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 September 1, 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
------------------------------------- --------
(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 October 9, 2001, there were 4,004,520 shares of the issuer's Class A
Common Stock outstanding and 5,839,280 shares of the issuer's Class B Common
Stock outstanding.
-1-
E-Z-EM, Inc. and Subsidiaries
INDEX
-----
Part 1: Financial Information Page
------- --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets - September 1, 2001 and
June 2, 2001 3 - 4
Consolidated Statements of Operations - thirteen weeks
ended September 1, 2001 and September 2, 2000 5
Consolidated Statement of Stockholders' Equity and
Comprehensive Loss - thirteen weeks ended
September 1, 2001 6
Consolidated Statements of Cash Flows - thirteen weeks
ended September 1, 2001 and September 2, 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 - 18
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 18 - 19
Part II: Other Information
-------- -----------------
Item 6. Exhibits and Reports on Form 8-K 20
-2-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 1, June 2,
ASSETS 2001 2001
------ ------
(unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 6,770 $ 4,391
Debt and equity securities 13,861 13,748
Accounts receivable, principally
trade, net 20,312 23,371
Inventories 23,195 22,021
Other current assets 4,385 5,901
------- -------
Total current assets 68,523 69,432
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 19,784 19,750
COST IN EXCESS OF FAIR VALUE OF NET ASSETS
ACQUIRED, less accumulated amortization 372 376
INTANGIBLE ASSETS, less accumulated
amortization 1,298 1,329
DEBT AND EQUITY SECURITIES 303 846
INVESTMENT AT COST 600
OTHER ASSETS 5,969 5,722
------- -------
$96,849 $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)
September 1, June 2,
LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2001
------ ------
(unaudited) (audited)
CURRENT LIABILITIES
Notes payable $ 825 $ 854
Current maturities of long-term debt 191 156
Accounts payable 5,367 4,798
Accrued liabilities 6,653 7,329
Accrued income taxes 138 111
-------- --------
Total current liabilities 13,174 13,248
LONG-TERM DEBT, less current maturities 477 408
OTHER NONCURRENT LIABILITIES 2,841 2,795
-------- --------
Total liabilities 16,492 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 4,008,398 shares
at September 1, 2001 and 4,011,396
shares at June 2, 2001 (excluding 44,858
and 41,860 shares held in treasury at
September 1, 2001 and June 2, 2001,
respectively) 401 401
Class B (non-voting), par value $.10 per
share - authorized, 10,000,000 shares;
issued and outstanding 5,841,330 shares
at September 1, 2001 and 5,843,426
shares at June 2, 2001 (excluding
397,347 and 395,251 shares held in
treasury at September 1, 2001 and June
2, 2001, respectively) 584 584
Additional paid-in capital 20,041 20,066
Retained earnings 63,026 63,138
Accumulated other comprehensive income (loss) (3,695) (3,185)
-------- --------
Total stockholders' equity 80,357 81,004
-------- --------
$ 96,849 $ 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
-------------------------
September 1, September 2,
2001 2000
------ ------
Net sales $ 27,641 $ 27,733
Cost of goods sold 16,971 16,264
-------- --------
Gross profit 10,670 11,469
-------- --------
Operating expenses
Selling and administrative 9,465 8,696
Loss on sale of subsidiary and
related assets 872
Research and development 1,481 1,272
-------- --------
Total operating expenses 10,946 10,840
-------- --------
Operating profit (loss) (276) 629
Other income (expense)
Interest income 152 226
Interest expense (70) (71)
Other, net 120 18
-------- --------
Earnings (loss) before income taxes (74) 802
Income tax provision (benefit) 38 (1,040)
-------- --------
NET EARNINGS (LOSS) $ (112) $ 1,842
======== ========
Earnings (loss) per common share
Basic $ (.01) $ .19
======== ========
Diluted $ (.01) $ .18
======== ========
Weighted average common shares
Basic 9,853 9,915
======== ========
Diluted 9,853 10,245
======== ========
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
Thirteen weeks ended September 1, 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 loss
-------- ------ --------- ------ --------- -------- ------------- ------- -------
Balance at June 2, 2001 4,011,396 $ 401 5,843,426 $ 584 $ 20,066 $63,138 $ (3,185) $ 81,004
Compensation related to
stock option plans 2 2
Purchase of treasury stock (2,998) (2,096) (27) (27)
Net loss (112) (112) $(112)
Unrealized holding loss on debt
and equity securities (445) (445) (445)
Foreign currency translation
adjustments (65) (65) (65)
--------- ------ --------- ------ -------- ------- -------- -------- -----
Comprehensive loss $(622)
=====
Balance at September 1, 2001 4,008,398 $ 401 5,841,330 $ 584 $ 20,041 $63,026 $ (3,695) $ 80,357
========= ====== ========= ====== ======== ======= ======== ========
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)
Thirteen weeks ended
------------------------
September 1, September 2,
2001 2000
------ ------
Cash flows from operating activities:
Net earnings (loss) $ (112) $ 1,842
Adjustments to reconcile net earnings
(loss) to net cash provided by operating
activities
Depreciation and amortization 707 704
Impairment of long-lived assets 450
Provision for (reduction in) doubtful
accounts (28) 33
Loss on sale of subsidiary and
related assets 872
Deferred income tax provision (benefit) 2 (1,731)
Other non-cash items 2 1
Changes in operating assets and
liabilities, net of sale
Accounts receivable 3,087 1,076
Inventories (1,174) 210
Other current assets 1,516 (267)
Other assets (152) (81)
Accounts payable 569 (264)
Accrued liabilities (676) (979)
Accrued income taxes 25 256
Other noncurrent liabilities 50 48
-------- --------
Net cash provided by operating
activities 3,816 2,170
-------- --------
Cash flows from investing activities:
Additions to property, plant and
equipment, net (762) (851)
Proceeds from sale of subsidiary and
related assets 3,250
Investment at cost (600)
Available-for-sale securities
Purchases (26,240) (24,273)
Proceeds from sale 26,127 17,960
-------- --------
Net cash used in investing activities (1,475) (3,914)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of debt 147
Repayments of debt (75) (61)
Proceeds from exercise of stock options,
including related income tax benefits 16
Purchase of treasury stock (27) (147)
-------- --------
Net cash provided by (used in)
financing activities 45 (192)
-------- --------
-7-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
(in thousands)
Thirteen weeks ended
------------------------
September 1, September 2,
2001 2000
------ ------
Effect of exchange rate changes on
cash and cash equivalents $ (7) $ (27)
------- -------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,379 (1,963)
Cash and cash equivalents
Beginning of period 4,391 5,583
------- -------
End of period $ 6,770 $ 3,620
======= =======
Supplemental disclosures of cash
flow information:
Cash paid (refunded) during the period for:
Interest $ 22 $ 21
======= =======
Income taxes paid (refunded) (net of $815
in refunds in 2001) $ (591) $ 511
======= =======
The accompanying notes are an integral part of these statements.
-8-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 1, 2001 and September 2, 2000
(unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of September 1, 2001, the consolidated
statement of stockholders' equity and comprehensive loss for the period
ended September 1, 2001, and the consolidated statements of operations and
cash flows for the periods ended September 1, 2001 and September 2, 2000,
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 September 1, 2001 (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 September 1, 2001 and
September 2, 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. Potential common shares were
excluded from the diluted calculation for the thirteen weeks ended September
1, 2001, as their effects were anti-dilutive.
The following table sets forth the reconciliation of the weighted average
number of common shares:
Thirteen weeks ended
------------------------
September 1, September 2,
2001 2000
------ ------
(in thousands)
Basic 9,853 9,915
Effect of dilutive securities
(stock options) 330
------ ------
Diluted 9,853 10,245
====== ======
-9-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 1, 2001 and September 2, 2000
(unaudited)
NOTE B - EARNINGS PER COMMON SHARE (continued)
Excluded from the calculation of earnings per common share, are options to
purchase 1,071,777 and 462,915 shares of common stock at September 1, 2001
and September 2, 2000, respectively, as their inclusion would be
anti-dilutive.
NOTE C - 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 D - 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 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 weeks ended September 2, 2000 would have changed by
approximately $3,000, net of tax, 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)
September 1, 2001 and September 2, 2000
(unaudited)
NOTE E - COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss), net of related tax, are as
follows:
Thirteen weeks ended
------------------------
September 1, September 2,
2001 2000
------ ------
(in thousands)
Net earnings (loss) $ (112) $ 1,842
Unrealized holding loss on debt
and equity securities (445) (1,238)
Foreign currency translation
adjustments:
Arising during the period (65) (80)
Reclassification adjustment for sale
of investment in a foreign entity 994
------- -------
Comprehensive income (loss) $ (622) $ 1,518
======= =======
The components of accumulated other comprehensive income (loss), net of
related tax, are as follows:
September 1, June 2,
2001 2001
------ ------
(in thousands)
Unrealized holding gain (loss) on debt
and equity securities $ (247) $ 198
Cumulative translation adjustments (3,448) (3,383)
------- -------
Accumulated other comprehensive income
(loss) $(3,695) $(3,185)
======= =======
NOTE F - 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 (continued)
September 1, 2001 and September 2, 2000
(unaudited)
NOTE G - 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 the Company's 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 H - 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 thirteen weeks 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 believed that the market for this technology was
significantly less than previously projected. The impairment charge
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 charge had no impact on the Company's cash flow
or its ability to generate cash flow in the future. For the thirteen weeks
ended September 2, 2000, the impairment charge is included in the
consolidated statement of operations under the caption "Selling and
administrative".
NOTE I - INVENTORIES
Inventories consist of the following:
September 1, June 2,
2001 2001
------ ------
(in thousands)
Finished goods $11,008 $11,093
Work in process 1,986 1,826
Raw materials 10,201 9,102
------- -------
$23,195 $22,021
======= =======
-12-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 1, 2001 and September 2, 2000
(unaudited)
NOTE J - 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 K - COMMON STOCK
Under the 1983 and 1984 Stock Option Plans, options for 8,497 shares were
forfeited at prices ranging from $5.39 to $8.58 per share, options for 1,194
shares expired at $9.58 per share, and no options were granted or exercised
during the thirteen weeks ended September 1, 2001. 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 thirteen weeks
ended September 1, 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
September 1, 2001, the Company had repurchased 44,858 shares of Class A
Common Stock and 397,347 shares of Class B Common Stock for approximately
$3,084,000.
NOTE L - 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.
-13-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 1, 2001 and September 2, 2000
(unaudited)
NOTE L - 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
------------------------
September 1, September 2,
2001 2000
------ ------
(in thousands)
Net sales to external customers
Diagnostic products
Contrast systems $ 14,847 $ 15,804
Non-contrast systems 6,220 6,116
-------- --------
Total Diagnostic products 21,067 21,920
AngioDynamics products 6,574 5,813
-------- --------
Total net sales to external customers $ 27,641 $ 27,733
======== ========
Intersegment net sales
Diagnostic products $ -- $ --
AngioDynamics products 169 190
-------- --------
Total intersegment net sales $ 169 $ 190
======== ========
Operating profit (loss)
Diagnostic products $ (478) $ 1,227
AngioDynamics products 205 (550)
Eliminations (3) (48)
-------- --------
Total operating profit (loss) $ (276) $ 629
======== ========
Net earnings (loss)
Diagnostic products $ (82) $ 1,184
AngioDynamics products (27) 706
Eliminations (3) (48)
-------- --------
Total net earnings (loss) $ (112) $ 1,842
======== ========
September 1, June 2,
2001 2001
------ ------
(in thousands)
Assets
Diagnostic products $107,488 $108,463
AngioDynamics products 17,310 16,782
Eliminations (27,949) (27,790)
-------- --------
Total assets $ 96,849 $ 97,455
======== ========
-14-
E-Z-EM, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quarters ended September 1, 2001 and September 2, 2000
------------------------------------------------------
The Company's quarters ended September 1, 2001 and September 2, 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, 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 September 1, 2001
-------------------------------
Unaffiliated customer sales $ 21,067 $ 6,574 -- $ 27,641
Intersegment sales -- 169 ($169) --
Gross profit (loss) 7,492 3,181 (3) 10,670
Operating profit (loss) (478) 205 (3) (276)
Quarter ended September 2, 2000
-------------------------------
Unaffiliated customer sales $21,920 $ 5,813 -- $27,733
Intersegment sales -- 190 ($190) --
Gross profit (loss) 8,708 2,809 (48) 11,469
Operating profit (loss) 1,227 (550) (48) 629
Diagnostic Products
-------------------
Diagnostic segment operating results for the current quarter declined by
$1,705,000 due to decreased sales and gross profit and increased operating
expenses. Net sales decreased 4%, or $853,000, due to a decline in sales of
contrast systems domestically of $405,000 and internationally of $552,000,
partially offset by increased sales of non-contrast systems of $104,000. The
decline in domestic sales of contrast systems resulted from lower demand. The
decline in international sales of contrast systems was due, in large part, to
the strength of the U.S. dollar, which lessened the demand for export sales and
adversely affected the translation of European, Japanese and Canadian sales to
U.S. dollars for financial reporting purposes. Price increases had no effect on
net sales for the current quarter. Gross profit expressed as a percentage of net
sales declined to 36% for the current quarter, from 40% for the comparable
quarter of the prior year due primarily to decreased production throughput at
the Company's Westbury facility. Increased operating expenses of $489,000 can be
attributed, in large part, to the establishment of a dedicated domestic sales
force for the Company's electromechanical injector line and increased
administrative and research and development expenses. Last year's first quarter
included an asset impairment charge of $450,000 for acquired patent rights to an
oral magnetic resonance imaging contrast agent.
-15-
AngioDynamics Products
----------------------
AngioDynamics segment operating results improved by $755,000 in the current
quarter as a result of the Company recognizing a loss on sale of AngioDynamics
Ltd. and related assets of $872,000 in the comparable period of last year.
Excluding the effect of the loss on sale, AngioDynamics segment operating
results declined by $117,000 due to increased operating expenses, partially
offset by increased sales and improved gross profit. Net sales increased 13%, or
$761,000, due primarily to increased sales of image-guided vascular access
products, stents and angioplasty products in the domestic marketplace, partially
offset by a decline in international sales resulting, in part, from the
Company's exit from the cardiovascular market in the first quarter of the prior
year. Gross profit expressed as a percentage of net sales improved slightly for
the current quarter as compared to the comparable quarter of the prior year due
primarily to 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 $489,000 due, in large
part, to an expansion of the domestic sales force.
Consolidated Results of Operations
----------------------------------
For the quarter ended September 1, 2001, the Company reported a net loss of
$112,000, or ($.01) per common share on both a basic and diluted basis, as
compared to net earnings of $1,842,000, or $.19 and $.18 per common share on a
basic and diluted basis, respectively, for the comparable period of last year.
Results for the current quarter were adversely affected by decreased sales and
gross profit and increased operating expenses in the Diagnostic segment. For the
comparable quarter 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 for the quarter ended September 1, 2001 decreased $92,000, as
compared to the quarter ended September 2, 2000. Decreased sales of contrast
systems of $957,000 were virtually offset by increased sales of AngioDynamics
products of $761,000 and non-contrast systems of $104,000. The decline in sales
of contrast systems was experienced both domestically and internationally. The
domestic sales decline resulted from lower demand. The international sales
decline was due, in large part, to the strength of the U.S. dollar, which
lessened the demand for export sales and adversely affected the translation of
European, Japanese and Canadian sales to U.S. dollars for financial reporting
purposes. The increase in sales of AngioDynamics products resulted from
increased sales of image-guided vascular access products, stents and angioplasty
products in the domestic marketplace. Price increases had no effect on net sales
for the current quarter.
Net sales in international markets, including direct exports from the U.S.,
decreased 13%, or $1,113,000, for the current quarter from the comparable period
of last year due to decreased sales of contrast systems of $552,000,
AngioDynamics products of $476,000 and non-contrast systems of $85,000. The
decline in sales of contrast systems was due, in large part, to the strength of
the U.S. dollar, which lessened the demand for export sales and adversely
affected the translation of European, Japanese and Canadian sales to U.S.
dollars for financial reporting purposes. The lower sales of AngioDynamics
products resulted, in part, from the Company's exit from the cardiovascular
market in the first quarter of the prior year.
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Gross profit expressed as a percentage of net sales decreased to 39% for
the current quarter from 41% for the comparable quarter 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 resulted primarily from decreased
production throughput at the Company's Westbury facility. The improved
AngioDynamics gross profit expressed as a percentage of net sales was due
primarily to reduced manufacturing overhead costs resulting from the sale of the
Irish facility in the first quarter of the prior year.
Selling and administrative ("S&A") expenses were $9,465,000 for the quarter
ended September 1, 2001 compared to $8,696,000 for the quarter ended September
2, 2000. This increase of $769,000, or 9%, for the current quarter was due to
increased AngioDynamics S&A expenses of $513,000 and increased Diagnostic S&A
expenses of $256,000. Increased AngioDynamics S&A expenses resulted, in large
part, from an expansion of its domestic sales force. Increased Diagnostic S&A
expenses was due primarily to the establishment of a dedicated domestic sales
force for the Company's electromechanical injector line and increased
administrative expenses. Last year's first quarter included the aforementioned
asset impairment charge of $450,000.
Research and development ("R&D") expenditures increased 16% for the current
quarter to $1,481,000, or 5% of net sales, from $1,272,000, or 5% of net sales,
for the comparable quarter of the prior year due to increased spending relating
to the Company's electromechanical injector line. Of the R&D expenditures for
the current quarter, approximately 47% relate to non-contrast systems, which
includes the Company's electromechanical injector line, 24% to AngioDynamics
projects, 9% to contrast systems, 4% to other projects and 16% to general
regulatory costs. R&D expenditures are expected to continue at approximately
current levels.
Other income, net of other expenses, totaled $202,000 of income for the
current quarter compared to $173,000 of income for the comparable period of last
year. This increase was due primarily to an improvement in foreign currency
exchange gains and losses of $99,000, partially offset by decreased interest
income of $71,000 resulting, in part, from lower interest rates.
For the quarter ended September 1, 2001, the Company reported an income tax
provision of $38,000 against a loss before income taxes of $74,000 due primarily
to non-deductible expenses. For the quarter ended September 2, 2000, the Company
reported an income tax benefit of $1,040,000 against earnings before income
taxes of $802,000 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 quarter ended September 1, 2001, capital expenditures were funded
by cash provided by operations. The Company's policy has been to fund capital
requirements without incurring significant debt. At September 1, 2001, debt
(notes payable, current maturities of long-term debt and long-term debt) was
$1,493,000 as compared to $1,418,000 at June 2, 2001. The Company has available
$1,290,000 under a bank line of credit of which no amounts were outstanding at
September 1, 2001.
At September 1, 2001, 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 5.20 to 1, with net working
capital of $55,349,000, at September 1, 2001, as compared to a current ratio of
5.24 to 1, with net working capital of $56,184,000, at June 2, 2001.
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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 September 1, 2001, the
Company had repurchased 44,858 shares of Class A Common Stock and 397,347 shares
of Class B Common Stock for approximately $3,084,000.
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 on 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
income (loss) in stockholders' equity. Assuming a hypothetical aggregate change
in the foreign currencies versus the U.S. dollar exchange rates of 10% at
September 1, 2001, the Company's assets and liabilities would increase or
decrease by $2,129,000 and $577,000, respectively, and the Company's net sales
and net earnings would increase or decrease by $1,876,000 and $24,000,
respectively, on an annual basis.
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
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of 10% at September 1, 2001, results of operations would be favorably or
unfavorably impacted by approximately $611,000 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 $13,840,000. The
bonds bear interest at a floating rate established weekly. For the quarter ended
September 1, 2001, the after-tax interest rate on the bonds approximated 2.6%.
Each 100 basis point (1%) fluctuation in interest rates will increase or
decrease interest income on the bonds by approximately $138,000 on an annual
basis.
As the Company's principal amount of fixed interest rate financing
approximated $1,493,000 at September 1, 2001, a change in interest rates would
not materially impact results of operations or financial position. At September
1, 2001, the Company did not maintain any variable interest rate financing.
-19-
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 September 1,
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 October 16, 2001 /s/ Anthony A. Lombardo
-------------------- -------------------------------------
Anthony A. Lombardo, President,
Chief Executive Officer and Director
Date October 16, 2001 /s/ Dennis J. Curtin
-------------------- -------------------------------------
Dennis J. Curtin, Senior Vice
President - Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
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