-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bf2vtk0vP93nT9hvPi90eNfrsAmZTrRC/E6S3XQ9+5HNqDLn68eBco/qkxlZ2MfV /Gxza6wAUJBJETgvxMGtxg== /in/edgar/work/0000891554-00-500108/0000891554-00-500108.txt : 20001019 0000891554-00-500108.hdr.sgml : 20001019 ACCESSION NUMBER: 0000891554-00-500108 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000902 FILED AS OF DATE: 20001018 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EZ EM INC CENTRAL INDEX KEY: 0000727008 STANDARD INDUSTRIAL CLASSIFICATION: [2835 ] IRS NUMBER: 111999504 STATE OF INCORPORATION: DE FISCAL YEAR END: 0529 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11479 FILM NUMBER: 742095 BUSINESS ADDRESS: STREET 1: 717 MAIN ST CITY: WESTBURY STATE: NY ZIP: 11590 BUSINESS PHONE: 5163338230 10-Q 1 d23811_10-q.txt FORM 10-Q 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 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 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 October 12, 2000, there were 4,013,390 shares of the issuer's Class A Common Stock outstanding and 5,861,283 shares of the issuer's Class B Common Stock outstanding. Page 1 of 20 Exhibit Index on Page 19 E-Z-EM, Inc. and Subsidiaries INDEX ----- Part 1: Financial Information Page - ------- --------------------- ---- Item 1. Financial Statements Consolidated Balance Sheets - September 2, 2000 and June 3, 2000 3 - 4 Consolidated Statements of Earnings - thirteen weeks ended September 2, 2000 and August 28, 1999 5 Consolidated Statement of Stockholders' Equity and Comprehensive Income - thirteen weeks ended September 2, 2000 6 Consolidated Statements of Cash Flows - thirteen weeks ended September 2, 2000 and August 28, 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 - 17 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 - 18 Part II: Other Information - -------- ----------------- Item 6. Exhibits and Reports on Form 8-K 19 -2- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands) September 2, June 3, ASSETS 2000 2000 ------- ------- (unaudited) (audited) CURRENT ASSETS Cash and cash equivalents $ 3,620 $ 5,583 Debt and equity securities 14,364 8,051 Accounts receivable, principally trade, net 20,922 22,256 Inventories 25,366 26,856 Other current assets 5,065 4,530 ------- ------- Total current assets 69,337 67,276 PROPERTY, PLANT AND EQUIPMENT - AT COST, less accumulated depreciation and amortization 20,158 21,721 COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED, less accumulated amortization 404 407 INTANGIBLE ASSETS, less accumulated amortization 1,420 2,151 DEBT AND EQUITY SECURITIES 2,571 4,067 OTHER ASSETS 5,036 3,463 ------- ------- $98,926 $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) September 2, June 3, LIABILITIES AND STOCKHOLDERS' EQUITY 2000 2000 -------- -------- (unaudited) (audited) CURRENT LIABILITIES Notes payable $ 1,067 $ 1,080 Current maturities of long-term debt 101 103 Accounts payable 5,761 6,384 Accrued liabilities 6,771 7,798 Accrued income taxes 742 477 -------- -------- Total current liabilities 14,442 15,842 LONG-TERM DEBT, less current maturities 439 453 OTHER NONCURRENT LIABILITIES 2,623 2,756 -------- -------- Total liabilities 17,504 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 4,014,269 shares at September 2, 2000 and 4,015,111 shares at June 3, 2000 (excluding 38,987 and 38,145 shares held in treasury at September 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 5,891,265 shares at September 2, 2000 and 5,909,277 shares at June 3, 2000 (excluding 334,585 and 313,748 shares held in treasury at September 2, 2000 and June 3, 2000, respectively) 589 591 Additional paid-in capital 20,393 20,521 Retained earnings 61,694 59,852 Accumulated other comprehensive income (loss) (1,655) (1,331) -------- -------- Total stockholders' equity 81,422 80,034 -------- -------- $ 98,926 $ 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 ---------------------------- September 2, August 28, 2000 1999 -------- -------- Net sales $ 27,304 $ 27,197 Cost of goods sold 15,201 15,114 -------- -------- Gross profit 12,103 12,083 -------- -------- Operating expenses Selling and administrative 9,330 8,337 Loss on sale of subsidiary and related assets 872 Research and development 1,272 1,201 -------- -------- Total operating expenses 11,474 9,538 -------- -------- Operating profit 629 2,545 Other income (expense) Interest income 226 145 Interest expense (71) (61) Other, net 18 81 -------- -------- Earnings before income taxes 802 2,710 Income tax provision (benefit) (1,040) 912 -------- -------- NET EARNINGS $ 1,842 $ 1,798 ======== ======== Earnings per common share Basic $ .19 $ .18 ======== ======== Diluted $ .18 $ .18 ======== ======== Weighted average common shares Basic 9,915 10,073 ======== ======== Diluted 10,245 10,228 ======== ======== 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 Thirteen weeks ended September 2, 2000 (unaudited) (in thousands, except share data)
Class A Class B Accumulated common stock common stock Additional other Compre- --------------- --------------- paid-in Retained comprehensive hensive Shares Amount Shares Amount capital earnings income (loss) Total income ------ ------ ------ ------ ------- -------- ------------- ----- ------ Balance at June 3, 2000 4,015,111 $401 5,909,277 $591 $20,521 $59,852 $(1,331) $80,034 Exercise of stock options 2,825 15 15 Income tax benefits on stock options exercised 1 1 Compensation related to stock option plans 1 1 Purchase of treasury stock (842) (20,837) (2) (145) (147) Net earnings 1,842 1,842 $1,842 Unrealized holding loss on debt and equity securities (1,238) (1,238) (1,238) Foreign currency translation adjustments 914 914 914 --------- ---- --------- ---- ------- ------- ------- ------- ------ Comprehensive income $1,518 ====== Balance at September 2, 2000 4,014,269 $401 5,891,265 $589 $20,393 $61,694 $(1,655) $81,422 ========= ==== ========= ==== ======= ======= ======= =======
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 2, August 28, 2000 1999 -------- -------- Cash flows from operating activities: Net earnings $ 1,842 $ 1,798 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortization 704 724 Impairment of long-lived assets 450 Provision for doubtful accounts 33 60 Loss on sale of subsidiary and related assets 872 Deferred income tax (benefit) provision (1,731) 12 Other non-cash items 1 1 Changes in operating assets and liabilities, net of sale Accounts receivable 1,076 1,745 Inventories 210 169 Other current assets (267) 175 Other assets (81) (82) Accounts payable (264) (326) Accrued liabilities (979) 30 Accrued income taxes 256 269 Other noncurrent liabilities 48 37 -------- -------- Net cash provided by operating activities 2,170 4,612 -------- -------- Cash flows from investing activities: Additions to property, plant and equipment, net (851) (438) Proceeds from sale of subsidiary and related assets 3,250 Available-for-sale securities Purchases (24,273) (17,557) Proceeds from sale 17,960 13,960 -------- -------- Net cash used in investing activities (3,914) (4,035) -------- -------- Cash flows from financing activities: Repayments of debt (61) (792) Proceeds from exercise of stock options, including related income tax benefits 16 46 Purchase of treasury stock (147) (172) Proceeds from issuance of stock in connection with the stock purchase plan 6 -------- -------- Net cash used in financing activities (192) (912) -------- -------- -7- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (unaudited) (in thousands)
Thirteen weeks ended -------------------------- September 2, August 28, 2000 1999 ------- ------- Effect of exchange rate changes on cash and cash equivalents $ (27) $ (38) ------- ------- DECREASE IN CASH AND CASH EQUIVALENTS (1,963) (373) Cash and cash equivalents Beginning of period 5,583 8,073 ------- ------- End of period $ 3,620 $ 7,700 ======= ======= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 21 $ 23 ======= ======= Income taxes $ 511 $ 600 ======= =======
The accompanying notes are an integral part of these statements. -8- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 2, 2000 and August 28, 1999 (unaudited) NOTE A - CONSOLIDATED FINANCIAL STATEMENTS The consolidated balance sheet as of September 2, 2000, the consolidated statement of stockholders' equity and comprehensive income for the period ended September 2, 2000, and the consolidated statements of earnings and cash flows for the periods ended September 2, 2000 and August 28, 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 September 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 September 2, 2000 and August 28, 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 ------------------------ September 2, August 28, 2000 1999 ------ ------ (in thousands) Basic 9,915 10,073 Effect of dilutive securities (stock options) 330 155 ------ ------ Diluted 10,245 10,228 ====== ====== -9- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) September 2, 2000 and August 28, 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 789,909 shares of common stock at September 2, 2000 and August 28, 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:
Thirteen weeks ended ---------------------------- September 2, August 28, 2000 1999 ------- ------- (in thousands) Net earnings $ 1,842 $ 1,798 Unrealized holding loss on debt and equity securities (1,238) (179) Foreign currency translation adjustments 914 (217) ------- ------- Comprehensive income $ 1,518 $ 1,402 ======= =======
The components of accumulated other comprehensive income (loss), net of related tax, are as follows:
September 2, June 3, 2000 2000 ------- ------- (in thousands) Unrealized holding gain on debt and equity securities $ 826 $ 2,064 Cumulative translation adjustments (2,481) (3,395) ------- ------- Accumulated other comprehensive income (loss) $(1,655) $(1,331) ======= =======
-10- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) September 2, 2000 and August 28, 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: September 2, June 3, 2000 2000 ------- ------- (in thousands) Finished goods $12,948 $13,246 Work in process 2,115 2,813 Raw materials 10,303 10,797 ------- ------- $25,366 $26,856 ======= ======= -11- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) September 2, 2000 and August 28, 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 7,449 shares were forfeited at prices ranging from $5.39 to $5.63 per share, and no options were granted or expired during the thirteen weeks ended September 2, 2000. Under the 1997 AngioDynamics Stock Option Plan, options for .63 shares were forfeited at $40,000 per share, and no options were granted, exercised or expired during the thirteen weeks ended September 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 September 2, 2000, the Company had repurchased 38,987 shares of Class A Common Stock and 334,585 shares of Class B Common Stock for approximately $2,650,000. 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) September 2, 2000 and August 28, 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 --------------------------- September 2, August 28, 2000 1999 --------- --------- (in thousands) Net sales to external customers Diagnostic products Contrast systems $ 15,615 $ 16,027 Non-contrast systems 6,088 6,829 --------- --------- Total Diagnostic products 21,703 22,856 AngioDynamics products 5,601 4,341 --------- --------- Total net sales to external customers $ 27,304 $ 27,197 ========= ========= Intersegment net sales Diagnostic products $ -- $ 191 AngioDynamics products 190 158 --------- --------- Total intersegment net sales $ 190 $ 349 ========= ========= Operating profit (loss) Diagnostic products $ 1,227 $ 2,929 AngioDynamics products (550) (408) Eliminations (48) 24 --------- --------- Total operating profit $ 629 $ 2,545 ========= ========= Net earnings (loss) Diagnostic products $ 1,184 $ 2,310 AngioDynamics products 706 (536) Eliminations (48) 24 --------- --------- Total net earnings $ 1,842 $ 1,798 ========= =========
September 2, June 3, 2000 2000 --------- --------- (in thousands) Assets Diagnostic products $ 109,447 $ 111,046 AngioDynamics products 17,294 17,573 Eliminations (27,815) (29,534) --------- --------- Total assets $ 98,926 $ 99,085 ========= =========
-13- E-Z-EM, Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Quarters ended September 2, 2000 and August 28, 1999 - ---------------------------------------------------- The Company's quarters ended September 2, 2000 and August 28, 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 September 2, 2000 - ------------------------------- Unaffiliated customer sales $21,703 $ 5,601 -- $27,304 Intersegment sales -- 190 ($190) -- Gross profit (loss) 9,349 2,802 (48) 12,103 Operating profit (loss) 1,227 (550) (48) 629 Quarter ended August 28, 1999 - ----------------------------- Unaffiliated customer sales $22,856 $ 4,341 -- $27,197 Intersegment sales 191 158 ($349) -- Gross profit 10,045 2,015 23 12,083 Operating profit (loss) 2,929 (408) 24 2,545
Diagnostic Products ------------------- Diagnostic segment operating results for the current quarter declined by $1,702,000 due primarily to decreased sales and gross profit and increased operating expenses. Net sales decreased 5%, or $1,153,000, due to lower demand for sales of both contrast systems and non-contrast systems. The decline in sales of non-contrast systems resulted from decreased custom contract sales. Price increases accounted for approximately 2% of net sales for the current quarter. Gross profit expressed as a percentage of net sales declined to 43% for the current quarter, from 44% for the comparable quarter of the prior year due primarily to decreased production throughput, partially offset by the effects of sales price increases. Increased operating expenses of $1,006,000 can be attributed, in large part, to: an impairment charge of $450,000 relating to acquired patent rights to an oral magnetic resonance imaging contrast agent; increased costs associated with foreign product registrations; and increased administrative expenses. AngioDynamics Products ---------------------- AngioDynamics segment operating results for the current quarter, which declined by $142,000, 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. -14- 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. Excluding the loss on sale, AngioDynamics segment operating results improved by $730,000 due to increased sales and improved gross profit. Net sales increased 29%, or $1,260,000, 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 48% for the current quarter from 45% for the comparable quarter of the prior year due primarily to increased production throughput and changes in product mix. Consolidated Results of Operations ---------------------------------- For the quarter ended September 2, 2000, the Company reported net earnings of $1,842,000, or $.19 and $.18 per common share on a basic and diluted basis, respectively, as compared to net earnings of $1,798,000, 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 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. Results for the current quarter were adversely affected by increased operating expenses of $1,936,000, 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. Net sales for the quarter ended September 2, 2000 increased less than 1%, or $107,000, as compared to the quarter ended August 28, 1999. Increased sales of AngioDynamics products of $1,260,000 were offset by decreased sales of non- contrast systems of $741,000 and contrast systems of $412,000. The decline in sales of non-contrast systems resulted from decreased custom contract sales. Price increases accounted for approximately 1 1/2% of net sales for the current quarter. Net sales in international markets, including direct exports from the U.S., decreased 14%, or $1,409,000, for the current quarter from the comparable period of last year due primarily to decreased custom contract sales of $1,195,000. 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 was 44% for both the current quarter as well as the comparable quarter of the prior year, as improved gross profit in the AngioDynamics segment was offset by reduced gross profit in the Diagnostic segment. The improved AngioDynamics gross profit expressed as a percentage of net sales was due primarily to increased production throughput and changes in product mix. The decline in Diagnostic gross profit expressed as a percentage of net sales resulted primarily from decreased production throughput, partially offset by the effects of sales price increases. Selling and administrative ("S&A") expenses were $9,330,000 for the quarter ended September 2, 2000 compared to $8,337,000 for the quarter ended August 28, 1999. This increase of $993,000, or 12%, for the current quarter was due primarily to increased Diagnostic S&A expenses, which can be attributed, in large part, to the asset impairment charge of $450,000, increased costs associated with foreign product registrations, and increased administrative expenses. -15- Research and development ("R&D") expenditures increased 6% for the current quarter to $1,272,000, or 5% of net sales, from $1,201,000, or 4% of net sales, for the comparable quarter of the prior year due to increased general regulatory costs. Of the R&D expenditures for the current quarter, approximately 42% relate to contrast systems, 29% to AngioDynamics projects, 5% to immunological projects, 6% 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 $173,000 of income for the current quarter compared to $165,000 of income for the comparable period of last year. Increased interest income of $81,000, resulting from the investment of additional funds provided by operations, offset a decline in foreign currency exchange gains and losses of $70,000. 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. The Company's effective tax rate for the quarter ended August 28, 1999 approximated the Federal statutory tax rate of 34%. Losses incurred in a foreign jurisdiction subject to lower tax rates 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 quarter ended September 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 September 2, 2000, debt (notes payable, current maturities of long-term debt and long-term debt) was $1,607,000 as compared to $1,636,000 at June 3, 2000. The Company has available $3,357,000 under two bank lines of credit of which no amounts were outstanding at September 2, 2000. At September 2, 2000, approximately 65% of the Company's assets consisted of inventories, accounts receivable, short-term debt and equity securities, and cash and cash equivalents. The current ratio was 4.80 to 1, with net working capital of $54,895,000, at September 2, 2000, as 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 September 2, 2000, the Company had repurchased 38,987 shares of Class A Common Stock and 334,585 shares of Class B Common Stock for approximately $2,650,000. 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 -16- 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 September 2, 2000, the Company's assets and liabilities would increase or decrease by $2,065,000 and $553,000, respectively, and the Company's net sales and net earnings would increase or decrease by $1,936,000 and $72,000, 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 of 10% at September 2, 2000, results of operations would be favorably or unfavorably impacted by approximately $514,000 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 $14,305,000. The bonds bear interest at a floating rate established weekly. For the quarter -17- ended September 2, 2000, the after-tax interest rate on the bonds approximated 4.3%. Each 100 basis point (1%) fluctuation in interest rates will increase or decrease interest income on the bonds by approximately $143,000 on an annual basis. As the Company's principal amount of fixed interest rate financing approximated $1,607,000 at September 2, 2000, a change in interest rates would not materially impact results of operations or financial position. At September 2, 2000, the Company did not maintain any variable interest rate financing. -18- E-Z-EM, Inc. and Subsidiaries Part II: Other Information Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits -------- No. Description Page --- ----------- ---- 27 Financial data schedule 20 (b) Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the quarter ended September 2, 2000. 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 13, 2000 /s/ Anthony A. Lombardo -------------------- ------------------------------------- Anthony A. Lombardo, President, Chief Executive Officer and Director Date October 13, 2000 /s/ Dennis J. Curtin -------------------- ------------------------------------- Dennis J. Curtin, Senior Vice President - Chief Financial Officer (Principal Financial and Chief Accounting Officer) -19- EX-27 2 d23811_ex27.frm EXHIBIT 27 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 This schedule contains summary financial information extracted from the Company's Form 10-Q for the quarter ended September 2, 2000 and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS Jun-02-2001 Sep-02-2000 3,620 14,364 21,791 869 25,366 69,337 48,758 28,600 98,926 14,442 439 0 0 990 80,432 98,926 27,304 27,304 15,201 15,201 11,474 33 71 802 (1,040) 1,842 0 0 0 1,842 0.19 0.18
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