the
related assets. Leasehold improvements are amortized over the shorter of their
estimated useful lives or the term of the lease.
The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstance indicate that the
carrying amount of an asset may not be recoverable. An impairment loss measured
by the difference in the estimated fair value and the carrying value of the
related asset, is recognized when the future cash flows (based on undiscounted
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
the cost and underlying fair value of assets purchased and relates to 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 of 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
foreign exchange contracts to hedge firm or anticipated commitments, denominated
in other than their functional currency, 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 the transactions being hedged offset losses or gains on these contracts. The
foreign exchange contracts have varying maturities that generally do not exceed
one year. At December 31, 1999 and 2000, the Company had foreign exchange
contracts outstanding to buy the equivalent of approximately $5,000,000 and
$3,750,000, 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.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133, as amended,
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires an entity to recognize all derivatives as either
assets or liabilities on the balance sheet and measure those instruments at fair
value. The Company adopted SFAS 133 on January 1, 2001. The initial adoption of
SFAS 133 will not have a material effect on the Company's consolidated financial
statements or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101, as amended, summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. SAB 101 did not have a material effect on the Company's
consolidated financial statements or revenue recognition policies.
NOTE 2 - BUSINESS ACQUISITIONS
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,
--------------------------
1999 2000
---------- ----------
Raw materials $ 22,499 $ 23,381
Work in process 19,165 23,862
Finished goods 17,775 13,004
---------- ----------
$ 59,439 $ 60,247
========== ==========
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,
--------------------------
1999 2000
---------- ----------
Sales-type leases $ 2,074 $ 1,751
Operating leases 69,606 83,031
Less accumulated amortization 36,610 44,200
---------- ----------
Net 32,996 38,831
---------- ----------
Total $ 35,070 $ 40,582
========== ==========
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 respective
countries. The countries and the Company's ownership interest are as follows:
Portugal, 40%; Italy, 45%; and Greece, 50%.
The following represents condensed financial information for all of the
Company's investments in non-consolidated affiliated companies and its joint
venture in Japan, which has been inactive since April 1, 2000, and the results
of their operations.
The information presented includes the 50% owned DPC Skafte AB "Sweden",
for the year ended December 31, 1998. For 1999 and 2000, DPC Skafte AB is 100%
owned and consolidated, and therefore is not included with non-consolidated
affiliated companies.
(Dollars in Thousands)
December 31,
------------------------------------------
1998 1999 2000
---------- ---------- ----------
Current assets $ 48,609 $ 37,359 $ 25,610
Property and other assets 39,244 38,120 36,877
---------- ---------- ----------
Total assets $ 87,853 $ 75,479 $ 62,487
========== ========== ==========
Current liabilities $ 43,199 $ 38,115 $ 25,082
Non-current liabilities 24,065 19,987 18,276
Shareholders' equity 20,589 17,377 19,129
---------- ---------- ----------
Total liabilities and shareholders' equity $ 87,853 $ 75.479 $ 62,487
========== ========== ==========
Sales $ 62,227 $ 64,491 $ 54,379
---------- ---------- ----------
Net income $ 470 $ 3,899 $ 4,433
========== ========== ==========
The Company had sales to non-consolidated affiliates of $22,318,000 in
1998, $27,885,000 in 1999, and $24,864,000 in 2000, including sales to one
affiliate (Italy) of $11,889,000 in 1998, and $16,858,000 in 1999, and
$18,453,000 in 2000.
Included in the Company's accounts receivable are trade receivables from
non-consolidated affiliates of $6,032,000 at December 31, 1999 and $2,251,000 at
December 31, 2000.
23
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's cumulative equity in undistributed earnings of
non-consolidated affiliated companies at December 31, 2000 is $12,362,000. It is
anticipated that additional income taxes payable on earnings of foreign
affiliates, if distributed, 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 (some guaranteed by DPC) that are payable in the subsidiaries'
local currency. The notes are summarized as follows:
(Dollars in Thousands) December 31,
--------------------------
1999 2000
---------- ----------
Notes payable to a bank in Germany, at an average
interest rate of approximately 6%, payable through 2006 $ 8,995 $ 8,166
Notes payable to a bank in France, at an interest rate
of approximately 6%, payable through 2005 2,809 3,696
Notes payable to a bank in Spain, at an interest rate
of approximately 6%, payable through 2005 1,571 2,295
Notes payable to a bank in the Netherlands, at an
interest rate of approximately 6%, payable through 2001 1,010 852
Other 1,371 548
---------- ----------
Total $ 15,756 $ 15,557
========== ==========
Aggregate future maturities of long-term debt outstanding at December 31,
2000 are $5,477,000 in 2001, $2,542,000 in 2002, $2,552,000 in 2003, $2,383,000
in 2004, $1,798,000 in 2005, and $805,000 thereafter. Interest expense was
$1,824,000 in 1998, $1,068,000 in 1999, and $1,011,000 in 2000.
The Company also has a line of credit with a bank, under which it may
borrow up to $20 million, that matures in May of 2001. Standby letters of credit
under the line of credit totaled $386,000 and $2,000,000 at December 31, 2000
and 1998, respectively. There were no standby letters of credit outstanding at
December 31, 1999. No other borrowings were outstanding at December 31, 2000,
1999, and 1998 under the line of credit.
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
$2,484,000 in 1998, $2,989,000 in 1999, and $3,864,000 in 2000.
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. The Company contributed $773,000 to the profit
sharing plan for 2000; there were no contributions in 1999 or 1998.
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. The Company contributed $431,000 in 401(k) employer matches for
2000.
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,
--------------------------------------------
1998 1999 2000
---------- ---------- ----------
CURRENT:
Federal $ 5,937 $ 6,135 $ 8,018
State 421 (71) 258
Foreign 2,207 3,228 4,476
Deferred Federal and State income taxes (565) (219) 112
---------- ---------- ----------
Total provision for income taxes $ 8,000 $ 9,073 $ 12,864
========== ========== ==========
Temporary differences comprising the net deferred taxes shown on the
consolidated balance sheets are as follows:
(Dollars in Thousands) December 31,
--------------------------
1999 2000
---------- ----------
State net operating losses $ 289 $ 290
Inventory 2,275 2,329
Depreciation 857 1,137
State research and development
credit carry forwards 1,668 1,366
Other 440 295
---------- ----------
Total $ 5,529 $ 5,417
========== ==========
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,
---------------------------------------------------------------------
1998 % 1999 % 2000 %
--------------------- ------------------ -------------------
Provision for income taxes at statutory rate $ 10,004 35 $10,550 35 $14,883 35
State income taxes, net of Federal tax (141) (1) 120 1 13
benefit
Foreign income subject to tax other than
federal statutory rate (35) 491 2 466 1
Non-taxable earnings of FSC (943) (3) (956) (3) (1,281) (3)
Research and development tax credit (866) (3) (738) (2) (575) (1)
Equity in income of affiliates (442) (2) (497) (2) (614) (1)
Other 423 2 103 (28)
--------------- ------------- --------------
Provision for income taxes $ 8,000 28 $ 9,073 31 $12,864 31
=============== ============= ==============
25
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
An income tax benefit during 2000, 1999, and 1998 related to the exercise
or early disposition of certain stock options reduced income taxes currently
payable by $1,219,000, $87,000, and $300,000, respectively, and was credited
directly to shareholders' equity.
NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES
The Company has a non-cancelable 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 $966,000 in 1998, $966,000 in
1999, and $966,000 in 2000 was paid by the Company under the facility lease
agreement.
DPC Cirrus has entered into a non-cancelable 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, 2000 are as follows:
(Dollars in Thousands) 2001 2002 Total
------ ------ ------
$1,808 $1,373 $3,181
Aggregate rental expense under operating leases approximated $2,673,000 in
1998, $3,107,000 in 1999, and $4,429,000 in 2000.
The Company has a supply contract with a vendor for chemical compounds that
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
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,
------------------------------
1998 1999 2000
------ ------ ------
Basic 13,746 13,671 13,777
Assumed exercise of stock options 135 100 297
------ ------ ------
Diluted 13,881 13,771 14,074
====== ====== ======
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 (generally 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
proforma footnote purposes with the following assumptions used for grants in all
years: dividend yield of 1.0 to 1.7%, risk-free interest rate of from 4.4% to
6.6% and expected option life of 3 to 10 years. Expected volatility was assumed
to be 36.9% in 1998, 27.1% in 1999, and 30.1% in 2000. Forfeiture rate was
assumed to be 5% in 1998, 1999, and in 2000.
Weighted
Number Average Weighted
of Exercise Average
Shares Price Fair Value
------------ ----------- ----------
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
Granted 200,000 30.72 14.69
Exercised (245,640) 23.62
Canceled (80,800) 27.15
--------- ------
Options outstanding,
December 31, 2000 1,224,890 $27.77
========= ======
(379,989 exercisable)
27
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding
at December 31, 2000:
Weighted Weighted Weighted
Range of Number Average Average Number Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices at 12/31/00 Life Price at 12/31/00 Price
- --------------- ------------ ------------ ---------- ----------- -----------
$10.00-19.99 33,750 2.99 years $18.56 13,310 $18.69
20.00-29.99 952,140 6.69 years $25.82 295,379 $25.40
30.00-39.99 186,000 6.07 years $34.38 71,300 $35.58
40.00-49.99 53,000 9.81 years $45.32 -0- -0-
Pursuant to the plans, 1,364,690 shares of common stock are reserved for
issuance upon the exercise of options. In addition, a 1,000,000 share increase
in the number of shares reserved for issuance under the plans is subject to
shareholder approval at the 2001 annual meeting of shareholders.
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)
1998 1999 2000
---------- ---------- ----------
Net income as reported $ 20,213 $ 20,488 $ 28,250
Compensation expense from
stock options 740 1,152 1,373
---------- ---------- ----------
Net income adjusted $ 19,473 $ 19,336 $ 26,877
========== ========== ==========
Adjusted earnings per share-diluted $ 1.40 $ 1.40 $ 1.91
========== ========== ==========
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,
------------------------------------
(Dollars in Thousands) 1998 1999 2000
-------- -------- --------
Sales:
IMMULITE (includes service) $123,861 $150,714 $193,082
Radioimmunoassay ("RIA") 42,565 37,813 33,706
Other 30,217 27,666 21,079
-------- -------- --------
$196,643 $216,193 $247,867
======== ======== ========
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, 2000
----------------------------------------------------------------------------------------------------
Euro/DPC DPC DPC
Limited Biermann Medlab Less:
United (United (German (Brazilian Intersegment
States Kingdom) Group) Group) Other Elimination Total
----------- ----------- ----------- ----------- ----------- ------------ -----------
Sales $ 173,194 $ 31,341 $ 30,135 $ 29,541 $ 50,023 $ (66,367) $ 247,867
Operating expenses 60,234 6,983 7,554 8,319 14,153 97,243
Interest income
(expense), net 3,863 (776) (1,306) (1,096) 685
Minority interest 1,409 1,409
Provision (benefit) for
income taxes expense 8,388 1,752 213 1,728 783 12,864
Net income (loss) 20,986 4,134 125 1,795 1,210 28,250
Segment assets:
Long-lived assets 50,584 15,811 20,704 11,016 21,560 119,675
Total assets 287,459 24,381 31,865 21,391 51,299 (135,911) 280,484
Capital expenditures 12,811 3,093 2,123 3,115 6,625 27,767
29
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands) December 31, 1999
----------------------------------------------------------------------------------------------------
Euro/DPC DPC DPC
Limited Biermann 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
(Dollars in Thousands) December 31, 1998
---------------------------------------------------------------------------------------------------------
Euro/DPC DPC DPC
Limited Biermann 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
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
--------- --------- --------- ---------
1998 $ 2,794 $ 8,406 $ 13,701 $ 24,901
1999 3,771 6,635 14,691 25,097
2000 3,871 8,035 21,142 33,048
SUPPLEMENTARY FINANCIAL DATA
Unaudited quarterly financial information for the years ended December 31,
1999 and 2000 is summarized as follows:
(In Thousands, Except per Share Data)
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
Quarter Ended
-----------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, Year Ended
2000 2000 2000 2000 2000
------------- ------------- ------------- ------------- -------------
Sales $ 59,184 $ 63,645 $ 60,579 $ 64,459 $ 247,867
Gross profit 32,895 34,780 33,884 35,786 137,345
Income taxes 2,969 3,160 2,875 3,860 12,864
Net income 6,291 7,029 6,397 8,533 28,250
Earnings per share:
Basic .46 .51 .46 .61 2.05
Diluted .46 .50 .45 .59 2.01
Weighted Average
Shares Outstanding:
Basic 13,681 13,726 13,812 13,890 13,777
Diluted 13,735 13,877 14,243 14,441 14,074
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
/s/ Michael Ziering President and March 29, 2001
- ------------------------------------ Chief Executive Officer and
Michael Ziering Chairman of the Board
(Principal Executive Officer)
Director
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/ Michael Ziering President and March 29, 2001
- ----------------------------------- Chief Executive Officer and
Michael Ziering Chairman of the Board
(Principal Executive Officer)
Director
/s/ Sidney A. Aroesty Chief Operating Officer March 29, 2001
- ----------------------------------- Director
Sidney A. Aroesty
/s/ Maxwell H. Salter Director March 29, 2001
- -----------------------------------
Maxwell H. Salter
/s/ James D. Watson Director March 29, 2001
- -----------------------------------
James D. Watson
/s/ Frederick Frank Director March 29, 2001
- -----------------------------------
Frederick Frank
/s/ Ira Ziering Vice President March 29, 2001
- ----------------------------------- Director
Ira Ziering
/s/ James L. Brill Vice President March 29, 2001
- ----------------------------------- 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
- ----------------
* 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