UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 2, 2000
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 1-11479
E-Z-EM, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-1999504
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
717 Main Street, Westbury, New York 11590
---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(516) 333-8230
------------------------------------------------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of October 12, 2000, there were 4,013,390 shares of the issuer's Class A
Common Stock outstanding and 5,861,283 shares of the issuer's Class B Common
Stock outstanding.
Page 1 of 20
Exhibit Index on Page 19
<PAGE>
E-Z-EM, Inc. and Subsidiaries
INDEX
-----
Part 1: Financial Information Page
------- --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets - September 2, 2000 and
June 3, 2000 3 - 4
Consolidated Statements of Earnings - thirteen weeks
ended September 2, 2000 and August 28, 1999 5
Consolidated Statement of Stockholders' Equity and
Comprehensive Income - thirteen weeks ended
September 2, 2000 6
Consolidated Statements of Cash Flows - thirteen weeks
ended September 2, 2000 and August 28, 1999 7 - 8
Notes to Consolidated Financial Statements 9 - 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14 - 17
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17 - 18
Part II: Other Information
-------- -----------------
Item 6. Exhibits and Reports on Form 8-K 19
-2-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 2, June 3,
ASSETS 2000 2000
------- -------
(unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 3,620 $ 5,583
Debt and equity securities 14,364 8,051
Accounts receivable, principally
trade, net 20,922 22,256
Inventories 25,366 26,856
Other current assets 5,065 4,530
------- -------
Total current assets 69,337 67,276
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 20,158 21,721
COST IN EXCESS OF FAIR VALUE OF NET ASSETS
ACQUIRED, less accumulated amortization 404 407
INTANGIBLE ASSETS, less accumulated
amortization 1,420 2,151
DEBT AND EQUITY SECURITIES 2,571 4,067
OTHER ASSETS 5,036 3,463
------- -------
$98,926 $99,085
======= =======
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
September 2, June 3,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 2000
-------- --------
(unaudited) (audited)
CURRENT LIABILITIES
Notes payable $ 1,067 $ 1,080
Current maturities of long-term debt 101 103
Accounts payable 5,761 6,384
Accrued liabilities 6,771 7,798
Accrued income taxes 742 477
-------- --------
Total current liabilities 14,442 15,842
LONG-TERM DEBT, less current maturities 439 453
OTHER NONCURRENT LIABILITIES 2,623 2,756
-------- --------
Total liabilities 17,504 19,051
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.10 per
share - authorized, 1,000,000 shares;
issued, none
Common stock
Class A (voting), par value $.10
per share - authorized, 6,000,000
shares; issued and outstanding
4,014,269 shares at September 2,
2000 and 4,015,111 shares at June
3, 2000 (excluding 38,987 and
38,145 shares held in treasury at
September 2, 2000 and June 3, 2000,
respectively) 401 401
Class B (non-voting), par value
$.10 per share - authorized,
10,000,000 shares; issued and
outstanding 5,891,265 shares at
September 2, 2000 and 5,909,277
shares at June 3, 2000 (excluding
334,585 and 313,748 shares held in
treasury at September 2, 2000 and
June 3, 2000, respectively) 589 591
Additional paid-in capital 20,393 20,521
Retained earnings 61,694 59,852
Accumulated other comprehensive income (loss) (1,655) (1,331)
-------- --------
Total stockholders' equity 81,422 80,034
-------- --------
$ 98,926 $ 99,085
======== ========
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
(in thousands, except per share data)
Thirteen weeks ended
----------------------------
September 2, August 28,
2000 1999
-------- --------
Net sales $ 27,304 $ 27,197
Cost of goods sold 15,201 15,114
-------- --------
Gross profit 12,103 12,083
-------- --------
Operating expenses
Selling and administrative 9,330 8,337
Loss on sale of subsidiary and
related assets 872
Research and development 1,272 1,201
-------- --------
Total operating expenses 11,474 9,538
-------- --------
Operating profit 629 2,545
Other income (expense)
Interest income 226 145
Interest expense (71) (61)
Other, net 18 81
-------- --------
Earnings before income taxes 802 2,710
Income tax provision (benefit) (1,040) 912
-------- --------
NET EARNINGS $ 1,842 $ 1,798
======== ========
Earnings per common share
Basic $ .19 $ .18
======== ========
Diluted $ .18 $ .18
======== ========
Weighted average common shares
Basic 9,915 10,073
======== ========
Diluted 10,245 10,228
======== ========
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Thirteen weeks ended September 2, 2000
(unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Class A Class B Accumulated
common stock common stock Additional other Compre-
--------------- --------------- paid-in Retained comprehensive hensive
Shares Amount Shares Amount capital earnings income (loss) Total income
------ ------ ------ ------ ------- -------- ------------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 3, 2000 4,015,111 $401 5,909,277 $591 $20,521 $59,852 $(1,331) $80,034
Exercise of stock options 2,825 15 15
Income tax benefits on
stock options exercised 1 1
Compensation related to
stock option plans 1 1
Purchase of treasury stock (842) (20,837) (2) (145) (147)
Net earnings 1,842 1,842 $1,842
Unrealized holding loss on debt
and equity securities (1,238) (1,238) (1,238)
Foreign currency translation
adjustments 914 914 914
--------- ---- --------- ---- ------- ------- ------- ------- ------
Comprehensive income $1,518
======
Balance at September 2, 2000 4,014,269 $401 5,891,265 $589 $20,393 $61,694 $(1,655) $81,422
========= ==== ========= ==== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
-6-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Thirteen weeks ended
---------------------------
September 2, August 28,
2000 1999
-------- --------
Cash flows from operating activities:
Net earnings $ 1,842 $ 1,798
Adjustments to reconcile net earnings
to net cash provided by operating
activities
Depreciation and amortization 704 724
Impairment of long-lived assets 450
Provision for doubtful accounts 33 60
Loss on sale of subsidiary and
related assets 872
Deferred income tax (benefit) provision (1,731) 12
Other non-cash items 1 1
Changes in operating assets and
liabilities, net of sale
Accounts receivable 1,076 1,745
Inventories 210 169
Other current assets (267) 175
Other assets (81) (82)
Accounts payable (264) (326)
Accrued liabilities (979) 30
Accrued income taxes 256 269
Other noncurrent liabilities 48 37
-------- --------
Net cash provided by operating
activities 2,170 4,612
-------- --------
Cash flows from investing activities:
Additions to property, plant and
equipment, net (851) (438)
Proceeds from sale of subsidiary and
related assets 3,250
Available-for-sale securities
Purchases (24,273) (17,557)
Proceeds from sale 17,960 13,960
-------- --------
Net cash used in investing activities (3,914) (4,035)
-------- --------
Cash flows from financing activities:
Repayments of debt (61) (792)
Proceeds from exercise of stock options,
including related income tax benefits 16 46
Purchase of treasury stock (147) (172)
Proceeds from issuance of stock in connection
with the stock purchase plan 6
-------- --------
Net cash used in financing activities (192) (912)
-------- --------
-7-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Thirteen weeks ended
--------------------------
September 2, August 28,
2000 1999
------- -------
<S> <C> <C>
Effect of exchange rate changes on
cash and cash equivalents $ (27) $ (38)
------- -------
DECREASE IN CASH AND CASH
EQUIVALENTS (1,963) (373)
Cash and cash equivalents
Beginning of period 5,583 8,073
------- -------
End of period $ 3,620 $ 7,700
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 21 $ 23
======= =======
Income taxes $ 511 $ 600
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
-8-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 2, 2000 and August 28, 1999
(unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of September 2, 2000, the consolidated
statement of stockholders' equity and comprehensive income for the period
ended September 2, 2000, and the consolidated statements of earnings and
cash flows for the periods ended September 2, 2000 and August 28, 1999,
have been prepared by the Company without audit. The consolidated balance
sheet as of June 3, 2000 was derived from audited consolidated financial
statements. In the opinion of management, all adjustments (which include
only normally recurring adjustments) necessary to present fairly the
financial position, changes in stockholders' equity and comprehensive
income, results of operations and cash flows at September 2, 2000 (and for
all periods presented) have been made.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted. It is suggested that
these consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the fiscal 2000 Annual
Report on Form 10-K filed by the Company on September 1, 2000. The results
of operations for the periods ended September 2, 2000 and August 28, 1999
are not necessarily indicative of the operating results for the respective
full years.
The consolidated financial statements include the accounts of E-Z-EM, Inc.
and all 100%-owned subsidiaries (the "Company"). All significant
intercompany balances and transactions have been eliminated.
NOTE B - EARNINGS PER COMMON SHARE
Basic earnings per share are based on the weighted average number of common
shares outstanding without consideration of potential common stock. Diluted
earnings per share are based on the weighted average number of common and
potential common shares outstanding. The calculation takes into account the
shares that may be issued upon exercise of stock options, reduced by the
shares that may be repurchased with the funds received from the exercise,
based on the average price during the period.
The following table sets forth the reconciliation of the weighted average
number of common shares:
Thirteen weeks ended
------------------------
September 2, August 28,
2000 1999
------ ------
(in thousands)
Basic 9,915 10,073
Effect of dilutive securities
(stock options) 330 155
------ ------
Diluted 10,245 10,228
====== ======
-9-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 2, 2000 and August 28, 1999
(unaudited)
NOTE B - EARNINGS PER COMMON SHARE (continued)
Excluded from the calculation of earnings per common share, are options to
purchase 462,915 and 789,909 shares of common stock at September 2, 2000
and August 28, 1999, respectively, as their inclusion would be anti-
dilutive.
NOTE C - EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which requires entities
to recognize all derivatives in their financial statements as either assets
or liabilities measured at fair value. SFAS No. 133 also specifies new
methods of accounting for hedging transactions, prescribes the items and
transactions that may be hedged and specifies detailed criteria to be met
to qualify for hedge accounting. SFAS No. 133, as amended by SFAS No. 137,
is effective for fiscal years beginning after September 15, 2000. The
Company currently does not use derivative instruments as defined by SFAS
No. 133. If the Company continues not to use these derivative instruments
by the effective date of SFAS No. 133, the adoption of this pronouncement
will have no effect on the Company's results of operations or financial
position.
NOTE D - COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, are as follows:
<TABLE>
<CAPTION>
Thirteen weeks ended
----------------------------
September 2, August 28,
2000 1999
------- -------
(in thousands)
<S> <C> <C>
Net earnings $ 1,842 $ 1,798
Unrealized holding loss on debt
and equity securities (1,238) (179)
Foreign currency translation
adjustments 914 (217)
------- -------
Comprehensive income $ 1,518 $ 1,402
======= =======
</TABLE>
The components of accumulated other comprehensive income (loss), net of
related tax, are as follows:
<TABLE>
<CAPTION>
September 2, June 3,
2000 2000
------- -------
(in thousands)
<S> <C> <C>
Unrealized holding gain on debt
and equity securities $ 826 $ 2,064
Cumulative translation adjustments (2,481) (3,395)
------- -------
Accumulated other comprehensive income
(loss) $(1,655) $(1,331)
======= =======
</TABLE>
-10-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 2, 2000 and August 28, 1999
(unaudited)
NOTE E - SALE OF SUBSIDIARY AND RELATED ASSETS
On July 27, 2000, AngioDynamics, Inc. entered into two agreements to sell
all the capital stock of AngioDynamics Ltd., a wholly-owned subsidiary, and
certain other assets to AngioDynamics Ltd.'s management. AngioDynamics
Ltd., located in Ireland, manufactured cardiovascular and interventional
radiology products. The aggregate consideration paid was $3,250,000 in
cash. The sale was the culmination of AngioDynamics' strategic decision to
exit the cardiovascular market and to focus entirely on the interventional
radiology marketplace. As a result of this sale, the Company recognized a
pre-tax loss of approximately $872,000 during the quarter ended September
2, 2000. The aforementioned pre-tax loss includes the effect of previously
unrealized losses on foreign currency translation of approximately $994,000
and the write-off of approximately $673,000 in inventory and intangibles
related to the cardiovascular product line, both of which were non-cash
charges. Further, AngioDynamics entered into a manufacturing agreement, a
distribution agreement and a royalty agreement with the buyer. Under the
two-year manufacturing agreement, the buyer will be manufacturing certain
interventional radiology products sold by AngioDynamics.
NOTE F - ASSET IMPAIRMENT CHARGE
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the
Company's Diagnostic operating segment recorded an impairment charge during
the quarter ended September 2, 2000 of $450,000 relating to certain
acquired patent rights to an oral magnetic resonance imaging contrast
agent. The Company determined that the revenue potential of this technology
was impaired, since it now believes that the market for this technology is
significantly less than previously projected. The impairment charge
represents the difference between the carrying value of the intangible
asset and the fair market value of this asset based on estimated future
discounted cash flows. The charge had no impact on the Company's cash flow
or its ability to generate cash flow in the future. The impairment charge
is included in the consolidated statement of earnings under the caption
"Selling and administrative".
NOTE G - INVENTORIES
Inventories consist of the following:
September 2, June 3,
2000 2000
------- -------
(in thousands)
Finished goods $12,948 $13,246
Work in process 2,115 2,813
Raw materials 10,303 10,797
------- -------
$25,366 $26,856
======= =======
-11-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 2, 2000 and August 28, 1999
(unaudited)
NOTE H - INCOME TAXES
During the thirteen weeks ended September 2, 2000, the Company reduced its
valuation allowance primarily to recognize deferred tax assets of
approximately $1,344,000. Continued and projected future profitability of
the Company's U.S. operations, including those of AngioDynamics, made it
more likely than not that certain deferred tax assets would be realized
through future taxable earnings.
NOTE I - COMMON STOCK
Under the 1983 and 1984 Stock Option Plans, options for 2,825 shares were
exercised at prices ranging from $4.31 to $5.63 per share, options for
7,449 shares were forfeited at prices ranging from $5.39 to $5.63 per
share, and no options were granted or expired during the thirteen weeks
ended September 2, 2000. Under the 1997 AngioDynamics Stock Option Plan,
options for .63 shares were forfeited at $40,000 per share, and no options
were granted, exercised or expired during the thirteen weeks ended
September 2, 2000.
In January 1999, the Board of Directors authorized the repurchase of up to
500,000 shares of the Company's Class B Common Stock at an aggregate
purchase price of up to $2,000,000. In October 1999, the Board modified the
program to include the Company's Class A Common Stock. In February 2000,
the Board further modified the program to increase the aggregate purchase
price of Class A and Class B Common Stock by an additional $2,000,000. As
of September 2, 2000, the Company had repurchased 38,987 shares of Class A
Common Stock and 334,585 shares of Class B Common Stock for approximately
$2,650,000.
NOTE J - OPERATING SEGMENTS
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". The statement redefines
how operating segments are determined and requires disclosure of certain
financial and descriptive information about a company's operating segments.
The Company is engaged in the manufacture and distribution of a wide
variety of products which are classified into two operating segments:
Diagnostic products and AngioDynamics products. Diagnostic products
encompass both contrast systems, consisting of barium sulfate formulations
and related medical devices used in X-ray, CT-scanning, ultrasound and MRI
imaging examinations, and non-contrast systems, including radiological
medical devices, custom contract pharmaceuticals, gastrointestinal
cleansing laxatives, X-ray protection equipment, and immunoassay tests.
AngioDynamics products include angiographic, thrombolytic, image-guided
vascular access, angioplasty, stents, and drainage medical devices used in
the interventional radiology marketplace.
-12-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 2, 2000 and August 28, 1999
(unaudited)
NOTE J - OPERATING SEGMENTS (continued)
The Company's chief operating decision maker utilizes operating segment net
earnings (loss) information in assessing performance and making overall
operating decisions and resource allocations. Information about the
Company's segments is as follows:
<TABLE>
<CAPTION>
Thirteen weeks ended
---------------------------
September 2, August 28,
2000 1999
--------- ---------
(in thousands)
<S> <C> <C>
Net sales to external customers
Diagnostic products
Contrast systems $ 15,615 $ 16,027
Non-contrast systems 6,088 6,829
--------- ---------
Total Diagnostic products 21,703 22,856
AngioDynamics products 5,601 4,341
--------- ---------
Total net sales to external customers $ 27,304 $ 27,197
========= =========
Intersegment net sales
Diagnostic products $ -- $ 191
AngioDynamics products 190 158
--------- ---------
Total intersegment net sales $ 190 $ 349
========= =========
Operating profit (loss)
Diagnostic products $ 1,227 $ 2,929
AngioDynamics products (550) (408)
Eliminations (48) 24
--------- ---------
Total operating profit $ 629 $ 2,545
========= =========
Net earnings (loss)
Diagnostic products $ 1,184 $ 2,310
AngioDynamics products 706 (536)
Eliminations (48) 24
--------- ---------
Total net earnings $ 1,842 $ 1,798
========= =========
</TABLE>
<TABLE>
<CAPTION>
September 2, June 3,
2000 2000
--------- ---------
(in thousands)
<S> <C> <C>
Assets
Diagnostic products $ 109,447 $ 111,046
AngioDynamics products 17,294 17,573
Eliminations (27,815) (29,534)
--------- ---------
Total assets $ 98,926 $ 99,085
========= =========
</TABLE>
-13-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quarters ended September 2, 2000 and August 28, 1999
----------------------------------------------------
The Company's quarters ended September 2, 2000 and August 28, 1999 both
represent thirteen weeks.
Results of Operations
---------------------
Segment Overview
----------------
The Company operates in two industry segments: Diagnostic products and
AngioDynamics products. The Diagnostic products operating segment includes both
contrast systems and non-contrast systems. The AngioDynamics products operating
segment includes angiographic products, thrombolytic products, image-guided
vascular access products, angioplasty products, stents, and drainage products
used in the interventional radiology marketplace.
<TABLE>
<CAPTION>
Diagnostic AngioDynamics Eliminations Total
---------- ------------- ------------ -----
(in thousands)
<S> <C> <C> <C> <C>
Quarter ended September 2, 2000
-------------------------------
Unaffiliated customer sales $21,703 $ 5,601 -- $27,304
Intersegment sales -- 190 ($190) --
Gross profit (loss) 9,349 2,802 (48) 12,103
Operating profit (loss) 1,227 (550) (48) 629
Quarter ended August 28, 1999
-----------------------------
Unaffiliated customer sales $22,856 $ 4,341 -- $27,197
Intersegment sales 191 158 ($349) --
Gross profit 10,045 2,015 23 12,083
Operating profit (loss) 2,929 (408) 24 2,545
</TABLE>
Diagnostic Products
-------------------
Diagnostic segment operating results for the current quarter declined by
$1,702,000 due primarily to decreased sales and gross profit and increased
operating expenses. Net sales decreased 5%, or $1,153,000, due to lower demand
for sales of both contrast systems and non-contrast systems. The decline in
sales of non-contrast systems resulted from decreased custom contract sales.
Price increases accounted for approximately 2% of net sales for the current
quarter. Gross profit expressed as a percentage of net sales declined to 43% for
the current quarter, from 44% for the comparable quarter of the prior year due
primarily to decreased production throughput, partially offset by the effects of
sales price increases. Increased operating expenses of $1,006,000 can be
attributed, in large part, to: an impairment charge of $450,000 relating to
acquired patent rights to an oral magnetic resonance imaging contrast agent;
increased costs associated with foreign product registrations; and increased
administrative expenses.
AngioDynamics Products
----------------------
AngioDynamics segment operating results for the current quarter, which
declined by $142,000, were adversely affected by the sale of AngioDynamics Ltd.,
a wholly-owned subsidiary, and certain other assets. AngioDynamics Ltd., located
in Ireland, manufactured cardiovascular and interventional radiology products.
-14-
<PAGE>
The sale was the culmination of AngioDynamics' strategic decision to exit the
cardiovascular market and to focus entirely on the interventional radiology
marketplace. As a result of this sale, the Company recognized a pre-tax loss of
approximately $872,000 during the quarter ended September 2, 2000. The
aforementioned pre-tax loss includes the effect of previously unrealized losses
on foreign currency translation of approximately $994,000 and the write-off of
approximately $673,000 in inventory and intangibles related to the
cardiovascular product line, both of which were non-cash charges.
Excluding the loss on sale, AngioDynamics segment operating results
improved by $730,000 due to increased sales and improved gross profit. Net sales
increased 29%, or $1,260,000, due, in large part, to sales of several new
products, namely Abscession(TM) fluid drainage catheters, VistaFlex(TM) platinum
biliary stents, and Workhorse(TM) PTA balloon catheters, introduced in the
second quarter of last fiscal year. Gross profit expressed as a percentage of
net sales improved to 48% for the current quarter from 45% for the comparable
quarter of the prior year due primarily to increased production throughput and
changes in product mix.
Consolidated Results of Operations
----------------------------------
For the quarter ended September 2, 2000, the Company reported net earnings
of $1,842,000, or $.19 and $.18 per common share on a basic and diluted basis,
respectively, as compared to net earnings of $1,798,000, or $.18 per common
share on both a basic and diluted basis for the comparable period of last year.
Results for the current quarter were favorably affected by the Company's
reversal of a portion of its income tax valuation allowance against certain
domestic tax benefits totaling $1,344,000, since it is now more likely than not
that such benefits will be realized. Results for the current quarter were
adversely affected by increased operating expenses of $1,936,000, due, in large
part, to the loss on sale of AngioDynamics Ltd. and related assets of $872,000
and the Diagnostic asset impairment charge of $450,000.
Net sales for the quarter ended September 2, 2000 increased less than 1%,
or $107,000, as compared to the quarter ended August 28, 1999. Increased sales
of AngioDynamics products of $1,260,000 were offset by decreased sales of non-
contrast systems of $741,000 and contrast systems of $412,000. The decline in
sales of non-contrast systems resulted from decreased custom contract sales.
Price increases accounted for approximately 1 1/2% of net sales for the current
quarter. Net sales in international markets, including direct exports from the
U.S., decreased 14%, or $1,409,000, for the current quarter from the comparable
period of last year due primarily to decreased custom contract sales of
$1,195,000. Continued weakness of the Euro compared to the U.S. dollar also
contributed to sluggish international sales, as the Company's domestic
operations bill export sales in U.S. dollars.
Gross profit expressed as a percentage of net sales was 44% for both the
current quarter as well as the comparable quarter of the prior year, as improved
gross profit in the AngioDynamics segment was offset by reduced gross profit in
the Diagnostic segment. The improved AngioDynamics gross profit expressed as a
percentage of net sales was due primarily to increased production throughput and
changes in product mix. The decline in Diagnostic gross profit expressed as a
percentage of net sales resulted primarily from decreased production throughput,
partially offset by the effects of sales price increases.
Selling and administrative ("S&A") expenses were $9,330,000 for the quarter
ended September 2, 2000 compared to $8,337,000 for the quarter ended August 28,
1999. This increase of $993,000, or 12%, for the current quarter was due
primarily to increased Diagnostic S&A expenses, which can be attributed, in
large part, to the asset impairment charge of $450,000, increased costs
associated with foreign product registrations, and increased administrative
expenses.
-15-
<PAGE>
Research and development ("R&D") expenditures increased 6% for the current
quarter to $1,272,000, or 5% of net sales, from $1,201,000, or 4% of net sales,
for the comparable quarter of the prior year due to increased general regulatory
costs. Of the R&D expenditures for the current quarter, approximately 42% relate
to contrast systems, 29% to AngioDynamics projects, 5% to immunological
projects, 6% to other projects and 18% to general regulatory costs. R&D
expenditures are expected to continue at approximately current levels.
Other income, net of other expenses, totaled $173,000 of income for the
current quarter compared to $165,000 of income for the comparable period of last
year. Increased interest income of $81,000, resulting from the investment of
additional funds provided by operations, offset a decline in foreign currency
exchange gains and losses of $70,000.
For the quarter ended September 2, 2000, the Company reported an income tax
benefit of $1,040,000 against earnings before income taxes of $802,000 due
primarily to the fact that the Company reversed a portion of its valuation
allowance against certain domestic tax benefits totaling $1,344,000. Continued
and projected future profitability of the Company's U.S. operations, including
those of AngioDynamics, made it more likely than not that certain deferred tax
assets would be realized through future taxable earnings. The Company's
effective tax rate for the quarter ended August 28, 1999 approximated the
Federal statutory tax rate of 34%. Losses incurred in a foreign jurisdiction
subject to lower tax rates were offset by earnings of the Company's Puerto Rican
subsidiary, which are subject to favorable U.S. tax treatment.
Liquidity and Capital Resources
-------------------------------
For the quarter ended September 2, 2000, capital expenditures, the purchase
of treasury stock and debt repayments were funded by cash provided by
operations. The Company's policy has been to fund capital requirements without
incurring significant debt. At September 2, 2000, debt (notes payable, current
maturities of long-term debt and long-term debt) was $1,607,000 as compared to
$1,636,000 at June 3, 2000. The Company has available $3,357,000 under two bank
lines of credit of which no amounts were outstanding at September 2, 2000.
At September 2, 2000, approximately 65% of the Company's assets consisted
of inventories, accounts receivable, short-term debt and equity securities, and
cash and cash equivalents. The current ratio was 4.80 to 1, with net working
capital of $54,895,000, at September 2, 2000, as compared to a current ratio of
4.25 to 1, with net working capital of $51,434,000, at June 3, 2000.
In January 1999, the Board of Directors authorized the repurchase of up to
500,000 shares of the Company's Class B Common Stock at an aggregate purchase
price of up to $2,000,000. In October 1999, the Board modified the program to
include the Company's Class A Common Stock. In February 2000, the Board further
modified the program to increase the aggregate purchase price of Class A and
Class B Common Stock by an additional $2,000,000. As of September 2, 2000, the
Company had repurchased 38,987 shares of Class A Common Stock and 334,585 shares
of Class B Common Stock for approximately $2,650,000.
Forward-Looking Statements
--------------------------
This Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which are intended to be covered by the safe
harbors created thereby. Words such as "expects", "intends", "anticipates",
"plans", "believes", "seeks", "estimates", or variations of such words and
similar expressions are intended to identify such forward-looking statements.
Investors are cautioned that all forward-looking statements involve risks and
uncertainty, including without limitation, the ability of the Company to develop
its products, future
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<PAGE>
actions by the U.S. Food and Drug Administration or other regulatory agencies,
results of pending or future clinical trials, as well as general market
conditions, competition and pricing. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this Form 10-Q
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
Effects of Recently Issued Accounting Pronouncements
----------------------------------------------------
In September 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
requires entities to recognize all derivatives in their financial statements as
either assets or liabilities measured at fair value. SFAS No. 133 also specifies
new methods of accounting for hedging transactions, prescribes the items and
transactions that may be hedged and specifies detailed criteria to be met to
qualify for hedge accounting. SFAS No. 133, as amended by SFAS No. 137, is
effective for fiscal years beginning after September 15, 2000. The Company
currently does not use derivative instruments as defined by SFAS No. 133. If the
Company continues not to use these derivative instruments by the effective date
of SFAS No. 133, the adoption of this pronouncement will have no effect on the
Company's results of operations or financial position.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company is exposed to market risk from changes in foreign currency
exchange rates and, to a much lesser extent, interest rates on investments and
financing, which could impact results of operations and financial position. The
Company does not currently engage in hedging or other market risk management
tools. There have been no material changes with respect to market risk
previously disclosed in the fiscal 2000 Annual Report on Form 10-K.
Foreign Currency Exchange Rate Risk
-----------------------------------
The Company's international subsidiaries are denominated in currencies
other than the U.S. dollar. Since the functional currency of the Company's
international subsidiaries is the local currency, foreign currency translation
adjustments are accumulated as a component of accumulated other comprehensive
income (loss) in stockholders' equity. Assuming a hypothetical aggregate change
in the foreign currencies versus the U.S. dollar exchange rates of 10% at
September 2, 2000, the Company's assets and liabilities would increase or
decrease by $2,065,000 and $553,000, respectively, and the Company's net sales
and net earnings would increase or decrease by $1,936,000 and $72,000,
respectively, on an annual basis.
The Company also maintains intercompany balances and loans receivable with
subsidiaries with different local currencies. These amounts are at risk of
foreign exchange losses if exchange rates fluctuate. Assuming a hypothetical
aggregate change in the foreign currencies versus the U.S. dollar exchange rates
of 10% at September 2, 2000, results of operations would be favorably or
unfavorably impacted by approximately $514,000 on an annual basis.
Interest Rate Risk
------------------
The Company is exposed to interest rate change market risk with respect to
its investments in tax-free municipal bonds in the amount of $14,305,000. The
bonds bear interest at a floating rate established weekly. For the quarter
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<PAGE>
ended September 2, 2000, the after-tax interest rate on the bonds approximated
4.3%. Each 100 basis point (1%) fluctuation in interest rates will increase or
decrease interest income on the bonds by approximately $143,000 on an annual
basis.
As the Company's principal amount of fixed interest rate financing
approximated $1,607,000 at September 2, 2000, a change in interest rates would
not materially impact results of operations or financial position. At September
2, 2000, the Company did not maintain any variable interest rate financing.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
No. Description Page
--- ----------- ----
27 Financial data schedule 20
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended September 2,
2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
E-Z-EM, Inc.
-------------------------------------
(Registrant)
Date October 13, 2000 /s/ Anthony A. Lombardo
-------------------- -------------------------------------
Anthony A. Lombardo, President,
Chief Executive Officer and Director
Date October 13, 2000 /s/ Dennis J. Curtin
-------------------- -------------------------------------
Dennis J. Curtin, Senior Vice
President - Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
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