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 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 January 7, 2000, there were 4,026,220 shares of the registrant's Class A
Common Stock outstanding and 5,969,344 shares of the registrant's Class B Common
Stock outstanding.
Page 1 of 21
Exhibit Index on Page 19
<PAGE>
E-Z-EM, Inc. and Subsidiaries
INDEX
-----
Part I: Financial Information Page
- ------ --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets - November 27, 1999 and
May 29, 1999 3 - 4
Consolidated Statements of Earnings - thirteen and
twenty-six weeks ended November 27, 1999 and
November 28, 1998 5
Consolidated Statement of Stockholders' Equity and
Comprehensive Income - twenty-six weeks ended
November 27, 1999 6
Consolidated Statements of Cash Flows - twenty-six weeks
ended November 27, 1999 and November 28, 1998 7 - 8
Notes to Consolidated Financial Statements 9 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 18
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 18
Part II: Other Information
- -------- -----------------
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 19
-2-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
November 27, May 29,
ASSETS 1999 1999
------ ------
(unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 6,412 $ 8,073
Debt and equity securities 8,874 5,216
Accounts receivable, principally
trade, net 23,827 21,904
Inventories 28,171 26,974
Other current assets 3,550 4,151
------- ------
Total current assets 70,834 66,318
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 21,012 21,325
COST IN EXCESS OF FAIR VALUE OF NET ASSETS
ACQUIRED, less accumulated amortization 417 424
INTANGIBLE ASSETS, less accumulated
amortization 2,236 2,328
DEBT AND EQUITY SECURITIES 4,534 3,015
OTHER ASSETS 2,815 2,649
------- ------
$101,848 $96,059
======= ======
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
November 27, May 29,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1999
------ ------
(unaudited) (audited)
CURRENT LIABILITIES
Notes payable $ 1,829
Current maturities of long-term debt $ 227 197
Accounts payable 8,578 7,320
Accrued liabilities 8,034 7,736
Accrued income taxes 666 806
------- ------
Total current liabilities 17,505 17,888
LONG-TERM DEBT, less current maturities 1,714 477
OTHER NONCURRENT LIABILITIES 2,799 2,403
COMMITMENTS AND CONTINGENCIES
------- ------
Total liabilities 22,018 20,768
------- ------
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 4,033,433 shares
at November 27, 1999 and 4,035,346 shares
at May 29, 1999 (excluding 1,913 shares
held in treasury at November 27, 1999) 403 403
Class B (nonvoting), par value $.10 per
share - authorized, 10,000,000 shares;
issued and outstanding 6,039,944 shares
at November 27, 1999 and 6,058,277 shares
at May 29, 1999 (excluding 65,774 and
12,100 shares held in treasury at November
27, 1999 and May 29, 1999, respectively) 604 606
Additional paid-in capital 21,794 21,917
Retained earnings 57,502 53,887
Accumulated other comprehensive income (loss) (473) (1,522)
------- ------
Total stockholders' equity 79,830 75,291
------- ------
$101,848 $96,059
======= ======
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
---------------------------- ----------------------------
November 27, November 28, November 27, November 28,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $27,973 $26,508 $55,170 $52,173
Cost of goods sold 14,739 14,970 29,853 29,966
------ ------ ------ ------
Gross profit 13,234 11,538 25,317 22,207
------ ------ ------ ------
Operating expenses
Selling and administrative 9,332 8,460 17,669 16,077
Research and development 1,171 1,229 2,372 2,231
------ ----- ------ ------
Total operating expenses 10,503 9,689 20,041 18,308
------ ----- ------ ------
Operating profit 2,731 1,849 5,276 3,899
Other income (expense)
Interest income 146 138 291 257
Interest expense (58) (61) (119) (123)
Equity in losses of affiliate (59) (138)
Other, net (19) 345 62 382
----- ----- ----- -----
Earnings before income
taxes 2,800 2,212 5,510 4,277
Income tax provision 983 684 1,895 1,279
----- ----- ----- -----
NET EARNINGS $ 1,817 $ 1,528 $ 3,615 $ 2,998
===== ===== ===== =====
Earnings per common share
Basic $ .18 $ .15 $ .36 $ .30
===== ===== ===== =====
Diluted $ .18 $ .15 $ .35 $ .29
===== ===== ===== =====
Weighted average common shares
Basic 10,074 10,076 10,074 10,060
====== ====== ====== ======
Diluted 10,217 10,325 10,223 10,326
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Twenty-six weeks ended November 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 income (loss) Total income
--------- ------ --------- ------ ---------- -------- ------------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at May 29, 1999 4,035,346 $403 6,058,277 $606 $21,917 $53,887 $(1,522) $75,291
Exercise of stock options 20,066 2 77 79
Income tax benefits on
stock options exercised 8 8
Compensation related to
stock option plans 3 3
Issuance of stock 15,275 2 74 76
Purchase of treasury stock (1,913) (53,674) (6) (285) (291)
Net earnings 3,615 3,615 $3,615
Unrealized holding gain on debt
and equity securities 1,252 1,252 1,252
Foreign currency translation
adjustments (203) (203) (203)
--------- --- --------- --- ------ ------ ----- ------ -----
Comprehensive income $4,664
=====
Balance at November 27, 1999 4,033,433 $403 6,039,944 $604 $21,794 $57,502 $ (473) $79,830
========= === ========= === ====== ====== ===== ======
</TABLE>
The accompanying notes are an integral part of this statement.
-6-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Twenty-six weeks ended
----------------------
November 27, November 28,
1999 1998
------ ------
Cash flows from operating activities:
Net earnings $ 3,615 $2,998
Adjustments to reconcile net earnings
to net cash provided by operating
activities
Depreciation and amortization 1,431 1,442
Provision for doubtful accounts 76 121
Equity in losses of affiliate 138
Deferred income tax provision 31 12
Other non-cash items 73 31
Changes in operating assets and
liabilities
Accounts receivable (1,999) (150)
Inventories (1,197) (79)
Other current assets 594 (29)
Other assets (165) (161)
Accounts payable 1,258 (118)
Accrued liabilities 298 582
Accrued income taxes (164) 178
Other noncurrent liabilities 74 74
------ -----
Net cash provided by operating
activities 3,925 5,039
------ -----
Cash flows from investing activities:
Additions to property, plant and
equipment, net (985) (941)
Available-for-sale securities
Purchases (20,278) (2,360)
Proceeds from sale 16,620 2,258
Increase in certificates of deposit (1,075)
------ -----
Net cash used in investing activities (4,643) (2,118)
------ -----
Cash flows from financing activities:
Repayments of debt (904) (1,987)
Proceeds from issuance of debt 26
Proceeds from exercise of stock options,
including related income tax benefits 87 253
Purchase of treasury stock (291)
Proceeds from issuance of stock in connection
with the stock purchase plan 6 2
------ -----
Net cash used in financing activities (1,076) (1,732)
------ -----
-7-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
(in thousands)
Twenty-six weeks ended
----------------------
November 27, November 28,
1999 1998
------ ------
Effect of exchange rate changes on
cash and cash equivalents $ 133 $ (694)
----- -----
(DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (1,661) 495
Cash and cash equivalents
Beginning of period 8,073 4,654
----- -----
End of period $6,412 $5,149
===== =====
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest $ 42 $ 71
===== =====
Income taxes $1,983 $1,332
===== =====
The accompanying notes are an integral part of these statements.
-8-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 27, 1999 and November 28, 1998
(unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of November 27, 1999, the consolidated
statement of stockholders' equity and comprehensive income for the period
ended November 27, 1999, and the consolidated statements of earnings and
cash flows for the periods ended November 27, 1999 and November 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 and comprehensive income, results of operations and
cash flows at November 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 1999 Annual
Report on Form 10-K filed by the Company on August 27, 1999. The results of
operations for the periods ended November 27, 1999 and November 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 in fiscal 1999 was accounted for
by the equity method. Pursuant to this method, such investment was recorded
at cost and adjusted by the Company's share of undistributed earnings (or
losses). In the fourth quarter of the prior fiscal year, the Company
recorded an impairment charge, as it was determined that the fair value of
such investment was zero, with no future cash flows anticipated due to the
affiliate's inability to generate income from operations or raise
additional capital.
NOTE B - INVENTORIES
Inventories consist of the following:
November 27, May 29,
1999 1999
------ ------
(in thousands)
Finished goods $13,631 $14,000
Work in process 2,116 1,926
Raw materials 12,424 11,048
------ ------
$28,171 $26,974
====== ======
-9-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
November 27, 1999 and November 28, 1998
(unaudited)
NOTE C - EARNINGS PER COMMON SHARE
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share," the Company has presented basic and dilutive
earnings per share. Basic earnings per share are based on the weighted
average number of common shares outstanding without consideration of
potential common stock. Diluted earnings per share are based on the
weighted average number of common and potential common shares outstanding.
The calculation takes into account the shares that may be issued upon
exercise of stock options, reduced by the shares that may be repurchased
with the funds received from the exercise, based on the average price
during the period.
The following table sets forth the reconciliation of the weighted average
number of common shares:
<TABLE>
Thirteen weeks ended Twenty-six weeks ended
--------------------------- ---------------------------
November 27, November 28, November 27, November 28,
1999 1998 1999 1998
------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Basic 10,074 10,076 10,074 10,060
Effect of dilutive
securities (stock
options) 143 249 149 266
------ ------ ------ ------
Diluted 10,217 10,325 10,223 10,326
====== ====== ====== ======
</TABLE>
NOTE D - COMMON STOCK
Under the 1983 and 1984 Stock Option Plans, options for 172,359 shares were
granted at $5.63 per share, options for 20,066 shares were exercised at
prices ranging from $3.66 to $4.22 per share, options for 13,944 shares
were forfeited at prices ranging from $4.22 to $8.58 per share, and options
for 5,970 shares expired at $10.73 per share during the twenty-six weeks
ended November 27, 1999. Under the 1997 AngioDynamics Stock Option Plan,
options for 5.68 shares were granted at $40,000 per share, options for .85
shares were forfeited at $40,000 per share, and no options were exercised
or expired during the twenty-six weeks ended November 27, 1999.
Under the Employee Stock Purchase Plan, 1,275 shares were purchased at
$4.46 per share during the twenty-six weeks ended November 27, 1999.
In January 1999, the Board of Directors authorized the repurchase of the
Company's Class B Common Stock up to an aggregate purchase price of
$2,000,000. In October 1999, the Board modified the program to include the
Company's Class A Common Stock. As of November 27, 1999, the Company had
repurchased 1,913 shares of Class A Common Stock and 65,774 shares of Class
B Common Stock for approximately $359,000.
-10-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
November 27, 1999 and November 28, 1998
(unaudited)
NOTE E - COMPREHENSIVE INCOME
During 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).
The components of comprehensive income, net of related tax, are as follows:
Twenty-six weeks ended
----------------------
November 27, November 28,
1999 1998
------ ------
(in thousands)
Net earnings $3,615 $2,998
Unrealized holding gain (loss) on
debt and equity securities 1,252 (127)
Foreign currency translation
adjustments (203) (894)
----- -----
Comprehensive income $4,664 $1,977
===== =====
The components of accumulated other comprehensive income (loss), net of
related tax, are as follows:
November 27, May 29,
1999 1999
------ ------
(in thousands)
Unrealized holding gain on debt
and equity securities $ 2,445 $ 1,193
Cumulative translation adjustments (2,918) (2,715)
----- -----
Accumulated other comprehensive income
(loss) $ (473) $(1,522)
===== =====
NOTE F - OPERATING SEGMENTS
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". The statement redefines
how operating segments are determined and requires disclosure of certain
financial and descriptive information about a company's operating segments.
The Company has adopted the new requirements retroactively.
The Company is engaged in the manufacture and distribution of a wide
variety of products which are classified into two operating segments:
Diagnostic products and AngioDynamics products. Diagnostic products
encompass both contrast systems, consisting of barium sulfate formulations
and related
-11-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
November 27, 1999 and November 28, 1998
(unaudited)
NOTE F - OPERATING SEGMENTS (continued)
medical devices used in X-ray, CT-scanning, ultrasound and MRI imaging
examinations, and non-contrast systems, including diagnostic radiology
devices, custom contract pharmaceuticals, gastrointestinal cleansing
laxatives, X-ray protection equipment, and immunoassay tests. AngioDynamics
products include angiography, therapeutic and coronary medical devices used
in the interventional medical marketplace.
The Company's chief operating decision maker utilizes operating segment net
earnings (loss) information in assessing performance and making overall
operating decisions and resource allocations. Information about the
Company's segments is as follows:
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
--------------------------- -----------------------------
November 27, November 28, November 27, November 28,
1999 1998 1999 1998
------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Net sales from external
customers
Diagnostic products
Contrast systems $17,178 $15,729 $33,205 $29,877
Non-contrast systems 6,269 5,851 13,098 11,693
------ ------ ------ ------
Total Diagnostic products 23,447 21,580 46,303 41,570
AngioDynamics products 4,526 4,928 8,867 10,603
------ ------ ------ ------
Total net sales from external
customers $27,973 $26,508 $55,170 $52,173
====== ====== ====== ======
Intersegment net sales
Diagnostic products $ (189) $ 15 $ 2 $ 26
AngioDynamics products 167 112 325 254
------ ------ ------ ------
Total intersegment net sales $ (22) $ 127 $ 327 $ 280
====== ====== ====== ======
Net earnings (loss)
Diagnostic products $ 2,327 $ 1,596 $ 4,637 $ 2,912
AngioDynamics products (522) (71) (1,058) 89
Eliminations 12 3 36 (3)
------ ------ ------ ------
Total net earnings $ 1,817 $ 1,528 $ 3,615 $ 2,998
====== ====== ====== ======
<CAPTION>
November 27, May 29,
1999 1999
------ ------
(in thousands)
Assets
Diagnostic products $113,765 $107,027
AngioDynamics products 17,579 17,922
Eliminations (29,496) (28,890)
------- -------
Total assets $101,848 $ 96,059
======= =======
</TABLE>
-12-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quarters ended November 27, 1999 and November 28, 1998
- ------------------------------------------------------
The Company's quarters ended November 27, 1999 and November 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 operating segment includes both
contrast systems and non-contrast systems. The AngioDynamics products operating
segment includes angiography, therapeutic and coronary medical devices used in
the interventional medical marketplace.
<TABLE>
<CAPTION>
Diagnostic AngioDynamics Eliminations Total
---------- ------------- ------------ -----
(in thousands)
<S> <C> <C> <C> <C>
Quarter ended November 27, 1999
- -------------------------------
Unaffiliated customer sales $23,447 $4,526 - $27,973
Intersegment sales (189) 167 $22 -
Gross profit 11,123 2,100 11 13,234
Operating profit (loss) 3,127 (408) 12 2,731
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
</TABLE>
Diagnostic Products
-------------------
Diagnostic segment operating results for the current quarter improved by
$1,086,000 due primarily to increased sales and improved gross profit, partially
offset by increased operating expenses of $869,000. Net sales increased 9%, or
$1,867,000, due to increased demand for sales of both contrast systems and non-
contrast systems. Price increases accounted for approximately 4 1/2% of net
sales in the current quarter. Gross profit expressed as a percentage of net
sales improved to 48% during the current quarter, versus 42% during the
comparable quarter of the prior year due primarily to sales price increases,
increased production throughput and decreased provision for inventory reserves
of $335,000.
AngioDynamics Products
----------------------
AngioDynamics segment operating results for the current quarter declined by
$213,000 due to decreased sales and gross profit. Net sales decreased 8%, or
$402,000, due primarily to lower than expected sales of therapeutic products,
resulting from the suspension of the sale of the clot-dissolving drug abbokinase
by Abbott Laboratories in the domestic marketplace, and reduced international
sales, resulting, in large part, from the continued decline in sales of the
AngioStent(TM). Abbokinase is the primary drug used in connection with the
Company's therapeutic products. Gross profit expressed as a percentage of net
sales decreased to 45% during the current quarter versus 47% during the
comparable quarter of the prior year due primarily to decreased production
throughput at both the Queensbury, New York and Irish facilities.
-13-
<PAGE>
Consolidated Results of Operations
----------------------------------
For the quarter ended November 27, 1999, the Company reported net earnings
of $1,817,000, or $.18 per common share on both a basic and diluted basis, as
compared to net earnings of $1,528,000, or $.15 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 the Diagnostic segment, partially offset by decreased sales and gross
profit in the AngioDynamics segment, as well as increased operating expenses in
the Diagnostic segment.
Net sales for the quarter ended November 27, 1999 increased 6%, or
$1,465,000, as compared to the quarter ended November 28, 1998 due to increased
sales of contrast systems of $1,449,000 and non-contrast systems of $418,000,
partially offset by decreased sales of AngioDynamics products of $402,000. Price
increases accounted for approximately 4% of net sales in the current quarter.
Net sales in international markets, including direct exports from the U.S.,
increased 4%, or $355,000, in the current quarter versus the comparable period
of last year due to increased sales of contrast systems of $483,000 and non-
contrast systems of $81,000, partially offset by a decline in sales of
AngioDynamics products of $209,000.
Gross profit expressed as a percentage of net sales increased to 47% during
the current quarter versus 44% during the comparable quarter of the prior year
due to improved gross profit in the Diagnostic segment, partially offset by
reduced gross profit in the AngioDynamics segment. The improved Diagnostic gross
profit expressed as a percentage of net sales is due primarily to sales price
increases, increased production throughput and decreased provision for inventory
reserves of $335,000. The decreased AngioDynamics gross profit expressed as a
percentage of net sales is due primarily to decreased production throughput at
both the Queensbury and Irish facilities.
Selling and administrative ("S&A") expenses were $9,332,000 during the
quarter ended November 27, 1999 versus $8,460,000 during the quarter ended
November 28, 1998. This increase of $872,000, or 10%, in the current quarter was
due to increased Diagnostic S&A expenses, which can be attributed to expenses
supporting the 9% sales increase during the current quarter.
Research and development ("R&D") expenditures decreased 5% in the current
quarter to $1,171,000, or 4% of net sales, from $1,229,000, or 5% of net sales,
in the comparable quarter of the prior year. This decline was due to decreased
spending relating to AngioDynamics projects. Of the R&D expenditures in the
current quarter, approximately 48% relate to contrast systems, 30% to
AngioDynamics projects, 4% to immunological projects, 4% to other projects and
14% to general regulatory costs. R&D expenditures are expected to continue at
approximately current levels.
Other income, net of other expenses, totaled $69,000 of income in the
current quarter versus $363,000 of income in the comparable period of last year.
This decline was due to foreign currency exchange gains of $297,000 recorded in
the comparable period of the prior year.
The Company's effective tax rate of 35% during the quarter ended November
27, 1999 differed from the Federal statutory tax rate of 34% due primarily to
losses incurred in a foreign jurisdiction subject to lower tax rates and non-
deductible expenses, mostly offset by earnings of the Company's Puerto Rican
subsidiary, which are subject to favorable U.S. tax treatment. 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, partially offset
by non-deductible expenses.
-14-
<PAGE>
Twenty-six weeks ended November 27, 1999 and November 28, 1998
- --------------------------------------------------------------
Results of Operations
- ---------------------
Segment Overview
----------------
<TABLE>
<CAPTION>
Diagnostic AngioDynamics Eliminations Total
---------- ------------- ------------ -----
(in thousands)
<S> <C> <C> <C> <C>
Twenty-six weeks ended November 27, 1999
- ----------------------------------------
Unaffiliated customer sales $46,303 $ 8,867 - $55,170
Intersegment sales 2 325 ($327) -
Gross profit 21,168 4,115 34 25,317
Operating profit (loss) 6,056 (816) 36 5,276
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
</TABLE>
Diagnostic Products
-------------------
Diagnostic segment operating results for the current period improved by
$2,418,000 due primarily to increased sales and improved gross profit, partially
offset by increased operating expenses of $1,740,000. Net sales increased 11%,
or $4,733,000, due to increased demand for sales of both contrast systems and
non-contrast systems. Price increases accounted for approximately 3% of net
sales in the current period. Gross profit expressed as a percentage of net sales
improved to 46% during the current period, versus 41% during the comparable
period of the prior year due primarily to sales price increases, increased
production throughput and decreased provision for inventory reserves of
$388,000.
AngioDynamics Products
----------------------
AngioDynamics segment operating results for the current period declined by
$1,080,000 due to decreased sales and gross profit. Net sales decreased 16%, or
$1,736,000, due primarily to lower than expected sales of therapeutic products,
resulting from the suspension of the sale of the clot-dissolving drug abbokinase
by Abbott Laboratories in the domestic marketplace, and reduced international
sales, resulting, in large part, from the continued decline in sales of the
AngioStent(TM). Gross profit expressed as a percentage of net sales decreased to
45% during the current period versus 48% during the comparable period of the
prior year due primarily to decreased production throughput at both the
Queensbury and Irish facilities.
Consolidated Results of Operations
----------------------------------
For the twenty-six weeks ended November 27, 1999, the Company reported net
earnings of $3,615,000, or $.36 and $.35 per common share on a basic and diluted
basis, respectively, as compared to net earnings of $2,998,000, or $.30 and $.29
per common share on a basic and diluted basis, respectively, for the comparable
period of last year. Results for the current period were favorably affected by
increased sales and improved gross profit in the Diagnostic segment, partially
offset by decreased sales and gross profit in the AngioDynamics segment, as well
as increased operating expenses in the Diagnostic segment.
Net sales for the twenty-six weeks ended November 27, 1999 increased 6%, or
$2,997,000, as compared to the twenty-six weeks ended November 28, 1998.
Increased sales of contrast systems of $3,328,000 and non-contrast systems of
$1,405,000, including $740,000 relating to custom contract, were partially
offset
-15-
<PAGE>
by decreased sales of AngioDynamics products of $1,736,000. Price increases
accounted for approximately 2 1/2% of net sales in the current period. Net sales
in international markets, including direct exports from the U.S., increased 9%,
or $1,622,000, in the current period versus the comparable period of last year
due to increased sales of contrast systems of $1,572,000 and non-contrast
systems of $951,000, including $740,000 relating to custom contracts, partially
offset by a decline in sales of AngioDynamics products of $901,000.
Gross profit expressed as a percentage of net sales increased to 46% during
the current period versus 43% during the comparable period of last year due to
improved gross profit in the Diagnostic segment, partially offset by reduced
gross profit in the AngioDynamics segment. The improved Diagnostic gross profit
expressed as a percentage of net sales is due primarily to sales price
increases, increased production throughput and decreased provision for inventory
reserves of $388,000. The decreased AngioDynamics gross profit expressed as a
percentage of net sales is due primarily to decreased production throughput at
both the Queensbury and Irish facilities.
S&A expenses were $17,669,000 during the twenty-six weeks ended November
27, 1999 versus $16,077,000 during the twenty-six weeks ended November 28, 1998.
This increase of $1,592,000, or 10%, in the current period was due to increased
Diagnostic S&A expenses, which can be attributed to expenses supporting the 11%
sales increase during the current period.
R&D expenditures increased 6% in the current period to $2,372,000, or 4% of
net sales, from $2,231,000, or 4% of net sales, in the comparable prior year
period. This increase was due primarily to increased contrast system spending of
$118,000. Of the R&D expenditures in the current period, approximately 47%
relate to contrast systems, 33% to AngioDynamics projects, 3% to immunological
projects, 4% to other projects and 13% to general regulatory costs.
Other income, net of other expenses, totaled $234,000 of income in the
current period versus $378,000 of income in the comparable period of last year.
This decline was due primarily to foreign currency exchange gains of $281,000
recorded in the comparable period of the prior year, partially offset by the
recording of the Company's approximate 23% share in the losses of ITI Medical
Technologies, Inc. of $138,000 in the comparable period of last year.
The Company's effective tax rate during the twenty-six weeks ended November
27, 1999 approximated the Federal statutory tax rate of 34%. Losses incurred in
a foreign jurisdiction subject to lower tax rates and non-deductible expenses
were offset by earnings of the Company's Puerto Rican subsidiary, which are
subject to favorable U.S. tax treatment. 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.
Liquidity and Capital Resources
- -------------------------------
During the twenty-six weeks ended November 27, 1999, capital expenditures
and debt repayments were funded by cash provided by operations. The Company's
policy has been to fund capital requirements without incurring significant debt.
At November 27, 1999, debt (notes payable, current maturities of long-term debt
and long-term debt) was $1,941,000 as compared to $2,503,000 at May 29, 1999.
The Company has available $5,405,000 under two bank lines of credit of which no
amounts were outstanding at November 27, 1999.
At November 27, 1999, approximately 66% of the Company's assets consist of
inventories, accounts receivable, short-term debt and equity securities, and
cash and cash equivalents. The current ratio is 4.05 to 1, with net working
capital
-16-
<PAGE>
of $53,329,000 at November 27, 1999, as compared to the current ratio of 3.71 to
1, with net working capital of $48,430,000 at May 29, 1999.
In January 1999, the Board of Directors authorized the repurchase of the
Company's Class B Common Stock up to an aggregate purchase price of $2,000,000.
In October 1999, the Board modified the program to include the Company's Class A
Common Stock. As of November 27, 1999, the Company had repurchased 1,913 shares
of Class A Common Stock and 65,774 shares of Class B Common Stock for
approximately $359,000.
Year 2000 Compliance
--------------------
Management developed and completed its plan to modify the Company's
information technology to recognize the Year 2000. The Year 2000 issue is the
result of computer programs being written using two digits rather than four to
define the applicable year. The plan had three distinct areas of focus; namely,
traditional information systems, technology used in support areas, and
preparedness of suppliers and customers.
The first area of focus was an assessment of traditional information
technology, namely internal software business applications, hardware and desktop
support. All of the Company's software systems, applications and desktop support
have been assessed, modified and tested to be Year 2000 compliant.
The second area of focus was an assessment of technology used in support
areas, which includes the electronics in manufacturing equipment, telephone
systems, security systems and payroll time clocks. At the present time,
substantially all such equipment has either been tested to assure Year 2000
compliance or has been certified by vendors to be Year 2000 compliant.
The third area of focus was communications with suppliers and customers to
understand their level of readiness and assure a constant flow of materials to
support business plans. The Company sought compliance statements from each of
its significant suppliers. Communication has shown a high level of awareness and
planning by these parties, most of which have provided positive assurances to
maintain a constant flow of materials. At the present time, no material problems
or concerns are indicated by these responses. However, if a significant vendor
or customer is non-compliant, the Company can give no assurance that such
occurrence will not have an adverse affect on the Company's results. The Company
believes its action plans will minimize these risks and prevent any major
interruptions in the flow of materials and products.
Formal contingency plans were not formulated since the Company identified
no specific areas where there was a substantial risk of year 2000 problems
occurring.
The plan was administered by internal staff and management. Costs incurred
in the Company's readiness effort, which approximated $130,000, were expensed as
incurred, except for those costs capitalized as fixed assets. Management
believes that the Company has met its compliance goals and, to date, this
project has not had a material impact on the Company's operations, though no
future assurance can be given in this regard.
Forward-Looking Statements
--------------------------
This Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which are intended to be covered by the safe
harbors created thereby. 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
-17-
<PAGE>
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company is exposed to market risk from changes in foreign currency
exchange rates and, to a much lesser extent, interest rates on investments and
financing, which could impact results of operations and financial position. The
Company does not currently engage in hedging or other market risk management
tools. There have been no material changes with respect to market risk
previously disclosed in the fiscal 1999 Annual Report on Form 10-K.
Foreign Currency Exchange Rate Risk
-----------------------------------
The Company's international subsidiaries are denominated in currencies
other than the U.S. dollar. However, since the functional currency of the
Company's international subsidiaries is the local currency, foreign currency
translation adjustments are accumulated as a component of accumulated other
comprehensive income (loss) in stockholders' equity. Assuming a hypothetical
change in the foreign currency versus the U.S. dollar exchange rates of 10% at
November 27, 1999, the Company's assets and liabilities would increase or
decrease by $2,422,000 and $748,000, respectively, and the Company's net sales
and net earnings would increase or decrease by $2,368,000 and $138,000,
respectively, on an annual basis.
The Company also maintains intercompany balances and loans receivable with
subsidiaries with different local currencies. These amounts are at risk of
foreign exchange losses if exchange rates fluctuate. Assuming a hypothetical
change in the foreign currency versus the U.S. dollar exchange rates of 10% at
November 27, 1999, results of operations would be favorably or unfavorably
impacted by approximately $945,000 on an annual basis.
Interest Rate Risk
------------------
The Company is exposed to interest rate change market risk with respect to
its investments in tax-free municipal bonds in the amount of $8,800,000. The
bonds bear interest at a floating rate established weekly. During the twenty-six
weeks ended November 27, 1999, the interest rate on the bonds approximated 3.6%.
Each 100 basis point (1%) fluctuation in interest rates will increase or
decrease interest income on the bonds by approximately $88,000 on an annual
basis.
As the Company's principal amount of fixed interest rate financing
approximates $1,941,000 at November 27, 1999, a change in interest rates would
not materially impact results of operations or financial position. At November
27, 1999, the Company did not maintain any variable interest rate financing.
-18-
<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 19, 1999, the following
persons were elected as Directors of the Company:
Class III Directors: (until the 2002 Annual Meeting)
-------------------
Howard S. Stern
David P. Meyers
In this election, 3,337,004 and 3,335,004 votes were cast for Mr. Stern and
Mr. Meyers, respectively, and 378,780 and 380,780 shares were withheld from
voting for Mr. Stern and Mr. Meyers, respectively.
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 II Directors: (until the 2001 Annual Meeting)
------------------
Paul S. Echenberg
Donald A. Meyer
Robert M. Topol
A proposed amendment to the Company's 1983 Stock Option Plan to increase
the number of authorized shares reserved for issuance pursuant to the 1983 Stock
Option Plan by 800,000 from 1,817,974 to 2,617,974 was approved by a vote of
3,021,825 in favor, 444,759 against, 4,720 shares abstaining, and 244,480 broker
non-votes.
The action of the Board of Directors in appointing Grant Thornton LLP as
the Company's independent auditors for fiscal year 2000 was approved by a vote
of 3,711,055 in favor, 576 against, and 4,153 shares abstaining.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
No. Description Page
--- ----------- ----
27 Financial data schedule 21
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended November 27,
1999.
-19-
<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 10, 2000 /s/ Howard S. Stern
-------------------- ---------------------------------------
Howard S. Stern, Chairman of the
Board, President, Chief Executive
Officer and Director
Date January 10, 2000 /s/ Dennis J. Curtin
-------------------- ---------------------------------------
Dennis J. Curtin, Senior Vice
President - Chief Financial Officer
-20-
<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 27, 1999 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> JUN-03-2000
<PERIOD-END> NOV-27-1999
<CASH> 6,412
<SECURITIES> 8,874
<RECEIVABLES> 24,903
<ALLOWANCES> 1,076
<INVENTORY> 28,171
<CURRENT-ASSETS> 70,834
<PP&E> 48,537
<DEPRECIATION> 27,525
<TOTAL-ASSETS> 101,848
<CURRENT-LIABILITIES> 17,505
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0
0
<COMMON> 1,007
<OTHER-SE> 78,823
<TOTAL-LIABILITY-AND-EQUITY> 101,848
<SALES> 55,170
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<CGS> 29,853
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<EPS-BASIC> .36
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</TABLE>
