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 25, 1995
------------------
Commission file number 0-13003
-------
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)
Registrant's telephone number, including area code (516) 333-8230
--------------
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 5, 1995, there were 4,032,532 shares of the registrant's Class A Common
Stock outstanding and 4,785,462 shares of the registrant's Class B Common Stock
outstanding.
Page 1 of 20
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 25, 1995 and
May 28, 1994 3 - 4
Consolidated Statements of Operations - twelve and
thirty-nine weeks ended February 25, 1995 and
thirteen and thirty-nine weeks ended February 26, 1994 5
Consolidated Statement of Stockholders' Equity -
thirty-nine weeks ended February 25, 1995 6
Consolidated Statements of Cash Flows - thirty-nine
weeks ended February 25, 1995 and February 26, 1994 7 - 8
Notes to Consolidated Financial Statements 9 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 17
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
-2-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
February 25, May 28,
ASSETS 1995 1994
------ ------
(unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 2,789 $ 6,851
Debt and equity securities 473 485
Accounts receivable, principally
trade, net 15,591 17,587
Inventories 21,895 18,919
Other current assets 2,465 2,432
------ ------
Total current assets 43,213 46,274
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 20,768 18,572
COST IN EXCESS OF FAIR VALUE OF NET ASSETS
ACQUIRED, less accumulated amortization 641 679
INTANGIBLE ASSETS, less accumulated
amortization 484 467
DEBT AND EQUITY SECURITIES 5,545 3,264
OTHER ASSETS 2,857 2,275
------ ------
$73,508 $71,531
====== ======
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
February 25, May 28,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
------ ------
(unaudited) (audited)
CURRENT LIABILITIES
Notes payable $ 1,194 $ 777
Current maturities of long-term debt 183 2,307
Accounts payable 4,755 4,394
Accrued liabilities 5,057 5,246
Accrued income taxes 463 462
------ ------
Total current liabilities 11,652 13,186
LONG-TERM DEBT, less current maturities 461 586
OTHER NONCURRENT LIABILITIES 1,670 1,553
MINORITY INTEREST IN SUBSIDIARY 1,957 1,937
CONTINGENCIES
------ ------
Total liabilities 15,740 17,262
------ ------
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, 12,000,000 shares;
issued and outstanding 4,032,532 shares
at February 25, 1995 and May 28, 1994 403 403
Class B (non-voting), par value $.10 per
share - authorized, 6,000,000 shares;
issued and outstanding 4,785,212
shares at February 25, 1995 and 4,528,680
shares at May 28, 1994 479 453
Additional paid-in capital 11,570 10,505
Retained earnings 43,750 44,414
Unrealized holding gain on debt and
equity securities 2,933
Cumulative translation adjustments (1,367) (1,506)
------ ------
Total stockholders' equity 57,768 54,269
------ ------
$73,508 $71,531
====== ======
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Twelve Thirteen Thirty-nine weeks ended
weeks ended weeks ended -----------------------
February 25, February 26, February 25, February 26,
1995 1994 1995 1994
------ ------ ------ ------
(in thousands, except per share data)
Net sales $21,961 $22,633 $69,762 $66,721
Cost of goods sold 13,142 14,510 39,478 40,159
------ ------ ------ ------
Gross profit 8,819 8,123 30,284 26,562
------ ------ ------ ------
Operating expenses
Selling and administrative 8,109 7,784 24,706 23,125
Research and development 1,712 2,068 4,985 5,669
------ ------ ------ ------
Total operating expenses 9,821 9,852 29,691 28,794
------ ------ ------ ------
Operating profit (loss) (1,002) (1,729) 593 (2,232)
Other income (expense)
Interest income 83 118 471 371
Interest expense (67) (98) (251) (312)
Other, net 58 11 289 205
------ ------ ------ ------
Earnings (loss) before
income taxes and
minority share of sub-
sidiary's operations (928) (1,698) 1,102 (1,968)
Income tax provision 386 268 908 859
------ ------ ------ ------
Earnings (loss) before
minority share of sub-
sidiary's operations (1,314) (1,966) 194 (2,827)
Minority share of
subsidiary's operations 237 55 234 (29)
------ ------ ------ ------
NET EARNINGS (LOSS) $(1,077) $(1,911) $ 428 $(2,856)
===== ===== ===== =====
Earnings (loss) per common share
Primary and fully
diluted $ (.12) $ (.22) $ .05 $ (.32)
===== ===== ===== =====
Weighted average common shares
Primary and fully
diluted 8,817,744 8,817,609 8,817,742 8,816,542
========= ========= ========= =========
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 25, 1995
(unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Unrealized
Class A Class B holding gain
common stock common stock Additional on debt Cumulative
----------------- --------------- paid-in Retained and equity translation
Shares Amount Shares Amount capital earnings securities adjustments Total
------ ------ ------ ------ ------- -------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at May 28, 1994 4,032,532 $403 4,528,680 $453 $10,505 $44,414 $(1,506) $54,269
Issuance of stock 20
3% common stock dividend
($1,383 paid in cash in
lieu of fractional shares) 256,512 26 1,065 (1,092) (1)
Net earnings 428 428
Unrealized holding gain on debt
and equity securities $2,933 2,933
Foreign currency translation
adjustments 139 139
--------- ---- --------- ---- ------- ------- ------ ------- -------
Balance at February 25, 1995 4,032,532 $403 4,785,212 $479 $11,570 $43,750 $2,933 $(1,367) $57,768
========= === ========= === ====== ====== ===== ===== ======
</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)
Thirty-nine weeks ended
-----------------------
February 25, February 26,
1995 1994
---- ----
(in thousands)
Cash flows from operating activities:
Net earnings (loss) $ 428 $(2,856)
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities
Depreciation and amortization 2,067 2,076
Gain on sale of investments (33)
Minority share of subsidiary's
operations (234) 29
Changes in operating assets and
liabilities
Accounts receivable 1,996 2,128
Inventories (2,976) 327
Other current assets (33) (24)
Other assets 24 7
Accounts payable 361 233
Accrued liabilities (190) 50
Accrued income taxes 1 (118)
Other noncurrent liabilities 89 138
----- -----
Net cash provided by
operating activities 1,533 1,957
----- -----
Cash flows from investing activities:
Additions to property, plant and
equipment, net (4,152) (1,677)
Increase in debt and equity securities (19) (233)
----- -----
Net cash used in investing
activities (4,171) (1,910)
----- -----
Cash flows from financing activities:
Repayments of debt (3,047) (879)
Proceeds from issuance of debt 1,134 891
Proceeds from minority shareholder 254
Issuance of stock in connection with
the stock purchase plan 22
----- -----
Net cash (used in) provided by
financing activities (1,659) 34
----- -----
-7-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
Thirty-nine weeks ended
-----------------------
February 25, February 26,
1995 1994
---- ----
(in thousands)
Effect of exchange rate changes on
cash and cash equivalents $ 235 $ (760)
----- -----
DECREASE IN CASH AND CASH
EQUIVALENTS (4,062) (679)
Cash and cash equivalents
Beginning of period 6,851 7,054
----- -----
End of period $2,789 $6,375
===== =====
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 171 $ 239
===== =====
Income taxes (net of refunds of
$449,000 and $245,000 in 1995
and 1994, respectively) $ 404 $ 615
===== =====
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 25, 1995 and February 26, 1994
(unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of February 25, 1995, the consolidated
statement of stockholders' equity for the period ended February 25, 1995,
and the consolidated statements of operations and cash flows for the periods
ended February 25, 1995 and February 26, 1994, 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 25, 1995 (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 1994 Annual Report on
Form 10-K filed by the Company on August 26, 1994. The results of operations
for the periods ended February 25, 1995 and February 26, 1994 are not
necessarily indicative of the operating results for the respective full
years.
NOTE B - DEBT AND EQUITY SECURITIES
The Company has adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"). Pursuant to SFAS 115, this Statement has not been applied
retroactively to prior years' financial statements.
Pursuant to SFAS 115, debt and equity securities are to be classified in three
categories and accounted for as follows: Debt securities that the Company
has the positive intent and ability to hold to maturity are classified as
"held-to-maturity securities" and reported at amortized cost; debt and
equity securities that are bought and held principally for the purpose of
selling them in the near term are classified as "trading securities" and
reported at fair value, with unrealized gains and losses included in
operations; and debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified as
"available-for-sale securities" and reported at fair value, with unrealized
gains and losses excluded from operations and reported as a separate
component of stockholders' equity. Cost is determined using the specific
identification method.
-9-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
February 25, 1995 and February 26, 1994
(unaudited)
NOTE B - DEBT AND EQUITY SECURITIES (continued)
Debt and equity securities at February 25, 1995 consist of the following:
Unrealized
Amortized Fair Holding
Cost Value Gain (Loss)
-------- ----- -----------
(in thousands)
CURRENT
Held-to-maturity securities
(carried on the balance sheet
at amortized cost)
Debt securities $ 75 $ 75
----- -----
Available-for-sale securities
(carried on the balance sheet
at fair value)
Equity securities 398 354 $ (35)
Other 44 44
----- ----- -----
442 398 (35)
----- ----- -----
$ 517 $ 473 $ (35)
===== ===== =====
NONCURRENT
Held-to-maturity securities
(carried on the balance sheet
at amortized cost)
Debt securities with maturities
after one year through five
years $1,594 $1,616
----- -----
Available-for-sale securities
(carried on the balance sheet
at fair value)
Equity securities 1,662 3,950 $2,288
Other 1 1
----- ----- -----
1,663 3,951 2,288
----- ----- -----
$3,257 $5,567 $2,288
===== ===== =====
-10-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
February 25, 1995 and February 26, 1994
(unaudited)
NOTE C - INVENTORIES
Inventories consist of the following:
February 25, May 28,
1995 1994
------ ------
(in thousands)
Finished goods $10,177 $ 8,927
Work in process 2,135 1,704
Raw materials 9,583 8,288
------ ------
$21,895 $18,919
====== ======
NOTE D - COMMON STOCK
On January 24, 1995, the Board of Directors declared a 3% stock dividend on
shares of Class A and Class B Common Stock. The dividend, payable in
non-voting Class B Stock, was distributed on March 16, 1995 to shareholders
of record on February 24, 1995. Earnings (loss) per common share have been
retroactively adjusted to reflect the stock dividend.
Under the 1983 and 1984 Stock Option Plans, options for 1,013,415 shares were
granted at prices ranging from $4.25 to $4.75 per share, options for 407,368
shares were cancelled at prices ranging from $4.75 to $16.75 per share and
no options were exercised during the thirty-nine weeks ended February 25,
1995.
Under the Employee Stock Purchase Plan, 20 shares were purchased at $4.46 per
share during the thirty-nine weeks ended February 25, 1995. Total proceeds
received by the Company approximated $89.00.
NOTE E - CONTINGENCIES
The Company is presently a defendant in a product liability action. This suit
claims damages based upon alleged injuries resulting from the use of one of
the Company's products. The action is in its early stages and while the
Company is actively defending against the claim, it is unable to predict its
outcome. It should be noted that in this action the Company is one among
several defendants and, as such, the Company's liability, if any, is not
quantifiable at this time. The Company does not believe that its liability
in this case will exceed its insurance coverage.
The Company was the defendant in a product liability action with respect to an
alleged adverse reaction to one of its products. Such action was settled in
October 1994. The settlement was covered by insurance.
-11-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 25, 1995 and February 26, 1994
(unaudited)
NOTE E - CONTINGENCIES (continued)
During March 1994, the Company began recalling its effervescent granules and
colon cleansing products due to packaging and formulation problems, which
might have resulted in inconsistent product performance over time. The
recalls were initiated by the Company's desire to ensure complete product
efficacy, as patient safety issues were not involved. The Company recorded a
pre-tax provision in the aggregate amount of $1,546,000 during fiscal 1994,
with respect to such recalls. These products currently account for less than
five percent of the Company's sales volume. Included in accrued liabilities
and inventory are reserves related to these recalls of approximately $50,000
and $174,000, respectively, at February 25, 1995.
The Company has been sued by Olympia Holding Corporation p/k/a P-I-E
Nationwide, Inc. for $443,830. The suit, filed on October 5, 1992, is
presently pending in the United States Bankruptcy Court for the Middle
District of Florida. The case is in its preliminary stages. The Company is
being represented in this action by a law firm which is also representing
numerous other defendants being sued by the same plaintiff on the same
grounds - recovery for alleged undercharges for freight carriage. It is not
possible, at this stage, to determine what, if any, liability exists with
respect to the Company in this matter. The Company will vigorously defend
against this action; it has been informed by legal counsel that there exist
numerous valid defenses to this case.
During fiscal 1993, Surgical Dynamics Inc.'s ("Surgical") lease agreement on
the Alameda, California office and production facilities was terminated
prematurely. Surgical is a 51%-owned subsidiary of the Company. As of the
termination, the remaining future minimum lease payments totalled
approximately $3,146,000. Surgical's management is negotiating with its
former landlord to settle the lease commitment. In fiscal 1993, Surgical
accrued $600,000 for the estimated settlement of the lease commitment. The
final resolution of actual amounts, however, is dependent upon future
events, the outcome of which is not fully determinable at the present time.
NOTE F - RECLASSIFICATIONS
Certain reclassifications have been made to the prior year amounts to conform
to the current year presentation.
-12-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTERS ENDED FEBRUARY 25, 1995 AND FEBRUARY 26, 1994
The Company's quarter ended February 25, 1995 represents twelve weeks and
the quarter ended February 26, 1994 represents thirteen weeks.
RESULTS OF OPERATIONS
SEGMENT OVERVIEW
The diagnostic products industry segment includes both contrast systems and
non-contrast systems. Diagnostic product sales, which decreased 3% during the
quarter, accounted for 90% of sales in the current quarter versus 91% in the
comparable prior year quarter. The surgical products industry segment includes
the Nucleotome device and other surgical devices and accessories used in spinal
surgery. Surgical product sales, which increased 1% during the quarter,
represented 10% of sales in the current quarter versus 9% in the comparable
prior year quarter.
Diagnostic segment results for the current quarter were adversely affected
by reduced sales, resulting, in part, from the reduced number of shipping days
in the domestic operations during the current quarter. Diagnostic results for
the comparable quarter of the prior year were adversely impacted by the
anticipated cost of product recalls, which the Company began in March 1994, due
to packaging and formulation problems with its effervescent granules and colon
cleansing products. Diagnostic results for the comparable quarter of the prior
year were also adversely affected by a decline in sales of contrast systems in
the domestic market. The Company attributes the sales decline in the comparable
quarter of the prior year to the turmoil in the healthcare industry from
proposed reform, which resulted in reduced patient procedures, consequent
purchasing cutbacks on the part of hospitals, and a generalized slowdown in our
customers' orders.
Surgical segment results for the current quarter were adversely affected by
increased operating expenses of $204,000, principally due to expanded selling
and marketing efforts in both the domestic and international marketplace.
Surgical Dynamics contributed losses of $246,000 to E-Z-EM's consolidated
operations in the current quarter, as compared to losses of $57,000 in the
comparable quarter of the prior year.
CONSOLIDATED RESULTS OF OPERATIONS
For the quarter ended February 25, 1995, the Company reported a net loss of
$1,077,000, or ($.12) per common share, as compared to a net loss of $1,911,000,
or ($.22) per common share, for the comparable period of last year. Results for
the current quarter were adversely affected by reduced sales, resulting, in
part, from the reduced number of shipping days in the domestic operations during
the current quarter. Results for the comparable quarter of the prior year were
adversely impacted by the reserve for product recalls of $1,008,000 and
severance benefits accrued or paid to terminated employees of $480,000. The
reserve for product recalls is included in cost of goods sold and selling and
administrative expenses in the consolidated statements of operations.
-13-
<PAGE>
Sales for the quarter ended February 25, 1995 decreased 3% as compared to
the quarter ended February 26, 1994 due primarily to decreased contrast system
sales of $1,063,000, which resulted from the reduced number of shipping days in
the domestic operations during the current quarter versus the comparable prior
year quarter, partially offset by price increases, which accounted for
approximately 2% of sales in the current quarter. Sales in international
markets, including direct exports from the United States, increased 3%, or
$241,000, in the current quarter versus the comparable period of last year due
primarily to increased sales of non-contrast systems.
Gross profit expressed as a percentage of sales increased to 40% during the
current quarter from 36% in the comparable period of last year. The lower gross
profit percentage in the comparable period of the prior year was due primarily
to the reserve for product recalls of $884,000 and severance benefits accrued or
paid to terminated employees of $194,000. The Company's third fiscal quarters
traditionally have fewer production days than the other fiscal quarters,
resulting in somewhat lower gross profit percentages in such quarters.
Selling and administrative ("S&A") expenses were $8,109,000 during the
quarter ended February 25, 1995 versus $7,784,000 during the quarter ended
February 26, 1994. This increase of $325,000, or 4%, in the current quarter was
principally due to expanded diagnostic S&A efforts in the international
marketplace approximating $172,000 and expanded surgical selling and marketing
efforts in both the domestic and international marketplace of $132,000.
Research and development ("R&D") expenditures decreased 17% in the current
quarter to $1,712,000, or 8% of sales, from $2,068,000, or 9% of sales, in the
comparable prior year quarter. Included in the comparable prior year quarter
were severance benefits accrued or paid to terminated employees approximating
$261,000. Of the R&D expenditures in the current quarter, approximately 64%
relate to interventional radiology projects, 12% to spinal surgery projects, 10%
to contrast systems, 8% to immunological projects and 6% to other projects. R&D
expenditures are expected to continue at approximately current levels and
significant revenues resulting from future product commercialization are not
anticipated during the balance of this fiscal year.
Other income, net of expenses, increased $43,000 during the current quarter
versus the comparable period of last year due to foreign currency exchange gains
realized in the current quarter.
For the quarter ended February 25, 1995, the Company reported an income tax
provision of $386,000 notwithstanding a loss before income taxes and minority
share of subsidiary's operations of $928,000. In general, this was due 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. For the quarter ended February 26, 1994, the Company reported
an income tax provision of $268,000 notwithstanding a loss before income taxes
and minority share of subsidiary's operations of $1,698,000. In general, this
was due 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, and was partially offset by earnings of the
Puerto Rican subsidiary, which are subject to favorable United States tax
treatment.
-14-
<PAGE>
The Company reports 100% of the revenues and expenses related to its
51%-owned subsidiary, Surgical Dynamics Inc., the manufacturer and marketer of
the Nucleotome, but only 51% of its net earnings (loss). The variation in each
reported year between earnings (loss) before minority share of subsidiary's
operations and net earnings (loss) is caused by the elimination of the 49%
minority interest in Surgical Dynamics.
THIRTY-NINE WEEKS ENDED FEBRUARY 25, 1995 AND FEBRUARY 26, 1994
RESULTS OF OPERATIONS
SEGMENT OVERVIEW
Diagnostic product sales, which increased 4% during the thirty-nine weeks
ended February 25, 1995, accounted for 90% of sales in the current period versus
91% in the comparable period of last year. Surgical product sales, which
increased 12% during the thirty-nine weeks ended February 25, 1995, represented
10% of sales in the current period, as compared to 9% in the prior year.
Diagnostic results for the current period were positively impacted by
increased sales demand and improved gross margins, partially offset by increased
domestic selling and marketing expenses. Diagnostic results for the comparable
period of the prior year were adversely affected by the anticipated cost of
product recalls, as well as a decline in sales of contrast systems in the
domestic market. The Company attributes the sales decline in the comparable
period of the prior year to the turmoil in the healthcare industry from proposed
reform.
Surgical product sales increased 12% in the current period due primarily to
the introduction of the Nucleotome EndoFlexTM (the "EndoFlex"), a device used in
endoscopic lumbar discectomy. The EndoFlex provides maneuverable flexible
cutting, endoscopic visualization, and safe effective removal of disc material
through a single 4.5 mm incision. Surgical results for the current period were
adversely affected by increased operating expenses of $645,000, principally due
to expanded selling and marketing efforts in both the domestic and international
marketplace. Surgical Dynamics contributed losses of $243,000 to E-Z-EM's
consolidated operations in the current period, as compared to earnings of
$30,000 in the comparable period of the prior year.
CONSOLIDATED RESULTS OF OPERATIONS
For the thirty-nine weeks ended February 25, 1995, the Company reported net
earnings of $428,000, or $.05 per common share, as compared to a net loss of
$2,856,000, or ($.32) per common share, for the comparable period of last year.
Results for the current period were positively impacted by increased sales
demand in both the diagnostic and surgical segments, coupled with improved gross
margins in the diagnostic segment, partially offset by increased domestic
selling and marketing expenses in both industry segments. Results for the
comparable period of last year were adversely impacted by the reserve for
product recalls and related in-house inventory of $1,474,000 and severance
benefits accrued or paid to terminated employees of $550,000. The reserve for
product recalls and related in-house inventory is included in cost of goods sold
and S&A expenses in the consolidated statements of operations. Results for the
comparable period of last year were also adversely impacted by reduced
manufacturing activity in the diagnostic
-15-
<PAGE>
segment, which resulted from both high opening inventory levels and lower than
expected demand for contrast systems products due to uncertainty surrounding the
numerous Congressional healthcare reform proposals.
Sales for the thirty-nine weeks ended February 25, 1995 increased 5% as
compared to the thirty-nine weeks ended February 26, 1994 due primarily to price
increases, which accounted for approximately 2% of sales in the current period,
and increased non-contrast systems sales of $1,298,000, which includes the
AngioDynamics division's Pulse SprayTM pulsed infusion system and Soft-VuTM
angiographic catheter line. Increased surgical product sales of $592,000 also
contributed to the sales improvement in the current period. Sales in
international markets, including direct exports from the United States,
increased 8%, or $2,002,000, in the current period versus the comparable period
of last year due primarily to increased sales of contrast systems of $894,000,
non-contrast systems of $745,000 and surgical products of $363,000.
Gross profit expressed as a percentage of sales increased to 43% during the
current period from 40% in the comparable period of last year. The lower gross
profit percentage in the comparable period of the prior year was due primarily
to: The reserve for product recalls and related in-house inventory of
$1,350,000; reduced manufacturing activity in the diagnostic segment, which
resulted from both high opening inventory levels and lower than expected demand
for contrast systems products due to uncertainty surrounding the numerous
Congressional healthcare reform proposals; and severance benefits accrued or
paid to terminated employees of $258,000.
S&A expenses were $24,706,000 during the thirty-nine weeks ended February
25, 1995 versus $23,125,000 during the comparable period of last year. This
increase of $1,581,000, or 7%, in the current period was due principally to
expanded S&A efforts in the Company's diagnostic segment approximating $976,000,
and expanded surgical selling and marketing efforts in both the domestic and
international marketplace of $559,000.
R&D expenditures decreased 12% in the current period to $4,985,000, or 7%
of sales, from $5,669,000, or 8% of sales, in the comparable prior year period.
This decline was due primarily to reduced spending of $849,000 resulting from a
product introduction into the domestic marketplace related to diagnostic tests
for detecting and monitoring H. pylori, the bacterium believed to cause
gastritis, ulcers and possibly stomach cancer. Increased spending in the field
of interventional radiology of $494,000 was partially offset by reduced contrast
system spending of $368,000, primarily due to staff reductions. Of the R&D
expenditures in the current period, approximately 60% relate to interventional
radiology projects, 12% to immunological projects, 11% to contrast systems, 10%
to spinal surgery projects and 7% to other projects.
Other income, net of expenses, increased $245,000 during the current period
versus the comparable period of last year, principally due to the discounting
effect of an interest free loan, which the Company repaid during the current
period.
The Company's effective tax rate of 82% during the thirty-nine weeks ended
February 25, 1995 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, and was partially offset by earnings of the
Puerto Rican subsidiary, which are subject to favorable
-16-
<PAGE>
United States tax treatment. For the thirty-nine weeks ended February 26, 1994,
the Company reported an income tax provision of $859,000 notwithstanding a loss
before income taxes and minority share of subsidiary's operations of $1,968,000.
In general, this was due 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, and was partially offset by
earnings of the Puerto Rican subsidiary, which are subject to favorable United
States tax treatment.
LIQUIDITY AND CAPITAL RESOURCES
During the thirty-nine weeks ended February 25, 1995, capital expenditures,
primarily related to the acquisition of the Canadian facility, increased
inventory levels and repayments of debt were funded primarily by cash provided
by operations and cash reserves. In the past, the Company's policy has been to
fund capital requirements without incurring significant debt. At February 25,
1995, debt declined to $1,838,000 from $3,670,000 at May 28, 1994 and from a
previously reported high of $6,219,000 at February 27, 1993. The Company has
available $5,219,000 under various bank lines of credit of which $150,000 was
outstanding at February 25, 1995.
From fiscal 1991 through the second quarter of fiscal 1993, the Company
paid quarterly cash dividends of $.05 per common stock. In order to preserve
cash reserves, the Company issued 3% stock dividends in lieu of cash dividends
during the third quarters of fiscal's 1993, 1994 and 1995.
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 25, 1995, approximately 55% of the Company's assets consist of
inventories, accounts receivable, short-term certificates of deposit and cash,
and debt and equity securities. Inventories have increased at a greater rate
than sales as a result of broadened product lines. The current ratio is 3.71 to
1, with net working capital of $31,561,000 at February 25, 1995, as compared to
the current ratio of 3.51 to 1, with net working capital of $33,088,000 at May
28, 1994.
-17-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
Part II: Other Information
ITEM 1. LEGAL PROCEEDINGS
During the quarter ended February 25, 1995, the Company was named as a
defendant in a product liability action;
MARGARET J. LEMLEY AND JAMES LEMLEY, PLAINTIFFS VS. INLAND VALLEY REGIONAL
MEDICAL CENTER, INC., NORTH COAST IMAGING RADIOLOGY MEDICAL GROUP, INC.,
E-Z-EM, INC., MALLINCKRODT MEDICAL, INC., THOMAS MCGREEVY, M.D., BARBARA
LARSON, CAROLYN HOHENBERGER, DEFENDANTS, pending in the Superior Court of
the State of California, County of Riverside, filed on January 30, 1995.
This suit claims damages based upon alleged injuries resulting from the use
of one of the Company's products. The action is in its early stages and while
the Company is actively defending against the claim, it is unable to predict its
outcome. It should be noted that in this action the Company is one among several
defendants and, as such, the Company's liability, if any, is not quantifiable at
this time. The Company does not believe that its liability in this case will
exceed its insurance coverage.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 - Statement re computation of per share earnings
Exhibit 27 - Financial data schedule
(b) No reports on Form 8-K were filed for the quarter ended February 25,
1995.
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 5, 1995 /s/ Daniel R. Martin
------------- ----------------------------------
Daniel R. Martin, President, Chief
Executive Officer and Director
Date April 5, 1995 /s/ Dennis J. Curtin
------------- ----------------------------------
Dennis J. Curtin, Vice President-
Finance (Chief Accounting and
Financial Officer)
-18-
E-Z-EM, Inc. and Subsidiaries
EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(unaudited)
Twelve Thirteen Thirty-nine weeks ended
weeks ended weeks ended -----------------------
February 25, February 26, February 25, February 26,
1995 1994 1995 1994
---- ---- ---- ----
(in thousands, except per share data)
Net earnings (loss) $(1,077) $(1,911) $ 428 $(2,856)
COMPUTATION OF WEIGHTED
AVERAGE COMMON SHARES
Weighted average common
shares outstanding 8,818 8,818 8,818 8,817
Incremental common shares
for full dilution of
stock options using
applicable market price 13
----- ----- ----- -----
Weighted average common
shares on a fully
diluted basis 8,818 8,818 8,831 8,817
----- ----- ----- -----
Fully diluted earnings
(loss) per common share $ (.12) $ (.22) $ .05 $ (.32)
===== ===== ===== =====
<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 25, 1995 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> JUN-03-1995
<PERIOD-END> FEB-25-1995
<CASH> 2,789
<SECURITIES> 473
<RECEIVABLES> 16,049
<ALLOWANCES> 458
<INVENTORY> 21,895
<CURRENT-ASSETS> 43,213
<PP&E> 39,619
<DEPRECIATION> 18,851
<TOTAL-ASSETS> 73,508
<CURRENT-LIABILITIES> 11,652
<BONDS> 461
<COMMON> 882
0
0
<OTHER-SE> 56,886
<TOTAL-LIABILITY-AND-EQUITY> 73,508
<SALES> 69,762
<TOTAL-REVENUES> 69,762
<CGS> 39,478
<TOTAL-COSTS> 39,478
<OTHER-EXPENSES> 29,691
<LOSS-PROVISION> 64
<INTEREST-EXPENSE> 67
<INCOME-PRETAX> (928)
<INCOME-TAX> 386
<INCOME-CONTINUING> (1,077)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,077)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
