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
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E-Z-EM, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 11-1999504
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
717 Main Street, Westbury, New York 11590
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(516) 333-8230
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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
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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-