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 27, 1999
-----------------
Commission file number 1-11479
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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 _____
On April 9, 1999, there were 4,035,346 shares of the registrant's Class A Common
Stock outstanding and 6,058,977 shares of the registrant's Class B Common Stock
outstanding.
Page 1 of 19
Exhibit Index on Page 18
<PAGE>
E-Z-EM, Inc. and Subsidiaries
INDEX
Part I: Financial Information Page
- ------- --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets - February 27, 1999 and
May 30, 1998 3 - 4
Consolidated Statements of Operations - thirteen and
thirty-nine weeks ended February 27, 1999 and
February 28, 1998 5
Consolidated Statement of Stockholders' Equity -
thirty-nine weeks ended February 27, 1999 6
Consolidated Statements of Cash Flows - thirty-nine weeks
ended February 27, 1999 and February 28, 1998 7 - 8
Notes to Consolidated Financial Statements 9 - 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 17
Part II: Other Information
- -------- -----------------
Item 6. Exhibits and Reports on Form 8-K 18
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
February 27, May 30,
ASSETS 1999 1998
------ ------
(unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 5,153 $ 4,654
Certificates of deposit with maturities
of three to twelve months 802
Debt and equity securities 5,123 3,475
Accounts receivable, principally
trade, net 21,051 21,348
Inventories 27,858 26,764
Other current assets 3,441 2,499
------ ------
Total current assets 63,428 58,740
INVESTMENT IN AFFILIATE 921 1,121
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 21,392 21,917
COST IN EXCESS OF FAIR VALUE OF NET ASSETS
ACQUIRED, less accumulated amortization 419 446
INTANGIBLE ASSETS, less accumulated
amortization 2,381 2,546
DEBT AND EQUITY SECURITIES 2,408 2,057
OTHER ASSETS 3,853 3,879
------ ------
$94,802 $90,706
====== ======
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 27, May 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
------ ------
(unaudited) (audited)
CURRENT LIABILITIES
Notes payable $ 2,069 $ 3,041
Current maturities of long-term debt 234 287
Accounts payable 7,182 6,265
Accrued liabilities 7,445 6,958
Accrued income taxes 711 592
------ ------
Total current liabilities 17,641 17,143
LONG-TERM DEBT, less current maturities 558 606
OTHER NONCURRENT LIABILITIES 1,888 1,734
COMMITMENTS AND CONTINGENCIES
------ ------
Total liabilities 20,087 19,483
------ ------
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 27, 1999 and May 30, 1998 403 403
Class B (nonvoting), par value $.10 per
share - authorized, 10,000,000 shares;
issued and outstanding 6,063,377 shares
at February 27, 1999 and 5,999,073 shares
at May 30, 1998 607 600
Additional paid-in capital 21,954 21,643
Retained earnings 53,047 49,090
Accumulated other comprehensive loss (1,296) (513)
------ ------
Total stockholders' equity 74,715 71,223
------ ------
$94,802 $90,706
====== ======
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)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
------------------------------ ------------------------------
February 27, February 28, February 27, February 28,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $26,618 $24,385 $78,791 $74,809
Cost of goods sold 15,426 16,146 45,392 48,114
------ ------ ------ ------
Gross profit 11,192 8,239 33,399 26,695
------ ------ ------ ------
Operating expenses
Selling and administrative 8,214 8,379 24,291 24,923
Research and development 1,335 1,410 3,566 4,491
Impairment of long-lived
assets 4,121 4,121
----- ------ ------ ------
Total operating expenses 9,549 13,910 27,857 33,535
----- ------ ------ ------
Operating profit (loss) 1,643 (5,671) 5,542 (6,840)
Other income (expense)
Interest income 128 248 385 577
Interest expense (66) (206) (189) (572)
Equity in losses of affiliate (62) (70) (200) (150)
Other, net 26 (179) 408 (235)
----- ----- ----- -----
Earnings (loss) before
income taxes 1,669 (5,878) 5,946 (7,220)
Income tax provision (benefit) 710 (59) 1,989 (154)
----- ----- ----- -----
NET EARNINGS (LOSS) $ 959 $(5,819) $ 3,957 $(7,066)
===== ===== ===== =====
Earnings (loss) per common share
Basic $ .10 $ (.58) $ .39 $ (.71)
===== ===== ===== =====
Diluted $ .09 $ (.58) $ .38 $ (.71)
===== ===== ===== =====
Weighted average common shares
Basic 10,094 9,949 10,085 9,934
====== ===== ====== =====
Diluted 10,321 9,949 10,338 9,934
====== ===== ====== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Thirty-nine weeks ended February 27, 1999
(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 loss Total income
------ ------ ------ ------ ------- -------- ------------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at May 30, 1998 4,035,346 $403 5,999,073 $600 $21,643 $49,090 $ (513) $71,223
Exercise of stock options 57,704 6 238 244
Income tax benefits on
stock options exercised 34 34
Compensation related to
stock option plans 4 4
Issuance of stock 6,600 1 35 36
Net earnings 3,957 3,957 $3,957
Unrealized holding gain on debt
and equity securities 248 248 248
Foreign currency translation
adjustments (1,031) (1,031) (1,031)
--------- --- --------- --- ------ ------ ----- ------ -----
Comprehensive income $3,174
=====
Balance at February 27, 1999 4,035,346 $403 6,063,377 $607 $21,954 $53,047 $(1,296) $74,715
========= === ========= === ====== ====== ===== ======
</TABLE>
The accompanying notes are an integral part of this financial statement.
-6-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Thirty-nine weeks ended
---------------------------
February 27, February 28,
1999 1998
------ ------
Cash flows from operating activities:
Net earnings (loss) $ 3,957 $(7,066)
Adjustments to reconcile net earnings
(loss) to net cash provided by (used
in) operating activities
Depreciation and amortization 2,175 2,533
Impairment of long-lived assets 4,121
Provision for doubtful accounts 182 202
Equity in losses of affiliate 200 150
Deferred income tax provision 25 14
Other non-cash items 33 5
Changes in operating assets and
liabilities
Accounts receivable 115 (1,452)
Inventories (1,094) (408)
Other current assets (942) 685
Other assets (92) 126
Accounts payable 917 530
Accrued liabilities 487 6
Accrued income taxes 94 70
Other noncurrent liabilities 111 (53)
------ ------
Net cash provided by (used in)
operating activities 6,168 (537)
------ ------
Cash flows from investing activities:
Additions to property, plant and
equipment, net (1,628) (858)
Investment in affiliate (1,340)
Available-for-sale securities
Purchases (18,643) (8,840)
Proceeds from sale 16,995 16,408
Increase in certificates of deposit (802)
------ ------
Net cash (used in) provided by investing
activities (4,078) 5,370
------ ------
Cash flows from financing activities:
Repayments of debt (1,252) (7,380)
Proceeds from issuance of debt 3,436
Proceeds from exercise of stock options,
including related income tax benefits 278 222
Proceeds from issuance of stock in connection
with the stock purchase plan 7 5
------ ------
Net cash used in financing activities (967) (3,717)
------ ------
-7-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
(in thousands)
Thirty-nine weeks ended
---------------------------
February 27, February 28,
1999 1998
------ ------
Effect of exchange rate changes on
cash and cash equivalents $ (624) $ (714)
----- ----
INCREASE IN CASH AND CASH EQUIVALENTS 499 402
Cash and cash equivalents
Beginning of period 4,654 4,484
----- -----
End of period $5,153 $ 4,886
===== =====
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the period for:
Interest $ 117 $ 580
===== =====
Income taxes (net of refunds of $4 and
$1,314 in 1999 and 1998, respectively $1,827 $(1,031)
===== =====
The accompanying notes are an integral part of these financial statements.
-8-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 27, 1999 and February 28, 1998
(unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of February 27, 1999, the consolidated
statement of stockholders' equity for the period ended February 27,
1999, and the consolidated statements of operations and cash flows for
the periods ended February 27, 1999 and February 28, 1998, 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
27, 1999 (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
1998 Annual Report on Form 10-K filed by the Company on August 28,
1998. The results of operations for the periods ended February 27, 1999
and February 28, 1998 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. The
Company's approximate 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 - INVENTORIES
Inventories consist of the following:
February 27, May 30,
1999 1998
------ ------
(in thousands)
Finished goods $13,071 $13,846
Work in process 2,114 1,474
Raw materials 12,673 11,444
------ ------
$27,858 $26,764
====== ======
NOTE C - 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
-9-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
February 27, 1999 and February 28, 1998
(unaudited)
NOTE C - EARNINGS PER COMMON SHARE (continued)
excluded from the diluted calculation for the thirteen and thirty-nine
weeks ended February 28, 1998, as their effects were anti-dilutive.
The following table sets forth the reconciliation of the weighted average
number of common shares:
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
----------------------------- -----------------------------
February 27, February 28, February 27, February 28,
1999 1998 1999 1998
------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Basic 10,094 9,949 10,085 9,934
Effect of dilutive
securities (stock
options) 227 253
------ ----- ------ -----
Diluted 10,321 9,949 10,338 9,934
====== ===== ====== =====
</TABLE>
NOTE D - COMMON STOCK
Under the 1983 and 1984 Stock Option Plans, options for 32,727 shares were
granted at prices ranging from $5.63 to $6.00 per share, options for
57,704 shares were exercised at $4.22 per share, options for 1,229
shares were forfeited at $5.39 per share, and no options expired during
the thirty-nine weeks ended February 27, 1999. Under the 1997
AngioDynamics Stock Option Plan, options for 1.59 shares were forfeited
at $40,000 per share, and no options were granted, exercised or expired
during the thirty-nine weeks ended February 27, 1999.
Under the Employee Stock Purchase Plan, 1,600 shares were purchased at
prices ranging from $4.36 to $5.10 per share during the thirty-nine
weeks ended February 27, 1999. Total proceeds received by the Company
approximated $7,000.
NOTE E - COMPREHENSIVE INCOME
During the first quarter of fiscal 1999, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes new rules
for the reporting and display of comprehensive income and its
components; however, the adoption of SFAS No. 130 had no impact on the
Company's net earnings or stockholders' equity. SFAS No. 130 requires
unrealized holding gains or losses on debt and equity securities
available for sale and cumulative translation adjustments, which prior
to adoption were reported separately in stockholders' equity, to be
included in accumulated other comprehensive income (loss). Prior year
financial statements have been reclassified to conform to the
requirements of SFAS No. 130.
-10-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
February 27, 1999 and February 28, 1998
(unaudited)
NOTE E - COMPREHENSIVE INCOME (continued)
The components of comprehensive income, net of related tax, are as follows:
Thirty-nine weeks ended
---------------------------
February 27, February 28,
1999 1998
------ ------
(in thousands)
Net earnings (loss) $3,957 $(7,066)
Unrealized holding gain (loss) on
debt and equity securities 248 (29)
Foreign currency translation
adjustments (1,031) (491)
----- -----
Comprehensive income (loss) $3,174 $(7,586)
===== =====
The components of accumulated other comprehensive loss, net of related tax,
are as follows:
February 27, May 30,
1999 1998
------ ------
(in thousands)
Unrealized holding gain on debt
and equity securities $ 1,592 $ 1,344
Cumulative translation adjustments (2,888) (1,857)
----- -----
Accumulated other comprehensive loss $(1,296) $ (513)
===== =====
NOTE F - NEW PRONOUNCEMENT NOT YET ADOPTED
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
which is effective the fourth quarter of the Company's current fiscal
year. 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 does not believe that
the provisions of SFAS No. 131 will have a significant impact on its
segment reporting and disclosures.
NOTE G - RECLASSIFICATIONS
Certain reclassifications have been made to the prior period amounts to
conform to the current period presentation.
-11-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quarters ended February 27, 1999 and February 28, 1998
- ------------------------------------------------------
The Company's quarters ended February 27, 1999 and February 28, 1998 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. The AngioDynamics products industry
segment includes angiography, therapeutic and stent/angioplasty medical devices
used in the interventional medical marketplace.
<TABLE>
<CAPTION>
Diagnostic AngioDynamics Eliminations Total
---------- ------------- ------------ -----
(in thousands)
<S> <C> <C> <C> <C>
Quarter ended February 27, 1999
- -------------------------------
Unaffiliated customer sales $22,077 $4,541 - $26,618
Intersegment sales 9 129 ($138) -
Gross profit (loss) 9,117 2,078 (3) 11,192
Operating profit (loss) 2,059 (416) - 1,643
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)
</TABLE>
Diagnostic Products
-------------------
Diagnostic segment operating results for the current quarter improved by
$2,465,000 due primarily to increased sales and improved gross profit. Net sales
increased 11%, or $2,199,000, due to increased demand for sales of both contrast
systems and non-contrast systems. Price increases accounted for approximately 1%
of net sales in the current quarter. Gross profit expressed as a percentage of
net sales improved to 41% during the current quarter, versus 33% during the
comparable quarter of the prior year due primarily to lower material costs,
reduced unabsorbed overhead costs and sales price increases.
AngioDynamics Products
----------------------
AngioDynamics segment operating results for the current quarter improved by
$4,839,000, of which $4,121,000 resulted from the recording of an impairment
charge, of certain long-lived assets, in the comparable period of last year.
Excluding the effect of the impairment charge, AngioDynamics operating results
improved by $718,000 due to a 1% sales increase, improved gross profit and
reduced operating expenses. Gross profit expressed as a percentage of net sales
improved to 45% during the current quarter versus 38% during the comparable
quarter of the prior year due primarily to increased manufacturing efficiencies
at the Queensbury, New York facility and increased production throughput at both
the Queensbury and Irish facilities. Decreased operating expenses, before
impairment charge, of $401,000 can be attributed to the consolidation of
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<PAGE>
operations, resulting from the closing of its Leocor facility in the third
quarter of last fiscal year, coupled with reduced amortization expense,
resulting from the impairment charge.
Consolidated Results of Operations
----------------------------------
For the quarter ended February 27, 1999, the Company reported net earnings
of $959,000, or $.10 and $.09 per common share on a basic and diluted basis,
respectively, as compared to a net loss of $5,819,000, or ($.58) per common
share on both a basic and diluted basis, for the comparable period of last year.
Results for the comparable period of last year were adversely affected by the
AngioDynamics impairment charge of $4,121,000, or $.41 per share. Results for
the current quarter were favorably affected by increased sales in the Diagnostic
segment, improved gross profit in both industry segments, and decreased
operating expenses, before impairment charge, in the AngioDynamics segment.
Net sales for the quarter ended February 27, 1999 increased 9%, or
$2,233,000, as compared to the quarter ended February 28, 1998 due to increased
sales of contrast systems of $1,720,000, non-contrast systems of $479,000 and
AngioDynamics products of $34,000. Price increases accounted for approximately
1% of net sales in the current quarter. Net sales in international markets,
including direct exports from the U.S., increased 3%, or $240,000, in the
current quarter versus the comparable period of last year due to increased sales
of contrast systems of $577,000, partially offset by decreased sales of
non-contrast systems of $254,000 and AngioDynamics products of $83,000.
Gross profit expressed as a percentage of net sales increased to 42% during
the current quarter versus 34% during the comparable quarter of the prior year
due to increased gross profit in both industry segments. The improved Diagnostic
gross profit was due primarily to lower material costs, reduced unabsorbed
overhead costs and sales price increases. The improved AngioDynamics gross
profit was due primarily to increased manufacturing efficiencies at the
Queensbury facility and increased production throughput at both the Queensbury
and Irish facilities.
Selling and administrative ("S&A") expenses were $8,214,000 during the
quarter ended February 27, 1999 versus $8,379,000 during the quarter ended
February 28, 1998. This decline of $165,000, or 2%, in the current quarter was
due to decreased AngioDynamics S&A expenses, which can be attributed to the
closing of its Leocor facility in the third quarter of last fiscal year, coupled
with reduced amortization expense, resulting from the impairment charge recorded
in the third quarter of last fiscal year.
Research and development ("R&D") expenditures decreased 5% in the current
quarter to $1,335,000, or 5% of net sales, from $1,410,000, or 6% of net sales,
in the comparable quarter of the prior year. This decline was due primarily to
decreases in AngioDynamics project spending. Of the R&D expenditures in the
current quarter, approximately 47% relate to contrast systems, 35% to
AngioDynamics projects, 2% to immunological projects, 5% to other projects and
11% to general regulatory costs. R&D expenditures are expected to continue at
approximately current levels.
Other income, net of other expenses, totaled $26,000 of income in the
current quarter versus $207,000 of expense in the comparable period of last
year. This improvement was due to improved foreign currency exchange gains and
losses.
For the quarter ended February 27, 1999, the Company's effective tax rate
of 43% 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
certain jurisdictions, since, it is more likely than not that such benefits will
not be realized, partially offset by earnings of the Puerto Rican subsidiary,
which are subject to favorable U.S. tax treatment. The Company's unusually low
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<PAGE>
effective tax benefit rate of 1% during the quarter ended February 28, 1998
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, at that time, it
was more likely than not that such benefits would not be realized. Losses
incurred in a foreign jurisdiction subject to lower tax rates also contributed
to the unusually low effective tax benefit rate.
Thirty-nine weeks ended February 27, 1999 and February 28, 1998
- ---------------------------------------------------------------
Results of Operations
- ---------------------
Segment Overview
----------------
<TABLE>
<CAPTION>
Diagnostic AngioDynamics Eliminations Total
---------- ------------- ------------ -----
(in thousands)
<S> <C> <C> <C> <C>
Thirty-nine weeks ended February 27, 1999
- -----------------------------------------
Unaffiliated customer sales $63,647 $15,144 - $78,791
Intersegment sales 35 383 ($418) -
Gross profit (loss) 26,127 7,293 (21) 33,399
Operating profit (loss) 5,697 (152) (3) 5,542
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)
</TABLE>
Diagnostic Products
-------------------
Diagnostic segment operating results for the current period improved by
$5,028,000 due to increased sales, improved gross profit and reduced operating
expenses. Net sales increased 4%, or $2,567,000, due to increased demand for
sales of both contrast systems and non-contrast systems. Price increases had
little effect on net sales in the current period. Gross profit expressed as a
percentage of net sales improved to 41% during the current period, versus 36%
during the comparable period of the prior year due primarily to reduced
unabsorbed overhead costs. Decreased operating expenses of $819,000 can be
attributed to a decline in R&D expenditures of $685,000 and severance costs
incurred in the comparable period of the prior year.
AngioDynamics Products
----------------------
AngioDynamics segment operating results for the current period improved by
$7,333,000, of which $4,121,000 resulted from the recording of an impairment
charge, of certain long-lived assets, in the comparable period of last year.
Excluding the effect of the impairment charge, AngioDynamics operating results
improved by $3,212,000 due to increased sales, improved gross profit and reduced
operating expenses. Net sales increased 10%, or $1,415,000, due to the continued
domestic market penetration of angiography products. International sales
declined 6% as a result of suspending product shipments to distributors affected
by the recent Brazilian economic crisis. Gross profit expressed as a percentage
of net sales improved to 47% during the current period versus 34% during the
comparable period of the prior year due primarily to increased manufacturing
efficiencies at the Queensbury facility, increased production throughput at both
the Queensbury and Irish facilities, the consolidation of operations, resulting
from the closing of its Leocor facility in the third quarter of last fiscal year
and decreased provision for inventory reserves of $243,000. Decreased operating
expenses, before impairment charge, of $720,000 can be attributed to the closing
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<PAGE>
of its Leocor facility, coupled with reduced amortization expense, resulting
from the impairment charge.
Consolidated Results of Operations
----------------------------------
For the thirty-nine weeks ended February 27, 1999, the Company reported net
earnings of $3,957,000, or $.39 and $.38 per common share on a basic and diluted
basis, respectively, as compared to a net loss of $7,066,000, or ($.71) per
common share on both a basic and diluted basis, for the comparable period of
last year. Results for the comparable period of last year were adversely
affected by the AngioDynamics impairment charge of $4,121,000, or $.41 per
share. Results for the current period were favorably affected by increased
sales, improved gross profit and decreased operating expenses, before impairment
charge, in both industry segments.
Net sales for the thirty-nine weeks ended February 27, 1999 increased 5%,
or $3,982,000, as compared to the thirty-nine weeks ended February 28, 1998 due
to increased sales of contrast systems of $1,423,000, AngioDynamics products of
$1,415,000 and non-contrast systems of $1,144,000. Price increases had little
effect on net sales in the current period. Net sales in international markets,
including direct exports from the U.S., decreased 1%, or $215,000, in the
current period versus the comparable period of last year due to foreign currency
exchange rate fluctuations which adversely affected the translation of Canadian
and Japanese sales to U.S. dollars for financial reporting purposes.
Gross profit expressed as a percentage of net sales increased to 42% during
the current period versus 36% during the comparable period of last year due to
increased gross profit in both industry segments. The improved Diagnostic gross
profit is due primarily to reduced unabsorbed overhead costs. The improved
AngioDynamics gross profit is due primarily to increased manufacturing
efficiencies at the Queensbury facility, increased production throughput at both
the Queensbury and Irish facilities, the consolidation of operations, resulting
from the closing of its Leocor facility in the third quarter of last fiscal
year, and decreased provision for inventory reserves of $243,000.
S&A expenses were $24,291,000 during the thirty-nine weeks ended February
27, 1999 versus $24,923,000 during the thirty-nine weeks ended February 28,
1998. This decline of $632,000, or 3%, in the current period was due to
decreased AngioDynamics S&A expenses of $499,000 and decreased Diagnostic S&A
expenses of $133,000. Decreased AngioDynamics S&A expenses can be attributed to
the closing of its Leocor facility in the third quarter of last fiscal year,
coupled with reduced amortization expense, resulting from the impairment charge
recorded in the third quarter of last fiscal year. Decreased Diagnostic S&A
expenses resulted from severance costs incurred in the comparable period of the
prior year.
R&D expenditures decreased 21% in the current period to $3,566,000, or 5%
of net sales, from $4,491,000, or 6% of net sales, in the comparable prior year
period. This decline was due primarily to decreases in expenses associated with
Diagnostic product validations and clinical trials of $396,000, corporate
projects of $321,000, and AngioDynamics projects of $240,000. Of the R&D
expenditures in the current period, approximately 45% relate to contrast
systems, 34% to AngioDynamics projects, 3% to immunological projects, 6% to
other projects and 12% to general regulatory costs.
Other income, net of other expenses, totaled $404,000 of income in the
current period versus $380,000 of expense in the comparable period of last year.
This improvement was due primarily to improved foreign currency exchange gains
and losses of $678,000 and decreased interest expense, resulting from the
repayment of AngioDynamics debt.
For the thirty-nine weeks ended February 27, 1999, the Company's effective
-15-
<PAGE>
tax rate of 33% differed from the Federal statutory tax rate of 34% due
primarily to the utilization of previously unrecorded tax credit carryforwards
and earnings of the Puerto Rican subsidiary, which are subject to favorable U.S.
tax treatment, partially offset by the fact that the Company did not provide for
the tax benefit on losses incurred in certain jurisdictions, since, it is more
likely than not that such benefits will not be realized, and non-deductible
expenses. The Company's unusually low effective tax benefit rate of 2% during
the thirty-nine weeks ended February 28, 1998 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, at that time, it was more likely than not that
such benefits would not be realized. Losses incurred in a foreign jurisdiction
subject to lower tax rates also contributed to the unusually low effective tax
benefit rate.
Liquidity and Capital Resources
- -------------------------------
During the thirty-nine weeks ended February 27, 1999, capital expenditures
and debt repayments were funded primarily by cash provided by operations. The
Company's policy has been to fund capital requirements without incurring
significant debt. At February 27, 1999, debt (notes payable, current maturities
of long-term debt and long-term debt) was $2,861,000 as compared to $3,934,000
at May 30, 1998. The Company has available $5,316,000 under two bank lines of
credit of which $935,000 was outstanding at February 27, 1999.
During fiscal 1997 and 1998, the Company issued 3% stock dividends. During
fiscal 1999, such stock dividends have not been issued. The Company will
continue to evaluate its policy on stock dividends on an ongoing basis.
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 27, 1999, approximately 63% of the Company's assets consist of
inventories, accounts receivable, cash and cash equivalents, short-term debt and
equity securities and short-term certificates of deposit. The current ratio is
3.60 to 1, with net working capital of $45,787,000 at February 27, 1999, as
compared to the current ratio of 3.43 to 1, with net working capital of
$41,597,000 at May 30, 1998.
The Company is evaluating the impact of the Year 2000 issue on its business
and does not expect to incur significant costs associated with Year 2000
compliance or that Year 2000 issues will have a material impact on the Company's
business, results of operations or financial condition. The Year 2000 issue is
the result of computer programs being written using two digits rather than four
to define the applicable year. The Company's domestic software systems and
applications are currently Year 2000 compliant. The Company's international
subsidiaries are currently working toward Year 2000 compliance. The Company has
also initiated discussions with its significant suppliers and customers with
respect to their plans to address Year 2000 issues that may affect the Company's
operations.
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 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
-16-
<PAGE>
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.
-17-
<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 19
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended February
27, 1999.
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 9, 1999 /s/ Howard S. Stern
-------------------- -------------------------------------
Howard S. Stern, Chairman of the
Board, President, Chief Executive
Officer and Director
Date April 12, 1999 /s/ Dennis J. Curtin
-------------------- -------------------------------------
Dennis J. Curtin, Vice President-
Chief Financial Officer
-18-
<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 27, 1999 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-29-1999
<PERIOD-END> FEB-27-1999
<CASH> 5,153
<SECURITIES> 5,123
<RECEIVABLES> 22,099
<ALLOWANCES> 1,048
<INVENTORY> 27,858
<CURRENT-ASSETS> 63,428
<PP&E> 46,772
<DEPRECIATION> 25,380
<TOTAL-ASSETS> 94,802
<CURRENT-LIABILITIES> 17,641
<BONDS> 558
0
0
<COMMON> 1,010
<OTHER-SE> 73,705
<TOTAL-LIABILITY-AND-EQUITY> 94,802
<SALES> 78,791
<TOTAL-REVENUES> 78,791
<CGS> 45,392
<TOTAL-COSTS> 45,392
<OTHER-EXPENSES> 27,857
<LOSS-PROVISION> 182
<INTEREST-EXPENSE> 189
<INCOME-PRETAX> 5,946
<INCOME-TAX> 1,989
<INCOME-CONTINUING> 3,957
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,957
<EPS-PRIMARY> .39
<EPS-DILUTED> .38
</TABLE>
