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 December 2, 2000
----------------
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.
------------------------------------------------------
(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 January 10, 2001, there were 4,012,969 shares of the issuer's Class A
Common Stock outstanding and 5,872,198 shares of the issuer's Class B Common
Stock outstanding.
-1-
E-Z-EM, Inc. and Subsidiaries
INDEX
-----
Part I: Financial Information Page
------- --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets - December 2, 2000 and
June 3, 2000 3 - 4
Consolidated Statements of Earnings - thirteen and
twenty-six weeks ended December 2, 2000 and
November 27, 1999 5
Consolidated Statement of Stockholders' Equity and
Comprehensive Income - twenty-six weeks ended
December 2, 2000 6
Consolidated Statements of Cash Flows - twenty-six weeks
ended December 2, 2000 and November 27, 1999 7 - 8
Notes to Consolidated Financial Statements 9 - 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14 - 19
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 19 - 20
Part II: Other Information
-------- -----------------
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 21
-2-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 2, June 3,
ASSETS 2000 2000
------- -------
(unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 4,241 $ 5,583
Debt and equity securities 13,677 8,051
Accounts receivable, principally
trade, net 20,402 22,256
Inventories 25,525 26,856
Other current assets 4,608 4,530
------- -------
Total current assets 68,453 67,276
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 19,800 21,721
COST IN EXCESS OF FAIR VALUE OF NET ASSETS
ACQUIRED, less accumulated amortization 381 407
INTANGIBLE ASSETS, less accumulated
amortization 1,389 2,151
DEBT AND EQUITY SECURITIES 1,123 4,067
OTHER ASSETS 5,393 3,463
------- -------
$96,539 $99,085
======= =======
The accompanying notes are an integral part of these statements.
-3-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
December 2, June 3,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 2000
-------- --------
(unaudited) (audited)
CURRENT LIABILITIES
Notes payable $ 1,001 $ 1,080
Current maturities of long-term debt 96 103
Accounts payable 4,911 6,384
Accrued liabilities 7,010 7,798
Accrued income taxes 202 477
-------- --------
Total current liabilities 13,220 15,842
LONG-TERM DEBT, less current maturities 394 453
OTHER NONCURRENT LIABILITIES 2,633 2,756
-------- --------
Total liabilities 16,247 19,051
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.10 per
share - authorized, 1,000,000 shares;
issued, none
Common stock
Class A (voting), par value $.10 per share - authorized, 6,000,000
shares; issued and outstanding 4,013,147 shares at December 2, 2000
and 4,015,111 shares at June 3, 2000 (excluding 40,109 and 38,145
shares held in treasury at December 2, 2000 and June 3, 2000,
respectively) 401 401
Class B (non-voting), par value $.10 per share - authorized, 10,000,000
shares; issued and outstanding 5,866,724 shares at December 2, 2000
and 5,909,277 shares at June 3, 2000 (excluding 365,126 and 313,748
shares held in treasury at December 2, 2000 and June 3, 2000,
respectively) 587 591
Additional paid-in capital 20,207 20,521
Retained earnings 62,555 59,852
Accumulated other comprehensive income (loss) (3,458) (1,331)
-------- --------
Total stockholders' equity 80,292 80,034
-------- --------
$ 96,539 $ 99,085
======== ========
The accompanying notes are an integral part of these statements.
-4-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
(in thousands, except per share data)
Thirteen weeks ended Twenty-six weeks ended
------------------------------- -------------------------------
December 2, November 27, December 2, November 27,
2000 1999 2000 1999
-------- -------- -------- --------
Net sales $ 26,261 $ 27,973 $ 53,565 $ 55,170
Cost of goods sold 14,219 14,739 29,420 29,853
-------- -------- -------- --------
Gross profit 12,042 13,234 24,145 25,317
-------- -------- -------- --------
Operating expenses
Selling and administrative 9,471 9,332 18,801 17,669
Loss on sale of subsidiary
and related assets 872
Research and development 1,389 1,171 2,661 2,372
-------- -------- -------- --------
Total operating expenses 10,860 10,503 22,334 20,041
-------- -------- -------- --------
Operating profit 1,182 2,731 1,811 5,276
Other income (expense)
Interest income 230 146 456 291
Interest expense (67) (58) (138) (119)
Other, net 7 (19) 25 62
-------- -------- -------- --------
Earnings before income
taxes 1,352 2,800 2,154 5,510
Income tax provision (benefit) 491 983 (549) 1,895
-------- -------- -------- --------
NET EARNINGS $ 861 $ 1,817 $ 2,703 $ 3,615
======== ======== ======== ========
Earnings per common share
Basic $ .09 $ .18 $ .27 $ .36
======== ======== ======== ========
Diluted $ .08 $ .18 $ .26 $ .35
======== ======== ======== ========
Weighted average common shares
Basic 9,878 10,074 9,897 10,074
======== ======== ======== ========
Diluted 10,192 10,217 10,218 10,223
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
-5-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Twenty-six weeks ended December 2, 2000
(unaudited)
(in thousands, except share data)
Accumulated
other
Class A Class B compre-
common stock common stock Additional hensive Compre-
---------------------- -------------------- paid-in Retained income hensive
Shares Amount Shares Amount capital earnings (loss) Total income
----------- -------- ----------- ------ -------- -------- ------- ------- ------
Balance at June 3, 2000 4,015,111 $ 401 5,909,277 $ 591 $ 20,521 $59,852 $(1,331) $80,034
Exercise of stock options 2,825 14 14
Income tax benefits on
stock options exercised 1 1
Compensation related to
stock option plans 3 3
Issuance of stock 6,000 1 40 41
Purchase of treasury stock (1,964) (51,378) (5) (372) (377)
Net earnings 2,703 2,703 $2,703
Unrealized holding loss on debt
and equity securities (2,399) (2,399) (2,399)
Foreign currency translation
adjustments 272 272 272
----------- -------- ----------- ----- -------- ------- ------- ------- ------
Comprehensive income $ 576
======
Balance at December 2, 2000 4,013,147 $ 401 5,866,724 $ 587 $ 20,207 $62,555 $(3,458) $80,292
=========== ======== =========== ===== ======== ======= ======= =======
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)
Twenty-six weeks ended
----------------------------
December 2, November 27,
2000 1999
------ ------
Cash flows from operating activities:
Net earnings $ 2,703 $ 3,615
Adjustments to reconcile net earnings
to net cash provided by operating
activities
Depreciation and amortization 1,388 1,431
Impairment of long-lived assets 450
Provision for doubtful accounts 43 76
Loss on sale of subsidiary and
related assets 872
Deferred income tax (benefit) provision (1,723) 31
Other non-cash items 44 73
Changes in operating assets and
liabilities, net of sale
Accounts receivable 1,586 (1,999)
Inventories 51 (1,197)
Other current assets 190 594
Other assets (188) (165)
Accounts payable (1,114) 1,258
Accrued liabilities (740) 298
Accrued income taxes (291) (164)
Other noncurrent liabilities 95 74
------ ------
Net cash provided by operating
activities 3,366 3,925
------ ------
Cash flows from investing activities:
Additions to property, plant and
equipment, net (1,451) (985)
Proceeds from sale of subsidiary and
related assets 3,250
Available-for-sale securities
Purchases (40,151) (20,278)
Proceeds from sale 34,525 16,620
------ ------
Net cash used in investing activities (3,827) (4,643)
------ ------
Cash flows from financing activities:
Repayments of debt (121) (904)
Proceeds from issuance of debt 19 26
Proceeds from exercise of stock options,
including related income tax benefits 15 87
Purchase of treasury stock (377) (291)
Proceeds from issuance of stock in connection
with the stock purchase plan 6
------ ------
Net cash used in financing activities (464) (1,076)
------ ------
-7-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
(in thousands)
Twenty-six weeks ended
---------------------------
December 2, November 27,
2000 1999
------- -------
Effect of exchange rate changes on
cash and cash equivalents $ (417) $ 133
------- -------
DECREASE IN CASH AND CASH
EQUIVALENTS (1,342) (1,661)
Cash and cash equivalents
Beginning of period 5,583 8,073
------- -------
End of period $ 4,241 $ 6,412
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 38 $ 42
======= =======
Income taxes $ 1,830 $ 1,983
======= =======
The accompanying notes are an integral part of these statements.
-8-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 2, 2000 and November 27, 1999
(unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of December 2, 2000, the consolidated
statement of stockholders' equity and comprehensive income for the period
ended December 2, 2000, and the consolidated statements of earnings and
cash flows for the periods ended December 2, 2000 and November 27, 1999,
have been prepared by the Company without audit. The consolidated balance
sheet as of June 3, 2000 was derived from audited consolidated financial
statements. In the opinion of management, all adjustments (which include
only normally recurring adjustments) necessary to present fairly the
financial position, changes in stockholders' equity and comprehensive
income, results of operations and cash flows at December 2, 2000 (and for
all periods presented) have been made.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted. It is suggested that
these consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the fiscal 2000 Annual
Report on Form 10-K filed by the Company on September 1, 2000. The results
of operations for the periods ended December 2, 2000 and November 27, 1999
are not necessarily indicative of the operating results for the respective
full years.
The consolidated financial statements include the accounts of E-Z-EM, Inc.
and all 100%-owned subsidiaries (the "Company"). All significant
intercompany balances and transactions have been eliminated.
NOTE B - EARNINGS PER COMMON SHARE
Basic earnings per share are based on the weighted average number of common
shares outstanding without consideration of potential common stock. Diluted
earnings per share are based on the weighted average number of common and
potential common shares outstanding. The calculation takes into account the
shares that may be issued upon exercise of stock options, reduced by the
shares that may be repurchased with the funds received from the exercise,
based on the average price during the period.
The following table sets forth the reconciliation of the weighted average
number of common shares:
Thirteen weeks ended Twenty-six weeks ended
---------------------------- ----------------------------
December 2, November 27, December 2, November 27,
2000 1999 2000 1999
------ ------ ------ ------
(in thousands)
Basic 9,878 10,074 9,897 10,074
Effect of dilutive
securities (stock
options) 314 143 321 149
------ ------ ------ ------
Diluted 10,192 10,217 10,218 10,223
====== ====== ====== ======
-9-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 2, 2000 and November 27, 1999
(unaudited)
NOTE B - EARNINGS PER COMMON SHARE (continued)
Excluded from the calculation of earnings per common share, are options to
purchase 462,915 and 791,509 shares of common stock at December 2, 2000 and
November 27, 1999, respectively, as their inclusion would be anti-dilutive.
NOTE C - EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which requires entities
to recognize all derivatives in their financial statements as either assets
or liabilities measured at fair value. SFAS No. 133 also specifies new
methods of accounting for hedging transactions, prescribes the items and
transactions that may be hedged and specifies detailed criteria to be met
to qualify for hedge accounting. SFAS No. 133, as amended by SFAS No. 137,
is effective for fiscal years beginning after September 15, 2000. The
Company currently does not use derivative instruments as defined by SFAS
No. 133. If the Company continues not to use these derivative instruments
by the effective date of SFAS No. 133, the adoption of this pronouncement
will have no effect on the Company's results of operations or financial
position.
NOTE D - COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, are as follows:
Twenty-six weeks ended
------------------------------
December 2, November 27,
2000 1999
------- -------
(in thousands)
Net earnings $ 2,703 $ 3,615
Unrealized holding gain (loss) on
debt and equity securities (2,399) 1,252
Foreign currency translation
adjustments 272 (203)
------- -------
Comprehensive income $ 576 $ 4,664
======= =======
The components of accumulated other comprehensive income (loss), net of
related tax, are as follows:
December 2, June 3,
2000 2000
------- -------
(in thousands)
Unrealized holding gain (loss) on debt
and equity securities $ (335) $ 2,064
Cumulative translation adjustments (3,123) (3,395)
------- -------
Accumulated other comprehensive income
(loss) $(3,458) $(1,331)
======= =======
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E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 2, 2000 and November 27, 1999
(unaudited)
NOTE E - SALE OF SUBSIDIARY AND RELATED ASSETS
On July 27, 2000, AngioDynamics, Inc. entered into two agreements to sell
all the capital stock of AngioDynamics Ltd., a wholly-owned subsidiary, and
certain other assets to AngioDynamics Ltd.'s management. AngioDynamics
Ltd., located in Ireland, manufactured cardiovascular and interventional
radiology products. The aggregate consideration paid was $3,250,000 in
cash. The sale was the culmination of AngioDynamics' strategic decision to
exit the cardiovascular market and to focus entirely on the interventional
radiology marketplace. As a result of this sale, the Company recognized a
pre-tax loss of approximately $872,000 during the quarter ended September
2, 2000. The aforementioned pre-tax loss includes the effect of previously
unrealized losses on foreign currency translation of approximately $994,000
and the write-off of approximately $673,000 in inventory and intangibles
related to the cardiovascular product line, both of which were non-cash
charges. Further, AngioDynamics entered into a manufacturing agreement, a
distribution agreement and a royalty agreement with the buyer. Under the
two-year manufacturing agreement, the buyer will be manufacturing certain
interventional radiology products sold by AngioDynamics.
NOTE F - ASSET IMPAIRMENT CHARGE
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the
Company's Diagnostic operating segment recorded an impairment charge during
the quarter ended September 2, 2000 of $450,000 relating to certain
acquired patent rights to an oral magnetic resonance imaging contrast
agent. The Company determined that the revenue potential of this technology
was impaired, since it now believes that the market for this technology is
significantly less than previously projected. The impairment charge
represents the difference between the carrying value of the intangible
asset and the fair market value of this asset based on estimated future
discounted cash flows. The charge had no impact on the Company's cash flow
or its ability to generate cash flow in the future. The impairment charge
is included in the consolidated statement of earnings under the caption
"Selling and administrative".
NOTE G - INVENTORIES
Inventories consist of the following:
December 2, June 3,
2000 2000
------- -------
(in thousands)
Finished goods $13,496 $13,246
Work in process 1,797 2,813
Raw materials 10,232 10,797
------- -------
$25,525 $26,856
======= =======
-11-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 2, 2000 and November 27, 1999
(unaudited)
NOTE H - INCOME TAXES
During the thirteen weeks ended September 2, 2000, the Company reduced its
valuation allowance primarily to recognize deferred tax assets of
approximately $1,344,000. Continued and projected future profitability of
the Company's U.S. operations, including those of AngioDynamics, made it
more likely than not that certain deferred tax assets would be realized
through future taxable earnings.
NOTE I - COMMON STOCK
Under the 1983 and 1984 Stock Option Plans, options for 2,825 shares were
exercised at prices ranging from $4.31 to $5.63 per share, options for
8,449 shares were forfeited at prices ranging from $5.39 to $5.63 per
share, and no options were granted or expired during the twenty-six weeks
ended December 2, 2000. Under the 1997 AngioDynamics Stock Option Plan,
options for .06 shares were granted at $40,000 per share, options for 3.81
shares were forfeited at $40,000 per share, and no options were exercised
or expired during the twenty- six weeks ended December 2, 2000.
In January 1999, the Board of Directors authorized the repurchase of up to
500,000 shares of the Company's Class B Common Stock at an aggregate
purchase price of up to $2,000,000. In October 1999, the Board modified the
program to include the Company's Class A Common Stock. In February 2000,
the Board further modified the program to increase the aggregate purchase
price of Class A and Class B Common Stock by an additional $2,000,000. As
of December 2, 2000, the Company had repurchased 40,109 shares of Class A
Common Stock and 365,126 shares of Class B Common Stock for approximately
$2,880,000.
NOTE J - OPERATING SEGMENTS
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". The statement redefines
how operating segments are determined and requires disclosure of certain
financial and descriptive information about a company's operating segments.
The Company is engaged in the manufacture and distribution of a wide
variety of products which are classified into two operating segments:
Diagnostic products and AngioDynamics products. Diagnostic products
encompass both contrast systems, consisting of barium sulfate formulations
and related medical devices used in X-ray, CT-scanning, ultrasound and MRI
imaging examinations, and non-contrast systems, including radiological
medical devices, custom contract pharmaceuticals, gastrointestinal
cleansing laxatives, X-ray protection equipment, and immunoassay tests.
AngioDynamics products include angiographic, thrombolytic, image-guided
vascular access, angioplasty, stents, and drainage medical devices used in
the interventional radiology marketplace.
-12-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 2, 2000 and November 27, 1999
(unaudited)
NOTE J - OPERATING SEGMENTS (continued)
The Company's chief operating decision maker utilizes operating segment net
earnings (loss) information in assessing performance and making overall
operating decisions and resource allocations. Information about the
Company's segments is as follows:
Thirteen weeks ended Twenty-six weeks ended
------------------------------ ------------------------------
December 2, November 27, December 2, November 27,
2000 1999 2000 1999
-------- -------- -------- --------
(in thousands)
Net sales to external
customers
Diagnostic products
Contrast systems $ 15,297 $ 17,178 $ 30,912 $ 33,205
Non-contrast systems 5,930 6,269 12,018 13,098
-------- -------- -------- --------
Total Diagnostic products 21,227 23,447 42,930 46,303
AngioDynamics products 5,034 4,526 10,635 8,867
-------- -------- -------- --------
Total net sales to external
customers $ 26,261 $ 27,973 $ 53,565 $ 55,170
======== ======== ======== ========
Intersegment net sales
Diagnostic products $ 1 $ (189) $ 1 $ 2
AngioDynamics products 162 167 352 325
-------- -------- -------- --------
Total intersegment net sales $ 163 $ (22) $ 353 $ 327
======== ======== ======== ========
Operating profit (loss)
Diagnostic products $ 887 $ 3,127 $ 2,114 $ 6,056
AngioDynamics products 316 (408) (234) (816)
Eliminations (21) 12 (69) 36
-------- -------- -------- --------
Total operating profit $ 1,182 $ 2,731 $ 1,811 $ 5,276
======== ======== ======== ========
Net earnings (loss)
Diagnostic products $ 842 $ 2,327 $ 2,026 $ 4,637
AngioDynamics products 40 (522) 746 (1,058)
Eliminations (21) 12 (69) 36
-------- -------- -------- --------
Total net earnings $ 861 $ 1,817 $ 2,703 $ 3,615
======== ======== ======== ========
December 2, June 3,
2000 2000
-------- --------
(in thousands)
Assets
Diagnostic products $107,847 $111,046
AngioDynamics products 16,560 17,573
Eliminations (27,868) (29,534)
-------- --------
Total assets $ 96,539 $ 99,085
======== ========
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E-Z-EM, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quarters ended December 2, 2000 and November 27, 1999
-----------------------------------------------------
The Company's quarters ended December 2, 2000 and November 27, 1999 both
represent thirteen weeks.
Results of Operations
---------------------
Segment Overview
----------------
The Company operates in two industry segments: Diagnostic products and
AngioDynamics products. The Diagnostic products operating segment includes both
contrast systems and non-contrast systems. The AngioDynamics products operating
segment includes angiographic products, thrombolytic products, image-guided
vascular access products, angioplasty products, stents, and drainage products
used in the interventional radiology marketplace.
Diagnostic AngioDynamics Eliminations Total
---------- ------------- ------------ -----
(in thousands)
Quarter ended December 2, 2000
------------------------------
Unaffiliated customer sales $ 21,227 $ 5,034 -- $26,261
Intersegment sales 1 162 ($163) --
Gross profit 9,417 2,646 (21) 12,042
Operating profit (loss) 887 316 (21) 1,182
Quarter ended November 27, 1999
-------------------------------
Unaffiliated customer sales $ 23,447 $ 4,526 -- $27,973
Intersegment sales (189) 167 $ 22 --
Gross profit 11,123 2,100 11 13,234
Operating profit (loss) 3,127 (408) 12 2,731
Diagnostic Products
-------------------
Diagnostic segment operating results for the current quarter declined by
$2,240,000 due primarily to decreased sales and gross profit and increased
operating expenses. Net sales decreased 9%, or $2,220,000, due to lower demand
for sales of both contrast systems and non-contrast systems. The decline in
contrast system sales resulted, in part, from the stocking of higher inventory
levels by the Company's distributors in the second quarter of the prior year, in
anticipation of potential Year 2000 ("Y2K") related supply issues. The decline
in sales of non-contrast systems resulted from decreased custom contract sales.
Price increases accounted for approximately 3% of net sales for the current
quarter. Gross profit expressed as a percentage of net sales declined to 44% for
the current quarter from 48% for the comparable period of the prior year due
primarily to decreased production throughput and increased provision for
inventory reserves of $200,000, partially offset by the effects of sales price
increases. Increased operating expenses of $534,000 are the result of the
expansion of the domestic sales force, increased distribution costs and
increased research and development expenses.
AngioDynamics Products
----------------------
AngioDynamics segment operating results for the current quarter improved by
$724,000 due to increased sales, improved gross profit and decreased operating
expenses of $178,000. Net sales increased 11%, or $508,000, due to sales of
-14-
several new products, namely Abscession(TM) fluid drainage catheters,
VistaFlex(TM) platinum biliary stents, and Workhorse(TM) PTA balloon catheters,
introduced in the second quarter of last fiscal year. Gross profit expressed as
a percentage of net sales improved to 51% for the current quarter from 45% for
the comparable quarter of the prior year due primarily to increased production
throughput at the Glens Falls facility and reduced unabsorbed overhead costs
resulting from the sale of the Irish facility in the first quarter of the
current year.
Consolidated Results of Operations
----------------------------------
For the quarter ended December 2, 2000, the Company reported net earnings
of $861,000, or $.09 and $.08 per common share on a basic and diluted basis,
respectively, compared to net earnings of $1,817,000, or $.18 per common share
on both a basic and diluted basis, for the comparable period of last year.
Results for the current quarter were adversely affected by decreased sales and
gross profit and increased operating expenses in the Diagnostic segment,
partially offset by increased sales, improved gross profit and decreased
operating expenses in the AngioDynamics segment.
Net sales for the quarter ended December 2, 2000 decreased 6%, or
$1,712,000, compared to the quarter ended November 27, 1999. Decreased sales of
contrast systems of $1,881,000 and non-contrast systems of $339,000, were
partially offset by increased sales of AngioDynamics products of $508,000. Price
increases accounted for approximately 2 1/2% of net sales for the current
quarter. Net sales in international markets, including direct exports from the
U.S., decreased 20%, or $1,784,000, for the current quarter from the comparable
period of last year due, in part, to decreased custom contract sales of $412,000
and the continued weakness of the Euro compared to the U.S. dollar, as the
Company's domestic operations bill export sales in U.S. dollars.
Gross profit expressed as a percentage of net sales decreased to 46% for
the current quarter from 47% 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 and increased provision for inventory reserves of
$200,000, partially offset by the effects of sales price increases. The improved
AngioDynamics gross profit expressed as a percentage of net sales is due
primarily to increased production throughput at the Glens Falls facility and
reduced unabsorbed overhead costs resulting from the sale of the Irish facility
in the first quarter of the current year.
Selling and administrative ("S&A") expenses were $9,471,000 for the quarter
ended December 2, 2000 compared to $9,332,000 for the quarter ended November 27,
1999. This increase of $139,000, or 1%, for the current quarter was due to
increased Diagnostic S&A expenses of $331,000, resulting from the expansion of
the domestic sales force and increased distribution costs, partially offset by a
decline in AngioDynamics S&A expenses of $192,000.
Research and development ("R&D") expenditures increased 19% for the current
quarter to $1,389,000, or 5% of net sales, from $1,171,000, or 4% of net sales,
for the comparable quarter of the prior year. This increase was due primarily to
a redeployment of staff from other departments within the Company, as well as
increased spending relating to contrast systems of $101,000 and immunological
projects of $27,000. Of the R&D expenditures for the current quarter,
approximately 42% relate to contrast systems, 27% to AngioDynamics projects, 5%
to immunological projects, 8% to other projects and 18% to general regulatory
costs. R&D expenditures are expected to continue at approximately current
levels.
Other income, net of other expenses, totaled $170,000 of income for the
current quarter compared to $69,000 of income for the quarter ended November 27,
-15-
1999. This improvement was due to increased interest income of $84,000,
resulting from the investment of additional funds provided by operations, and a
decline in foreign currency exchange losses of 27,000.
For the quarter ended December 2, 2000, the Company's effective tax rate of
36% differed from the Federal statutory tax rate of 34% due primarily to the
fact that the Company did not provide for the tax benefit on losses incurred in
a foreign jurisdiction, since it is more likely than not that such benefits will
not be realized, and non-deductible expenses, mostly offset by earnings of the
Company's Puerto Rican subsidiary, which are subject to favorable U.S. tax
treatment, and tax-exempt interest. The Company's effective tax rate of 35% for
the quarter ended November 27, 1999 differed from the Federal statutory tax rate
of 34% due primarily to losses incurred in a foreign jurisdiction subject to
lower tax rates and non-deductible expenses, mostly offset by earnings of the
Company's Puerto Rican subsidiary, which are subject to favorable U.S. tax
treatment.
Twenty-six weeks ended December 2, 2000 and November 27, 1999
-------------------------------------------------------------
Results of Operations
---------------------
Segment Overview
----------------
Diagnostic AngioDynamics Eliminations Total
---------- ------------- ------------ -----
(in thousands)
Twenty-six weeks ended December 2, 2000
---------------------------------------
Unaffiliated customer sales $42,930 $ 10,635 -- $53,565
Intersegment sales 1 352 ($353) --
Gross profit 18,766 5,448 (69) 24,145
Operating profit (loss) 2,114 (234) (69) 1,811
Twenty-six weeks ended November 27, 1999
----------------------------------------
Unaffiliated customer sales $46,303 $ 8,867 -- $55,170
Intersegment sales 2 325 ($327) --
Gross profit 21,168 4,115 34 25,317
Operating profit (loss) 6,056 (816) 36 5,276
Diagnostic Products
-------------------
Diagnostic segment operating results for the current period declined by
$3,942,000 due primarily to decreased sales and gross profit and increased
operating expenses. Net sales decreased 7%, or $3,373,000, due to lower demand
for sales of both contrast systems and non-contrast systems. The decline in
contrast system sales resulted, in part, from the stocking of higher inventory
levels by the Company's distributors in the second quarter of the prior year, in
anticipation of potential Year 2000 ("Y2K") related supply issues. The decline
in sales of non-contrast systems resulted from decreased custom contract sales.
Price increases accounted for approximately 2 1/2% of net sales for the current
period. Gross profit expressed as a percentage of net sales declined to 44% for
the current period from 46% for the comparable period of the prior year due
primarily to decreased production throughput and increased provision for
inventory reserves of $270,000, partially offset by the effects of sales price
increases. Increased operating expenses of $1,540,000 are attributable, in large
part, to: an impairment charge of $450,000 relating to acquired patent rights to
an oral magnetic resonance imaging contrast agent; the expansion of the domestic
sales force; increased distribution costs; and increased administrative and R&D
expenses.
-16-
AngioDynamics Products
----------------------
AngioDynamics segment operating results for the current period, which
improved by $582,000, were adversely affected by the sale of AngioDynamics Ltd.,
a wholly-owned subsidiary, and certain other assets. AngioDynamics Ltd., located
in Ireland, manufactured cardiovascular and interventional radiology products.
The sale was the culmination of AngioDynamics' strategic decision to exit the
cardiovascular market and to focus entirely on the interventional radiology
marketplace. As a result of this sale, the Company recognized a pre-tax loss of
approximately $872,000 during the current period. The aforementioned pre-tax
loss includes the effect of previously unrealized losses on foreign currency
translation of approximately $994,000 and the write-off of approximately
$673,000 in inventory and intangibles related to the cardiovascular product
line, both of which were non-cash charges.
Excluding the loss on sale, AngioDynamics segment operating results
improved by $1,454,000 due to increased sales and improved gross profit. Net
sales increased 20%, or $1,768,000, due, in large part, to sales of several new
products, namely Abscession(TM) fluid drainage catheters, VistaFlex(TM) platinum
biliary stents, and Workhorse(TM) PTA balloon catheters, introduced in the
second quarter of last fiscal year. Gross profit expressed as a percentage of
net sales improved to 50% for the current period from 45% for the comparable
period of the prior year due primarily to increased production throughput at the
Glens Falls facility and reduced unabsorbed overhead costs resulting from the
sale of the Irish facility.
Consolidated Results of Operations
----------------------------------
For the twenty-six weeks ended December 2, 2000, the Company reported net
earnings of $2,703,000, or $.27 and $.26 per common share on a basic and diluted
basis, respectively, compared to net earnings of $3,615,000, or $.36 and $.35
per common share on a basic and diluted basis, respectively, for the comparable
period of last year. Results for the current period were adversely affected by
decreased sales and gross profit in the Diagnostic segment and increased
operating expenses in both industry segments. The increased operating expenses,
totaling $2,293,000, were due, in large part, to the loss on sale of
AngioDynamics Ltd. and related assets of $872,000 and the Diagnostic asset
impairment charge of $450,000. Results for the current period were favorably
affected by the Company's reversal of a portion of its income tax valuation
allowance against certain domestic tax benefits totaling $1,344,000, since it is
now more likely than not that such benefits will be realized.
Net sales for the twenty-six weeks ended December 2, 2000 decreased 3%, or
$1,605,000, compared to the twenty-six weeks ended November 27, 1999. Decreased
sales of contrast systems of $2,293,000 and non-contrast systems of $1,080,000,
were partially offset by increased sales of AngioDynamics products of
$1,768,000. Price increases accounted for approximately 2% of net sales for the
current period. Net sales in international markets, including direct exports
from the U.S., decreased 17%, or $3,193,000, for the current period from the
comparable period of last year due, in part, to decreased custom contract sales
of $1,607,000. Continued weakness of the Euro compared to the U.S. dollar also
contributed to sluggish international sales, as the Company's domestic
operations bill export sales in U.S. dollars.
Gross profit expressed as a percentage of net sales decreased to 45% for
the current period from 46% for the comparable period of the prior year due to
reduced gross profit in the Diagnostic segment, partially offset by improved
gross profit in the AngioDynamics segment. The decline in Diagnostic gross
profit expressed as a percentage of net sales resulted primarily from decreased
production throughput and increased provision for inventory reserves of
$270,000, partially offset by the effects of sales price increases. The improved
AngioDynamics gross profit expressed as a percentage of net sales is due
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primarily to increased production throughput at the Glens Falls facility and
reduced unabsorbed overhead costs resulting from the sale of the Irish facility.
S&A expenses were $18,801,000 for the twenty-six weeks ended December 2,
2000 compared to $17,669,000 for the twenty-six weeks ended November 27, 1999.
This increase of $1,132,000, or 6%, for the current period was due to increased
Diagnostic S&A expenses, resulting, in large part, from the asset impairment
charge of $450,000, the expansion of the domestic sales force, increased
distribution costs, and increased administrative expenses.
R&D expenditures increased 12% for the current period to $2,661,000, or 5%
of net sales, from $2,372,000, or 4% of net sales, for the comparable prior year
period. This increase was due primarily to a redeployment of staff from other
departments within the Company, as well as increased spending relating to
contrast systems of $97,000 and immunological projects of $46,000. Of the R&D
expenditures for the current period, approximately 42% relate to contrast
systems, 28% to AngioDynamics projects, 5% to immunological projects, 7% to
other projects and 18% to general regulatory costs.
Other income, net of other expenses, totaled $343,000 of income for the
current period compared to $234,000 of income for the comparable period of last
year. This improvement was due to increased interest income of $165,000,
resulting from the investment of additional funds provided by operations,
partially offset by an increase in foreign currency exchange losses of 43,000.
For the twenty-six weeks ended December 2, 2000, the Company reported an
income tax benefit of $549,000 against earnings before taxes of $2,154,000 due
primarily to the fact that the Company reversed a portion of its valuation
allowance against certain domestic tax benefits totaling $1,344,000. Continued
and projected future profitability of the Company's U.S. operations, including
those of AngioDynamics, made it more likely than not that certain deferred tax
assets would be realized through future taxable earnings. The Company's
effective tax rate for the twenty-six weeks ended November 27, 1999 approximated
the Federal statutory tax rate of 34%. Losses incurred in a foreign jurisdiction
subject to lower tax rates and non-deductible expenses were offset by earnings
of the Company's Puerto Rican subsidiary, which are subject to favorable U.S.
tax treatment.
Liquidity and Capital Resources
-------------------------------
For the twenty-six weeks ended December 2, 2000, capital expenditures, the
purchase of treasury stock and debt repayments were funded by cash provided by
operations. The Company's policy has been to fund capital requirements without
incurring significant debt. At December 2, 2000, debt (notes payable, current
maturities of long-term debt and long-term debt) was $1,491,000, compared to
$1,636,000 at June 3, 2000. The Company has available $5,233,000 under two bank
lines of credit of which no amounts were outstanding at December 2, 2000.
At December 2, 2000, 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 5.18 to 1, with net working
capital of $55,233,000, at December 2, 2000, compared to a current ratio of 4.25
to 1, with net working capital of $51,434,000, at June 3, 2000.
In January 1999, the Board of Directors authorized the repurchase of up to
500,000 shares of the Company's Class B Common Stock at an aggregate purchase
price of up to $2,000,000. In October 1999, the Board modified the program to
include the Company's Class A Common Stock. In February 2000, the Board further
modified the program to increase the aggregate purchase price of Class A and
Class B Common Stock by an additional $2,000,000. As of December 2, 2000, the
Company had repurchased 40,109 shares of Class A Common Stock and 365,126 shares
of Class B Common Stock for approximately $2,880,000.
-17-
Forward-Looking Statements
--------------------------
This Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which are intended to be covered by the safe
harbors created thereby. Words such as "expects", "intends", "anticipates",
"plans", "believes", "seeks", "estimates", or variations of such words and
similar expressions are intended to identify such forward-looking statements.
Investors are cautioned that all forward-looking statements involve risks and
uncertainty, including without limitation, the ability of the Company to develop
its products, future actions by the U.S. Food and Drug Administration or other
regulatory agencies, results of pending or future clinical trials, as well as
general market conditions, competition and pricing. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
included in this Form 10-Q will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
Effects of Recently Issued Accounting Pronouncements
----------------------------------------------------
In September 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
requires entities to recognize all derivatives in their financial statements as
either assets or liabilities measured at fair value. SFAS No. 133 also specifies
new methods of accounting for hedging transactions, prescribes the items and
transactions that may be hedged and specifies detailed criteria to be met to
qualify for hedge accounting. SFAS No. 133, as amended by SFAS No. 137, is
effective for fiscal years beginning after September 15, 2000. The Company
currently does not use derivative instruments as defined by SFAS No. 133. If the
Company continues not to use these derivative instruments by the effective date
of SFAS No. 133, the adoption of this pronouncement will have no effect on the
Company's results of operations or financial position.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company is exposed to market risk from changes in foreign currency
exchange rates and, to a much lesser extent, interest rates on investments and
financing, which could impact results of operations and financial position. The
Company does not currently engage in hedging or other market risk management
tools. There have been no material changes with respect to market risk
previously disclosed in the fiscal 2000 Annual Report on Form 10-K.
Foreign Currency Exchange Rate Risk
-----------------------------------
The Company's international subsidiaries are denominated in currencies
other than the U.S. dollar. Since the functional currency of the Company's
international subsidiaries is the local currency, foreign currency translation
adjustments are accumulated as a component of accumulated other comprehensive
income (loss) in stockholders' equity. Assuming a hypothetical aggregate change
in the foreign currencies versus the U.S. dollar exchange rates of 10% at
December 2, 2000, the Company's assets and liabilities would increase or
decrease by $2,017,000 and $575,000, respectively, and the Company's net sales
and net earnings would increase or decrease by $1,820,000 and $22,000,
respectively, on an annual basis.
The Company also maintains intercompany balances and loans receivable with
-19-
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 December 2, 2000, results of operations would be favorably or
unfavorably impacted by approximately $553,000 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 $13,455,000. The
bonds bear interest at a floating rate established weekly. For the twenty-six
weeks ended December 2, 2000, the after-tax interest rate on the bonds
approximated 4.4%. Each 100 basis point (1%) fluctuation in interest rates will
increase or decrease interest income on the bonds by approximately $135,000 on
an annual basis.
As the Company's principal amount of fixed interest rate financing
approximated $1,491,000 at December 2, 2000, a change in interest rates would
not materially impact results of operations or financial position. At December
2, 2000, the Company did not maintain any variable interest rate financing.
-20-
E-Z-EM, Inc. and Subsidiaries
Part II: Other Information
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Annual Meeting of Shareholders held October 24, 2000, the following
persons were elected as Directors of the Company:
Class I Directors: (until the 2003 Annual Meeting)
-----------------
Michael A. Davis, M.D.
James L. Katz, CPA, JD
Anthony A. Lombardo
In this election, 3,718,462, 3,871,967 and 3,874,487 votes were cast for
Mr. Davis, Mr. Katz and Mr. Lombardo, respectively, and 160,437, 6,932 and 4,412
shares were withheld from voting for Mr. Davis, Mr. Katz and Mr. Lombardo,
respectively.
The following Directors continue in office for the duration of their terms:
Class II Directors: (until the 2001 Annual Meeting)
------------------
Paul S. Echenberg
Donald A. Meyer
Robert M. Topol
Class III Directors: (until the 2002 Annual Meeting)
-------------------
Howard S. Stern
David P. Meyers
The action of the Board of Directors in appointing Grant Thornton LLP as
the Company's independent auditors for fiscal year 2001 was approved by a vote
of 3,875,634 in favor, 1,411 against, and 1,854 shares abstaining.
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 December 2,
2000.
-21-
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 January 16, 2001 /s/ Anthony A. Lombardo
-------------------- ------------------------------------
Anthony A. Lombardo, President,
Chief Executive Officer and Director
Date January 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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