UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 3, 2001
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to__________
Commission file number 1-11479
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E-Z-EM, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 11-1999504
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
717 Main Street, Westbury, New York 11590
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(Address of principal executive offices) (Zip Code)
(516) 333-8230
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Registrant's telephone number, including area code
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
----- -----
As of April 10, 2001, there were 4,011,827 shares of the issuer's Class A Common
Stock outstanding and 5,845,183 shares of the issuer's Class B Common Stock
outstanding.
-1-
E-Z-EM, Inc. and Subsidiaries
INDEX
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Part I: Financial Information Page
------ --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets - March 3, 2001 and
June 3, 2000 3 - 4
Consolidated Statements of Earnings - thirteen and
thirty-nine weeks ended March 3, 2001 and
February 26, 2000 5
Consolidated Statement of Stockholders' Equity and
Comprehensive Income - thirty-nine weeks ended
March 3, 2001 6
Consolidated Statements of Cash Flows - thirty-nine weeks
ended March 3, 2001 and February 26, 2000 7 - 8
Notes to Consolidated Financial Statements 9 - 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15 - 20
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 20 - 21
Part II: Other Information
------- -----------------
Item 6. Exhibits and Reports on Form 8-K 22
-2-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 3, June 3,
ASSETS 2001 2000
------- -------
(unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 3,271 $ 5,583
Debt and equity securities 13,714 8,051
Accounts receivable, principally
trade, net 22,240 22,256
Inventories 24,777 26,856
Other current assets 6,134 4,530
------ ------
Total current assets 70,136 67,276
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 19,792 21,721
COST IN EXCESS OF FAIR VALUE OF NET ASSETS
ACQUIRED, less accumulated amortization 377 407
INTANGIBLE ASSETS, less accumulated
amortization 1,359 2,151
DEBT AND EQUITY SECURITIES 1,356 4,067
OTHER ASSETS 5,586 3,463
------ ------
$98,606 $99,085
====== ======
The accompanying notes are an integral part of these statements.
-3-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
March 3, June 3,
LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2000
-------- --------
(unaudited) (audited)
CURRENT LIABILITIES
Notes payable $ 1,069 $ 1,080
Current maturities of long-term debt 91 103
Accounts payable 7,008 6,384
Accrued liabilities 6,702 7,798
Accrued income taxes 140 477
------- -------
Total current liabilities 15,010 15,842
LONG-TERM DEBT, less current maturities 345 453
OTHER NONCURRENT LIABILITIES 2,665 2,756
------- -------
Total liabilities 18,020 19,051
------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.10 per
share - authorized, 1,000,000 shares;
issued, none
Common stock
Class A (voting), par value $.10 per share - authorized, 6,000,000
shares; issued and outstanding 4,012,033 shares at March 3, 2001 and
4,015,111 shares at June 3, 2000 (excluding 41,223 and 38,145 shares
held in treasury at March
3, 2001 and June 3, 2000, respectively) 401 401
Class B (non-voting), par value $.10 per
share - authorized, 10,000,000 shares; issued and outstanding
5,851,522 shares at March 3, 2001 and 5,909,277 shares at June 3, 2000
(excluding 387,155 and 313,748 shares held in treasury at March
3, 2001 and June 3, 2000, respectively) 585 591
Additional paid-in capital 20,107 20,521
Retained earnings 62,661 59,852
Accumulated other comprehensive income (loss) (3,168) (1,331)
------- -------
Total stockholders' equity 80,586 80,034
------- -------
$ 98,606 $ 99,085
======= =======
The accompanying notes are an integral part of these statements.
-4-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
(in thousands, except per share data)
Thirteen weeks ended Thirty-nine weeks ended
----------------------------- -----------------------------
March 3, February 26, March 3, February 26,
2001 2000 2001 2000
-------- -------- -------- --------
Net sales $ 27,386 $ 25,752 $ 80,951 $ 80,922
Cost of goods sold 16,609 14,647 46,029 44,500
------- ------- ------- -------
Gross profit 10,777 11,105 34,922 36,422
------- ------- ------- -------
Operating expenses
Selling and administrative 9,453 8,971 28,254 26,640
Loss on sale of subsidiary
and related assets 872
Research and development 1,349 1,190 4,010 3,562
------- ------- ------- -------
Total operating expenses 10,802 10,161 33,136 30,202
------- ------- ------- -------
Operating profit (loss) (25) 944 1,786 6,220
Other income (expense)
Interest income 215 243 671 534
Interest expense (75) (61) (213) (180)
Other, net 82 (26) 107 36
------- ------- ------- -------
Earnings before income
taxes 197 1,100 2,351 6,610
Income tax provision (benefit) 91 584 (458) 2,479
------- ------- ------- -------
NET EARNINGS $ 106 $ 516 $ 2,809 $ 4,131
======= ======= ======= =======
Earnings per common share
Basic $ .01 $ .05 $ .28 $ .41
======= ======= ======= =======
Diluted $ .01 $ .05 $ .28 $ .40
======= ======= ======= =======
Weighted average common shares
Basic 9,875 9,988 9,889 10,045
======= ======= ======= =======
Diluted 10,119 10,410 10,185 10,285
======= ======= ======= =======
The accompanying notes are an integral part of these statements.
-5-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Thirty-nine weeks ended March 3, 2001
(unaudited)
(in thousands, except share data)
Class A Class B Accumulated
common stock common stock Additional other Compre-
----------------- ----------------- paid-in Retained comprehensive hensive
Shares Amount Shares Amount capital earnings income (loss) Total income
--------- ------ --------- ------ ---------- -------- ------------- ------- -------
Balance at June 3, 2000 4,015,111 $401 5,909,277 $591 $20,521 $59,852 $(1,331) $80,034
Exercise of stock options 8,711 1 38 39
Income tax benefits on
stock options exercised 3 3
Compensation related to
stock option plans 4 4
Issuance of stock 6,941 1 45 46
Purchase of treasury stock (3,078) (73,407) (8) (504) (512)
Net earnings 2,809 2,809 $2,809
Unrealized holding loss on debt
and equity securities (2,207) (2,207) (2,207)
Foreign currency translation
adjustments 370 370 370
--------- --- --------- --- ------ ------ ----- ------ -----
Comprehensive income $ 972
=====
Balance at March 3, 2001 4,012,033 $401 5,851,522 $585 $20,107 $62,661 $(3,168) $80,586
========= === ========= === ====== ====== ====== ======
The accompanying notes are an integral part of this statement.
-6-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Thirty-nine weeks ended
-----------------------
March 3, February 26,
2001 2000
-------- --------
Cash flows from operating activities:
Net earnings $ 2,809 $ 4,131
Adjustments to reconcile net earnings
to net cash provided by operating
activities
Depreciation and amortization 2,080 2,169
Impairment of long-lived assets 450
Provision for doubtful accounts 88 91
Loss on sale of subsidiary and
related assets 872
Deferred income tax (benefit) provision (1,712) 37
Other non-cash items 45 74
Changes in operating assets and
liabilities, net of sale
Accounts receivable (297) 2,958
Inventories 799 (1,542)
Other current assets (1,344) (1,037)
Other assets (420) (440)
Accounts payable 983 (1,820)
Accrued liabilities (1,048) (57)
Accrued income taxes (356) (432)
Other noncurrent liabilities 147 114
-------- --------
Net cash provided by operating
activities 3,096 4,246
-------- --------
Cash flows from investing activities:
Additions to property, plant and
equipment, net (2,117) (2,021)
Proceeds from sale of subsidiary and
related assets 3,250
Available-for-sale securities
Purchases (69,823) (22,339)
Proceeds from sale 64,160 18,635
-------- --------
Net cash used in investing activities (4,530) (5,725)
-------- --------
Cash flows from financing activities:
Repayments of debt (196) (1,044)
Proceeds from issuance of debt 216 26
Proceeds from exercise of stock options,
including related income tax benefits 42 781
Purchase of treasury stock (512) (2,381)
Proceeds from issuance of stock in connection
with the stock purchase plan 5 6
-------- --------
Net cash used in financing activities (445) (2,612)
-------- --------
-7-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
(in thousands)
Thirty-nine weeks ended
-----------------------
March 3, February 26,
2001 2000
------- -------
Effect of exchange rate changes on
cash and cash equivalents $ (433) $ 105
------ ------
DECREASE IN CASH AND CASH
EQUIVALENTS (2,312) (3,986)
Cash and cash equivalents
Beginning of period 5,583 8,073
------ ------
End of period $ 3,271 $ 4,087
====== ======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 79 $ 75
====== ======
Income taxes (net of refunds of $7 and $6 in
2001 and 2000, respectively) $ 2,395 $ 3,044
====== ======
The accompanying notes are an integral part of these statements.
-8-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 3, 2001 and February 26, 2000
(unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 3, 2001 the consolidated
statement of stockholders' equity and comprehensive income for the period
ended March 3, 2001, and the consolidated statements of earnings and cash
flows for the periods ended March 3, 2001 and February 26, 2000, have been
prepared by the Company without audit. The consolidated balance sheet as of
June 3, 2000 was derived from audited consolidated financial statements. In
the opinion of management, all adjustments (which include only normally
recurring adjustments) necessary to present fairly the financial position,
changes in stockholders' equity and comprehensive income, results of
operations and cash flows at March 3, 2001 (and for all periods presented)
have been made.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted. It is suggested that
these consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the fiscal 2000 Annual
Report on Form 10-K filed by the Company on September 1, 2000. The results
of operations for the periods ended March 3, 2001 and February 26, 2000 are
not necessarily indicative of the operating results for the respective full
years.
The consolidated financial statements include the accounts of E-Z-EM, Inc.
and all 100%-owned subsidiaries (the "Company"). All significant
intercompany balances and transactions have been eliminated.
NOTE B - EARNINGS PER COMMON SHARE
Basic earnings per share are based on the weighted average number of common
shares outstanding without consideration of potential common stock. Diluted
earnings per share are based on the weighted average number of common and
potential common shares outstanding. The calculation takes into account the
shares that may be issued upon exercise of stock options, reduced by the
shares that may be repurchased with the funds received from the exercise,
based on the average price during the period.
The following table sets forth the reconciliation of the weighted average
number of common shares:
Thirteen weeks ended Thirty-nine weeks ended
---------------------- -----------------------
March 3, February 26, March 3, February 26,
2001 2000 2001 2000
------ ------ ------ ------
(in thousands)
Basic 9,875 9,988 9,889 10,045
Effect of dilutive
securities (stock
options) 244 422 296 240
------ ------ ------ ------
Diluted 10,119 10,410 10,185 10,285
====== ====== ====== ======
-9-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 3, 2001 and February 26, 2000
(unaudited)
NOTE B - EARNINGS PER COMMON SHARE (continued)
Excluded from the calculation of earnings per common share, are options to
purchase 462,915 and 206,707 shares of common stock at March 3, 2001 and
February 26, 2000, respectively, as their inclusion would be anti-dilutive.
NOTE C - EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to recognize
all derivatives in their financial statements as either assets or
liabilities measured at fair value. SFAS No. 133 also specifies new methods
of accounting for hedging transactions, prescribes the items and
transactions that may be hedged and specifies detailed criteria to be met
to qualify for hedge accounting. SFAS No. 133, as amended by SFAS No. 138,
is effective for fiscal years beginning after June 15, 2000. The Company
currently does not use derivative instruments as defined by SFAS No. 133.
If the Company continues not to use these derivative instruments by the
effective date of SFAS No. 133, the adoption of this pronouncement will
have no effect on the Company's results of operations or financial
position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101 "Revenue Recognition", which provides
guidelines in applying generally accepted accounting principles to selected
revenue recognition issues. The SAB is effective in the fourth quarter of
fiscal years beginning after December 15, 1999. The Company continues to
evaluate the impact of SAB 101, but believes it is in compliance with the
provisions of the SAB, and, accordingly, does not expect this statement to
have a material impact on the Company's results of operations or financial
position.
In October 2000, the Emerging Issues Task Force ("EITF") issued guidance on
how to classify certain revenues and costs in a company's financial
statements. EITF No. 00-10 "Accounting for Shipping and Handling Revenues
and Costs" requires that companies classify all amounts billed to customers
related to shipping and handling cost as revenue. This statement will be
effective in the fourth quarter of fiscal years beginning after December
15, 1999 and is not expected to have any effect on the Company's results of
operations or financial position.
-10-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 3, 2001 and February 26, 2000
(unaudited)
NOTE D - COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, are as follows:
Thirty-nine weeks ended
-----------------------
March 3, February 26,
2001 2000
------- -------
(in thousands)
Net earnings $ 2,809 $ 4,131
Unrealized holding gain (loss) on
debt and equity securities (2,207) 2,979
Foreign currency translation
adjustments 370 (85)
------ ------
Comprehensive income $ 972 $ 7,025
====== ======
The components of accumulated other comprehensive income (loss), net of
related tax, are as follows:
March 3, June 3,
2001 2000
------- -------
(in thousands)
Unrealized holding gain (loss) on debt
and equity securities $ (143) $ 2,064
Cumulative translation adjustments (3,025) (3,395)
------ ------
Accumulated other comprehensive income
(loss) $(3,168) $(1,331)
====== ======
-11-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 3, 2001 and February 26, 2000
(unaudited)
NOTE E - SALE OF SUBSIDIARY AND RELATED ASSETS
On July 27, 2000, AngioDynamics, Inc. entered into two agreements to sell
all the capital stock of AngioDynamics Ltd., a wholly-owned subsidiary, and
certain other assets to AngioDynamics Ltd.'s management. AngioDynamics
Ltd., located in Ireland, manufactured cardiovascular and interventional
radiology products. The aggregate consideration paid was $3,250,000 in
cash. The sale was the culmination of AngioDynamics' strategic decision to
exit the cardiovascular market and to focus entirely on the interventional
radiology marketplace. As a result of this sale, the Company recognized a
pre-tax loss of approximately $872,000 during the quarter ended September
2, 2000. The aforementioned pre-tax loss includes the effect of previously
unrealized losses on foreign currency translation of approximately $994,000
and the write-off of approximately $673,000 in inventory and intangibles
related to the cardiovascular product line, both of which were non-cash
charges. Further, AngioDynamics entered into a manufacturing agreement, a
distribution agreement and a royalty agreement with the buyer. Under the
two-year manufacturing agreement, the buyer will be manufacturing certain
interventional radiology products sold by AngioDynamics.
NOTE F - ASSET IMPAIRMENT CHARGE
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the
Company's Diagnostic operating segment recorded an impairment charge during
the quarter ended September 2, 2000 of $450,000 relating to certain
acquired patent rights to an oral magnetic resonance imaging contrast
agent. The Company determined that the revenue potential of this technology
was impaired, since it now believes that the market for this technology is
significantly less than previously projected. The impairment charge
represents the difference between the carrying value of the intangible
asset and the fair market value of this asset based on estimated future
discounted cash flows. The charge had no impact on the Company's cash flow
or its ability to generate cash flow in the future. The impairment charge
is included in the consolidated statement of earnings under the caption
"Selling and administrative".
NOTE G - INVENTORIES
Inventories consist of the following:
March 3, June 3,
2001 2000
------- -------
(in thousands)
Finished goods $12,414 $13,246
Work in process 1,992 2,813
Raw materials 10,371 10,797
------ ------
$24,777 $26,856
====== ======
-12-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 3, 2001 and February 26, 2000
(unaudited)
NOTE H - INCOME TAXES
During the thirteen weeks ended September 2, 2000, the Company reduced its
valuation allowance primarily to recognize deferred tax assets of
approximately $1,344,000. Continued and projected future profitability of
the Company's U.S. operations, including those of AngioDynamics, made it
more likely than not that certain deferred tax assets would be realized
through future taxable earnings.
NOTE I - COMMON STOCK
Under the 1983 and 1984 Stock Option Plans, options for 8,711 shares were
exercised at prices ranging from $4.22 to $5.63 per share, options for
25,215 shares were forfeited at prices ranging from $4.22 to $8.58 per
share, and no options were granted or expired during the thirty-nine weeks
ended March 3, 2001. Under the 1997 AngioDynamics Stock Option Plan,
options for .06 shares were granted at $40,000 per share, options for 5.06
shares were forfeited at $40,000 per share, and no options were exercised
or expired during the thirty- nine weeks ended March 3, 2001.
In January 1999, the Board of Directors authorized the repurchase of up to
500,000 shares of the Company's Class B Common Stock at an aggregate
purchase price of up to $2,000,000. In October 1999, the Board modified the
program to include the Company's Class A Common Stock. In February 2000,
the Board further modified the program to increase the aggregate purchase
price of Class A and Class B Common Stock by an additional $2,000,000. As
of March 3, 2001, the Company had repurchased 41,223 shares of Class A
Common Stock and 387,155 shares of Class B Common Stock for approximately
$3,014,000.
NOTE J - OPERATING SEGMENTS
The Company is engaged in the manufacture and distribution of a wide
variety of products which are classified into two operating segments:
Diagnostic products and AngioDynamics products. Diagnostic products
encompass both contrast systems, consisting of barium sulfate formulations
and related medical devices used in X-ray, CT-scanning, ultrasound and MRI
imaging examinations, and non-contrast systems, including radiological
medical devices, custom contract pharmaceuticals, gastrointestinal
cleansing laxatives, X-ray protection equipment, and immunoassay tests.
AngioDynamics products include angiographic, thrombolytic, image-guided
vascular access, angioplasty, stents, and drainage medical devices used in
the interventional radiology marketplace.
-13-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 3, 2001 and February 26, 2000
(unaudited)
NOTE J - OPERATING SEGMENTS (continued)
The Company's chief operating decision maker utilizes operating segment net
earnings (loss) information in assessing performance and making overall
operating decisions and resource allocations. Information about the
Company's segments is as follows:
Thirteen weeks ended Thirty-nine weeks ended
----------------------------- -----------------------------
March 3, February 26, March 3, February 26,
2001 2000 2001 2000
-------- -------- -------- --------
(in thousands)
Net sales to external
customers
Diagnostic products
Contrast systems $ 14,246 $ 14,044 $ 45,158 $ 47,249
Non-contrast systems 7,892 6,806 19,910 19,904
------- ------- ------- -------
Total Diagnostic products 22,138 20,850 65,068 67,153
AngioDynamics products 5,248 4,902 15,883 13,769
------- ------- ------- -------
Total net sales to external
customers $ 27,386 $ 25,752 $ 80,951 $ 80,922
======= ======= ======= =======
Intersegment net sales
Diagnostic products $ -- $ -- $ 1 $ 2
AngioDynamics products 189 494 541 819
------- ------- ------- -------
Total intersegment net sales $ 189 $ 494 $ 542 $ 821
======= ======= ======= =======
Operating profit (loss)
Diagnostic products $ (57) $ 959 $ 2,057 $ 7,015
AngioDynamics products 17 (22) (217) (838)
Eliminations 15 7 (54) 43
------- ------- ------- -------
Total operating profit (loss) $ (25) $ 944 $ 1,786 $ 6,220
======= ======= ======= =======
Net earnings (loss)
Diagnostic products $ 261 $ 805 $ 2,287 $ 5,442
AngioDynamics products (170) (296) 576 (1,354)
Eliminations 15 7 (54) 43
------- ------- ------- -------
Total net earnings $ 106 $ 516 $ 2,809 $ 4,131
======= ======= ======= =======
March 3, June 3,
2001 2000
-------- --------
(in thousands)
Assets
Diagnostic products $109,713 $111,046
AngioDynamics products 16,607 17,573
Eliminations (27,714) (29,534)
------- -------
Total assets $ 98,606 $ 99,085
======= =======
-14-
E-Z-EM, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quarters ended March 3, 2001 and February 26, 2000
--------------------------------------------------
The Company's quarters ended March 3, 2001 and February 26, 2000 both
represent thirteen weeks.
Results of Operations
---------------------
Segment Overview
----------------
The Company operates in two industry segments: Diagnostic products and
AngioDynamics products. The Diagnostic products operating segment includes both
contrast systems and non-contrast systems. The AngioDynamics products operating
segment includes angiographic products, thrombolytic products, image-guided
vascular access products, angioplasty products, stents, and drainage products
used in the interventional radiology marketplace.
Diagnostic AngioDynamics Eliminations Total
---------- ------------- ------------ -----
(in thousands)
Quarter ended March 3, 2001
---------------------------
Unaffiliated customer sales $22,138 $5,248 - $27,386
Intersegment sales - 189 ($189) -
Gross profit 8,137 2,625 15 10,777
Operating profit (loss) (57) 17 15 (25)
Quarter ended February 26, 2000
-------------------------------
Unaffiliated customer sales $20,850 $4,902 - $25,752
Intersegment sales - 494 ($494) -
Gross profit 8,513 2,585 7 11,105
Operating profit (loss) 959 (22) 7 944
Diagnostic Products
-------------------
Diagnostic segment operating results for the current quarter declined by
$1,016,000 due primarily to decreased gross profit and increased operating
expenses. Net sales increased 6%, or $1,288,000, due to increased demand for
sales of both non-contrast systems, primarily relating to custom contracts, and
contrast systems. Price increases had little effect on net sales for the current
quarter. Gross profit expressed as a percentage of net sales declined to 37% for
the current quarter from 41% for the comparable period of the prior year due
primarily to decreased production throughput and severance costs of $315,000,
resulting from operational reorganizations. Increased operating expenses of
$640,000 resulted from the expansion of the domestic sales force, increased
distribution costs and increased administrative and research and development
expenses.
AngioDynamics Products
----------------------
AngioDynamics segment operating results for the current quarter improved by
$39,000 due to increased sales. Net sales increased 7%, or $346,000, due, in
large part, to increased sales of the Workhorse(TM) PTA balloon catheters,
introduced in the second quarter of last fiscal year. Gross profit expressed as
a percentage of net sales was 48% for both the current quarter and the
comparable quarter of the prior year.
-15-
Consolidated Results of Operations
----------------------------------
For the quarter ended March 3, 2001, the Company reported net earnings of
$106,000, or $.01 per common share on both a basic and diluted basis, compared
to net earnings of $516,000, or $.05 per common share on both a basic and
diluted basis, for the comparable period of last year. Results for the current
quarter were adversely affected by decreased gross profit and increased
operating expenses in the Diagnostic segment.
Net sales of $27,386,000 for the quarter ended March 3, 2001 increased 6%,
or $1,634,000, compared to the quarter ended February 26, 2000 due to increased
sales of non-contrast systems of $1,086,000, including $758,000 relating to
custom contracts, AngioDynamics products of $346,000 and contrast systems of
$202,000. Price increases had little effect on net sales for the current
quarter. Net sales in international markets, including direct exports from the
U.S., increased 9%, or $766,000, for the current quarter from the comparable
period of last year due, almost entirely, to increased custom contract sales of
$758,000.
Gross profit expressed as a percentage of net sales decreased to 39% for
the current quarter from 43% for the comparable quarter of the prior year due to
reduced gross profit in the Diagnostic segment. The decline in Diagnostic gross
profit expressed as a percentage of net sales was due primarily to decreased
production throughput and severance costs of $315,000, resulting from
operational reorganizations. The Company's third fiscal quarters traditionally
have fewer production days than the other fiscal quarters, resulting in somewhat
lower gross profit percentages in such quarters.
Selling and administrative ("S&A") expenses were $9,453,000 for the quarter
ended March 3, 2001 compared to $8,971,000 for the quarter ended February 26,
2000. This increase of $482,000, or 5%, for the current quarter was due
primarily to increased Diagnostic S&A expenses of $421,000, resulting from the
expansion of the domestic sales force, increased distribution costs and
increased administrative expenses.
Research and development ("R&D") expenditures increased 13% for the current
quarter to $1,349,000, or 5% of net sales, from $1,190,000, or 5% of net sales,
for the comparable quarter of the prior year. This increase was due primarily to
a redeployment of staff from other departments within the Company, as well as
severance costs of $90,000, resulting from operational reorganizations. Of the
R&D expenditures for the current quarter, approximately 44% relate to contrast
systems, 26% to AngioDynamics projects, 2% to immunological projects, 7% to
other projects and 21% to general regulatory costs. R&D expenditures are
expected to continue at approximately current levels.
Other income, net of other expenses, totaled $222,000 of income for the
current quarter compared to $156,000 of income for the quarter ended February
26, 2000. This increased income was due to an improvement in foreign currency
exchange gains and losses.
For the quarter ended March 3, 2001, the Company's effective tax rate of
46% differed from the Federal statutory tax rate of 34% due primarily to the
fact that the Company did not provide for the tax benefit on losses incurred in
a foreign jurisdiction, since it is more likely than not that such benefits will
not be realized, and non-deductible expenses, partially offset by tax-exempt
interest and earnings of the Company's Puerto Rican subsidiary, which are
subject to favorable U.S. tax treatment. The Company's effective tax rate of 53%
for the quarter ended February 26, 2000 differed from the Federal statutory tax
rate of 34% due primarily to the fact that the Company did not provide for the
tax benefit on losses in certain foreign jurisdictions, since, at that time, it
was more likely than not that such benefits would not be realized. Losses
incurred in a foreign jurisdiction subject to lower tax rates and non-deductible
expenses
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also contributed to the unusually high effective tax rate, but were partially
offset by earnings of the Company's Puerto Rican subsidiary, which are subject
to favorable U.S. tax treatment.
Thirty-nine weeks ended March 3, 2001 and February 26, 2000
-----------------------------------------------------------
Results of Operations
---------------------
Segment Overview
----------------
Diagnostic AngioDynamics Eliminations Total
---------- ------------- ------------ -----
(in thousands)
Thirty-nine weeks ended March 3, 2001
-------------------------------------
Unaffiliated customer sales $65,068 $15,883 - $80,951
Intersegment sales 1 541 ($542) -
Gross profit (loss) 26,903 8,073 (54) 34,922
Operating profit (loss) 2,057 (217) (54) 1,786
Thirty-nine weeks ended February 26, 2000
-----------------------------------------
Unaffiliated customer sales $67,153 $13,769 - $80,922
Intersegment sales 2 819 ($821) -
Gross profit 29,681 6,700 41 36,422
Operating profit (loss) 7,015 (838) 43 6,220
Diagnostic Products
-------------------
Diagnostic segment operating results for the current period declined by
$4,958,000 due primarily to decreased sales and gross profit and increased
operating expenses. Net sales decreased 3%, or $2,085,000, due to lower demand
for sales of contrast systems. Price increases accounted for approximately 2% of
net sales for the current period. Gross profit expressed as a percentage of net
sales declined to 41% for the current period from 44% for the comparable period
of the prior year due primarily to decreased production throughput and severance
costs of $315,000, resulting from operational reorganizations, partially offset
by the effects of sales price increases. Increased operating expenses of
$2,180,000 are attributable to: an impairment charge of $450,000 relating to
acquired patent rights to an oral magnetic resonance imaging contrast agent; the
expansion of the domestic sales force; increased distribution costs; and
increased administrative and R&D expenses.
AngioDynamics Products
----------------------
AngioDynamics segment operating results for the current period, which
improved by $621,000, were adversely affected by the sale of AngioDynamics Ltd.,
a wholly-owned subsidiary, and certain other assets. AngioDynamics Ltd., located
in Ireland, manufactured cardiovascular and interventional radiology products.
The sale was the culmination of AngioDynamics' strategic decision to exit the
cardiovascular market and to focus entirely on the interventional radiology
marketplace. As a result of this sale, the Company recognized a pre-tax loss of
approximately $872,000 during the current period. The aforementioned pre-tax
loss includes the effect of previously unrealized losses on foreign currency
translation of approximately $994,000 and the write-off of approximately
$673,000 in inventory and intangibles related to the cardiovascular product
line, both of which were non-cash charges.
Excluding the loss on sale, AngioDynamics segment operating results
improved by $1,493,000 due to increased sales and improved gross profit. Net
sales increased 15%, or $2,114,000, due, in large part, to increased sales of
several products, namely Abscession(TM) fluid drainage catheters, VistaFlex(TM)
platinum biliary stents, and Workhorse(TM) PTA balloon catheters, introduced in
the
-17-
second quarter of last fiscal year. Gross profit expressed as a percentage of
net sales improved to 49% for the current period from 46% for the comparable
period of the prior year due primarily to increased production throughput at the
Glens Falls facility and reduced unabsorbed overhead costs resulting from the
sale of the Irish facility.
Consolidated Results of Operations
----------------------------------
For the thirty-nine weeks ended March 3, 2001, the Company reported net
earnings of $2,809,000, or $.28 per common share on both a basic and diluted
basis, compared to net earnings of $4,131,000, or $.41 and $.40 per common share
on a basic and diluted basis, respectively, for the comparable period of last
year. Results for the current period were adversely affected by decreased sales
and gross profit in the Diagnostic segment and increased operating expenses in
both industry segments. The increased operating expenses, totaling $2,934,000,
were due, in part, to the loss on sale of AngioDynamics Ltd. and related assets
of $872,000 and the Diagnostic asset impairment charge of $450,000. Results for
the current period were favorably affected by the Company's reversal of a
portion of its income tax valuation allowance against certain domestic tax
benefits totaling $1,344,000, since it is now more likely than not that such
benefits will be realized.
Net sales of $80,951,000 for the thirty-nine weeks ended March 3, 2001
increased $29,000 compared to the thirty-nine weeks ended February 26, 2000.
Increased sales of AngioDynamics products of $2,114,000 and non-contrast systems
of $6,000 were almost entirely offset by decreased sales of contrast systems of
$2,091,000. Price increases accounted for approximately 1% of net sales for the
current period. Net sales in international markets, including direct exports
from the U.S., decreased 9%, or $2,427,000, for the current period from the
comparable period of last year due, in part, to decreased custom contract sales
of $849,000 and the continued weakness of the Euro compared to the U.S. dollar,
as the Company's domestic operations bill export sales in U.S. dollars.
Gross profit expressed as a percentage of net sales decreased to 43% for
the current period from 45% for the comparable period of the prior year due to
reduced gross profit in the Diagnostic segment, partially offset by improved
gross profit in the AngioDynamics segment. The decline in Diagnostic gross
profit expressed as a percentage of net sales was due primarily to decreased
production throughput and severance costs of $315,000, resulting from
operational reorganizations, partially offset by the effects of sales price
increases. The improved AngioDynamics gross profit expressed as a percentage of
net sales was due primarily to increased production throughput at the Glens
Falls facility and reduced unabsorbed overhead costs resulting from the sale of
the Irish facility.
S&A expenses were $28,254,000 for the thirty-nine weeks ended March 3, 2001
compared to $26,640,000 for the thirty-nine weeks ended February 26, 2000. This
increase of $1,614,000, or 6%, for the current period was due to increased
Diagnostic S&A expenses, resulting from the asset impairment charge of $450,000,
the expansion of the domestic sales force, increased distribution costs, and
increased administrative expenses.
R&D expenditures increased 13% for the current period to $4,010,000, or 5%
of net sales, from $3,562,000, or 4% of net sales, for the comparable prior year
period. This increase was due primarily to a redeployment of staff from other
departments within the Company, increased spending relating to contrast systems
of $128,000, and severance costs of $90,000, resulting from operational
reorganizations. Of the R&D expenditures for the current period, approximately
43% relate to contrast systems, 27% to AngioDynamics projects, 4% to
immunological projects, 7% to other projects and 19% to general regulatory
costs.
Other income, net of other expenses, totaled $565,000 of income for the
current period compared to $390,000 of income for the comparable period of last
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year. This improvement was due primarily to increased interest income of
$137,000, resulting from the investment of AngioDynamics Ltd. sale proceeds, and
decreased foreign currency exchange losses of 61,000.
For the thirty-nine weeks ended March 3, 2001, the Company reported an
income tax benefit of $458,000 against earnings before taxes of $2,351,000 due
primarily to the fact that the Company reversed a portion of its valuation
allowance against certain domestic tax benefits totaling $1,344,000. Continued
and projected future profitability of the Company's U.S. operations, including
those of AngioDynamics, made it more likely than not that certain deferred tax
assets would be realized through future taxable earnings. The Company's
effective tax rate of 38% for the thirty-nine weeks ended February 26, 2000
differed from the Federal statutory tax rate of 34% due primarily to the fact
that the Company did not provide for the tax benefit on losses in certain
foreign jurisdictions, since, at that time, it was more likely than not that
such benefits would not be realized. Earnings of the Company's Puerto Rican
subsidiary, which are subject to favorable U.S. tax treatment, were offset by
losses incurred in a foreign jurisdiction subject to lower tax rates and non-
deductible expenses.
Liquidity and Capital Resources
-------------------------------
For the thirty-nine weeks ended March 3, 2001, capital expenditures and the
purchase of treasury stock were funded by cash provided by operations. The
Company's policy has been to fund capital requirements without incurring
significant debt. At March 3, 2001, debt (notes payable, current maturities of
long-term debt and long-term debt) was $1,505,000, compared to $1,636,000 at
June 3, 2000. The Company has available $5,238,000 under two bank lines of
credit of which no amounts were outstanding at March 3, 2001.
At March 3, 2001, approximately 65% of the Company's assets consisted of
inventories, accounts receivable, short-term debt and equity securities, and
cash and cash equivalents. The current ratio was 4.67 to 1, with net working
capital of $55,126,000, at March 3, 2001, compared to a current ratio of 4.25 to
1, with net working capital of $51,434,000, at June 3, 2000.
In January 1999, the Board of Directors authorized the repurchase of up to
500,000 shares of the Company's Class B Common Stock at an aggregate purchase
price of up to $2,000,000. In October 1999, the Board modified the program to
include the Company's Class A Common Stock. In February 2000, the Board further
modified the program to increase the aggregate purchase price of Class A and
Class B Common Stock by an additional $2,000,000. As of March 3, 2001, the
Company had repurchased 41,223 shares of Class A Common Stock and 387,155 shares
of Class B Common Stock for approximately $3,014,000.
Forward-Looking Statements
--------------------------
This Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which are intended to be covered by the safe
harbors created thereby. Words such as "expects", "intends", "anticipates",
"plans", "believes", "seeks", "estimates", or variations of such words and
similar expressions are intended to identify such forward-looking statements.
Investors are cautioned that all forward-looking statements involve risks and
uncertainty, including without limitation, the ability of the Company to develop
its products, future actions by the U.S. Food and Drug Administration or other
regulatory agencies, results of pending or future clinical trials, as well as
general market conditions, competition and pricing. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
included in this Form 10-Q
-19-
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
Effects of Recently Issued Accounting Pronouncements
----------------------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which requires
entities to recognize all derivatives in their financial statements as either
assets or liabilities measured at fair value. SFAS No. 133 also specifies new
methods of accounting for hedging transactions, prescribes the items and
transactions that may be hedged and specifies detailed criteria to be met to
qualify for hedge accounting. SFAS No. 133, as amended by SFAS No. 138, is
effective for fiscal years beginning after June 15, 2000. The Company currently
does not use derivative instruments as defined by SFAS No. 133. If the Company
continues not to use these derivative instruments by the effective date of SFAS
No. 133, the adoption of this pronouncement will have no effect on the Company's
results of operations or financial position.
In December 1999, the Securities and Exchange Commission issued SAB No. 101
"Revenue Recognition", which provides guidelines in applying generally accepted
accounting principles to selected revenue recognition issues. The SAB is
effective in the fourth quarter of fiscal years beginning after December 15,
1999. The Company continues to evaluate the impact of SAB 101, but believes it
is in compliance with the provisions of the SAB, and, accordingly, does not
expect this statement to have a material impact on the Company's results of
operations or financial position.
In October 2000, the EITF issued guidance on how to classify certain
revenues and costs in a company's financial statements. EITF No. 00-10
"Accounting for Shipping and Handling Revenues and Costs" requires that
companies classify all amounts billed to customers related to shipping and
handling cost as revenue. This statement will be effective in the fourth quarter
of fiscal years beginning after December 15, 1999 and is not expected to have
any effect on the Company's results of operations or financial position.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company is exposed to market risk from changes in foreign currency
exchange rates and, to a much lesser extent, interest rates on investments and
financing, which could impact results of operations and financial position. The
Company does not currently engage in hedging or other market risk management
tools. There have been no material changes with respect to market risk
previously disclosed in the fiscal 2000 Annual Report on Form 10-K.
Foreign Currency Exchange Rate Risk
-----------------------------------
The Company's international subsidiaries are denominated in currencies
other than the U.S. dollar. Since the functional currency of the Company's
international subsidiaries is the local currency, foreign currency translation
adjustments are accumulated as a component of accumulated other comprehensive
income (loss) in stockholders' equity. Assuming a hypothetical aggregate change
in the foreign currencies versus the U.S. dollar exchange rates of 10% at March
3, 2001, the Company's assets and liabilities would increase or decrease by
$2,191,000 and $586,000, respectively, and the Company's net sales and net
earnings would increase or decrease by $1,997,000 and $36,000, respectively, on
an annual basis.
-20-
The Company also maintains intercompany balances and loans receivable with
subsidiaries with different local currencies. These amounts are at risk of
foreign exchange losses if exchange rates fluctuate. Assuming a hypothetical
aggregate change in the foreign currencies versus the U.S. dollar exchange rates
of 10% at March 3, 2001, results of operations would be favorably or unfavorably
impacted by approximately $463,000 on an annual basis.
Interest Rate Risk
------------------
The Company is exposed to interest rate change market risk with respect to
its investments in tax-free municipal bonds in the amount of $13,625,000. The
bonds bear interest at a floating rate established weekly. For the thirty-nine
weeks ended March 3, 2001, the after-tax interest rate on the bonds approximated
4.3%. Each 100 basis point (1%) fluctuation in interest rates will increase or
decrease interest income on the bonds by approximately $136,000 on an annual
basis.
As the Company's principal amount of fixed interest rate financing
approximated $1,505,000 at March 3, 2001, a change in interest rates would not
materially impact results of operations or financial position. At March 3, 2001,
the Company did not maintain any variable interest rate financing.
-21-
E-Z-EM, Inc. and Subsidiaries
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits - None.
--------
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended March 3, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
E-Z-EM, Inc.
-------------------------------------
(Registrant)
Date April 17, 2001 /s/ Anthony A. Lombardo
-------------------- -------------------------------------
Anthony A. Lombardo, President,
Chief Executive Officer and Director
Date April 17, 2001 /s/ Dennis J. Curtin
-------------------- -------------------------------------
Dennis J. Curtin, Senior Vice
President - Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
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