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 2, 2002
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
E-Z-EM, Inc.
------------------------------------------------------
(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
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(516) 333-8230
--------------------------------------------------
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 9, 2002, there were 4,001,958 shares of the issuer's Class A Common
Stock outstanding and 5,844,809 shares of the issuer's Class B Common Stock
outstanding.
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E-Z-EM, Inc. and Subsidiaries
INDEX
-----
Part I: Financial Information Page
------- --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets - March 2, 2002 and
June 2, 2001 3 - 4
Consolidated Statements of Operations - thirteen and
thirty-nine weeks ended March 2, 2002 and
March 3, 2001 5
Consolidated Statement of Stockholders' Equity and
Comprehensive Loss - thirty-nine weeks ended
March 2, 2002 6
Consolidated Statements of Cash Flows - thirty-nine weeks
ended March 2, 2002 and March 3, 2001 7 - 8
Notes to Consolidated Financial Statements 9 - 15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16 - 21
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 21
Part II: Other Information
-------- -----------------
Item 6. Exhibits and Reports on Form 8-K 23
-2-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 2, June 2,
ASSETS 2002 2001
------ ------
(unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 3,268 $ 4,391
Debt and equity securities 16,063 13,748
Accounts receivable, principally
trade, net 20,257 23,371
Inventories 25,690 22,021
Other current assets 4,221 5,901
------- -------
Total current assets 69,499 69,432
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 18,675 19,750
COST IN EXCESS OF FAIR VALUE OF NET ASSETS
ACQUIRED, less accumulated amortization 362 376
INTANGIBLE ASSETS, less accumulated
amortization 1,588 1,329
DEBT AND EQUITY SECURITIES 1,472 846
INVESTMENT AT COST 600
OTHER ASSETS 6,303 5,722
------- -------
$98,499 $97,455
======= =======
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 2, June 2,
LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2001
------ ------
(unaudited) (audited)
CURRENT LIABILITIES
Notes payable $ 862 $ 854
Current maturities of long-term debt 168 156
Accounts payable 6,838 4,798
Accrued liabilities 7,057 7,329
Accrued income taxes 270 111
------- -------
Total current liabilities 15,195 13,248
LONG-TERM DEBT, less current maturities 355 408
OTHER NONCURRENT LIABILITIES 2,725 2,795
------- -------
Total liabilities 18,275 16,451
------- -------
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 4,001,958
shares at March 2, 2002 and 4,011,396
shares at June 2, 2001 (excluding 51,298
and 41,860 shares held in treasury at
March 2, 2002 and June 2, 2001, respectively) 400 401
Class B (non-voting), par value $.10
per share - authorized, 10,000,000
shares; issued and outstanding 5,821,757
shares at March 2, 2002 and 5,843,426
shares at June 2, 2001 (excluding 424,653
and 395,251 shares held in treasury at
March 2, 2002 and June 2, 2001, respectively) 582 584
Additional paid-in capital 19,849 20,066
Retained earnings 63,016 63,138
Accumulated other comprehensive loss (3,623) (3,185)
------- -------
Total stockholders' equity 80,224 81,004
------- -------
$98,499 $97,455
======= =======
The accompanying notes are an integral part of these statements.
-4-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
Thirteen weeks ended Thirty-nine weeks ended
-------------------- -----------------------
March 2, March 3, March 2, March 3,
2002 2001 2002 2001
-------- -------- -------- --------
Net sales $ 30,646 $ 27,809 $ 88,916 $ 82,200
Cost of goods sold 17,791 17,714 52,337 49,322
-------- -------- -------- --------
Gross profit 12,855 10,095 36,579 32,878
-------- -------- -------- --------
Operating expenses
Selling and administrative 9,665 8,771 29,919 26,210
Loss on sale of subsidiary
and related assets 872
Asset impairment and facility
closing costs (40) 1,492
Research and development 1,542 1,349 4,682 4,010
-------- -------- -------- --------
Total operating expenses 11,167 10,120 36,093 31,092
-------- -------- -------- --------
Operating profit (loss) 1,688 (25) 486 1,786
Other income (expense)
Interest income 73 215 344 671
Interest expense (67) (75) (202) (213)
Other, net 87 82 288 107
-------- -------- -------- --------
Earnings before income
taxes 1,781 197 916 2,351
Income tax provision (benefit) 624 91 1,038 (458)
-------- -------- -------- --------
NET EARNINGS (LOSS) $ 1,157 $ 106 $ (122) $ 2,809
======== ======== ======== ========
Earnings (loss) per common share
Basic $ .12 $ .01 $ (.01) $ .28
======== ======== ======== ========
Diluted $ .11 $ .01 $ (.01) $ .28
======== ======== ======== ========
Weighted average common shares
Basic 9,824 9,875 9,831 9,889
======== ======== ======== ========
Diluted 10,230 10,119 9,831 10,185
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
-5-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
Thirty-nine weeks ended March 2, 2002
(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 loss
--------- ------ --------- ------ ---------- -------- ------------- ------- -------
Balance at June 2, 2001 4,011,396 $ 401 5,843,426 $ 584 $ 20,066 $ 63,138 $(3,185) $81,004
Exercise of stock options 613 3 3
Income tax benefits on
stock options exercised 1 1
Compensation related to
stock option plans 4 4
Issuance of stock 7,120 1 50 51
Purchase of treasury stock (9,438) (1) (29,402) (3) (275) (279)
Net loss (122) (122) $(122)
Unrealized holding gain on debt
and equity securities 90 90 90
Foreign currency translation
adjustments (528) (528) (528)
---------- ----- ---------- ----- -------- -------- ------- ------- -----
Comprehensive loss $(560)
=====
Balance at March 2, 2002 4,001,958 $ 400 5,821,757 $ 582 $ 19,849 $ 63,016 $(3,623) $80,224
========== ===== ========== ===== ======== ======== ======= =======
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 2, March 3,
2002 2001
-------- --------
Cash flows from operating activities:
Net earnings (loss) $ (122) $ 2,809
Adjustments to reconcile net earnings
(loss) to net cash provided by operating
activities
Depreciation and amortization 2,143 2,080
Impairment of long-lived assets 1,322 450
Provision for doubtful accounts 29 88
Loss on sale of subsidiary and
related assets 872
Deferred income tax provision (benefit) 8 (1,712)
Other non-cash items 50 45
Changes in operating assets and
liabilities, net of sale
Accounts receivable 3,085 (297)
Inventories (3,669) 799
Other current assets 1,673 (1,344)
Other assets (629) (420)
Accounts payable 2,040 983
Accrued liabilities (272) (1,048)
Accrued income taxes 158 (356)
Other noncurrent liabilities (22) 147
-------- --------
Net cash provided by operating
activities 5,794 3,096
-------- --------
Cash flows from investing activities:
Additions to property, plant and
equipment, net (2,540) (2,117)
Proceeds from sale of subsidiary and
related assets 3,250
Purchase of intangible assets (400)
Investment at cost (600)
Available-for-sale securities
Purchases (64,780) (69,823)
Proceeds from sale 61,965 64,160
-------- --------
Net cash used in investing activities (6,355) (4,530)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of debt 3,430 216
Repayments of debt (3,322) (196)
Proceeds from exercise of stock options,
including related income tax benefits 4 42
Purchase of treasury stock (279) (512)
Proceeds from issuance of stock in connection
with the stock purchase plan 5 5
-------- --------
Net cash used in financing activities (162) (445)
-------- --------
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E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
(in thousands)
Thirty-nine weeks ended
-----------------------
March 2, March 3,
2002 2001
------- -------
Effect of exchange rate changes on
cash and cash equivalents $ (400) $ (433)
------- -------
DECREASE IN CASH AND CASH
EQUIVALENTS (1,123) (2,312)
Cash and cash equivalents
Beginning of period 4,391 5,583
------- -------
End of period $ 3,268 $ 3,271
======= =======
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest $ 56 $ 79
======= =======
Income taxes (net of payments of $599 and
refunds of $7 in 2002 and 2001,
respectively) $ (346) $ 2,395
======= =======
The accompanying notes are an integral part of these statements.
-8-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 2, 2002 and March 3, 2001
(unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 2, 2002, the consolidated
statement of stockholders' equity and comprehensive loss for the period
ended March 2, 2002, and the consolidated statements of operations and cash
flows for the periods ended March 2, 2002 and March 3, 2001, have been
prepared by the Company without audit. The consolidated balance sheet as of
June 2, 2001 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 loss, results of
operations and cash flows at March 2, 2002 (and for all periods presented)
have been made.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America, 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 2001 Annual Report on Form 10-K filed by the Company
on August 30, 2001. The results of operations for the periods ended March
2, 2002 and March 3, 2001 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. Potential common shares were
excluded from the diluted calculation for the thirty-nine weeks ended March
2, 2002, as their effects were anti-dilutive.
The following table sets forth the reconciliation of the weighted average
number of common shares:
Thirteen weeks ended Thirty-nine weeks ended
-------------------- -----------------------
March 2, March 3, March 2, March 3,
2002 2001 2002 2001
------ ------ ----- ------
(in thousands)
Basic 9,824 9,875 9,831 9,889
Effect of dilutive
securities (stock
options) 406 244 296
------ ------ ----- ------
Diluted 10,230 10,119 9,831 10,185
====== ====== ===== ======
-9-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 2, 2002 and March 3, 2001
(unaudited)
NOTE B - EARNINGS PER COMMON SHARE (continued)
Excluded from the calculation of earnings per common share, are options to
purchase 461,272 and 1,554,935 shares of common stock for the thirteen and
thirty-nine weeks ended March 2, 2002, respectively, and options to
purchase 474,512 and 444,815 shares of common stock for the thirteen and
thirty-nine weeks ended March 3, 2001, respectively, as their inclusion
would be anti- dilutive.
NOTE C - EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement is effective
for fiscal years beginning after December 15, 2001. This statement
supercedes SFAS No. 121, while retaining many of the requirements of such
statement. The Company is currently evaluating the impact this statement
may have.
NOTE D - RECLASSIFICATIONS
Pursuant to the Financial Accounting Standards Board Emerging Issues Task
Force Issue No. 00-10, "Accounting for Shipping and Handling Fees and
Costs", which was adopted in the fourth quarter of fiscal 2001, the Company
has reclassified freight billed to customers from selling and
administrative expenses to net sales, and has reclassified related freight
costs from selling and administrative expenses to cost of goods sold. Prior
period amounts have been restated to conform to this presentation. This
change had no effect on the dollar amount of the Company's operating profit
or net earnings.
NOTE E - ACCOUNTING FOR BUSINESS COMBINATIONS, GOODWILL AND INTANGIBLE ASSETS
As of June 3, 2001, the Company adopted SFAS No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets".
These standards require that all business combinations initiated after June
30, 2001 be accounted for under the purchase method. In addition, all
intangible assets acquired that are obtained through contractual or legal
right, or are capable of being separately sold, transferred, licensed,
rented or exchanged shall be recognized as an asset apart from goodwill.
Goodwill and intangibles with indefinite lives are no longer subject to
amortization, but are subject to at least an annual assessment for
impairment by applying a fair value based test. The Company has performed a
transitional fair value based impairment test on its goodwill and
determined that the fair value exceeded the recorded value at June 3, 2001.
Therefore, no impairment loss was recorded during the thirteen weeks ended
September 1, 2001. Net earnings for the thirteen and thirty-nine weeks
ended March 3, 2001 would have changed by approximately $3,000 and $8,000,
net of tax, respectively, if the recorded goodwill amortization was added
back. Basic and diluted earnings per share in such period would have been
unchanged. Annual amortization of intangibles will approximate $122,000 for
each of the next five years.
-10-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 2, 2002 and March 3, 2001
(unaudited)
NOTE F - COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss), net of related tax, are as
follows:
Thirty-nine weeks ended
-----------------------
March 2, March 3,
2002 2001
-------- --------
(in thousands)
Net earnings (loss) $ (122) $ 2,809
Unrealized holding gain (loss) on
debt and equity securities 90 (2,207)
Foreign currency translation
adjustments (528) 370
-------- --------
Comprehensive income (loss) $ (560) $ 972
======== ========
The components of accumulated other comprehensive loss, net of related tax,
are as follows:
March 2, June 2,
2002 2001
-------- --------
(in thousands)
Unrealized holding gain on debt and
equity securities $ 288 $ 198
Cumulative translation adjustments (3,911) (3,383)
-------- --------
Accumulated other comprehensive loss $ (3,623) $ (3,185)
======== ========
NOTE G - INVESTMENT AT COST
In August 2001, the Company acquired 240,000 shares of the Series B
Convertible Preferred Stock, or approximately 5%, of PointDx, Inc.
("PointDx") for $600,000. PointDx, a Delaware corporation based in
Winston-Salem, North Carolina, is an emerging medical technology company
focused on the development of virtual colonoscopy software and structured
reporting solutions for radiology. Virtual colonoscopy is an innovative
technology which visualizes the colon using advanced CT imaging and 3-D
computer reconstruction of that image data. The Company also acquired a
three-year warrant to purchase an additional 120,000 shares of the Series B
Convertible Preferred Stock at $2.50 per share, and the right to designate
one nominee for the PointDx board of directors. The Company's investment in
PointDx is accounted for by the cost method.
-11-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 2, 2002 and March 3, 2001
(unaudited)
NOTE H - SALE OF SUBSIDIARY AND RELATED ASSETS
On July 27, 2000, AngioDynamics, Inc. sold 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 thirteen weeks 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 I - ASSET IMPAIRMENT CHARGES AND FACILITY CLOSING
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 impairment charges of
$50,000 and $450,000 during the thirteen weeks ended December 1, 2001 and
September 2, 2000, respectively, 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 believed that the market for this technology was significantly
less than previously projected. The impairment charges represented 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 charges had no impact on the Company's cash flow or its ability to
generate cash flow in the future. The impairment charges are included in
the consolidated statement of operations under the caption "Selling and
administrative".
During the thirteen weeks ended December 1, 2001, the Company adopted a
plan, which was approved by the Board of Directors, to close a facility
owned by its wholly-owned Japanese subsidiary in December 2001. The
facility was principally used to manufacture liquid barium sulfate
formulations for sale in the Japanese market. The facility lacked the
necessary manufacturing throughput to justify its continued existence. In
connection with this plan, the Company recorded a $1,532,000 charge to
operations during the thirteen weeks ended December 1, 2001. During the
thirteen weeks ended March 2, 2002, such charge was reduced by $40,000 to
$1,492,000 as a result of favorable changes in foreign currency
translation. The components of this $1,492,000 charge consist of i) a
$1,272,000 write-down of property, plant and equipment to management's
estimate of their fair market value, based upon the anticipated proceeds to
be received upon sale, ii) severance costs of $125,000, iii) refurbishing
costs of $64,000, relating to a leased warehousing facility, and iv) a
provision for inventory reserves of $31,000.
-12-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 2, 2002 and March 3, 2001
(unaudited)
NOTE J - INVENTORIES
Inventories consist of the following:
March 2, June 2,
2002 2001
-------- --------
(in thousands)
Finished goods $ 12,922 $ 11,093
Work in process 2,304 1,826
Raw materials 10,464 9,102
-------- --------
$ 25,690 $ 22,021
======== ========
NOTE K - 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 L - COMMON STOCK
Under the 1983 and 1984 Stock Option Plans, options for 21,000 shares were
granted at $4.90 per share, options for 613 shares were exercised at $5.63
per share, options for 13,959 shares were forfeited at prices ranging from
$5.39 to $8.58 per share, and options for 1,194 shares expired at $9.58 per
share during the thirty-nine weeks ended March 2, 2002. Under the 1997
AngioDynamics Stock Option Plan, options for 3.18 shares were granted at
$40,000 per share, options for .06 shares were forfeited at $40,000 per
share, and no options were exercised or expired during the thirty-nine
weeks ended March 2, 2002.
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 2, 2002, the Company had repurchased 51,298 shares of Class A
Common Stock and 424,653 shares of Class B Common Stock for approximately
$3,336,000.
-13-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 2, 2002 and March 3, 2001
(unaudited)
NOTE M - 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 the
electromechanical injector line, radiological medical devices, custom
contract pharmaceuticals, gastrointestinal cleansing laxatives, and
immunoassay tests. AngioDynamics products include angiographic,
image-guided vascular access, thrombolytic, angioplasty, stents, and
drainage medical devices used in the interventional radiology marketplace.
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 2, March 3, March 2, March 3,
2002 2001 2002 2001
-------- -------- -------- --------
(in thousands)
Net sales to external
customers
Diagnostic products
Contrast systems $ 14,035 $ 14,431 $ 44,793 $ 45,711
Non-contrast systems 8,858 7,921 22,407 19,986
-------- -------- -------- --------
Total Diagnostic products 22,893 22,352 67,200 65,697
AngioDynamics products 7,753 5,457 21,716 16,503
-------- -------- -------- --------
Total net sales to external
customers $ 30,646 $ 27,809 $ 88,916 $ 82,200
======== ======== ======== ========
Intersegment net sales
Diagnostic products $ 1
AngioDynamics products $ 381 $ 189 $ 764 541
-------- -------- -------- --------
Total intersegment net sales $ 381 $ 189 $ 764 $ 542
======== ======== ======== ========
Operating profit (loss)
Diagnostic products $ 1,071 $ (57) $ (1,113) $ 2,057
AngioDynamics products 650 17 1,631 (217)
Eliminations (33) 15 (32) (54)
-------- -------- -------- --------
Total operating profit (loss) $ 1,688 $ (25) $ 486 $ 1,786
======== ======== ======== ========
Net earnings (loss)
Diagnostic products $ 844 $ 261 $ (751) $ 2,287
AngioDynamics products 346 (170) 661 576
Eliminations (33) 15 (32) (54)
-------- -------- -------- --------
Total net earnings (loss) $ 1,157 $ 106 $ (122) $ 2,809
======== ======== ======== ========
-14-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 2, 2002 and March 3, 2001
(unaudited)
NOTE M - OPERATING SEGMENTS (continued)
March 2, June 2,
2002 2001
-------- --------
(in thousands)
Assets
Diagnostic products $107,364 $108,463
AngioDynamics products 19,164 16,782
Eliminations (28,029) (27,790)
-------- --------
Total assets $ 98,499 $ 97,455
======== ========
-15-
E-Z-EM, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quarters ended March 2, 2002 and March 3, 2001
----------------------------------------------
The Company's quarters ended March 2, 2002 and March 3, 2001 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, image-guided vascular access, thrombolytic,
angioplasty, stents, and drainage medical devices used in the interventional
radiology marketplace.
Diagnostic AngioDynamics Eliminations Total
---------- ------------- ------------ -----
(in thousands)
Quarter ended March 2, 2002
---------------------------
Unaffiliated customer sales $ 22,893 $ 7,753 -- $ 30,646
Intersegment sales -- 381 $ (381) --
Gross profit (loss) 9,072 3,816 (33) 12,855
Operating profit (loss) 1,071 650 (33) 1,688
Quarter ended March 3, 2001
---------------------------
Unaffiliated customer sales $ 22,352 $ 5,457 -- $ 27,809
Intersegment sales -- 189 $ (189) --
Gross profit 7,464 2,616 15 10,095
Operating profit (loss) (57) 17 15 (25)
Diagnostic Products
-------------------
Diagnostic segment operating results for the current quarter improved by
$1,128,000 due primarily to increased sales and improved gross profit, partially
offset by increased operating expenses. Net sales increased 2%, or $541,000, due
to increased sales of non-contrast systems of $937,000, primarily relating to
custom contracts, partially offset by decreased sales of contrast systems of
$396,000. Price increases had little effect on net sales for the current
quarter. Gross profit expressed as a percentage of net sales improved to 40% for
the current quarter from 33% for the comparable period of the prior year due
primarily to changes in product mix, increased production throughput at the
Company's Montreal, Canada facility and lower overhead costs at the Company's
Westbury, New York facility. The lower overhead costs can be attributed, in
large part, to severance costs of $315,000 incurred in the comparable period of
the prior year. Increased operating expenses of $480,000 resulted from
investment in new product introductions and the establishment of a dedicated
domestic sales force for the Company's electromechanical injector line.
AngioDynamics Products
----------------------
AngioDynamics segment operating results for the current quarter improved by
$633,000 due to increased sales and improved gross profit, partially offset by
increased operating expenses. Net sales increased 42%, or $2,296,000, due
primarily to increased sales of image-guided vascular access products,
-16-
angiographic catheters, angioplasty products and stents in the domestic
marketplace. Gross profit expressed as a percentage of net sales improved to 47%
for the current quarter from 46% for the comparable quarter of the prior year
due primarily to changes in product mix and increased production throughput at
the Company's Queensbury, New York facility. Operating expenses increased
$567,000 due, in large part, to an expansion of the domestic sales force during
the second half of last fiscal year and increased research and development
expenses.
Consolidated Results of Operations
----------------------------------
For the quarter ended March 2, 2002, the Company reported net earnings of
$1,157,000, or $.12 and $.11 per common share on a basic and diluted basis,
respectively, compared to net earnings of $106,000, or $.01 per common share on
both a basic and diluted basis, for the comparable period of last year. Results
for the current quarter were favorably affected by increased sales and improved
gross profit in both industry segments, partially offset by increased operating
expenses in both industry segments.
Net sales of $30,646,000 for the quarter ended March 2, 2002 increased 10%,
or $2,837,000, compared to the quarter ended March 3, 2001 due to increased
sales of AngioDynamics products of $2,296,000 and non-contrast systems of
$937,000, partially offset by decreased sales of contrast systems of 396,000,
which resulted from the factors previously disclosed in the segment overview.
Price increases had little effect on net sales for the current quarter. Net
sales in international markets, including direct exports from the U.S.,
decreased 3%, or $316,000, for the current quarter from the comparable period of
last year due to decreased sales of contrast systems of $689,000, partially
offset by increased sales of non-contrast systems of $337,000, primarily
relating to custom contracts.
Gross profit expressed as a percentage of net sales increased to 42% for
the current quarter from 36% for the comparable quarter of the prior year due to
improved gross profit in both the AngioDynamics and Diagnostic segments, which
resulted from the factors previously disclosed in the segment overview. 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 $9,665,000 for the quarter
ended March 2, 2002 compared to $8,771,000 for the quarter ended March 3, 2001.
This increase of $894,000, or 10%, for the current quarter was due to increased
Diagnostic S&A expenses of $486,000 and increased AngioDynamics S&A expenses of
$408,000. Increased Diagnostic S&A expenses resulted from investment in new
product introductions and the establishment of a dedicated domestic sales force
for the Company's electromechanical injector line. Increased AngioDynamics S&A
expenses was due, in large part, to an expansion of the domestic sales force
during the second half of last fiscal year.
Research and development ("R&D") expenditures increased 14% for the current
quarter to $1,542,000, or 5% of net sales, from $1,349,000, or 5% of net sales,
for the comparable quarter of the prior year. This increase was due to increased
AngioDynamics project spending of $159,000, as well as increased clinical trial
costs associated with a variety of new products in the field of virtual
colonoscopy. Of the R&D expenditures for the current quarter, approximately 35%
relate to non-contrast systems, which include the Company's electromechanical
injector line, 33% to AngioDynamics projects, 13% to contrast systems, 2% to
other projects and 17% to general regulatory costs. R&D expenditures are
expected to continue at approximately current levels.
Other income, net of other expenses, totaled $93,000 of income for the
current quarter compared to $222,000 of income for the quarter ended March 3,
-17-
2001. This decline was due to decreased interest income of $142,000, resulting,
in large part, from lower interest rates.
The Company's effective tax rate of 35% for the quarter ended March 2, 2002
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 a foreign
jurisdiction, since it is more likely than not that such benefits would not be
realized, and non-deductible expenses, partially offset by the reversal of an
over accrual established in the prior year. 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, at that time,
it was more likely than not that such benefits would 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.
Nine months ended March 2, 2002 and March 3, 2001
-------------------------------------------------
The Company's nine months ended March 2, 2002 and March 3, 2001 both
represent thirty-nine weeks.
Results of Operations
---------------------
Segment Overview
----------------
Diagnostic AngioDynamics Eliminations Total
---------- ------------- ------------ -----
(in thousands)
Nine months ended March 2, 2002
-------------------------------
Unaffiliated customer sales $ 67,200 $ 21,716 -- $ 88,916
Intersegment sales -- 764 $ (764) --
Gross profit (loss) 25,678 10,933 (32) 36,579
Operating profit (loss) (1,113) 1,631 (32) 486
Nine months ended March 3, 2001
-------------------------------
Unaffiliated customer sales $ 65,697 $ 16,503 -- $ 82,200
Intersegment sales 1 541 $ (542) --
Gross profit 24,870 8,062 (54) 32,878
Operating profit (loss) 2,057 (217) (54) 1,786
Diagnostic Products
-------------------
Diagnostic segment operating results for the current period, which declined
by $3,170,000, were adversely affected by the December 2001 closing of a
Japanese facility principally used to manufacture liquid barium sulfate
formulations for sale in the Japanese market. The facility lacked the necessary
manufacturing throughput to justify its continued existence. As a result of this
facility closing, the Company recorded a $1,492,000 charge to operations during
the current period consisting of i) a $1,272,000 write-down of property, plant
and equipment to management's estimate of their fair market value, based upon
the anticipated proceeds to be received upon sale, ii) severance costs of
$125,000, iii) refurbishing costs of $64,000, relating to a leased warehousing
facility, and iv) a provision for inventory reserves of $31,000.
Excluding the Japanese facility closing costs, Diagnostic segment operating
results declined by $1,678,000 due primarily to increased operating expenses,
slightly offset by increased sales and gross profit. Net sales increased 2%, or
$1,503,000, due to increased sales of non-contrast systems of $2,421,000,
partially offset by decreased sales of contrast systems of $918,000. Increased
sales of non-contrast systems can be attributed entirely to custom contract
-18-
sales. Price increases accounted for less than 1% of net sales for the current
period. Gross profit expressed as a percentage of net sales was 38% for both the
current period and the comparable period of the prior year. Decreased production
throughput at the Company's Westbury and San Lorenzo, Puerto Rico facilities
offset the favorable effects of changes in product mix. Excluding the
aforementioned facility closing costs, operating expenses increased $2,486,000
due, in large part, to: i) the establishment of a dedicated domestic sales force
for the Company's electromechanical injector line; ii) investment in new product
introductions; iii) increased administrative and research and development
expenses; and iv) office relocation expenses of a foreign subsidiary. The
comparable prior year period included an asset impairment charge of $450,000 for
acquired patent rights to an oral magnetic resonance imaging contrast agent.
AngioDynamics Products
----------------------
AngioDynamics segment operating results improved by $1,848,000 in the
current period. Of this improvement, $872,000 resulted from the Company
recognizing a loss on sale of AngioDynamics Ltd. and related assets in the
comparable period of last year. Excluding the effect of the loss on sale,
AngioDynamics segment operating results improved by $976,000 due to increased
sales and improved gross profit, partially offset by increased operating
expenses. Net sales increased 32%, or $5,213,000, due primarily to increased
sales of image-guided vascular access products, stents, angiographic catheters
and angioplasty products in the domestic marketplace. Gross profit expressed as
a percentage of net sales improved to 49% for the current period from 47% for
the comparable period of the prior year due primarily to increased production
throughput at the Company's Queensbury facility and reduced manufacturing
overhead costs resulting from the sale of the Irish facility in the first
quarter of the prior year. Excluding the aforementioned loss on sale, operating
expenses increased $1,895,000 due, in large part, to an expansion of the
domestic sales force during the second half of last fiscal year.
Consolidated Results of Operations
----------------------------------
For the nine months ended March 2, 2002, the Company reported a net loss of
$122,000, or ($.01) per common share on both a basic and diluted basis, compared
to net earnings of $2,809,000, or $.28 per common share on both a basic and
diluted basis for the comparable period of last year. Results for the current
period were adversely affected by the $1,492,000 charge to close a Japanese
facility. Increased operating expenses in both industry segments also adversely
affected results for the current period. Results for the current period were
favorably affected by increased sales and improved gross profit in both industry
segments. For the comparable period of the prior year, several factors combined
to have a favorable effect on net earnings of $418,000, or $.04 per basic share.
Last year's results included the Company's reversal of a portion of its
valuation allowance against certain domestic income 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.
Partially offsetting this was the loss on sale of AngioDynamics Ltd. and related
assets of $872,000 and the Diagnostic asset impairment charge of $450,000.
Net sales of $88,916,000 for the nine months ended March 2, 2002 increased
8%, or $6,716,000, compared to the nine months ended March 3, 2001 due to
increased sales of AngioDynamics products of $5,213,000 and non-contrast systems
of $2,421,000, partially offset by decreased sales of contrast systems of
$918,000, which resulted from the factors previously disclosed in the segment
overview. Price increases accounted for less than 1% of net sales for the
current period. Net sales in international markets, including direct exports
from the U.S., increased 3%, or $858,000, for the current period from the
comparable period of last year due to increased sales of non-contrast systems of
-19-
$1,974,000, partially offset by decreased sales of contrast systems of $676,000
and AngioDynamics products of $440,000. Increased sales of non-contrast systems
can be attributed entirely to custom contract sales.
Gross profit expressed as a percentage of net sales increased to 41% for
the current period from 40% for the comparable period of the prior year due to
improved gross profit in both the AngioDynamics and Diagnostic segments, which
resulted from the factors previously disclosed in the segment overview.
S&A expenses were $29,919,000 for the nine months ended March 2, 2002
compared to $26,210,000 for the nine months ended March 3, 2001. This increase
of $3,709,000, or 14%, for the current period was due to increased Diagnostic
S&A expenses of $2,057,000 and increased AngioDynamics S&A expenses of
$1,652,000. Increased Diagnostic S&A expenses resulted, in large part, from: i)
the establishment of a dedicated domestic sales force for the Company's
electromechanical injector line; ii) investment in new product introductions;
iii) increased administrative expenses; and iv) office relocation expenses of a
foreign subsidiary. The comparable prior year period included the aforementioned
asset impairment charge of $450,000. Increased AngioDynamics S&A expenses was
due, in large part, to an expansion of the domestic sales force during the
second half of last fiscal year.
R&D expenditures increased 17% for the current period to $4,682,000, or 5%
of net sales, from $4,010,000, or 5% of net sales, for the comparable prior year
period. This increase was due to expenses associated with the development of new
products introduced in the second quarter, including the Company's latest CT
injector system, EmpowerCT(TM), as well as a variety of new products in the
field of virtual colonoscopy. Of the R&D expenditures for the current period,
approximately 42% relate to non-contrast systems, which include the Company's
electromechanical injector line, 29% to AngioDynamics projects, 11% to contrast
systems, 2% to other projects and 16% to general regulatory costs.
Other income, net of other expenses, totaled $430,000 of income for the
current period compared to $565,000 of income for the comparable period of last
year. This decline was due primarily to decreased interest income of $327,000,
resulting, in large part, from lower interest rates, partially offset by a gain
on the sale of an equity security of $83,000 and an improvement in foreign
currency exchange gains and losses of $77,000.
For the nine months ended March 2, 2002, the Company's unusually high
effective tax rate of 113% 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 certain foreign jurisdictions, since it is more likely
than not that such benefits will not be realized, and non-deductible expenses.
For the nine months 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.
Liquidity and Capital Resources
-------------------------------
For the nine months ended March 2, 2002, capital expenditures, the purchase
of intangible assets 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 2, 2002, debt (notes
payable, current maturities of long-term debt and long-term debt) was
$1,385,000, compared to $1,418,000 at June 2, 2001. The Company has available
$1,256,000 under a bank line of credit of which $183,000 was outstanding at
March 2, 2002.
-20-
At March 2, 2002, approximately 66% 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 4.57 to 1, with net working
capital of $54,304,000, at March 2, 2002, as compared to a current ratio of 5.24
to 1, with net working capital of $56,184,000, at June 2, 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 2, 2002, the
Company had repurchased 51,298 shares of Class A Common Stock and 424,653 shares
of Class B Common Stock for approximately $3,336,000.
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, overall
economic conditions, general market conditions, foreign currency exchange rate
fluctuations, the effects of pricing from group purchasing organizations, and
competition, including alternative procedures which continue to replace
traditional fluoroscopic procedures. 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
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.
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 2001 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
loss in stockholders' equity. Assuming a hypothetical aggregate change in the
foreign currencies versus the U.S. dollar exchange rates of 10% at March 2,
2002, the Company's assets and liabilities would increase or decrease by
$2,274,000 and $587,000, respectively, and the Company's net sales and net
earnings would increase or decrease by $2,248,000 and $148,000, respectively, on
an annual basis.
-21-
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 2, 2002, results of operations would be favorably or unfavorably
impacted by approximately $675,000 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 $15,990,000. The
bonds bear interest at a floating rate established weekly. For the nine months
ended March 2, 2002, the after-tax interest rate on the bonds approximated 2.0%.
Each 100 basis point (1%) fluctuation in interest rates will increase or
decrease interest income on the bonds by approximately $160,000 on an annual
basis.
As the Company's principal amount of fixed and variable interest rate
financing approximated $1,202,000 and $183,000, respectively, at March 2, 2002,
a change in interest rates would not materially impact results of operations or
financial position.
-22-
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 2, 2002.
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 16, 2002 /s/ Anthony A. Lombardo
-------------------- -------------------------------------
Anthony A. Lombardo, President,
Chief Executive Officer and Director
Date April 16, 2002 /s/ Dennis J. Curtin
-------------------- -------------------------------------
Dennis J. Curtin, Senior Vice
President - Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
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