-----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, GQnIwmuQn+jkk/qE9pjokuyyLvawJSsSd1P2QquI6bt/yVr2NORYSMRQdeZ20EaC vbrsScLyQr3ba4HeWwcm6A== 0000891554-02-000151.txt : 20020413 0000891554-02-000151.hdr.sgml : 20020413 ACCESSION NUMBER: 0000891554-02-000151 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011201 FILED AS OF DATE: 20020115 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: 1934 Act SEC FILE NUMBER: 001-11479 FILM NUMBER: 2509349 BUSINESS ADDRESS: STREET 1: 717 MAIN ST CITY: WESTBURY STATE: NY ZIP: 11590 BUSINESS PHONE: 5163338230 10-Q 1 d27665_10q.txt QUARTERLY REPORT 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 1, 2001 ---------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 1-11479 ------- 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 9, 2002, there were 4,002,567 shares of the issuer's Class A Common Stock outstanding and 5,822,013 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 1, 2001 and June 2, 2001 3 - 4 Consolidated Statements of Operations - thirteen and twenty-six weeks ended December 1, 2001 and December 2, 2000 5 Consolidated Statement of Stockholders' Equity and Comprehensive Loss - twenty-six weeks ended December 1, 2001 6 Consolidated Statements of Cash Flows - twenty-six weeks ended December 1, 2001 and December 2, 2000 7 - 8 Notes to Consolidated Financial Statements 9 - 15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 - 21 Item 3. Quantitative and Qualitative Disclosures About Market Risk 21 - 22 Part II: Other Information - -------- ----------------- Item 4. Submission of Matters to a Vote of Security Holders 23 Item 6. Exhibits and Reports on Form 8-K 23 -2- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands) December 1, June 2, ASSETS 2001 2001 ------- ------- (unaudited) (audited) CURRENT ASSETS Cash and cash equivalents $ 4,085 $ 4,391 Debt and equity securities 16,010 13,748 Accounts receivable, principally trade, net 20,689 23,371 Inventories 24,412 22,021 Other current assets 3,747 5,901 ------ ------ Total current assets 68,943 69,432 PROPERTY, PLANT AND EQUIPMENT - AT COST, less accumulated depreciation and amortization 18,339 19,750 COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED, less accumulated amortization 367 376 INTANGIBLE ASSETS, less accumulated amortization 1,518 1,329 DEBT AND EQUITY SECURITIES 1,578 846 INVESTMENT AT COST 600 OTHER ASSETS 5,942 5,722 ------ ------ $97,287 $97,455 ====== ====== The accompanying notes are an integral part of these statements. -3- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data)
December 1, June 2, LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2001 -------- -------- (unaudited) (audited) CURRENT LIABILITIES Notes payable $ 764 $ 854 Current maturities of long-term debt 181 156 Accounts payable 7,148 4,798 Accrued liabilities 6,419 7,329 Accrued income taxes 101 111 ------ ------ Total current liabilities 14,613 13,248 LONG-TERM DEBT, less current maturities 421 408 OTHER NONCURRENT LIABILITIES 2,869 2,795 ------ ------ Total liabilities 17,903 16,451 ------ ------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock, par value $.10 per share - authorized, 1,000,000 shares; issued, none Common stock Class A (voting), par value $.10 per share - authorized, 6,000,000 shares; issued and outstanding 4,003,727 shares at December 1, 2001 and 4,011,396 shares at June 2, 2001 (excluding 49,529 and 41,860 shares held in treasury at December 1, 2001 and June 2, 2001, respectively) 400 401 Class B (non-voting), par value $.10 per share - authorized, 10,000,000 shares; issued and outstanding 5,820,893 shares at December 1, 2001 and 5,843,426 shares at June 2, 2001 (excluding 424,397 and 395,251 shares held in treasury at December 1, 2001 and June 2, 2001, respectively) 582 584 Additional paid-in capital 19,856 20,066 Retained earnings 61,859 63,138 Accumulated other comprehensive income (loss) (3,313) (3,185) ------ ------ Total stockholders' equity 79,384 81,004 ------ ------ $ 97,287 $ 97,455 ====== ======
The accompanying notes are an integral part of these statements. -4- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per share data)
Thirteen weeks ended Twenty-six weeks ended ---------------------------- ---------------------------- December 1, December 2, December 1, December 2, 2001 2000 2001 2000 --------- --------- --------- --------- Net sales $ 30,629 $ 26,658 $ 58,270 $ 54,391 Cost of goods sold 17,575 15,344 34,546 31,608 ------ ------ ------ ------ Gross profit 13,054 11,314 23,724 22,783 ------ ------ ------ ------ Operating expenses Selling and administrative 10,789 8,743 20,254 17,439 Loss on sale of subsidiary and related assets 872 Asset impairment and facility closing costs 1,532 1,532 Research and development 1,659 1,389 3,140 2,661 ------ ------ ------ ------ Total operating expenses 13,980 10,132 24,926 20,972 ------ ------ ------ ------ Operating profit (loss) (926) 1,182 (1,202) 1,811 Other income (expense) Interest income 119 230 271 456 Interest expense (65) (67) (135) (138) Other, net 81 7 201 25 ----- ------ ----- ------ Earnings (loss) before income taxes (791) 1,352 (865) 2,154 Income tax provision (benefit) 376 491 414 (549) ----- ------ ----- ------ NET EARNINGS (LOSS) $ (1,167) $ 861 $ (1,279) $ 2,703 ===== ====== ===== ====== Earnings (loss) per common share Basic $ (.12) $ .09 $ (.13) $ .27 ===== ====== ===== ====== Diluted $ (.12) $ .08 $ (.13) $ .26 ===== ====== ===== ====== Weighted average common shares Basic 9,839 9,878 9,846 9,897 ===== ====== ===== ====== Diluted 9,839 10,192 9,846 10,218 ===== ====== ===== ======
The accompanying notes are an integral part of these statements. -5- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS Twenty-six weeks ended December 1, 2001 (unaudited) (in thousands, except share data)
Class A Class B Accumulated common stock common stock Additional other Compre- ----------------- ----------------- paid-in Retained comprehensive hensive Shares Amount Shares Amount capital earnings income (loss) Total loss --------- ------ --------- ------ ---------- -------- ------------- ------- ------- Balance at June 2, 2001 4,011,396 $401 5,843,426 $584 $20,066 $63,138 $(3,185) $81,004 Exercise of stock options 613 3 3 Income tax benefits on stock options exercised 1 1 Compensation related to stock option plans 3 3 Issuance of stock 6,000 1 45 46 Purchase of treasury stock (7,669) (1) (29,146) (3) (262) (266) Net loss (1,279) (1,279) $(1,279) Unrealized holding gain on debt and equity securities 170 170 170 Foreign currency translation adjustments (298) (298) (298) --------- --- --------- --- ------ ------ ----- ------ ----- Comprehensive loss $(1,407) ===== Balance at December 1, 2001 4,003,727 $400 5,820,893 $582 $19,856 $61,859 $(3,313) $79,384 ========= === ========= === ====== ====== ===== ======
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 1, December 2, 2001 2000 -------- -------- Cash flows from operating activities: Net earnings (loss) $ (1,279) $ 2,703 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities Depreciation and amortization 1,420 1,388 Impairment of long-lived assets 1,356 450 Provision for (reduction in) doubtful accounts (2) 43 Loss on sale of subsidiary and related assets 872 Deferred income tax provision (benefit) 1 (1,723) Other non-cash items 49 44 Changes in operating assets and liabilities, net of sale Accounts receivable 2,684 1,586 Inventories (2,391) 51 Other current assets 2,154 190 Other assets (289) (188) Accounts payable 2,350 (1,114) Accrued liabilities (910) (740) Accrued income taxes (11) (291) Other noncurrent liabilities 100 95 ------- ------- Net cash provided by operating activities 5,232 3,366 ------- ------- Cash flows from investing activities: Additions to property, plant and equipment, net (1,365) (1,451) Proceeds from sale of subsidiary and related assets 3,250 Purchase of intangible assets (300) Investment at cost (600) Available-for-sale securities Purchases (47,458) (40,151) Proceeds from sale 44,696 34,525 ------- ------- Net cash used in investing activities (5,027) (3,827) ------- ------- Cash flows from financing activities: Repayments of debt (153) (121) Proceeds from issuance of debt 147 19 Proceeds from exercise of stock options, including related income tax benefits 4 15 Purchase of treasury stock (266) (377) ------- ------- Net cash used in financing activities (268) (464) ------- -------
-7- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (unaudited) (in thousands)
Twenty-six weeks ended ----------------------------- December 1, December 2, 2001 2000 ------- ------- Effect of exchange rate changes on cash and cash equivalents $ (243) $ (417) ------ ------ DECREASE IN CASH AND CASH EQUIVALENTS (306) (1,342) Cash and cash equivalents Beginning of period 4,391 5,583 ------ ------ End of period $ 4,085 $ 4,241 ====== ====== Supplemental disclosures of cash flow information: Cash paid (refunded) during the period for: Interest $ 40 $ 38 ====== ====== Income taxes paid (refunded) (net of $815 in refunds in 2001) $ (411) $ 1,830 ====== ======
The accompanying notes are an integral part of these statements. -8- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 1, 2001 and December 2, 2000 (unaudited) NOTE A - CONSOLIDATED FINANCIAL STATEMENTS The consolidated balance sheet as of December 1, 2001, the consolidated statement of stockholders' equity and comprehensive loss for the period ended December 1, 2001, and the consolidated statements of operations and cash flows for the periods ended December 1, 2001 and December 2, 2000, have been prepared by the Company without audit. The consolidated balance sheet as of June 2, 2001 was derived from audited consolidated financial statements. In the opinion of management, all adjustments (which include only normally recurring adjustments) necessary to present fairly the financial position, changes in stockholders' equity and comprehensive loss, results of operations and cash flows at December 1, 2001 (and for all periods presented) have been made. Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the fiscal 2001 Annual Report on Form 10-K filed by the Company on August 30, 2001. The results of operations for the periods ended December 1, 2001 and December 2, 2000 are not necessarily indicative of the operating results for the respective full years. The consolidated financial statements include the accounts of E-Z-EM, Inc. and all 100%-owned subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated. NOTE B - EARNINGS PER COMMON SHARE Basic earnings per share are based on the weighted average number of common shares outstanding without consideration of potential common stock. Diluted earnings per share are based on the weighted average number of common and potential common shares outstanding. The calculation takes into account the shares that may be issued upon exercise of stock options, reduced by the shares that may be repurchased with the funds received from the exercise, based on the average price during the period. Potential common shares were excluded from the diluted calculation for the thirteen and twenty-six weeks ended December 1, 2001, as their effects were anti-dilutive. The following table sets forth the reconciliation of the weighted average number of common shares:
Thirteen weeks ended Twenty-six weeks ended ------------------------- -------------------------- December 1, December 2, December 1, December 2, 2001 2000 2001 2000 ------ ------ ------ ------ (in thousands) Basic 9,839 9,878 9,846 9,897 Effect of dilutive securities (stock options) 314 321 ----- ------ ----- ------ Diluted 9,839 10,192 9,846 10,218 ===== ====== ===== ======
-9- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 1, 2001 and December 2, 2000 (unaudited) NOTE B - EARNINGS PER COMMON SHARE (continued) Excluded from the calculation of earnings per common share, are options to purchase 2,307,499 and 462,915 shares of common stock at December 1, 2001 and December 2, 2000, respectively, as their inclusion would be anti-dilutive. NOTE C - EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement is effective for fiscal years beginning after December 15, 2001. This statement supercedes SFAS No. 121, while retaining many of the requirements of such statement. The Company is currently evaluating the impact this statement may have. NOTE D - RECLASSIFICATIONS Pursuant to the Financial Accounting Standards Board Emerging Issues Task Force Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs", which was adopted in the fourth quarter of fiscal 2001, the Company has reclassified freight billed to customers from selling and administrative expenses to net sales, and has reclassified related freight costs from selling and administrative expenses to cost of goods sold. Prior period amounts have been restated to conform to this presentation. This change had no effect on the dollar amount of the Company's operating profit or net earnings. NOTE E - ACCOUNTING FOR BUSINESS COMBINATIONS, GOODWILL AND INTANGIBLE ASSETS As of June 3, 2001, the Company adopted SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". These standards require that all business combinations initiated after June 30, 2001 be accounted for under the purchase method. In addition, all intangible assets acquired that are obtained through contractual or legal right, or are capable of being separately sold, transferred, licensed, rented or exchanged shall be recognized as an asset apart from goodwill. Goodwill and intangibles with indefinite lives are no longer subject to amortization, but are subject to at least an annual assessment for impairment by applying a fair value based test. The Company has performed a transitional fair value based impairment test on its goodwill and determined that the fair value exceeded the recorded value at June 3, 2001. Therefore, no impairment loss was recorded during the thirteen weeks ended September 1, 2001. Net earnings for the thirteen and twenty-six weeks ended December 2, 2000 would have changed by approximately $3,000 and $5,000, net of tax, respectively, if the recorded goodwill amortization was added back. Basic and diluted earnings per share in such period would have been unchanged. Annual amortization of intangibles will approximate $122,000 for each of the next five years. -10- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 1, 2001 and December 2, 2000 (unaudited) NOTE F - COMPREHENSIVE INCOME The components of comprehensive income (loss), net of related tax, are as follows: Twenty-six weeks ended ----------------------------- December 1, December 2, 2001 2000 ------- ------- (in thousands) Net earnings (loss) $(1,279) $ 2,703 Unrealized holding gain (loss) on debt and equity securities 170 (2,399) Foreign currency translation adjustments (298) 272 ------ ------ Comprehensive income (loss) $(1,407) $ 576 ====== ====== The components of accumulated other comprehensive income (loss), net of related tax, are as follows: December 1, June 2, 2001 2001 ------- ------- (in thousands) Unrealized holding gain on debt and equity securities $ 368 $ 198 Cumulative translation adjustments (3,681) (3,383) ------ ------ Accumulated other comprehensive income (loss) $(3,313) $(3,185) ====== ====== NOTE G - INVESTMENT AT COST In August 2001, the Company acquired 240,000 shares of the Series B Convertible Preferred Stock, or approximately 5%, of PointDx, Inc. ("PointDx") for $600,000. PointDx, a Delaware corporation based in Winston-Salem, North Carolina, is an emerging medical technology company focused on the development of virtual colonoscopy software and structured reporting solutions for radiology. Virtual colonoscopy is an innovative technology which visualizes the colon using advanced CT imaging and 3-D computer reconstruction of that image data. The Company also acquired a three-year warrant to purchase an additional 120,000 shares of the Series B Convertible Preferred Stock at $2.50 per share, and the right to designate one nominee for the PointDx board of directors. The Company's investment in PointDx is accounted for by the cost method. -11- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 1, 2001 and December 2, 2000 (unaudited) NOTE H - SALE OF SUBSIDIARY AND RELATED ASSETS On July 27, 2000, AngioDynamics, Inc. sold all the capital stock of AngioDynamics Ltd., a wholly-owned subsidiary, and certain other assets to AngioDynamics Ltd.'s management. AngioDynamics Ltd., located in Ireland, manufactured cardiovascular and interventional radiology products. The aggregate consideration paid was $3,250,000 in cash. The sale was the culmination of AngioDynamics' strategic decision to exit the cardiovascular market and to focus entirely on the interventional radiology marketplace. As a result of this sale, the Company recognized a pre-tax loss of approximately $872,000 during the thirteen weeks ended September 2, 2000. The aforementioned pre-tax loss includes the effect of previously unrealized losses on foreign currency translation of approximately $994,000 and the write-off of approximately $673,000 in inventory and intangibles related to the cardiovascular product line, both of which were non-cash charges. Further, AngioDynamics entered into a manufacturing agreement, a distribution agreement and a royalty agreement with the buyer. Under the two-year manufacturing agreement, the buyer will be manufacturing certain interventional radiology products sold by AngioDynamics. NOTE I - ASSET IMPAIRMENT CHARGES AND FACILITY CLOSING In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company's Diagnostic operating segment recorded impairment charges of $50,000 and $450,000 during the thirteen weeks ended December 1, 2001 and September 2, 2000, respectively, relating to certain acquired patent rights to an oral magnetic resonance imaging contrast agent. The Company determined that the revenue potential of this technology was impaired, since it believed that the market for this technology was significantly less than previously projected. The impairment charges represented the difference between the carrying value of the intangible asset and the fair market value of this asset based on estimated future discounted cash flows. The charges had no impact on the Company's cash flow or its ability to generate cash flow in the future. The impairment charges are included in the consolidated statement of operations under the caption "Selling and administrative". During the twenty-six weeks ended December 1, 2001, the Company adopted a plan, which was approved by the Board of Directors, to close a facility owned by its wholly-owned Japanese subsidiary in December 2001. The facility was principally used to manufacture liquid barium sulfate formulations for sale in the Japanese market. The facility lacked the necessary manufacturing throughput to justify its continued existence. In connection with this plan, the Company recorded a $1,532,000 charge to operations during the thirteen weeks ended December 1, 2001 consisting of i) a $1,306,000 write-down of property, plant and equipment to management's estimate of their fair market value, based upon the anticipated proceeds to be received upon sale, ii) severance costs of $128,000, iii) refurbishing costs of $66,000, relating to a leased warehousing facility, and iv) a provision for inventory reserves of $32,000. -12- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 1, 2001 and December 2, 2000 (unaudited) NOTE J - INVENTORIES Inventories consist of the following: December 1, June 2, 2001 2001 ------- ------- (in thousands) Finished goods $11,461 $11,093 Work in process 2,414 1,826 Raw materials 10,537 9,102 ------ ------ $24,412 $22,021 ====== ====== NOTE K - INCOME TAXES During the thirteen weeks ended September 2, 2000, the Company reduced its valuation allowance primarily to recognize deferred tax assets of approximately $1,344,000. Continued and projected future profitability of the Company's U.S. operations, including those of AngioDynamics, made it more likely than not that certain deferred tax assets would be realized through future taxable earnings. NOTE L - COMMON STOCK Under the 1983 and 1984 Stock Option Plans, options for 21,000 shares were granted at $4.90 per share, options for 613 shares were exercised at $5.63 per share, options for 11,959 shares were forfeited at prices ranging from $5.39 to $8.58 per share, and options for 1,194 shares expired at $9.58 per share during the twenty-six weeks ended December 1, 2001. Under the 1997 AngioDynamics Stock Option Plan, options for 3.18 shares were granted at $40,000 per share, options for .06 shares were forfeited at $40,000 per share, and no options were exercised or expired during the twenty-six weeks ended December 1, 2001. In January 1999, the Board of Directors authorized the repurchase of up to 500,000 shares of the Company's Class B Common Stock at an aggregate purchase price of up to $2,000,000. In October 1999, the Board modified the program to include the Company's Class A Common Stock. In February 2000, the Board further modified the program to increase the aggregate purchase price of Class A and Class B Common Stock by an additional $2,000,000. As of December 1, 2001, the Company had repurchased 49,529 shares of Class A Common Stock and 424,397 shares of Class B Common Stock for approximately $3,323,000. -13- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 1, 2001 and December 2, 2000 (unaudited) NOTE M - OPERATING SEGMENTS The Company is engaged in the manufacture and distribution of a wide variety of products which are classified into two operating segments: Diagnostic products and AngioDynamics products. Diagnostic products encompass both contrast systems, consisting of barium sulfate formulations and related medical devices used in X-ray, CT-scanning, ultrasound and MRI imaging examinations, and non-contrast systems, including the electromechanical injector line, radiological medical devices, custom contract pharmaceuticals, gastrointestinal cleansing laxatives, and immunoassay tests. AngioDynamics products include angiographic, image-guided vascular access, thrombolytic, angioplasty, stents, and drainage medical devices used in the interventional radiology marketplace. The Company's chief operating decision maker utilizes operating segment net earnings (loss) information in assessing performance and making overall operating decisions and resource allocations. Information about the Company's segments is as follows:
Thirteen weeks ended Twenty-six weeks ended ------------------------------- ------------------------------ December 1, December 2, December 1, December 2, 2001 2000 2001 2000 -------- -------- -------- -------- (in thousands) Net sales to external customers Diagnostic products Contrast systems $ 15,911 $ 15,476 $ 30,758 $ 31,280 Non-contrast systems 7,329 5,949 13,549 12,065 ------- ------- ------- ------- Total Diagnostic products 23,240 21,425 44,307 43,345 AngioDynamics products 7,389 5,233 13,963 11,046 ------- ------- ------- ------- Total net sales to external customers $ 30,629 $ 26,658 $ 58,270 $ 54,391 ======= ======= ======= ======= Intersegment net sales Diagnostic products $ 1 $ 1 AngioDynamics products $ 214 162 $ 383 352 ------- ------- ------- ------- Total intersegment net sales $ 214 $ 163 $ 383 $ 353 ======= ======= ======= ======= Operating profit (loss) Diagnostic products $ (1,706) $ 887 $ (2,184) $ 2,114 AngioDynamics products 776 316 981 (234) Eliminations 4 (21) 1 (69) ------- ------- ------- ------- Total operating profit (loss) $ (926) $ 1,182 $ (1,202) $ 1,811 ======= ======= ======= ======= Net earnings (loss) Diagnostic products $ (1,513) $ 842 $ (1,595) $ 2,026 AngioDynamics products 342 40 315 746 Eliminations 4 (21) 1 (69) ------- ------- ------- ------- Total net earnings (loss) $ (1,167) $ 861 $ (1,279) $ 2,703 ======= ======= ======= =======
-14- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 1, 2001 and December 2, 2000 (unaudited) NOTE M - OPERATING SEGMENTS (continued) December 1, June 2, 2001 2001 --------- --------- (in thousands) Assets Diagnostic products $ 107,625 $ 108,463 AngioDynamics products 17,960 16,782 Eliminations (28,298) (27,790) -------- -------- Total assets $ 97,287 $ 97,455 ======== ======== -15- E-Z-EM, Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Quarters ended December 1, 2001 and December 2, 2000 - ---------------------------------------------------- The Company's quarters ended December 1, 2001 and December 2, 2000 both represent thirteen weeks. Results of Operations - --------------------- Segment Overview ---------------- The Company operates in two industry segments: Diagnostic products and AngioDynamics products. The Diagnostic products operating segment includes both contrast systems and non-contrast systems. The AngioDynamics products operating segment includes angiographic, image-guided vascular access, thrombolytic, angioplasty, stents, and drainage medical devices used in the interventional radiology marketplace.
Diagnostic AngioDynamics Eliminations Total ---------- ------------- ------------ ----- (in thousands) Quarter ended December 1, 2001 - ------------------------------ Unaffiliated customer sales $23,240 $7,389 -- $30,629 Intersegment sales 214 ($214) -- Gross profit 9,114 3,936 4 13,054 Operating profit (loss) (1,706) 776 4 (926) Quarter ended December 2, 2000 - ------------------------------ Unaffiliated customer sales $21,425 $5,233 -- $26,658 Intersegment sales 1 162 ($163) -- Gross profit (loss) 8,698 2,637 (21) 11,314 Operating profit (loss) 887 316 (21) 1,182
Diagnostic Products ------------------- Diagnostic segment operating results for the current quarter, which declined by $2,593,000, were adversely affected by the December 2001 closing of a Japanese facility principally used to manufacture liquid barium sulfate formulations for sale in the Japanese market. The facility lacked the necessary manufacturing throughput to justify its continued existence. As a result of this facility closing, the Company recorded a $1,532,000 charge to operations during the current period consisting of i) a $1,306,000 write-down of property, plant and equipment to management's estimate of their fair market value, based upon the anticipated proceeds to be received upon sale, ii) severance costs of $128,000, iii) refurbishing costs of $66,000, relating to a leased warehousing facility, and iv) a provision for inventory reserves of $32,000. Excluding the Japanese facility closing costs, Diagnostic segment operating results declined by $1,061,000 due primarily to increased operating expenses, slightly offset by increased sales. Net sales increased 8%, or $1,815,000, due to increased sales of non-contrast systems of $1,380,000 and contrast systems of $435,000. Increased sales of non-contrast systems can be attributed entirely to custom contract sales. Price increases accounted for approximately 1 1/2% of net sales for the current quarter and contributed, in large part, to the increase in sales of contrast systems. Gross profit expressed as a percentage of net sales -16- declined to 39% for the current quarter from 41% for the comparable period of the prior year due primarily to decreased production throughput at the Company's Westbury, New York and San Lorenzo, Puerto Rico facilities, partially offset by the effects of sales price increases. Excluding the aforementioned facility closing costs, operating expenses increased $1,477,000 due, in large part, to: i) investment in new product introductions; ii) the establishment of a dedicated domestic sales force for the Company's electromechanical injector line; iii) increased administrative and research and development expenses; and iv) office relocation expenses. AngioDynamics Products ---------------------- AngioDynamics segment operating results for the current quarter improved by $460,000 due to increased sales and improved gross profit, partially offset by increased operating expenses. Net sales increased 41%, or $2,156,000, due to increased sales of image-guided vascular access products, angiographic catheters, stents and angioplasty products in the domestic marketplace. Gross profit expressed as a percentage of net sales improved to 52% for the current quarter from 49% for the comparable quarter of the prior year due primarily to increased production throughput at the Company's Queensbury, New York facility. Operating expenses increased $839,000 due, in large part, to an expansion of the domestic sales force during the second half of last fiscal year. Consolidated Results of Operations ---------------------------------- For the quarter ended December 1, 2001, the Company reported a net loss of $1,167,000, or ($.12) per common share on both a basic and diluted basis, compared to net earnings of $861,000, or $.09 and $.08 per common share on a basic and diluted basis, respectively, for the comparable period of last year. Results for the current quarter were adversely affected by the $1,532,000 charge to close a Japanese facility. Increased operating expenses in both industry segments also adversely affected results for the current quarter. Results for the current quarter were favorably affected by increased sales and gross profit in both industry segments. Net sales for the quarter ended December 1, 2001 increased 15%, or $3,971,000, compared to the quarter ended December 2, 2000 due to increased sales of AngioDynamics products of $2,156,000, non-contrast systems of $1,380,000 and contrast systems of $435,000, which resulted from the factors previously disclosed in the segment overview. Price increases accounted for approximately 1% of net sales for the current quarter. Net sales in international markets, including direct exports from the U.S., increased 31%, or $2,287,000, for the current quarter from the comparable period of last year due, in large part, to increased custom contract sales of $1,611,000 and increased sales of contrast systems of $565,000. Gross profit expressed as a percentage of net sales increased to 43% for the current quarter from 42% for the comparable quarter of the prior year due to improved gross profit in the AngioDynamics segment, partially offset by reduced gross profit in the Diagnostic segment, which resulted from the factors previously disclosed in the segment overview. Selling and administrative ("S&A") expenses were $10,789,000 for the quarter ended December 1, 2001 compared to $8,743,000 for the quarter ended December 2, 2000. This increase of $2,046,000, or 23%, for the current quarter was due to increased Diagnostic S&A expenses of $1,315,000 and increased AngioDynamics S&A expenses of $731,000, which resulted from the factors previously disclosed in the segment overview. Research and development ("R&D") expenditures increased 19% for the current quarter to $1,659,000, or 5% of net sales, from $1,389,000, or 5% of net sales, for the comparable quarter of the prior year. This increase was due to expenses -17- associated with the development of new products introduced in the second quarter, including the Company's latest CT injector system, EmpowerCT(TM), as well as a variety of new products in the field of virtual colonoscopy. Of the R&D expenditures for the current quarter, approximately 42% relate to non-contrast systems, which include the Company's electromechanical injector line, 29% to AngioDynamics projects, 11% to contrast systems, 6% to other projects and 12% to general regulatory costs. R&D expenditures are expected to continue at approximately current levels. Other income, net of other expenses, totaled $135,000 of income for the current quarter compared to $170,000 of income for the quarter ended December 2, 2000. This decline was due primarily to decreased interest income of $111,000, resulting, in large part, from lower interest rates, partially offset by an improvement in foreign currency exchange gains and losses of $65,000. For the quarter ended December 1, 2001, the Company reported an income tax provision of $376,000 against a loss before income taxes of $791,000 due primarily to the fact that the Company did not provide for the tax benefit on losses incurred in certain foreign jurisdictions, since it is more likely than not that such benefits will not be realized, and non-deductible expenses. For the 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. Six months ended December 1, 2001 and December 2, 2000 - ------------------------------------------------------ The Company's six months ended December 1, 2001 and December 2, 2000 both represent twenty-six weeks. Results of Operations - --------------------- Segment Overview ----------------
Diagnostic AngioDynamics Eliminations Total ---------- ------------- ------------ ----- (in thousands) Six months ended December 1, 2001 - --------------------------------- Unaffiliated customer sales $44,307 $13,963 -- $58,270 Intersegment sales 383 ($383) -- Gross profit 16,606 7,117 1 23,724 Operating profit (loss) (2,184) 981 1 (1,202) Six months ended December 2, 2000 - --------------------------------- Unaffiliated customer sales $43,345 $11,046 -- $54,391 Intersegment sales 1 352 ($353) -- Gross profit (loss) 17,406 5,446 (69) 22,783 Operating profit (loss) 2,114 (234) (69) 1,811
Diagnostic Products ------------------- Diagnostic segment operating results for the current period, which declined by $4,298,000, were adversely affected by the aforementioned closing of a Japanese facility, a result of which the Company recorded a $1,532,000 charge to operations during the current period. Excluding the Japanese facility closing costs, the Diagnostic segment operating results declined by $2,766,000 due primarily to increased operating -18- expenses and decreased gross profit. Net sales increased 2%, or $962,000, due to increased sales of non-contrast systems of $1,484,000, partially offset by a decline in sales of contrast systems of $522,000. Increased sales of non- contrast systems can be attributed entirely to custom contract sales. Price increases accounted for less than 1% of net sales for the current period. Gross profit expressed as a percentage of net sales declined to 37% for the current period from 40% for the comparable period of the prior year due primarily to decreased production throughput at the Company's Westbury and San Lorenzo facilities. Excluding the aforementioned facility closing costs, operating expenses increased $1,966,000 due, in large part, to: i) the establishment of a dedicated domestic sales force for the Company's electromechanical injector line; ii) investment in new product introductions; iii) increased administrative and research and development expenses; and iv) office relocation expenses. The comparable prior year period included an asset impairment charge of $450,000 for acquired patent rights to an oral magnetic resonance imaging contrast agent. AngioDynamics Products ---------------------- AngioDynamics segment operating results improved by $1,215,000 in the current period. Of this improvement, $872,000 resulted from the Company recognizing a loss on sale of AngioDynamics Ltd. and related assets in the comparable period of last year. Excluding the effect of the loss on sale, AngioDynamics segment operating results improved by $343,000 due to increased sales and improved gross profit, partially offset by increased operating expenses. Net sales increased 26%, or $2,917,000, due primarily to increased sales of image-guided vascular access products, stents, angioplasty products and angiographic catheters in the domestic marketplace. Gross profit expressed as a percentage of net sales improved to 50% for the current period from 48% for the comparable period of the prior year due primarily to increased production throughput at the Company's Queensbury facility and reduced manufacturing overhead costs resulting from the sale of the Irish facility in the first quarter of the prior year. Excluding the aforementioned loss on sale, operating expenses increased $1,328,000 due, in large part, to an expansion of the domestic sales force during the second half of last fiscal year. Consolidated Results of Operations ---------------------------------- For the six months ended December 1, 2001, the Company reported a net loss of $1,279,000, or ($.13) per common share on both a basic and diluted basis, compared to net earnings of $2,703,000, or $.27 and $.26 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 the $1,532,000 charge to close a Japanese facility. Increased operating expenses in both industry segments and reduced gross profit in the Diagnostic segment also adversely affected results for the current period. Results for the current period were favorably affected by increased sales and improved gross profit in the AngioDynamics segment. For the comparable period of the prior year, several factors combined to have a favorable effect on net earnings of $418,000, or $.04 per basic share. Last year's results included the Company's reversal of a portion of its valuation allowance against certain domestic income tax benefits totaling $1,344,000. Continued and projected future profitability of the Company's U.S. operations, including those of AngioDynamics, made it more likely than not that certain deferred tax assets would be realized through future taxable earnings. Partially offsetting this was the loss on sale of AngioDynamics Ltd. and related assets of $872,000 and the Diagnostic asset impairment charge of $450,000. Net sales for the six months ended December 1, 2001 increased 7%, or $3,879,000, compared to the six months ended December 2, 2000 due to increased sales of AngioDynamics products of $2,917,000 and non-contrast systems of $1,484,000, partially offset by decreased sales of contrast systems of $522,000, which resulted from the factors previously disclosed in the segment overview. -19- Price increases accounted for less than 1% of net sales for the current period. Net sales in international markets, including direct exports from the U.S., increased 7%, or $1,174,000, for the current period from the comparable period of last year due primarily to increased custom contract sales of $1,855,000, partially offset by decreased sales of AngioDynamics products of $476,000. Gross profit expressed as a percentage of net sales decreased to 41% for the current period from 42% 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, which resulted from the factors previously disclosed in the segment overview. S&A expenses were $20,254,000 for the six months ended December 1, 2001 compared to $17,439,000 for the six months ended December 2, 2000. This increase of $2,815,000, or 16%, for the current period was due to increased Diagnostic S&A expenses of $1,571,000 and increased AngioDynamics S&A expenses of $1,244,000, which resulted from the factors previously disclosed in the segment overview. R&D expenditures increased 18% for the current period to $3,140,000, or 5% of net sales, from $2,661,000, or 5% of net sales, for the comparable prior year period. This increase was due to the same factors affecting the Company's quarterly results. Of the R&D expenditures for the current period, approximately 45% relate to non-contrast systems, which includes the Company's electromechanical injector line, 26% to AngioDynamics projects, 10% to contrast systems, 3% to other projects and 16% to general regulatory costs. Other income, net of other expenses, totaled $337,000 of income for the current period compared to $343,000 of income for the comparable period of last year. This slight decline was due primarily to decreased interest income of $185,000, resulting, in part, from lower interest rates, partially offset by an improvement in foreign currency exchange gains and losses of $164,000. For the six months ended December 1, 2001, the Company reported an income tax provision of $414,000 against a loss before income taxes of $865,000 due primarily to the fact that the Company did not provide for the tax benefit on losses incurred in certain foreign jurisdictions, since it is more likely than not that such benefits will not be realized, and non-deductible expenses. For the six months 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. Liquidity and Capital Resources - ------------------------------- For the six months ended December 1, 2001, capital expenditures, the purchase of intangible assets and the purchase of treasury stock were funded by cash provided by operations. The Company's policy has been to fund capital requirements without incurring significant debt. At December 1, 2001, debt (notes payable, current maturities of long-term debt and long-term debt) was $1,366,000, as compared to $1,418,000 at June 2, 2001. The Company has available $1,272,000 under a bank line of credit of which no amounts were outstanding at December 1, 2001. At December 1, 2001, approximately 67% 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 4.72 to 1, with net working capital of $54,330,000, at December 1, 2001, as compared to a current ratio of 5.24 to 1, with net working capital of $56,184,000, at June 2, 2001. -20- 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 1, 2001, the Company had repurchased 49,529 shares of Class A Common Stock and 424,397 shares of Class B Common Stock for approximately $3,323,000. Forward-Looking Statements -------------------------- This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are intended to be covered by the safe harbors created thereby. Words such as "expects", "intends", "anticipates", "plans", "believes", "seeks", "estimates", or variations of such words and similar expressions are intended to identify such forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty, including without limitation, the ability of the Company to develop its products, future actions by the U.S. Food and Drug Administration or other regulatory agencies, results of pending or future clinical trials, overall economic conditions, general market conditions, foreign currency exchange rate fluctuations, the effects of pricing from group purchasing organizations, and competition, including alternative procedures which continue to replace traditional fluoroscopic procedures. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. Item 3. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- The Company is exposed to market risk from changes in foreign currency exchange rates and, to a much lesser extent, interest rates on investments and financing, which could impact results of operations and financial position. The Company does not currently engage in hedging or other market risk management tools. There have been no material changes with respect to market risk previously disclosed in the fiscal 2001 Annual Report on Form 10-K. Foreign Currency Exchange Rate Risk ----------------------------------- The Company's international subsidiaries are denominated in currencies other than the U.S. dollar. Since the functional currency of the Company's international subsidiaries is the local currency, foreign currency translation adjustments are accumulated as a component of accumulated other comprehensive 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 1, 2001, the Company's assets and liabilities would increase or decrease by $2,288,000 and $669,000, respectively, and the Company's net sales and net earnings would increase or decrease by $2,122,000 and $316,000, 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 -21- of 10% at December 1, 2001, results of operations would be favorably or unfavorably impacted by approximately $636,000 on an annual basis. Interest Rate Risk ------------------ The Company is exposed to interest rate change market risk with respect to its investments in tax-free municipal bonds in the amount of $15,925,000. The bonds bear interest at a floating rate established weekly. For the six months ended December 1, 2001, the after-tax interest rate on the bonds approximated 2.4%. Each 100 basis point (1%) fluctuation in interest rates will increase or decrease interest income on the bonds by approximately $159,000 on an annual basis. As the Company's principal amount of fixed interest rate financing approximated $1,366,000 at December 1, 2001, a change in interest rates would not materially impact results of operations or financial position. At December 1, 2001, the Company did not maintain any variable interest rate financing. -22- 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 30, 2001, the following persons were elected as Directors of the Company: Class II Directors: (until the 2004 Annual Meeting) ------------------ Paul S. Echenberg Donald A. Meyer Robert M. Topol In this election, 3,238,006 votes were cast for Messrs. Echenberg, Meyer and Topol, and 172,972 shares were withheld from voting for Messrs. Echenberg, Meyer and Topol. The following Directors continue in office for the duration of their terms: Class I Directors: (until the 2003 Annual Meeting) ----------------- Michael A. Davis, M.D. James L. Katz, CPA, JD Anthony A. Lombardo 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 2002 was approved by a vote of 3,407,593 in favor, 202 against, and 3,183 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 1, 2001. -23- 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 15, 2002 /s/ Anthony A. Lombardo -------------------- ------------------------------------- Anthony A. Lombardo, President, Chief Executive Officer and Director Date January 15, 2002 /s/ Dennis J. Curtin -------------------- ------------------------------------- Dennis J. Curtin, Senior Vice President - Chief Financial Officer (Principal Financial and Chief Accounting Officer) -24- -----END PRIVACY-ENHANCED MESSAGE-----