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 November 28, 1998
-----------------
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 January 8, 1999, there were 4,035,346 shares of the registrant's Class A
Common Stock outstanding and 6,058,427 shares of the registrant's Class B Common
Stock outstanding.
Page 1 of 19
Exhibit Index on Page 17
<PAGE>
E-Z-EM, Inc. and Subsidiaries
INDEX
-----
Part I: Financial Information Page
- ------- --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets - November 28, 1998 and
May 30, 1998 3 - 4
Consolidated Statements of Operations - thirteen and
twenty-six weeks ended November 28, 1998 and
November 29, 1997 5
Consolidated Statement of Stockholders' Equity -
twenty-six weeks ended November 28, 1998 6
Consolidated Statements of Cash Flows - twenty-six weeks
ended November 28, 1998 and November 29, 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 - 16
Part II: Other Information
- -------- -----------------
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
November 28, May 30,
ASSETS 1998 1998
---- ----
(unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 5,149 $ 4,654
Certificates of deposit with maturities
of three to twelve months 1,075
Debt and equity securities 3,577 3,475
Accounts receivable, principally
trade, net 21,377 21,348
Inventories 26,843 26,764
Other current assets 2,528 2,499
------ ------
Total current assets 60,549 58,740
INVESTMENT IN AFFILIATE 983 1,121
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 21,535 21,917
COST IN EXCESS OF FAIR VALUE OF NET ASSETS
ACQUIRED, less accumulated amortization 415 446
INTANGIBLE ASSETS, less accumulated
amortization 2,434 2,546
DEBT AND EQUITY SECURITIES 1,824 2,057
OTHER ASSETS 4,122 3,879
------ ------
$91,862 $90,706
====== ======
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
November 28, May 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1998
---- ----
(unaudited) (audited)
CURRENT LIABILITIES
Notes payable $ 1,254 $ 3,041
Current maturities of long-term debt 283 287
Accounts payable 6,147 6,265
Accrued liabilities 7,540 6,958
Accrued income taxes 782 592
------ ------
Total current liabilities 16,006 17,143
LONG-TERM DEBT, less current maturities 529 606
OTHER NONCURRENT LIABILITIES 1,841 1,734
COMMITMENTS AND CONTINGENCIES
------ ------
Total liabilities 18,376 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 November 28, 1998 and May 30, 1998 403 403
Class B (nonvoting), par value $.10 per
share - authorized, 10,000,000 shares;
issued and outstanding 6,057,152 shares
at November 28, 1998 and 5,999,073 shares
at May 30, 1998 606 600
Additional paid-in capital 21,923 21,643
Retained earnings 52,088 49,090
Accumulated other comprehensive loss (1,534) (513)
------ ------
Total stockholders' equity 73,486 71,223
------ ------
$91,862 $90,706
====== ======
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
--------------------------- ---------------------------
November 28, November 29, November 28, November 29,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 26,508 $ 24,711 $ 52,173 $ 50,424
Cost of goods sold 14,970 15,990 29,966 31,968
------ ------ ------ ------
Gross profit 11,538 8,721 22,207 18,456
------ ------ ------ ------
Operating expenses
Selling and administrative 8,460 8,629 16,077 16,544
Research and development 1,229 1,572 2,231 3,081
----- ------ ------ ------
Total operating expenses 9,689 10,201 18,308 19,625
----- ------ ------ ------
Operating profit (loss) 1,849 (1,480) 3,899 (1,169)
Other income (expense)
Interest income 138 178 257 329
Interest expense (61) (177) (123) (366)
Equity in losses of affiliate (59) (80) (138) (80)
Other, net 345 7 382 (56)
----- ----- ----- -----
Earnings (loss) before
income taxes 2,212 (1,552) 4,277 (1,342)
Income tax provision (benefit) 684 (177) 1,279 (95)
----- ----- ----- -----
NET EARNINGS (LOSS) $ 1,528 $ (1,375) $ 2,998 $ (1,247)
===== ===== ===== =====
Earnings (loss) per common share
Basic $ .15 $ (.14) $ .30 $ (.13)
===== ===== ===== =====
Diluted $ .15 $ (.14) $ .29 $ (.13)
===== ===== ===== =====
Weighted average common shares
Basic 10,076 9,926 10,060 9,926
====== ===== ====== =====
Diluted 10,325 9,926 10,326 9,926
====== ===== ====== =====
</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
Twenty-six weeks ended November 28, 1998
(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 52,754 5 217 222
Income tax benefits on
stock options exercised 31 31
Compensation related to
stock option plans 2 2
Issuance of stock 5,325 1 30 31
Net earnings 2,998 2,998 $2,998
Unrealized holding loss on debt
and equity securities (127) (127) (127)
Foreign currency translation
adjustments (894) (894) (894)
--------- --- --------- --- ------ ------ ------ ------ ------
Comprehensive income $1,977
=====
Balance at November 28, 1998 4,035,346 $403 6,057,152 $606 $21,923 $52,088 $(1,534) $73,486
========= === ========= === ====== ====== ===== ======
</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)
Twenty-six weeks ended
---------------------------
November 28, November 29,
1998 1997
---- ----
Cash flows from operating activities:
Net earnings (loss) $2,998 $(1,247)
Adjustments to reconcile net earnings
(loss) to net cash provided by (used
in) operating activities
Depreciation and amortization 1,442 1,683
Provision for doubtful accounts 121 120
Equity in losses of affiliate 138 80
Deferred income tax provision 12 11
Other non-cash items 31 3
Changes in operating assets and
liabilities
Accounts receivable (150) (1,658)
Inventories (79) 101
Other current assets (29) 92
Other assets (161) (446)
Accounts payable (118) 554
Accrued liabilities 582 134
Accrued income taxes 178 187
Other noncurrent liabilities 74 (4)
----- -----
Net cash provided by (used in)
operating activities 5,039 (390)
----- -----
Cash flows from investing activities:
Additions to property, plant and
equipment, net (941) (584)
Investment in affiliate (940)
Available-for-sale securities
Purchases (2,360) (2,220)
Proceeds from sale 2,258 1,995
Increase in certificates of deposit (1,075)
----- -----
Net cash used in investing activities (2,118) (1,749)
----- -----
Cash flows from financing activities:
Repayments of debt (1,987) (1,488)
Proceeds from issuance of debt 4,555
Proceeds from exercise of stock options,
including related income tax benefits 253 7
Proceeds from issuance of stock in connection
with the stock purchase plan 2 3
----- -----
Net cash (used in) provided by financing
activities (1,732) 3,077
----- -----
-7-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
(in thousands)
Twenty-six weeks ended
--------------------------
November 28, November 29,
1998 1997
---- ----
Effect of exchange rate changes on
cash and cash equivalents $ (694) $ (495)
----- -----
INCREASE IN CASH AND CASH EQUIVALENTS 495 443
Cash and cash equivalents
Beginning of period 4,654 4,484
----- -----
End of period $5,149 $4,927
===== =====
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 71 $ 355
===== =====
Income taxes (net of $70 in refunds
in 1997) $1,322 $ 29
===== =====
The accompanying notes are an integral part of these financial statements.
-8-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 28, 1998 and November 29, 1997
(unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of November 28, 1998, the consolidated
statement of stockholders' equity for the period ended November 28, 1998,
and the consolidated statements of operations and cash flows for the periods
ended November 28, 1998 and November 29, 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 November 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 1998 Annual Report on
Form 10-K filed by the Company on August 28, 1998. The results of operations
for the periods ended November 28, 1998 and November 29, 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"). 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:
November 28, May 30,
1998 1998
---- ----
(in thousands)
Finished goods $13,192 $13,846
Work in process 1,785 1,474
Raw materials 11,866 11,444
------ ------
$26,843 $26,764
====== ======
NOTE C - EARNINGS PER COMMON SHARE
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share," which requires public companies to
present basic earnings per share and, if applicable, diluted earnings per
share. In accordance with SFAS No. 128, all comparative periods have been
restated, if applicable. 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
-9-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
November 28, 1998 and November 29, 1997
(unaudited)
NOTE C - EARNINGS PER COMMON SHARE (continued)
weighted average number of common and potential common shares outstanding.
The calculation takes into account the shares that may be issued upon
exercise of stock options, reduced by the shares that may be repurchased
with the funds received from the exercise, based on the average price during
the period. Potential common shares were excluded from the diluted
calculation for the thirteen and twenty-six weeks ended November 29, 1997,
as their effects were anti-dilutive.
The following table sets forth the reconciliation of the weighted average
number of common shares:
Thirteen weeks ended Twenty-six weeks ended
------------------------- -------------------------
November 28, November 29, November 28, November 29,
1998 1997 1998 1997
---- ---- ---- ----
(in thousands)
Basic 10,076 9,926 10,060 9,926
Effect of dilutive
securities (stock
options) 249 266
------ ----- ------ -----
Diluted 10,325 9,926 10,326 9,926
====== ===== ====== =====
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 52,754
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 twenty-six
weeks ended November 28, 1998. Under the 1997 AngioDynamics Stock Option
Plan, options for .68 shares were forfeited at $40,000 per share, and no
options were granted, exercised or expired during the twenty-six weeks ended
November 28, 1998.
Under the Employee Stock Purchase Plan, 325 shares were purchased at $5.10 per
share during the twenty-six weeks ended November 28, 1998.
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)
November 28, 1998 and November 29, 1997
(unaudited)
NOTE E - COMPREHENSIVE INCOME (continued)
The components of comprehensive income, net of related tax, are as follows:
Twenty-six weeks ended
---------------------------
November 28, November 29,
1998 1997
---- ----
(in thousands)
Net earnings (loss) $2,998 $(1,247)
Unrealized holding (loss) gain on
debt and equity securities (127) 64
Foreign currency translation
adjustments (894) (271)
----- -----
Comprehensive income (loss) $1,977 $(1,454)
===== =====
The components of accumulated other comprehensive loss, net of related tax,
are as follows:
November 28, May 30,
1998 1998
---- ----
(in thousands)
Unrealized holding gain on debt
and equity securities $ 1,217 $ 1,344
Cumulative translation adjustments (2,751) (1,857)
----- -----
Accumulated other comprehensive loss $(1,534) $ (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 November 28, 1998 and November 29, 1997
- ------------------------------------------------------
The Company's quarters ended November 28, 1998 and November 29, 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. 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 November 28, 1998
- -------------------------------
Unaffiliated customer sales $21,580 $ 4,928 - $26,508
Intersegment sales 15 112 ($127) -
Gross profit (loss) 9,168 2,374 (4) 11,538
Operating profit (loss) 2,041 (195) 3 1,849
Quarter ended November 29, 1997
- -------------------------------
Unaffiliated customer sales $20,355 $ 4,356 - $24,711
Intersegment sales 4 136 ($140) -
Gross profit (loss) 7,654 1,083 (16) 8,721
Operating profit (loss) 86 (1,550) (16) (1,480)
</TABLE>
Diagnostic Products
-------------------
Diagnostic segment operating results for the current quarter improved by
$1,955,000 due primarily to increased sales, improved gross profit and reduced
operating expenses. Net sales increased 6%, or $1,225,000, due to increased
demand for sales of both contrast systems and non-contrast systems. Sales price
increases virtually offset the effect of increased rebates to U.S. group
purchasing organizations. Gross profit expressed as a percentage of net sales
improved to 42% during the current quarter, versus 38% during the comparable
quarter of the prior year due primarily to reduced unabsorbed overhead costs.
Decreased operating expenses of $441,000 can be attributed to a decline in
research & development ("R&D") expenditures of $256,000 and severance costs
incurred in the comparable quarter of the prior year.
AngioDynamics Products
----------------------
AngioDynamics segment operating results for the current quarter improved by
$1,355,000 due to increased sales and improved gross profit. Net sales increased
13%, or $572,000, due to the continued domestic market penetration of
angiography products. International sales declined 10% 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 quarter versus 24% during the comparable quarter of the prior
year due primarily to decreased inventory reserves of $511,000, increased
-12-
<PAGE>
manufacturing efficiencies at the Queensbury facility, increased production
throughput at both the Queensbury and Irish facilities, and the consolidation of
operations, resulting from the closing of its Leocor facility in the third
quarter of last fiscal year.
Consolidated Results of Operations
----------------------------------
For the quarter ended November 28, 1998, the Company reported net earnings
of $1,528,000, or $.15 per common share on both a basic and diluted basis, as
compared to a net loss of $1,375,000, or ($.14) 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 increased sales and improved gross
profit in both industry segments, as well as decreased operating expenses in the
Diagnostic segment.
Net sales for the quarter ended November 28, 1998 increased 7%, or
$1,797,000, as compared to the quarter ended November 29, 1997 due to increased
sales of contrast systems of $653,000, non-contrast systems of $572,000 and
AngioDynamics products of $572,000. Price increases had little effect on net
sales in the current quarter. Net sales in international markets, including
direct exports from the U.S., increased 2%, or $194,000, in the current quarter
versus the comparable period of last year due to volume increases, partially
offset by foreign currency exchange rate fluctuations which adversely affected
the translation of Canadian sales to U.S. dollars for financial reporting
purposes.
Gross profit expressed as a percentage of net sales increased to 44% during
the current quarter versus 35% during the comparable quarter of the prior year
due to increased gross profit in both industry segments. The improved
AngioDynamics gross profit is due primarily to decreased inventory reserves of
$511,000, increased manufacturing efficiencies at the Queensbury facility,
increased production throughput at both the Queensbury and Irish facilities, and
the consolidation of operations, resulting from the closing of its Leocor
facility in the third quarter of last fiscal year. The improved Diagnostic gross
profit is due primarily to reduced unabsorbed overhead costs.
Selling and administrative ("S&A") expenses were $8,460,000 during the
quarter ended November 28, 1998 versus $8,629,000 during the quarter ended
November 29, 1997. This decline of $169,000, or 2%, in the current quarter
resulted from Diagnostic severance costs incurred in the comparable quarter of
the prior year.
R&D expenditures decreased 22% in the current quarter to $1,229,000, or 5%
of net sales, from $1,572,000, or 6% of net sales, in the comparable quarter of
the prior year. This decline was due primarily to decreases in expenses
associated with Diagnostic product validations and clinical trials of $216,000,
AngioDynamics projects of $87,000, and corporate projects of $56,000. Of the R&D
expenditures in the current quarter, approximately 47% relate to contrast
systems, 34% to AngioDynamics projects, 3% 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 $363,000 of income in the
current quarter versus $72,000 of expense in the comparable period of last year.
This improvement was due to improved foreign currency exchange gains and losses
of $326,000 and decreased interest expense, resulting from the repayment of
AngioDynamics debt.
For the quarter ended November 28, 1998, the Company's effective tax rate
of 31% 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,
-13-
<PAGE>
partially offset by non-deductible expenses. The Company's effective tax benefit
rate of 11% during the quarter ended November 29, 1997 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,
at that time, it was more likely than not that such benefits would not be
realized.
Twenty-six weeks ended November 28, 1998 and November 29, 1997
- --------------------------------------------------------------
Results of Operations
- ---------------------
Segment Overview
----------------
<TABLE>
<CAPTION>
Diagnostic AngioDynamics Eliminations Total
---------- ------------- ------------ -----
(in thousands)
<S> <C> <C> <C> <C>
Twenty-six weeks ended November 28, 1998
- ----------------------------------------
Unaffiliated customer sales $41,570 $10,603 - $52,173
Intersegment sales 26 254 ($280) -
Gross profit (loss) 17,010 5,215 (18) 22,207
Operating profit (loss) 3,638 264 (3) 3,899
Twenty-six weeks ended November 29, 1997
- ----------------------------------------
Unaffiliated customer sales $41,202 $ 9,222 - $50,424
Intersegment sales 59 281 ($340) -
Gross profit (loss) 15,430 3,040 (14) 18,456
Operating profit (loss) 1,075 (2,230) (14) (1,169)
</TABLE>
Diagnostic Products
-------------------
Diagnostic segment operating results for the current period improved by
$2,563,000 due to increased sales, improved gross profit and reduced operating
expenses. Net sales increased 1%, or $368,000, due to increased demand for sales
of non-contrast systems. Sales price increases virtually offset the effect of
increased rebates to U.S. group purchasing organizations. Gross profit expressed
as a percentage of net sales improved to 41% during the current period, versus
37% during the comparable period of the prior year due primarily to reduced
unabsorbed overhead costs. Decreased operating expenses of $983,000 can be
attributed to a decline in R&D expenditures of $679,000 and severance costs
incurred in the comparable period of the prior year.
AngioDynamics Products
----------------------
AngioDynamics segment operating results for the current period improved by
$2,494,000 due to increased sales, improved gross profit, and decreased
operating expenses. Net sales increased 15%, or $1,381,000, due to the continued
domestic market penetration of angiography products. International sales
declined 4% 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 48% during the current period versus 32% during the
comparable period of the prior year due primarily to decreased inventory
reserves of $462,000, increased manufacturing efficiencies at the Queensbury
facility, increased production throughput at both the Queensbury and Irish
facilities, and the consolidation of operations, resulting from the closing of
its Leocor facility in the third quarter of last fiscal year. Decreased
operating expenses of $319,000 can be attributed to the closing of its Leocor
facility, coupled with reduced amortization expense, resulting from the
impairment charge, of certain long-lived assets, recorded in the third quarter
of last fiscal year.
-14-
<PAGE>
Consolidated Results of Operations
----------------------------------
For the twenty-six weeks ended November 28, 1998, the Company reported net
earnings of $2,998,000, or $.30 and $.29 per common share on a basic and diluted
basis, respectively, as compared to a net loss of $1,247,000, or ($.13) per
common share on both a basic and diluted basis, for the comparable period of
last year. Results for the current period were favorably affected by increased
sales, improved gross profit and decreased operating expenses in both industry
segments.
Net sales for the twenty-six weeks ended November 28, 1998 increased 3%, or
$1,749,000, as compared to the twenty-six weeks ended November 29, 1997 due to
increased sales of AngioDynamics products of $1,381,000 and non-contrast systems
of $665,000, partially offset by decreased sales of contrast systems of
$297,000. 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 3%, or $455,000, 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 43% during
the current period versus 37% during the comparable period of last year due to
increased gross profit in both industry segments. The improved AngioDynamics
gross profit is due primarily to decreased inventory reserves of $462,000,
increased manufacturing efficiencies at the Queensbury facility, increased
production throughput at both the Queensbury and Irish facilities, and the
consolidation of operations, resulting from the closing of its Leocor facility
in the third quarter of last fiscal year. The improved Diagnostic gross profit
is due primarily to reduced unabsorbed overhead costs.
S&A expenses were $16,077,000 during the twenty-six weeks ended November
28, 1998 versus $16,544,000 during the twenty-six weeks ended November 29, 1997.
This decline of $467,000, or 3%, in the current period was due to decreased
Diagnostic S&A expenses of $305,000 and decreased AngioDynamics S&A expenses of
$162,000. Decreased Diagnostic S&A expenses resulted from severance costs
incurred in the comparable period of the prior year. Decreased AngioDynamics S&A
expenses can be attributed to the consolidation of 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,
of certain long-lived assets, recorded in the third quarter of last fiscal year.
R&D expenditures decreased 28% in the current period to $2,231,000, or 4%
of net sales, from $3,081,000, or 6% of net sales, in the comparable prior year
period. This decline was due primarily to decreases in corporate projects of
$284,000, expenses associated with Diagnostic product validations and clinical
trials of $341,000, and AngioDynamics projects of $171,000. 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 $378,000 of income in the
current period versus $173,000 of expense in the comparable period of last year.
This improvement was due primarily to improved foreign currency exchange gains
and losses of $421,000 and decreased interest expense, resulting from the
repayment of AngioDynamics debt.
For the twenty-six weeks ended November 28, 1998, the Company's effective
tax rate of 30% 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 non-deductible expenses. The Company's
effective tax benefit rate of 7% during the twenty-six weeks ended November 29,
1997
-15-
<PAGE>
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, at that time, it was more likely than not that
such benefits would not be realized. Non-deductible expenses and losses incurred
in a foreign jurisdiction subject to lower tax rates, offset 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 twenty-six weeks ended November 28, 1998, debt repayments and
capital expenditures were funded primarily by cash provided by operations. The
Company's policy has been to fund capital requirements without incurring
significant debt. At November 28, 1998, debt (notes payable, current maturities
of long-term debt and long-term debt) was $2,066,000 as compared to $3,934,000
at May 30, 1998. The Company has available $7,693,000 under three bank lines of
credit of which no amounts were outstanding at November 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 November 28, 1998, 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
3.78 to 1, with net working capital of $44,543,000 at November 28, 1998, 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 to
ensure that they have appropriate 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 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.
-16-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
Part II: Other Information
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Annual Meeting of Shareholders held October 20, 1998, the following
persons were elected as Directors of the Company:
Class II Directors: (until the 2001 Annual Meeting)
-------------------
Paul S. Echenberg
Donald A. Meyer
Robert M. Topol
In this election, 3,471,227 votes were cast for Messrs. Echenberg, Meyer
and Topol, and 8,861 shares were withheld from voting for Messrs. Echenberg,
Meyer and Topol.
The following Directors continue in office for the duration of their terms:
Class I Directors: (until the 2000 Annual Meeting)
------------------
Michael A. Davis, M.D.
James L. Katz, CPA, JD
Class III Directors: (until the 1999 Annual Meeting)
--------------------
Howard S. Stern
David P. Meyers
The action of the Board of Directors in appointing Grant Thornton LLP as
the Company's independent auditors for fiscal year 1999 was approved by a vote
of 3,477,226 in favor, 1,912 against, and 950 shares abstaining.
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 November 28,
1998.
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
E-Z-EM, Inc.
-----------------------------------
(Registrant)
Date January 11, 1999 /s/ Howard S. Stern
-------------------- -------------------------------------
Howard S. Stern, Chairman of the
Board, President, Chief Executive
Officer and Director
Date January 11, 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 November 28, 1998 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-29-1999
<PERIOD-END> NOV-28-1998
<CASH> 5,149
<SECURITIES> 3,577
<RECEIVABLES> 22,365
<ALLOWANCES> 988
<INVENTORY> 26,843
<CURRENT-ASSETS> 60,549
<PP&E> 46,153
<DEPRECIATION> 24,618
<TOTAL-ASSETS> 91,862
<CURRENT-LIABILITIES> 16,006
<BONDS> 529
0
0
<COMMON> 1,009
<OTHER-SE> 72,477
<TOTAL-LIABILITY-AND-EQUITY> 91,862
<SALES> 52,173
<TOTAL-REVENUES> 52,173
<CGS> 29,966
<TOTAL-COSTS> 29,966
<OTHER-EXPENSES> 18,308
<LOSS-PROVISION> 121
<INTEREST-EXPENSE> 123
<INCOME-PRETAX> 4,277
<INCOME-TAX> 1,279
<INCOME-CONTINUING> 2,998
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<EXTRAORDINARY> 0
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<NET-INCOME> 2,998
<EPS-PRIMARY> .30
<EPS-DILUTED> .29
</TABLE>
