UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended February 28, 1998
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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
------- -------
On April 10, 1998, there were 4,035,346 shares of the registrant's Class A
Common Stock outstanding and 5,969,335 shares of the registrant's Class B
Common Stock outstanding.
Page 1 of 22
Exhibit Index on Page 19
<PAGE>
E-Z-EM, Inc. and Subsidiaries
INDEX
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Part I: Financial Information Page
- ------ --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets - February 28, 1998
May 31, 1997 3 - 4
Consolidated Statements of Operations - thirteen
and thirty-nine weeks ended February 28, 1998 and
March 1, 1997 5
Consolidated Statement of Stockholders' Equity -
thirty-nine weeks ended February 28, 1998 6
Consolidated Statements of Cash Flows - thirty-nine
weeks ended February 28, 1998 and March 1, 1997 7 - 8
Notes to Consolidated Financial Statements 9 - 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 18
Part II: Other Information
- ------- -----------------
Item 6. Exhibits and Reports on Form 8-K 19
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
February 28, May 31,
ASSETS 1998 1997
------ ------
(unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 4,886 $ 4,484
Debt and equity securities 3,423 10,991
Accounts receivable, principally
trade, net 18,221 16,971
Inventories 27,759 27,351
Other current assets 3,379 4,147
------ -------
Total current assets 57,668 63,944
INVESTMENT IN AFFILIATE 1,190
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 22,171 23,418
COST IN EXCESS OF FAIR VALUE OF NET ASSETS
ACQUIRED, less accumulated amortization 460 489
INTANGIBLE ASSETS, less accumulated
amortization 2,603 7,057
DEBT AND EQUITY SECURITIES 2,011 2,081
OTHER ASSETS 3,632 3,731
------ -------
$89,735 $100,720
====== =======
The accompanying notes are an integral part of these financial statements.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
February 28, May 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
------ ------
(unaudited) (audited)
CURRENT LIABILITIES
Notes payable $ 2,913 $ 7,029
Current maturities of long-term debt 298 517
Accounts payable 6,698 6,168
Accrued liabilities 6,837 6,829
Accrued income taxes 370 286
------ -------
Total current liabilities 17,116 20,829
LONG-TERM DEBT, less current maturities 1,003 842
OTHER NONCURRENT LIABILITIES 1,728 1,805
COMMITMENTS AND CONTINGENCIES
------ -------
Total liabilities 19,847 23,476
------ -------
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 4,035,346 shares
at February 28, 1998 and May 31, 1997 403 403
Class B (nonvoting), par value $.10 per
share - authorized, 10,000,000 shares;
issued and outstanding 5,932,952 shares
at February 28, 1998 and 5,600,883
shares at May 31, 1997 593 560
Additional paid-in capital 21,300 19,073
Retained earnings 47,991 57,087
Unrealized holding gain on debt and equity
securities 1,303 1,332
Cumulative translation adjustments (1,702) (1,211)
------ -------
Total stockholders' equity 69,888 77,244
------ -------
$89,735 $100,720
====== =======
The accompanying notes are an integral part of these financial statements.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Thirteen weeks ended Thirty-nine weeks ended
----------------------- -----------------------
February 28, March 1, February 28, March 1,
1998 1997 1998 1997
------ ------ ------ ------
(in thousands, except share and per share data)
Net sales $24,385 $23,576 $74,809 $72,923
Cost of goods sold 16,146 14,954 48,114 44,185
------ ------ ------ ------
Gross profit 8,239 8,622 26,695 28,738
------ ------ ------ ------
Operating expenses
Selling and administrative 8,379 8,325 24,923 24,832
Research and development 1,410 1,792 4,491 4,767
Impairment of long-lived
assets 4,121 4,121
------ ------ ------ ------
Total operating expenses 13,910 10,117 33,535 29,599
------ ------ ------ ------
Operating loss (5,671) (1,495) (6,840) (861)
Other income (expense)
Interest income 248 181 577 603
Interest expense (206) (149) (572) (290)
Other, net (249) 40 (385) 140
----- ----- ----- -----
Loss before income
taxes (5,878) (1,423) (7,220) (408)
Income tax benefit (59) (377) (154) (118)
----- ----- ----- -----
NET LOSS $(5,819) $(1,046) $(7,066) $ (290)
===== ===== ===== =====
Loss per common share
Basic and diluted $ (.58) $ (.11) $ (.71) $ (.03)
===== ===== ===== =====
Weighted average common shares
Basic and diluted 9,949,328 9,891,783 9,933,922 9,854,233
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Thirty-nine weeks ended February, 28, 1998
(unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Unrealized
Class A Class B holding gain
common stock common stock Additional on debt Cumulative
----------------- ----------------- paid-in Retained and equity translation
Shares Amount Shares Amount capital earnings securities adjustments Total
--------- ------ --------- ------ ---------- -------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1997 4,035,346 $403 5,600,883 $560 $19,073 $57,087 $1,332 $(1,211) $77,244
Exercise of stock options 41,396 4 178 182
Income tax benefits on
stock options exercised 40 40
Compensation related to
stock option plans 5 5
Issuance of stock 925 5 5
3% common stock dividend 289,748 29 1,999 (2,030) (2)
Net loss (7,066) (7,066)
Unrealized holding loss on debt
and equity securities (29) (29)
Foreign currency translation
adjustments _________ ___ _________ ___ ______ ______ _____ _(491) __(491)
Balance at February 28, 1998 4,035,346 $403 5,932,952 $593 $21,300 $47,991 $1,303 $(1,702) $69,888
========= === ========= === ====== ====== ===== ===== ======
</TABLE>
The accompanying notes are an integral part of this financial statement.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Thirty-nine weeks ended
------------------------
February 28, March 1,
1998 1997
------ ------
(in thousands)
Cash flows from operating activities:
Net loss $(7,066) $ (290)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 2,533 2,216
Impairment of long-lived assets 4,121
Provision for doubtful accounts 202 122
Equity in losses of affiliate 150
Loss on sale of investments 18
Deferred income tax provision 14 219
Other non-cash items 5
Changes in operating assets and
liabilities
Accounts receivable (1,452) (2,366)
Inventories (408) (3,901)
Other current assets 685 (1,131)
Other assets 126 (492)
Accounts payable 530 873
Accrued liabilities 6 (335)
Accrued income taxes 70 (60)
Other noncurrent liabilities (53) (2)
------ ------
Net cash used in operating
activities (537) (5,129)
------ ------
Cash flows from investing activities:
Additions to property, plant and
equipment, net (858) (3,965)
Acquisition of business (7,096)
Investment in affiliate (1,340)
Available-for-sale securities
Purchases (8,840) (16,880)
Proceeds from sale 16,408 26,214
------ ------
Net cash provided by (used in)
investing activities 5,370 (1,727)
------ ------
Cash flows from financing activities:
Proceeds from issuance of debt 3,436 6,432
Repayments of debt (7,380) (699)
Proceeds from exercise of stock options,
including related income tax benefits 222 707
Proceeds from issuance of stock in
connection with the stock purchase plan 5 9
------ ------
Net cash (used in) provided by
financing activities (3,717) 6,449
------ ------
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
Thirty-nine weeks ended
------------------------
February 28, March 1,
1998 1997
------ ------
(in thousands)
Effect of exchange rate changes on
cash and cash equivalents $ (714) $ (122)
----- -----
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 402 (529)
Cash and cash equivalents
Beginning of period 4,484 3,363
----- -----
End of period $4,886 $2,834
===== =====
Supplemental disclosures of cash
flow information:
Cash paid (refunded) during the period for:
Interest $ 580 $ 232
===== =====
Income taxes (net of refunds of $1,314 and
$421 in 1998 and 1997, respectively) $(1,031) $ 228
===== =====
The accompanying notes are an integral part of these financial statements.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1998 and March 1, 1997
(unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of February 28, 1998, the consolidated
statement of stockholders' equity for the period ended February 28,
1998, and the consolidated statements of operations and cash flows for
the periods ended February 28, 1998 and March 1, 1997, have been
prepared by the Company without audit. In the opinion of management,
all adjustments (which include only normally recurring adjustments)
necessary to present fairly the financial position, changes in
stockholders' equity, results of operations and cash flows at February
28, 1998 (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 1997
Annual Report on Form 10-K filed by the Company on August 29, 1997. The
results of operations for the periods ended February 28, 1998 and March
1, 1997 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"). The Company's
approximately 23% interest in an affiliate is accounted for by the
equity method. Pursuant to this method, such investment is recorded at
cost and adjusted by the Company's share of undistributed earnings (or
losses).
NOTE B - EARNINGS (LOSS) PER COMMON SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share," which
requires dual presentation of basic and diluted earnings per share
("EPS") on the face of the statement of operations for all periods
presented. Basic EPS excludes dilution and is computed by dividing
income (loss) available to common shareholders by the weighted average
number of common shares outstanding during the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in
the earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS pursuant to Accounting Principles Board Opinion No. 15.
Common stock equivalents were excluded from the diluted calculation for
the periods ended February 28, 1998 and March 1, 1997, as their effects
were anti-dilutive. Prior period amounts have been restated, where
appropriate, to conform to the requirements of SFAS 128.
-9-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1998 and March 1, 1997
(unaudited)
NOTE C - INVENTORIES
Inventories consist of the following:
February 28, May 31,
1998 1997
------ ------
(in thousands)
Finished goods $13,703 $14,170
Work in process 1,876 1,639
Raw materials 12,180 11,542
------ ------
$27,759 $27,351
====== ======
NOTE D - INVESTMENT IN EQUITY AFFILIATE
In August 1997, the Company acquired approximately 23% of ITI Medical
Technologies, Inc. ("ITI") for $1,340,000, including acquisition related
expenses of $40,000. ITI is a California corporation, based in
Livermore, California, which develops and manufactures MRI diagnostic
and therapeutic medical devices. The Company's investment in ITI is
accounted for by the equity method. Pursuant to this method, such
investment is recorded at cost and adjusted by the Company's share of
undistributed earnings (or losses).
NOTE E - IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," the Company recorded an impairment charge
with no associated tax benefit of $4,121,000, or $.41 per share,
relating to certain long-lived assets used in the cardiovascular market.
The revenue potential of this cardiovascular technology was impaired due
to price erosion for stents and angioplasty products, increasing product
competition and the Company's strategic decision to focus its efforts in
the interventional radiology market. The Company has determined that it
needs to find a strategic business partner with an existing
cardiovascular sales and marketing franchise in order to be successful
in the cardiovascular market, although there are no assurances that such
a partner can be found. The charge represents the difference between
the carrying value of intangible assets and the fair market value of
these assets based on estimated future cash flows discounted at a rate
commensurate with the risk involved. The charge had no impact on the
Company's cash flow or its ability to generate cash flow in the future.
As a result of the impairment charge, amortization expense related to
these assets will decrease by approximately $250,000 per year.
-10-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1998 and March 1, 1997
(unaudited)
NOTE F - COMMON STOCK
Under the 1983 and 1984 Stock Option Plans, options for 41,396 shares were
exercised at prices ranging from $4.22 to $5.55 per share, options for
4,230 shares were forfeited at prices ranging from $5.55 to $8.84 per
share, options for 869 shares expired at $8.74 per share, and no options
were granted during the thirty-nine weeks ended February 28, 1998.
Under the 1997 AngioDynamics Stock Option Plan, options for 6.53 shares
were granted at $80,000 per share, options for .74 shares were forfeited
at $80,000 per share, and no options were exercised or expired during
the thirty-nine weeks ended February 28, 1998.
Under the Employee Stock Purchase Plan, 925 shares were purchased at
$6.01 per share during the thirty-nine weeks ended February 28, 1998.
Total proceeds received by the Company approximated $5,000.
On January 23, 1998, the Board of Directors declared a 3% stock dividend
on shares of Class A and Class B Common Stock. The dividend, payable in
nonvoting Class B Stock, was distributed on March 16, 1998 to
shareholders of record on February 26, 1998.
NOTE G - CONTINGENCIES
During August and December 1997, the Company settled two product liability
actions in which it had been a defendant. Such actions were settled for
amounts under the Company's insurance limit and the amounts contributed
by the Company were not material to its consolidated financial
statements.
The Company has been sued by Olympia Holding Corporation p/k/a P-I-E
Nationwide, Inc. for $443,830. The suit, filed on October 5, 1992, is
presently pending in the U.S. Bankruptcy Court for the Middle District
of Florida. The Company is being represented in this action by a law
firm which is also representing numerous other defendants being sued by
the same plaintiff on the same grounds - recovery for alleged
undercharges for freight carriage. It is not possible, at this stage,
to determine what, if any, liability exists with respect to the Company
in this matter. The Company will continue to vigorously defend against
this action; it has been informed by legal counsel that there exist
numerous valid defenses to this case.
NOTE H - RECLASSIFICATIONS
Certain reclassifications have been made to the prior period amounts to
conform to the current period presentations.
-11-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quarters ended February 28, 1998 and March 1, 1997
- --------------------------------------------------
The Company's quarters ended February 28, 1998 and March 1, 1997 both
represent thirteen weeks.
Results of Operations
- ---------------------
Segment Overview
----------------
The Company operates in two industry segments: Diagnostic products and
AngioDynamics products. The Diagnostic products industry segment includes
both contrast systems and non-contrast systems.
Diagnostic AngioDynamics Eliminations Total
---------- ------------- ------------ -----
(in thousands)
Quarter ended February 28, 1998
- -------------------------------
Unaffiliated customer sales $19,878 $4,507 - $24,385
Intersegment sales 82 ($82) -
Gross profit (loss) 6,488 1,761 (10) 8,239
Operating loss (406) (5,255) (10) (5,671)
Quarter ended March 1, 1997
- ---------------------------
Unaffiliated customer sales $18,916 $4,660 - $23,576
Intersegment sales 303 346 ($649) -
Gross profit 6,343 2,273 6 8,622
Operating profit (loss) (1,229) (272) 6 (1,495)
Diagnostic Products
-------------------
Diagnostic segment operating results for the current quarter improved
by $823,000 due to a 3% sales increase, as well as reduced operating
expenses of $678,000. Previous price increases virtually offset the effect
of increased discounts to group purchasing organizations. Gross profit
expressed as a percentage of net sales was 33% during both the current
quarter and comparable quarter of the prior year, as the effects of
increased discounts to group purchasing organizations, were offset by
reduced unabsorbed overhead costs associated with the manufacturing site
relocation.
AngioDynamics Products
----------------------
AngioDynamics segment operating results for the current quarter, which
declined by $4,983,000, were adversely affected by a non-cash accounting
charge with no associated tax benefit of $4,121,000, or $.41 per share,
relating to an impairment of certain long-lived assets used in the
cardiovascular market. The fact that the Company did not record a tax
benefit for financial reporting purposes, associated with the impairment
charge, does not affect its ability to realize the deduction for tax
purposes. The revenue potential of this cardiovascular technology was
-12-
<PAGE>
impaired due to price erosion for stents and angioplasty products,
increasing product competition and the Company's strategic decision to focus
its efforts in the interventional radiology market. The Company has
determined that it needs to find a strategic business partner with an
existing cardiovascular sales and marketing franchise in order to be
successful in the cardiovascular market, although there are no assurances
that such a partner can be found. The charge had no impact on the Company's
cash flow or its ability to generate cash flow in the future. As a result
of the impairment charge, amortization expense related to these assets will
decrease by approximately $250,000 per year.
Operating results were also impacted by an overall sales decline, lower
gross profit and an increase in operating expenses before impairment
charges. Domestic sales improved by $680,000, or 23%, due to continued
market penetration, while international sales decreased $833,000, or 51%,
due to a decline in sales of the AngioStent. Overall, AngioDynamics sales
decreased 3% during the current quarter. Gross profit expressed as a
percentage of net sales declined to 38% during the current quarter versus
45% during the comparable quarter of the prior year due primarily to lower
stent sales, price erosion in the coronary stent marketplace, and
underutilized capacity at the Irish manufacturing facility. Operating
expenses before impairment charges increased $349,000 due, in part, to
termination costs of $78,000 associated with the relocation of the Leocor
operations during the current quarter.
Consolidated Results of Operations
----------------------------------
For the quarter ended February 28, 1998, the Company reported a net
loss of $5,819,000 or ($.58) per common share on both a basic and diluted
basis, as compared to a net loss of $1,046,000 or ($.11) per common share on
both a basic and diluted basis, for the comparable period of last year.
Results for the current quarter were adversely affected by the
AngioDynamics impairment charge of $4,121,000, or $.41 per share. Reduced
Diagnostic operating expenses of $678,000 offset lower AngioDynamics gross
profit. The lower AngioDynamics gross profit is due to lower stent sales,
price erosion in the coronary stent marketplace, and underutilized capacity
at the Irish manufacturing facility.
Net sales for the quarter ended February 28, 1998 increased 3%, or
$809,000, as compared to the quarter ended March 1, 1997 due primarily to
increased sales of non-contrast systems of $1,747,000, partially offset by
decreased sales of contrast systems of $785,000 and AngioDynamics products
of $153,000. Previous price increases, net of discounts to group purchasing
organizations, had little effect on net sales in the current quarter. Net
sales in international markets, including direct exports from the U.S.,
decreased 3%, or $237,000, in the current quarter versus the comparable
period of last year due to decreased sales of AngioDynamics products of
$833,000 and contrast systems of $347,000, partially offset by increased
sales of non-contrast systems of $943,000.
Gross profit expressed as a percentage of net sales decreased to 34%
during the current quarter from 37% in the comparable quarter of the prior
year due primarily to reduced AngioDynamics gross profit, resulting from
lower stent sales, price erosion in the coronary stent marketplace, and
underutilized capacity at the Irish manufacturing facility. In the
Diagnostic segment, the effects of increased discounts to group purchasing
organizations, were offset by reduced unabsorbed overhead costs associated
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<PAGE>
with the manufacturing site relocation. The Company's third fiscal quarters
traditionally have fewer production days than the other fiscal quarters,
resulting in somewhat lower gross profit percentages in such quarters.
Selling and administrative ("S&A") expenses were $8,379,000 during the
quarter ended February 28, 1998 versus $8,325,000 during the quarter ended
March 1, 1997. There were no materially significant factors affecting the
quarterly comparison of S&A expenses.
Research and development ("R&D") expenditures decreased 21% in the
current quarter to $1,410,000, or 6% of net sales, from $1,792,000, or 8% of
net sales, in the comparable quarter of the prior year due to decreased
regulatory expenses. Of the R&D expenditures in the current quarter,
approximately 42% relate to contrast systems, 38% to AngioDynamics projects,
9% to general regulatory costs, 3% to immunological projects, and 8% to
other projects. R&D expenditures are expected to continue at approximately
current levels.
Other income, net of expenses, decreased $279,000 in the current
quarter versus the comparable period of last year due primarily to the
recording of a life insurance gain of $169,000 in the prior year, increased
foreign currency exchange losses of $97,000, and the recording of the
Company's approximate 23% share in the losses of ITI Medical Technologies,
Inc. ("ITI") of $70,000.
For the quarter ended February 28, 1998, the Company's unusually low
effective tax benefit rate of 1% 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 (including the impairment charge) incurred in
certain jurisdictions, since, it is more likely than not that such benefits
will not be realized. Losses incurred in a foreign jurisdiction subject to
lower tax rates also contributed to the unusually low effective tax benefit
rate. For the quarter ended March 1, 1997, the Company's effective tax
benefit rate of 26% 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, at that time, it was
more likely than not that such benefits would not be realized, and losses
incurred in a foreign jurisdiction subject to lower tax rates, partially
offset by earnings of the Company's Puerto Rican subsidiary, which are
subject to favorable U.S. tax treatment.
-14-
<PAGE>
Thirty-nine weeks ended February 28, 1998 and March 1, 1997
- -----------------------------------------------------------
Results of Operations
- ---------------------
Segment Overview
----------------
Diagnostic AngioDynamics Eliminations Total
---------- ------------- ------------ -----
(in thousands)
Thirty-nine weeks ended February 28, 1998
- -----------------------------------------
Unaffiliated customer sales $61,080 $13,729 - $74,809
Intersegment sales 59 363 ($422) -
Gross profit (loss) 21,918 4,801 (24) 26,695
Operating profit (loss) 669 (7,485) (24) (6,840)
Thirty-nine weeks ended March 1, 1997
- -------------------------------------
Unaffiliated customer sales $58,775 $14,148 - $72,923
Intersegment sales 685 775 ($1,460) -
Gross profit (loss) 21,494 7,269 (25) 28,738
Operating loss (770) (66) (25) (861)
Diagnostic Products
-------------------
Diagnostic segment operating results for the current period improved by
$1,439,000 due to a 3% sales increase, as well as reduced operating expenses
of $1,016,000. Previous price increases virtually offset the effect of
increased discounts to group purchasing organizations. Gross profit
expressed as a percentage of net sales was 36% during both the current
period and comparable period of the prior year, as the effects of increased
discounts to group purchasing organizations, were offset by reduced
unabsorbed overhead costs associated with the manufacturing site relocation.
AngioDynamics Products
----------------------
AngioDynamics segment operating results for the current period, which
declined by $7,419,000, were adversely affected by a non-cash accounting
charge with no associated tax benefit of $4,121,000, or $.41 per share,
relating to an impairment of certain long-lived assets used in the
cardiovascular market. The fact that the Company did not record a tax
benefit for financial reporting purposes, associated with the impairment
charge, does not affect its ability to realize the deduction for tax
purposes.
Operating results were also impacted by an overall sales decline, lower
gross profit and an increase in operating expenses before impairment
charges. Domestic sales improved by $2,287,000, or 27%, due to continued
market penetration, while international sales decreased $2,705,000, or 47%,
due to a decline in sales of the AngioStent. Overall, AngioDynamics sales
decreased 3% during the current period. Gross profit expressed as a
percentage of net sales declined to 34% during the current period versus 49%
during the comparable period of the prior year due primarily to lower stent
sales, price erosion in the coronary stent marketplace, underutilized
capacity at the Irish manufacturing facility, and increased inventory
reserves of $627,000. Operating expenses before impairment charges
increased $830,000 due, in part, to the Leocor operations, which began in
the third quarter of last fiscal year, and termination costs of $179,000
-15-
<PAGE>
associated with the relocation of the Leocor operations during the current
fiscal year.
Consolidated Results of Operations
----------------------------------
For the thirty-nine weeks ended February 28, 1998, the Company reported
a net loss of $7,066,000 or ($.71) per common share on both a basic and
diluted basis, as compared to a net loss of $290,000 or ($.03) per common
share on a basic and diluted basis for the comparable period of last year.
Results for the current period were adversely impacted by the
AngioDynamics impairment charge of $4,121,000, or $.41 per share, as well as
lower AngioDynamics gross profit, resulting from lower stent sales, price
erosion in the coronary stent marketplace, underutilized capacity at the
Irish manufacturing facility, and increased inventory reserves of $627,000.
Net sales for the thirty-nine weeks ended February 28, 1998 increased
3%, or $1,886,000, as compared to the thirty-nine weeks ended March 1, 1997
due primarily to increased sales of non-contrast systems of $3,348,000,
partially offset by decreased sales of contrast systems of 1,043,000 and
AngioDynamics products of $419,000. Previous price increases, net of
discounts to group purchasing organizations, had little effect on net sales
in the current period. Net sales in international markets, including direct
exports from the U.S., decreased 8%, or $2,190,000, in the current period
versus the comparable period of last year due to decreased sales of
AngioDynamics products of $2,705,000 and contrast systems of $995,000,
partially offset by increased sales of non-contrast systems of $1,510,000.
Gross profit expressed as a percentage of net sales decreased to 36%
during the current period from 39% in the comparable period of last year due
primarily to reduced AngioDynamics gross profit, resulting from lower stent
sales, price erosion in the coronary stent marketplace, underutilized
capacity at the Irish manufacturing facility, and increased inventory
reserves of $627,000. In the Diagnostic segment, the effects of increased
discounts to group purchasing organizations, were offset by reduced
unabsorbed overhead costs associated with the manufacturing site relocation.
S&A expenses were $24,923,000 during the thirty-nine weeks ended
February 28, 1998 versus $24,832,000 during the thirty-nine weeks ended
March 1, 1997. This increase of $91,000, or less than 1%, in the current
period was due to increased AngioDynamics S&A expenses of $1,079,000, offset
by decreased Diagnostic S&A expenses of $988,000. Increased AngioDynamics
S&A expenses can be attributed, in part, to the Leocor operations, which
began in the third quarter of last fiscal year, and termination costs of
$179,000 associated with the relocation of the Leocor operations during the
current fiscal year.
R&D expenditures decreased 6% in the current period to $4,491,000, or
6% of net sales, from $4,767,000, or 7% of net sales, in the comparable
prior year period. This decrease was due primarily to decreases in
regulatory expenses of $420,000 and AngioDynamics project spending of
$248,000, partially offset by increased contrast system spending of
$377,000. Of the R&D expenditures in the current period, approximately 42%
relate to contrast systems, 32% to AngioDynamics projects, 10% to general
regulatory costs, 3% to immunological projects, and 13% to other projects.
Other income, net of expenses, decreased $833,000 in the current period
versus the comparable period of last year due primarily to increased
-16-
<PAGE>
interest expense of $282,000, resulting from AngioDynamics bank financing,
increased foreign currency exchange losses of $282,000, and the recording of
the Company's approximate 23% share in the losses of ITI of $150,000.
For the thirty-nine weeks ended February 28, 1998, the Company's
unusually low effective tax benefit rate of 2% 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 (including the impairment charge)
incurred in certain jurisdictions, since, it is more likely than not that
such benefits will not be realized. Losses incurred in a foreign
jurisdiction subject to lower tax rates also contributed to the unusually
low effective tax benefit rate. The Company's effective tax benefit rate of
29% during the thirty-nine weeks ended March 1, 1997 differed from the
Federal statutory tax rate of 34% due primarily to non-deductible expenses,
losses incurred in a foreign jurisdiction subject to lower tax rates, and
the fact that the Company did not provide for the tax benefit on losses
incurred in a foreign jurisdiction, since, at that time, it was more likely
than not that such benefits would not be realized, partially offset by
earnings of the Company's Puerto Rican subsidiary, which are subject to
favorable U.S. tax treatment, and tax-exempt interest income.
Liquidity and Capital Resources
- -------------------------------
During the thirty-nine weeks ended February 28, 1998, debt repayments,
investment in affiliate and capital expenditures were funded primarily by
cash reserves. In the past, the Company's policy had been to fund capital
requirements without incurring significant debt. At February 28, 1998, debt
(notes payable, current maturities of long-term debt and long-term debt) was
$4,214,000 as compared to $8,388,000 at May 31, 1997. The Company has
available $8,921,000 under four bank lines of credit of which $1,723,000 was
outstanding at February 28, 1998.
The Company's current policy is to issue stock dividends. During the
third quarter of fiscal years 1996 and 1998 and the fourth quarter of fiscal
year 1997, the Company issued 3% stock dividends.
Presently, the Company is continuing to look for both new and
complementary lines of business for expansion in order to ensure its
continued growth.
At February 28, 1998, approximately 60% of the Company's assets consist
of inventories, accounts receivable, cash and cash equivalents, and debt and
equity securities. Prior to fiscal 1998, inventories have increased at a
greater rate than sales as a result of broadened product lines, and safety
stock during the relocation of a portion of the Company's contrast systems
manufacturing operations. The current ratio is 3.37 to 1, with net working
capital of $40,552,000 at February 28, 1998, as compared to the current
ratio of 3.07 to 1, with net working capital of $43,115,000 at May 31, 1997.
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. Investors are cautioned that all forward-
looking statements involve risks and uncertainty, including without
limitation, the ability of the Company to develop its products, as well as
general market conditions, competition and pricing. Although the Company
believes that the assumptions underlying the forward-looking statements
-17-
<PAGE>
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.
-18-
<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 - thirty-nine weeks ended
February 28, 1998 20
27.1 Financial data schedule - twenty-six weeks ended
November 30, 1996 21
27.2 Financial data schedule - fifty-two weeks ended
June 1, 1996 22
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended February 28,
1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
E-Z-EM, Inc.
-----------------------------------
(Registrant)
Date April 13, 1998 /s/ Howard S. Stern
--------------------- -----------------------------------
Howard S. Stern, Chairman of the
Board, President, Chief Executive
Officer and Director
Date April 13, 1998 /s/ Dennis J. Curtin
--------------------- -----------------------------------
Dennis J. Curtin, Vice President-
Chief Financial Officer
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-Q for the quarter ended February 28, 1998 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-30-1998
<PERIOD-END> FEB-28-1998
<CASH> 4,886
<SECURITIES> 3,423
<RECEIVABLES> 19,295
<ALLOWANCES> 1,074
<INVENTORY> 27,759
<CURRENT-ASSETS> 57,668
<PP&E> 45,192
<DEPRECIATION> 22,171
<TOTAL-ASSETS> 89,735
<CURRENT-LIABILITIES> 17,116
<BONDS> 1,003
0
0
<COMMON> 996
<OTHER-SE> 68,892
<TOTAL-LIABILITY-AND-EQUITY> 89,735
<SALES> 74,809
<TOTAL-REVENUES> 74,809
<CGS> 48,114
<TOTAL-COSTS> 48,114
<OTHER-EXPENSES> 33,535
<LOSS-PROVISION> 202
<INTEREST-EXPENSE> 572
<INCOME-PRETAX> (7,220)
<INCOME-TAX> (154)
<INCOME-CONTINUING> (7,066)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,066)
<EPS-PRIMARY> (.71)
<EPS-DILUTED> (.71)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-Q for the quarter ended November 30, 1996 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> NOV-30-1996
<CASH> 3,969
<SECURITIES> 17,927
<RECEIVABLES> 20,482
<ALLOWANCES> 586
<INVENTORY> 27,370
<CURRENT-ASSETS> 71,838
<PP&E> 43,965
<DEPRECIATION> 20,207
<TOTAL-ASSETS> 102,198
<CURRENT-LIABILITIES> 18,341
<BONDS> 1,127
0
0
<COMMON> 931
<OTHER-SE> 79,880
<TOTAL-LIABILITY-AND-EQUITY> 102,198
<SALES> 49,347
<TOTAL-REVENUES> 49,347
<CGS> 29,231
<TOTAL-COSTS> 29,231
<OTHER-EXPENSES> 19,482
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 141
<INCOME-PRETAX> 1,015
<INCOME-TAX> 259
<INCOME-CONTINUING> 756
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 756
<EPS-PRIMARY> .08
<EPS-DILUTED> .07
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Company's Form 10-K for the fifty-two weeks ended June 1, 1996 and is
qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-01-1996
<PERIOD-END> JUN-01-1996
<CASH> 3,363
<SECURITIES> 20,247
<RECEIVABLES> 16,679
<ALLOWANCES> 527
<INVENTORY> 23,708
<CURRENT-ASSETS> 66,406
<PP&E> 40,726
<DEPRECIATION> 18,903
<TOTAL-ASSETS> 96,037
<CURRENT-LIABILITIES> 12,898
<BONDS> 680
0
0
<COMMON> 923
<OTHER-SE> 79,680
<TOTAL-LIABILITY-AND-EQUITY> 96,037
<SALES> 91,932
<TOTAL-REVENUES> 91,932
<CGS> 55,518
<TOTAL-COSTS> 55,518
<OTHER-EXPENSES> 35,457
<LOSS-PROVISION> 176
<INTEREST-EXPENSE> 264
<INCOME-PRETAX> 1,940
<INCOME-TAX> 243
<INCOME-CONTINUING> 1,697
<DISCONTINUED> 19,311
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,008
<EPS-PRIMARY> 2.16
<EPS-DILUTED> 2.04
</TABLE>
