-----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, TPS6zDJb34NSG7YXMu5M6dPotqZvhOtJSzPmkijsu1FrOgcCDJYxFc2HI7NbOh7f eAKnRiAP6o7SmdKpjdu8Rg== 0000891554-01-502089.txt : 20010418 0000891554-01-502089.hdr.sgml : 20010418 ACCESSION NUMBER: 0000891554-01-502089 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010303 FILED AS OF DATE: 20010417 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EZ EM INC CENTRAL INDEX KEY: 0000727008 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [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: 1603959 BUSINESS ADDRESS: STREET 1: 717 MAIN ST CITY: WESTBURY STATE: NY ZIP: 11590 BUSINESS PHONE: 5163338230 10-Q 1 d25442_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 March 3, 2001 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________to__________ Commission file number 1-11479 ------- E-Z-EM, Inc. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 11-1999504 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 717 Main Street, Westbury, New York 11590 --------------------------------------------------- (Address of principal executive offices) (Zip Code) (516) 333-8230 -------------------------------------------------- Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- As of April 10, 2001, there were 4,011,827 shares of the issuer's Class A Common Stock outstanding and 5,845,183 shares of the issuer's Class B Common Stock outstanding. -1- E-Z-EM, Inc. and Subsidiaries INDEX ----- Part I: Financial Information Page - ------ --------------------- ---- Item 1. Financial Statements Consolidated Balance Sheets - March 3, 2001 and June 3, 2000 3 - 4 Consolidated Statements of Earnings - thirteen and thirty-nine weeks ended March 3, 2001 and February 26, 2000 5 Consolidated Statement of Stockholders' Equity and Comprehensive Income - thirty-nine weeks ended March 3, 2001 6 Consolidated Statements of Cash Flows - thirty-nine weeks ended March 3, 2001 and February 26, 2000 7 - 8 Notes to Consolidated Financial Statements 9 - 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 - 20 Item 3. Quantitative and Qualitative Disclosures About Market Risk 20 - 21 Part II: Other Information - ------- ----------------- Item 6. Exhibits and Reports on Form 8-K 22 -2- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands) March 3, June 3, ASSETS 2001 2000 ------- ------- (unaudited) (audited) CURRENT ASSETS Cash and cash equivalents $ 3,271 $ 5,583 Debt and equity securities 13,714 8,051 Accounts receivable, principally trade, net 22,240 22,256 Inventories 24,777 26,856 Other current assets 6,134 4,530 ------ ------ Total current assets 70,136 67,276 PROPERTY, PLANT AND EQUIPMENT - AT COST, less accumulated depreciation and amortization 19,792 21,721 COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED, less accumulated amortization 377 407 INTANGIBLE ASSETS, less accumulated amortization 1,359 2,151 DEBT AND EQUITY SECURITIES 1,356 4,067 OTHER ASSETS 5,586 3,463 ------ ------ $98,606 $99,085 ====== ====== The accompanying notes are an integral part of these statements. -3- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data)
March 3, June 3, LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2000 -------- -------- (unaudited) (audited) CURRENT LIABILITIES Notes payable $ 1,069 $ 1,080 Current maturities of long-term debt 91 103 Accounts payable 7,008 6,384 Accrued liabilities 6,702 7,798 Accrued income taxes 140 477 ------- ------- Total current liabilities 15,010 15,842 LONG-TERM DEBT, less current maturities 345 453 OTHER NONCURRENT LIABILITIES 2,665 2,756 ------- ------- Total liabilities 18,020 19,051 ------- ------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock, par value $.10 per share - authorized, 1,000,000 shares; issued, none Common stock Class A (voting), par value $.10 per share - authorized, 6,000,000 shares; issued and outstanding 4,012,033 shares at March 3, 2001 and 4,015,111 shares at June 3, 2000 (excluding 41,223 and 38,145 shares held in treasury at March 3, 2001 and June 3, 2000, respectively) 401 401 Class B (non-voting), par value $.10 per share - authorized, 10,000,000 shares; issued and outstanding 5,851,522 shares at March 3, 2001 and 5,909,277 shares at June 3, 2000 (excluding 387,155 and 313,748 shares held in treasury at March 3, 2001 and June 3, 2000, respectively) 585 591 Additional paid-in capital 20,107 20,521 Retained earnings 62,661 59,852 Accumulated other comprehensive income (loss) (3,168) (1,331) ------- ------- Total stockholders' equity 80,586 80,034 ------- ------- $ 98,606 $ 99,085 ======= =======
The accompanying notes are an integral part of these statements. -4- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS (unaudited) (in thousands, except per share data)
Thirteen weeks ended Thirty-nine weeks ended ----------------------------- ----------------------------- March 3, February 26, March 3, February 26, 2001 2000 2001 2000 -------- -------- -------- -------- Net sales $ 27,386 $ 25,752 $ 80,951 $ 80,922 Cost of goods sold 16,609 14,647 46,029 44,500 ------- ------- ------- ------- Gross profit 10,777 11,105 34,922 36,422 ------- ------- ------- ------- Operating expenses Selling and administrative 9,453 8,971 28,254 26,640 Loss on sale of subsidiary and related assets 872 Research and development 1,349 1,190 4,010 3,562 ------- ------- ------- ------- Total operating expenses 10,802 10,161 33,136 30,202 ------- ------- ------- ------- Operating profit (loss) (25) 944 1,786 6,220 Other income (expense) Interest income 215 243 671 534 Interest expense (75) (61) (213) (180) Other, net 82 (26) 107 36 ------- ------- ------- ------- Earnings before income taxes 197 1,100 2,351 6,610 Income tax provision (benefit) 91 584 (458) 2,479 ------- ------- ------- ------- NET EARNINGS $ 106 $ 516 $ 2,809 $ 4,131 ======= ======= ======= ======= Earnings per common share Basic $ .01 $ .05 $ .28 $ .41 ======= ======= ======= ======= Diluted $ .01 $ .05 $ .28 $ .40 ======= ======= ======= ======= Weighted average common shares Basic 9,875 9,988 9,889 10,045 ======= ======= ======= ======= Diluted 10,119 10,410 10,185 10,285 ======= ======= ======= =======
The accompanying notes are an integral part of these statements. -5- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME Thirty-nine weeks ended March 3, 2001 (unaudited) (in thousands, except share data)
Class A Class B Accumulated common stock common stock Additional other Compre- ----------------- ----------------- paid-in Retained comprehensive hensive Shares Amount Shares Amount capital earnings income (loss) Total income --------- ------ --------- ------ ---------- -------- ------------- ------- ------- Balance at June 3, 2000 4,015,111 $401 5,909,277 $591 $20,521 $59,852 $(1,331) $80,034 Exercise of stock options 8,711 1 38 39 Income tax benefits on stock options exercised 3 3 Compensation related to stock option plans 4 4 Issuance of stock 6,941 1 45 46 Purchase of treasury stock (3,078) (73,407) (8) (504) (512) Net earnings 2,809 2,809 $2,809 Unrealized holding loss on debt and equity securities (2,207) (2,207) (2,207) Foreign currency translation adjustments 370 370 370 --------- --- --------- --- ------ ------ ----- ------ ----- Comprehensive income $ 972 ===== Balance at March 3, 2001 4,012,033 $401 5,851,522 $585 $20,107 $62,661 $(3,168) $80,586 ========= === ========= === ====== ====== ====== ======
The accompanying notes are an integral part of this statement. -6- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Thirty-nine weeks ended ----------------------- March 3, February 26, 2001 2000 -------- -------- Cash flows from operating activities: Net earnings $ 2,809 $ 4,131 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortization 2,080 2,169 Impairment of long-lived assets 450 Provision for doubtful accounts 88 91 Loss on sale of subsidiary and related assets 872 Deferred income tax (benefit) provision (1,712) 37 Other non-cash items 45 74 Changes in operating assets and liabilities, net of sale Accounts receivable (297) 2,958 Inventories 799 (1,542) Other current assets (1,344) (1,037) Other assets (420) (440) Accounts payable 983 (1,820) Accrued liabilities (1,048) (57) Accrued income taxes (356) (432) Other noncurrent liabilities 147 114 -------- -------- Net cash provided by operating activities 3,096 4,246 -------- -------- Cash flows from investing activities: Additions to property, plant and equipment, net (2,117) (2,021) Proceeds from sale of subsidiary and related assets 3,250 Available-for-sale securities Purchases (69,823) (22,339) Proceeds from sale 64,160 18,635 -------- -------- Net cash used in investing activities (4,530) (5,725) -------- -------- Cash flows from financing activities: Repayments of debt (196) (1,044) Proceeds from issuance of debt 216 26 Proceeds from exercise of stock options, including related income tax benefits 42 781 Purchase of treasury stock (512) (2,381) Proceeds from issuance of stock in connection with the stock purchase plan 5 6 -------- -------- Net cash used in financing activities (445) (2,612) -------- -------- -7- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (unaudited) (in thousands) Thirty-nine weeks ended ----------------------- March 3, February 26, 2001 2000 ------- ------- Effect of exchange rate changes on cash and cash equivalents $ (433) $ 105 ------ ------ DECREASE IN CASH AND CASH EQUIVALENTS (2,312) (3,986) Cash and cash equivalents Beginning of period 5,583 8,073 ------ ------ End of period $ 3,271 $ 4,087 ====== ====== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 79 $ 75 ====== ====== Income taxes (net of refunds of $7 and $6 in 2001 and 2000, respectively) $ 2,395 $ 3,044 ====== ====== The accompanying notes are an integral part of these statements. -8- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 3, 2001 and February 26, 2000 (unaudited) NOTE A - CONSOLIDATED FINANCIAL STATEMENTS The consolidated balance sheet as of March 3, 2001 the consolidated statement of stockholders' equity and comprehensive income for the period ended March 3, 2001, and the consolidated statements of earnings and cash flows for the periods ended March 3, 2001 and February 26, 2000, have been prepared by the Company without audit. The consolidated balance sheet as of June 3, 2000 was derived from audited consolidated financial statements. In the opinion of management, all adjustments (which include only normally recurring adjustments) necessary to present fairly the financial position, changes in stockholders' equity and comprehensive income, results of operations and cash flows at March 3, 2001 (and for all periods presented) have been made. Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the fiscal 2000 Annual Report on Form 10-K filed by the Company on September 1, 2000. The results of operations for the periods ended March 3, 2001 and February 26, 2000 are not necessarily indicative of the operating results for the respective full years. The consolidated financial statements include the accounts of E-Z-EM, Inc. and all 100%-owned subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated. NOTE B - EARNINGS PER COMMON SHARE Basic earnings per share are based on the weighted average number of common shares outstanding without consideration of potential common stock. Diluted earnings per share are based on the weighted average number of common and potential common shares outstanding. The calculation takes into account the shares that may be issued upon exercise of stock options, reduced by the shares that may be repurchased with the funds received from the exercise, based on the average price during the period. The following table sets forth the reconciliation of the weighted average number of common shares: Thirteen weeks ended Thirty-nine weeks ended ---------------------- ----------------------- March 3, February 26, March 3, February 26, 2001 2000 2001 2000 ------ ------ ------ ------ (in thousands) Basic 9,875 9,988 9,889 10,045 Effect of dilutive securities (stock options) 244 422 296 240 ------ ------ ------ ------ Diluted 10,119 10,410 10,185 10,285 ====== ====== ====== ====== -9- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) March 3, 2001 and February 26, 2000 (unaudited) NOTE B - EARNINGS PER COMMON SHARE (continued) Excluded from the calculation of earnings per common share, are options to purchase 462,915 and 206,707 shares of common stock at March 3, 2001 and February 26, 2000, respectively, as their inclusion would be anti-dilutive. NOTE C - EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires entities to recognize all derivatives in their financial statements as either assets or liabilities measured at fair value. SFAS No. 133 also specifies new methods of accounting for hedging transactions, prescribes the items and transactions that may be hedged and specifies detailed criteria to be met to qualify for hedge accounting. SFAS No. 133, as amended by SFAS No. 138, is effective for fiscal years beginning after June 15, 2000. The Company currently does not use derivative instruments as defined by SFAS No. 133. If the Company continues not to use these derivative instruments by the effective date of SFAS No. 133, the adoption of this pronouncement will have no effect on the Company's results of operations or financial position. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition", which provides guidelines in applying generally accepted accounting principles to selected revenue recognition issues. The SAB is effective in the fourth quarter of fiscal years beginning after December 15, 1999. The Company continues to evaluate the impact of SAB 101, but believes it is in compliance with the provisions of the SAB, and, accordingly, does not expect this statement to have a material impact on the Company's results of operations or financial position. In October 2000, the Emerging Issues Task Force ("EITF") issued guidance on how to classify certain revenues and costs in a company's financial statements. EITF No. 00-10 "Accounting for Shipping and Handling Revenues and Costs" requires that companies classify all amounts billed to customers related to shipping and handling cost as revenue. This statement will be effective in the fourth quarter of fiscal years beginning after December 15, 1999 and is not expected to have any effect on the Company's results of operations or financial position. -10- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) March 3, 2001 and February 26, 2000 (unaudited) NOTE D - COMPREHENSIVE INCOME The components of comprehensive income, net of related tax, are as follows: Thirty-nine weeks ended ----------------------- March 3, February 26, 2001 2000 ------- ------- (in thousands) Net earnings $ 2,809 $ 4,131 Unrealized holding gain (loss) on debt and equity securities (2,207) 2,979 Foreign currency translation adjustments 370 (85) ------ ------ Comprehensive income $ 972 $ 7,025 ====== ====== The components of accumulated other comprehensive income (loss), net of related tax, are as follows: March 3, June 3, 2001 2000 ------- ------- (in thousands) Unrealized holding gain (loss) on debt and equity securities $ (143) $ 2,064 Cumulative translation adjustments (3,025) (3,395) ------ ------ Accumulated other comprehensive income (loss) $(3,168) $(1,331) ====== ====== -11- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 3, 2001 and February 26, 2000 (unaudited) NOTE E - SALE OF SUBSIDIARY AND RELATED ASSETS On July 27, 2000, AngioDynamics, Inc. entered into two agreements to sell all the capital stock of AngioDynamics Ltd., a wholly-owned subsidiary, and certain other assets to AngioDynamics Ltd.'s management. AngioDynamics Ltd., located in Ireland, manufactured cardiovascular and interventional radiology products. The aggregate consideration paid was $3,250,000 in cash. The sale was the culmination of AngioDynamics' strategic decision to exit the cardiovascular market and to focus entirely on the interventional radiology marketplace. As a result of this sale, the Company recognized a pre-tax loss of approximately $872,000 during the quarter ended September 2, 2000. The aforementioned pre-tax loss includes the effect of previously unrealized losses on foreign currency translation of approximately $994,000 and the write-off of approximately $673,000 in inventory and intangibles related to the cardiovascular product line, both of which were non-cash charges. Further, AngioDynamics entered into a manufacturing agreement, a distribution agreement and a royalty agreement with the buyer. Under the two-year manufacturing agreement, the buyer will be manufacturing certain interventional radiology products sold by AngioDynamics. NOTE F - ASSET IMPAIRMENT CHARGE In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company's Diagnostic operating segment recorded an impairment charge during the quarter ended September 2, 2000 of $450,000 relating to certain acquired patent rights to an oral magnetic resonance imaging contrast agent. The Company determined that the revenue potential of this technology was impaired, since it now believes that the market for this technology is significantly less than previously projected. The impairment charge represents the difference between the carrying value of the intangible asset and the fair market value of this asset based on estimated future discounted cash flows. The charge had no impact on the Company's cash flow or its ability to generate cash flow in the future. The impairment charge is included in the consolidated statement of earnings under the caption "Selling and administrative". NOTE G - INVENTORIES Inventories consist of the following: March 3, June 3, 2001 2000 ------- ------- (in thousands) Finished goods $12,414 $13,246 Work in process 1,992 2,813 Raw materials 10,371 10,797 ------ ------ $24,777 $26,856 ====== ====== -12- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 3, 2001 and February 26, 2000 (unaudited) NOTE H - INCOME TAXES During the thirteen weeks ended September 2, 2000, the Company reduced its valuation allowance primarily to recognize deferred tax assets of approximately $1,344,000. Continued and projected future profitability of the Company's U.S. operations, including those of AngioDynamics, made it more likely than not that certain deferred tax assets would be realized through future taxable earnings. NOTE I - COMMON STOCK Under the 1983 and 1984 Stock Option Plans, options for 8,711 shares were exercised at prices ranging from $4.22 to $5.63 per share, options for 25,215 shares were forfeited at prices ranging from $4.22 to $8.58 per share, and no options were granted or expired during the thirty-nine weeks ended March 3, 2001. Under the 1997 AngioDynamics Stock Option Plan, options for .06 shares were granted at $40,000 per share, options for 5.06 shares were forfeited at $40,000 per share, and no options were exercised or expired during the thirty- nine weeks ended March 3, 2001. In January 1999, the Board of Directors authorized the repurchase of up to 500,000 shares of the Company's Class B Common Stock at an aggregate purchase price of up to $2,000,000. In October 1999, the Board modified the program to include the Company's Class A Common Stock. In February 2000, the Board further modified the program to increase the aggregate purchase price of Class A and Class B Common Stock by an additional $2,000,000. As of March 3, 2001, the Company had repurchased 41,223 shares of Class A Common Stock and 387,155 shares of Class B Common Stock for approximately $3,014,000. NOTE J - OPERATING SEGMENTS The Company is engaged in the manufacture and distribution of a wide variety of products which are classified into two operating segments: Diagnostic products and AngioDynamics products. Diagnostic products encompass both contrast systems, consisting of barium sulfate formulations and related medical devices used in X-ray, CT-scanning, ultrasound and MRI imaging examinations, and non-contrast systems, including radiological medical devices, custom contract pharmaceuticals, gastrointestinal cleansing laxatives, X-ray protection equipment, and immunoassay tests. AngioDynamics products include angiographic, thrombolytic, image-guided vascular access, angioplasty, stents, and drainage medical devices used in the interventional radiology marketplace. -13- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) March 3, 2001 and February 26, 2000 (unaudited) NOTE J - OPERATING SEGMENTS (continued) The Company's chief operating decision maker utilizes operating segment net earnings (loss) information in assessing performance and making overall operating decisions and resource allocations. Information about the Company's segments is as follows:
Thirteen weeks ended Thirty-nine weeks ended ----------------------------- ----------------------------- March 3, February 26, March 3, February 26, 2001 2000 2001 2000 -------- -------- -------- -------- (in thousands) Net sales to external customers Diagnostic products Contrast systems $ 14,246 $ 14,044 $ 45,158 $ 47,249 Non-contrast systems 7,892 6,806 19,910 19,904 ------- ------- ------- ------- Total Diagnostic products 22,138 20,850 65,068 67,153 AngioDynamics products 5,248 4,902 15,883 13,769 ------- ------- ------- ------- Total net sales to external customers $ 27,386 $ 25,752 $ 80,951 $ 80,922 ======= ======= ======= ======= Intersegment net sales Diagnostic products $ -- $ -- $ 1 $ 2 AngioDynamics products 189 494 541 819 ------- ------- ------- ------- Total intersegment net sales $ 189 $ 494 $ 542 $ 821 ======= ======= ======= ======= Operating profit (loss) Diagnostic products $ (57) $ 959 $ 2,057 $ 7,015 AngioDynamics products 17 (22) (217) (838) Eliminations 15 7 (54) 43 ------- ------- ------- ------- Total operating profit (loss) $ (25) $ 944 $ 1,786 $ 6,220 ======= ======= ======= ======= Net earnings (loss) Diagnostic products $ 261 $ 805 $ 2,287 $ 5,442 AngioDynamics products (170) (296) 576 (1,354) Eliminations 15 7 (54) 43 ------- ------- ------- ------- Total net earnings $ 106 $ 516 $ 2,809 $ 4,131 ======= ======= ======= ======= March 3, June 3, 2001 2000 -------- -------- (in thousands) Assets Diagnostic products $109,713 $111,046 AngioDynamics products 16,607 17,573 Eliminations (27,714) (29,534) ------- ------- Total assets $ 98,606 $ 99,085 ======= =======
-14- E-Z-EM, Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Quarters ended March 3, 2001 and February 26, 2000 - -------------------------------------------------- The Company's quarters ended March 3, 2001 and February 26, 2000 both represent thirteen weeks. Results of Operations - --------------------- Segment Overview ---------------- The Company operates in two industry segments: Diagnostic products and AngioDynamics products. The Diagnostic products operating segment includes both contrast systems and non-contrast systems. The AngioDynamics products operating segment includes angiographic products, thrombolytic products, image-guided vascular access products, angioplasty products, stents, and drainage products used in the interventional radiology marketplace.
Diagnostic AngioDynamics Eliminations Total ---------- ------------- ------------ ----- (in thousands) Quarter ended March 3, 2001 - --------------------------- Unaffiliated customer sales $22,138 $5,248 - $27,386 Intersegment sales - 189 ($189) - Gross profit 8,137 2,625 15 10,777 Operating profit (loss) (57) 17 15 (25) Quarter ended February 26, 2000 - ------------------------------- Unaffiliated customer sales $20,850 $4,902 - $25,752 Intersegment sales - 494 ($494) - Gross profit 8,513 2,585 7 11,105 Operating profit (loss) 959 (22) 7 944
Diagnostic Products ------------------- Diagnostic segment operating results for the current quarter declined by $1,016,000 due primarily to decreased gross profit and increased operating expenses. Net sales increased 6%, or $1,288,000, due to increased demand for sales of both non-contrast systems, primarily relating to custom contracts, and contrast systems. Price increases had little effect on net sales for the current quarter. Gross profit expressed as a percentage of net sales declined to 37% for the current quarter from 41% for the comparable period of the prior year due primarily to decreased production throughput and severance costs of $315,000, resulting from operational reorganizations. Increased operating expenses of $640,000 resulted from the expansion of the domestic sales force, increased distribution costs and increased administrative and research and development expenses. AngioDynamics Products ---------------------- AngioDynamics segment operating results for the current quarter improved by $39,000 due to increased sales. Net sales increased 7%, or $346,000, due, in large part, to increased sales of the Workhorse(TM) PTA balloon catheters, introduced in the second quarter of last fiscal year. Gross profit expressed as a percentage of net sales was 48% for both the current quarter and the comparable quarter of the prior year. -15- Consolidated Results of Operations ---------------------------------- For the quarter ended March 3, 2001, the Company reported net earnings of $106,000, or $.01 per common share on both a basic and diluted basis, compared to net earnings of $516,000, or $.05 per common share on both a basic and diluted basis, for the comparable period of last year. Results for the current quarter were adversely affected by decreased gross profit and increased operating expenses in the Diagnostic segment. Net sales of $27,386,000 for the quarter ended March 3, 2001 increased 6%, or $1,634,000, compared to the quarter ended February 26, 2000 due to increased sales of non-contrast systems of $1,086,000, including $758,000 relating to custom contracts, AngioDynamics products of $346,000 and contrast systems of $202,000. Price increases had little effect on net sales for the current quarter. Net sales in international markets, including direct exports from the U.S., increased 9%, or $766,000, for the current quarter from the comparable period of last year due, almost entirely, to increased custom contract sales of $758,000. Gross profit expressed as a percentage of net sales decreased to 39% for the current quarter from 43% for the comparable quarter of the prior year due to reduced gross profit in the Diagnostic segment. The decline in Diagnostic gross profit expressed as a percentage of net sales was due primarily to decreased production throughput and severance costs of $315,000, resulting from operational reorganizations. The Company's third fiscal quarters traditionally have fewer production days than the other fiscal quarters, resulting in somewhat lower gross profit percentages in such quarters. Selling and administrative ("S&A") expenses were $9,453,000 for the quarter ended March 3, 2001 compared to $8,971,000 for the quarter ended February 26, 2000. This increase of $482,000, or 5%, for the current quarter was due primarily to increased Diagnostic S&A expenses of $421,000, resulting from the expansion of the domestic sales force, increased distribution costs and increased administrative expenses. Research and development ("R&D") expenditures increased 13% for the current quarter to $1,349,000, or 5% of net sales, from $1,190,000, or 5% of net sales, for the comparable quarter of the prior year. This increase was due primarily to a redeployment of staff from other departments within the Company, as well as severance costs of $90,000, resulting from operational reorganizations. Of the R&D expenditures for the current quarter, approximately 44% relate to contrast systems, 26% to AngioDynamics projects, 2% to immunological projects, 7% to other projects and 21% to general regulatory costs. R&D expenditures are expected to continue at approximately current levels. Other income, net of other expenses, totaled $222,000 of income for the current quarter compared to $156,000 of income for the quarter ended February 26, 2000. This increased income was due to an improvement in foreign currency exchange gains and losses. For the quarter ended March 3, 2001, the Company's effective tax rate of 46% differed from the Federal statutory tax rate of 34% due primarily to the fact that the Company did not provide for the tax benefit on losses incurred in a foreign jurisdiction, since it is more likely than not that such benefits will not be realized, and non-deductible expenses, partially offset by tax-exempt interest and earnings of the Company's Puerto Rican subsidiary, which are subject to favorable U.S. tax treatment. The Company's effective tax rate of 53% for the quarter ended February 26, 2000 differed from the Federal statutory tax rate of 34% due primarily to the fact that the Company did not provide for the tax benefit on losses in certain foreign jurisdictions, since, at that time, it was more likely than not that such benefits would not be realized. Losses incurred in a foreign jurisdiction subject to lower tax rates and non-deductible expenses -16- also contributed to the unusually high effective tax rate, but were partially offset by earnings of the Company's Puerto Rican subsidiary, which are subject to favorable U.S. tax treatment. Thirty-nine weeks ended March 3, 2001 and February 26, 2000 - ----------------------------------------------------------- Results of Operations - --------------------- Segment Overview ----------------
Diagnostic AngioDynamics Eliminations Total ---------- ------------- ------------ ----- (in thousands) Thirty-nine weeks ended March 3, 2001 - ------------------------------------- Unaffiliated customer sales $65,068 $15,883 - $80,951 Intersegment sales 1 541 ($542) - Gross profit (loss) 26,903 8,073 (54) 34,922 Operating profit (loss) 2,057 (217) (54) 1,786 Thirty-nine weeks ended February 26, 2000 - ----------------------------------------- Unaffiliated customer sales $67,153 $13,769 - $80,922 Intersegment sales 2 819 ($821) - Gross profit 29,681 6,700 41 36,422 Operating profit (loss) 7,015 (838) 43 6,220
Diagnostic Products ------------------- Diagnostic segment operating results for the current period declined by $4,958,000 due primarily to decreased sales and gross profit and increased operating expenses. Net sales decreased 3%, or $2,085,000, due to lower demand for sales of contrast systems. Price increases accounted for approximately 2% of net sales for the current period. Gross profit expressed as a percentage of net sales declined to 41% for the current period from 44% for the comparable period of the prior year due primarily to decreased production throughput and severance costs of $315,000, resulting from operational reorganizations, partially offset by the effects of sales price increases. Increased operating expenses of $2,180,000 are attributable to: an impairment charge of $450,000 relating to acquired patent rights to an oral magnetic resonance imaging contrast agent; the expansion of the domestic sales force; increased distribution costs; and increased administrative and R&D expenses. AngioDynamics Products ---------------------- AngioDynamics segment operating results for the current period, which improved by $621,000, were adversely affected by the sale of AngioDynamics Ltd., a wholly-owned subsidiary, and certain other assets. AngioDynamics Ltd., located in Ireland, manufactured cardiovascular and interventional radiology products. The sale was the culmination of AngioDynamics' strategic decision to exit the cardiovascular market and to focus entirely on the interventional radiology marketplace. As a result of this sale, the Company recognized a pre-tax loss of approximately $872,000 during the current period. The aforementioned pre-tax loss includes the effect of previously unrealized losses on foreign currency translation of approximately $994,000 and the write-off of approximately $673,000 in inventory and intangibles related to the cardiovascular product line, both of which were non-cash charges. Excluding the loss on sale, AngioDynamics segment operating results improved by $1,493,000 due to increased sales and improved gross profit. Net sales increased 15%, or $2,114,000, due, in large part, to increased sales of several products, namely Abscession(TM) fluid drainage catheters, VistaFlex(TM) platinum biliary stents, and Workhorse(TM) PTA balloon catheters, introduced in the -17- second quarter of last fiscal year. Gross profit expressed as a percentage of net sales improved to 49% for the current period from 46% for the comparable period of the prior year due primarily to increased production throughput at the Glens Falls facility and reduced unabsorbed overhead costs resulting from the sale of the Irish facility. Consolidated Results of Operations ---------------------------------- For the thirty-nine weeks ended March 3, 2001, the Company reported net earnings of $2,809,000, or $.28 per common share on both a basic and diluted basis, compared to net earnings of $4,131,000, or $.41 and $.40 per common share on a basic and diluted basis, respectively, for the comparable period of last year. Results for the current period were adversely affected by decreased sales and gross profit in the Diagnostic segment and increased operating expenses in both industry segments. The increased operating expenses, totaling $2,934,000, were due, in part, to the loss on sale of AngioDynamics Ltd. and related assets of $872,000 and the Diagnostic asset impairment charge of $450,000. Results for the current period were favorably affected by the Company's reversal of a portion of its income tax valuation allowance against certain domestic tax benefits totaling $1,344,000, since it is now more likely than not that such benefits will be realized. Net sales of $80,951,000 for the thirty-nine weeks ended March 3, 2001 increased $29,000 compared to the thirty-nine weeks ended February 26, 2000. Increased sales of AngioDynamics products of $2,114,000 and non-contrast systems of $6,000 were almost entirely offset by decreased sales of contrast systems of $2,091,000. Price increases accounted for approximately 1% of net sales for the current period. Net sales in international markets, including direct exports from the U.S., decreased 9%, or $2,427,000, for the current period from the comparable period of last year due, in part, to decreased custom contract sales of $849,000 and the continued weakness of the Euro compared to the U.S. dollar, as the Company's domestic operations bill export sales in U.S. dollars. Gross profit expressed as a percentage of net sales decreased to 43% for the current period from 45% for the comparable period of the prior year due to reduced gross profit in the Diagnostic segment, partially offset by improved gross profit in the AngioDynamics segment. The decline in Diagnostic gross profit expressed as a percentage of net sales was due primarily to decreased production throughput and severance costs of $315,000, resulting from operational reorganizations, partially offset by the effects of sales price increases. The improved AngioDynamics gross profit expressed as a percentage of net sales was due primarily to increased production throughput at the Glens Falls facility and reduced unabsorbed overhead costs resulting from the sale of the Irish facility. S&A expenses were $28,254,000 for the thirty-nine weeks ended March 3, 2001 compared to $26,640,000 for the thirty-nine weeks ended February 26, 2000. This increase of $1,614,000, or 6%, for the current period was due to increased Diagnostic S&A expenses, resulting from the asset impairment charge of $450,000, the expansion of the domestic sales force, increased distribution costs, and increased administrative expenses. R&D expenditures increased 13% for the current period to $4,010,000, or 5% of net sales, from $3,562,000, or 4% of net sales, for the comparable prior year period. This increase was due primarily to a redeployment of staff from other departments within the Company, increased spending relating to contrast systems of $128,000, and severance costs of $90,000, resulting from operational reorganizations. Of the R&D expenditures for the current period, approximately 43% relate to contrast systems, 27% to AngioDynamics projects, 4% to immunological projects, 7% to other projects and 19% to general regulatory costs. Other income, net of other expenses, totaled $565,000 of income for the current period compared to $390,000 of income for the comparable period of last -18- year. This improvement was due primarily to increased interest income of $137,000, resulting from the investment of AngioDynamics Ltd. sale proceeds, and decreased foreign currency exchange losses of 61,000. For the thirty-nine weeks ended March 3, 2001, the Company reported an income tax benefit of $458,000 against earnings before taxes of $2,351,000 due primarily to the fact that the Company reversed a portion of its valuation allowance against certain domestic tax benefits totaling $1,344,000. Continued and projected future profitability of the Company's U.S. operations, including those of AngioDynamics, made it more likely than not that certain deferred tax assets would be realized through future taxable earnings. The Company's effective tax rate of 38% for the thirty-nine weeks ended February 26, 2000 differed from the Federal statutory tax rate of 34% due primarily to the fact that the Company did not provide for the tax benefit on losses in certain foreign jurisdictions, since, at that time, it was more likely than not that such benefits would not be realized. Earnings of the Company's Puerto Rican subsidiary, which are subject to favorable U.S. tax treatment, were offset by losses incurred in a foreign jurisdiction subject to lower tax rates and non- deductible expenses. Liquidity and Capital Resources - ------------------------------- For the thirty-nine weeks ended March 3, 2001, capital expenditures and the purchase of treasury stock were funded by cash provided by operations. The Company's policy has been to fund capital requirements without incurring significant debt. At March 3, 2001, debt (notes payable, current maturities of long-term debt and long-term debt) was $1,505,000, compared to $1,636,000 at June 3, 2000. The Company has available $5,238,000 under two bank lines of credit of which no amounts were outstanding at March 3, 2001. At March 3, 2001, approximately 65% of the Company's assets consisted of inventories, accounts receivable, short-term debt and equity securities, and cash and cash equivalents. The current ratio was 4.67 to 1, with net working capital of $55,126,000, at March 3, 2001, compared to a current ratio of 4.25 to 1, with net working capital of $51,434,000, at June 3, 2000. In January 1999, the Board of Directors authorized the repurchase of up to 500,000 shares of the Company's Class B Common Stock at an aggregate purchase price of up to $2,000,000. In October 1999, the Board modified the program to include the Company's Class A Common Stock. In February 2000, the Board further modified the program to increase the aggregate purchase price of Class A and Class B Common Stock by an additional $2,000,000. As of March 3, 2001, the Company had repurchased 41,223 shares of Class A Common Stock and 387,155 shares of Class B Common Stock for approximately $3,014,000. Forward-Looking Statements -------------------------- This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are intended to be covered by the safe harbors created thereby. Words such as "expects", "intends", "anticipates", "plans", "believes", "seeks", "estimates", or variations of such words and similar expressions are intended to identify such forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty, including without limitation, the ability of the Company to develop its products, future actions by the U.S. Food and Drug Administration or other regulatory agencies, results of pending or future clinical trials, as well as general market conditions, competition and pricing. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this Form 10-Q -19- will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. Effects of Recently Issued Accounting Pronouncements ---------------------------------------------------- In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires entities to recognize all derivatives in their financial statements as either assets or liabilities measured at fair value. SFAS No. 133 also specifies new methods of accounting for hedging transactions, prescribes the items and transactions that may be hedged and specifies detailed criteria to be met to qualify for hedge accounting. SFAS No. 133, as amended by SFAS No. 138, is effective for fiscal years beginning after June 15, 2000. The Company currently does not use derivative instruments as defined by SFAS No. 133. If the Company continues not to use these derivative instruments by the effective date of SFAS No. 133, the adoption of this pronouncement will have no effect on the Company's results of operations or financial position. In December 1999, the Securities and Exchange Commission issued SAB No. 101 "Revenue Recognition", which provides guidelines in applying generally accepted accounting principles to selected revenue recognition issues. The SAB is effective in the fourth quarter of fiscal years beginning after December 15, 1999. The Company continues to evaluate the impact of SAB 101, but believes it is in compliance with the provisions of the SAB, and, accordingly, does not expect this statement to have a material impact on the Company's results of operations or financial position. In October 2000, the EITF issued guidance on how to classify certain revenues and costs in a company's financial statements. EITF No. 00-10 "Accounting for Shipping and Handling Revenues and Costs" requires that companies classify all amounts billed to customers related to shipping and handling cost as revenue. This statement will be effective in the fourth quarter of fiscal years beginning after December 15, 1999 and is not expected to have any effect on the Company's results of operations or financial position. Item 3. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- The Company is exposed to market risk from changes in foreign currency exchange rates and, to a much lesser extent, interest rates on investments and financing, which could impact results of operations and financial position. The Company does not currently engage in hedging or other market risk management tools. There have been no material changes with respect to market risk previously disclosed in the fiscal 2000 Annual Report on Form 10-K. Foreign Currency Exchange Rate Risk ----------------------------------- The Company's international subsidiaries are denominated in currencies other than the U.S. dollar. Since the functional currency of the Company's international subsidiaries is the local currency, foreign currency translation adjustments are accumulated as a component of accumulated other comprehensive income (loss) in stockholders' equity. Assuming a hypothetical aggregate change in the foreign currencies versus the U.S. dollar exchange rates of 10% at March 3, 2001, the Company's assets and liabilities would increase or decrease by $2,191,000 and $586,000, respectively, and the Company's net sales and net earnings would increase or decrease by $1,997,000 and $36,000, respectively, on an annual basis. -20- The Company also maintains intercompany balances and loans receivable with subsidiaries with different local currencies. These amounts are at risk of foreign exchange losses if exchange rates fluctuate. Assuming a hypothetical aggregate change in the foreign currencies versus the U.S. dollar exchange rates of 10% at March 3, 2001, results of operations would be favorably or unfavorably impacted by approximately $463,000 on an annual basis. Interest Rate Risk ------------------ The Company is exposed to interest rate change market risk with respect to its investments in tax-free municipal bonds in the amount of $13,625,000. The bonds bear interest at a floating rate established weekly. For the thirty-nine weeks ended March 3, 2001, the after-tax interest rate on the bonds approximated 4.3%. Each 100 basis point (1%) fluctuation in interest rates will increase or decrease interest income on the bonds by approximately $136,000 on an annual basis. As the Company's principal amount of fixed interest rate financing approximated $1,505,000 at March 3, 2001, a change in interest rates would not materially impact results of operations or financial position. At March 3, 2001, the Company did not maintain any variable interest rate financing. -21- E-Z-EM, Inc. and Subsidiaries Part II: Other Information Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits - None. -------- (b) Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the quarter ended March 3, 2001. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. E-Z-EM, Inc. ------------------------------------- (Registrant) Date April 17, 2001 /s/ Anthony A. Lombardo -------------------- ------------------------------------- Anthony A. Lombardo, President, Chief Executive Officer and Director Date April 17, 2001 /s/ Dennis J. Curtin -------------------- ------------------------------------- Dennis J. Curtin, Senior Vice President - Chief Financial Officer (Principal Financial and Chief Accounting Officer) -22- -----END PRIVACY-ENHANCED MESSAGE-----