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 September 2, 1995
Commission file number 0-13003
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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)
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 October 11, 1995, there were 4,032,532 shares of the registrant's Class A
Common Stock outstanding and 4,812,469 shares of the registrant's Class B
Common Stock outstanding.
Page 1 of 15
Exhibit Index on Page 14
<PAGE>
E-Z-EM, Inc. and Subsidiaries
INDEX
Part 1: Financial Information Page
- ------- --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets - September 2, 1995 and
June 3, 1995 3 - 4
Consolidated Statements of Earnings - thirteen weeks
ended September 2, 1995 and fourteen weeks ended
September 3, 1994 5
Consolidated Statement of Stockholders' Equity - thirteen
weeks ended September 2, 1995 6
Consolidated Statements of Cash Flows - thirteen weeks
ended September 2, 1995 and fourteen weeks ended
September 3, 1994 7 - 8
Notes to Consolidated Financial Statements 9 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 13
Part II: Other Information
- -------- -----------------
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 2, June 3,
ASSETS 1995 1995
---- ----
(unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 3,885 $ 3,962
Debt and equity securities 508 485
Accounts receivable, principally
trade, net 16,189 17,354
Inventories 23,577 22,752
Other current assets 2,229 2,602
------ ------
Total current assets 46,388 47,155
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 21,176 20,864
COST IN EXCESS OF FAIR VALUE OF NET ASSETS
ACQUIRED, less accumulated amortization 624 633
INTANGIBLE ASSETS, less accumulated
amortization 642 463
DEBT AND EQUITY SECURITIES 4,770 4,352
OTHER ASSETS 2,570 2,628
------ ------
$76,170 $76,095
====== ======
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 2, June 3,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1995
---- ----
(unaudited) (audited)
CURRENT LIABILITIES
Notes payable $ 863 $ 1,021
Current maturities of long-term debt 203 208
Accounts payable 5,993 6,713
Accrued liabilities 5,374 5,559
Accrued income taxes 520 400
------ ------
Total current liabilities 12,953 13,901
LONG-TERM DEBT, less current maturities 875 1,114
OTHER NONCURRENT LIABILITIES 1,769 1,805
MINORITY INTEREST IN SUBSIDIARY 1,452 1,385
CONTINGENCIES ------ ------
Total liabilities 17,049 18,205
------ ------
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 September 2, 1995 and June 3, 1995 403 403
Class B (non-voting), par value $.10 per
share - authorized, 6,000,000 shares;
issued and outstanding 4,802,762 shares
at September 2, 1995 and 4,785,462
shares at June 3, 1995 481 479
Additional paid-in capital 11,670 11,570
Retained earnings 45,522 44,953
Unrealized holding gain on debt and
equity securities 2,076 1,786
Cumulative translation adjustments (1,031) (1,301)
------ ------
Total stockholders' equity 59,121 57,890
------ ------
$76,170 $76,095
====== ======
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Thirteen Fourteen
weeks ended weeks ended
September 2, September 3,
1995 1994
---- ----
(in thousands,
except per share data)
Net sales $24,130 $23,902
Cost of goods sold 13,588 12,925
------ ------
Gross profit 10,542 10,977
------ ------
Operating expenses
Selling and administrative 8,546 8,227
Research and development 1,489 1,617
------ ------
Total operating expenses 10,035 9,844
------ ------
Operating profit 507 1,133
Other income (expense)
Interest income 59 286
Interest expense (81) (113)
Other, net 51 38
------ ------
Earnings before income taxes and minority
share of subsidiary's operations 536 1,344
Income tax provision 131 295
------ ------
Earnings before minority share
of subsidiary's operations 405 1,049
Minority share of subsidiary's operations 164 1
------ ------
NET EARNINGS $ 569 $ 1,050
====== ======
Earnings per common share
Primary $ .06 $ .12
====== ======
Fully diluted $ .06 $ .12
====== ======
Weighted average common shares
Primary 8,819,467 8,817,737
========= =========
Fully diluted 9,209,386 8,856,371
========= =========
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Thirteen weeks ended September 2, 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> <C>
Balance at June 3, 1995 4,032,532 $403 4,785,462 $479 $11,570 $44,953 $1,786 $(1,301) $57,890
Exercise of stock options 16,950 2 98 100
Issuance of stock 350 2 2
Net earnings 569 569
Unrealized holding gain on debt
and equity securities 290 290
Foreign currency translation
adjustments 270 270
--------- ---- --------- ---- ------- ------- ------ ------- -------
Balance at September 2, 1995 4,032,532 $403 4,802,762 $481 $11,670 $45,522 $2,076 $(1,031) $59,121
========= ==== ========= ==== ======= ======= ====== ======= =======
</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)
Thirteen Fourteen
weeks ended weeks ended
September 2, September 3,
1995 1994
---- ----
(in thousands)
Cash flows from operating activities:
Net earnings $ 569 $1,050
Adjustments to reconcile net earnings
to net cash provided by operating
activities
Depreciation and amortization 688 666
Minority share of subsidiary's
operations (164) (1)
Deferred income taxes 17 20
Changes in operating assets and
liabilities
Accounts receivable 1,165 2,954
Inventories (825) (1,527)
Other current assets 373 723
Other assets (273) (50)
Accounts payable (720) (434)
Accrued liabilities (185) (733)
Accrued income taxes 103 32
Other noncurrent liabilities 40 62
------ ------
Net cash provided by operating
activities 788 2,762
------ ------
Cash flows from investing activities:
Additions to property, plant and
equipment, net (961) (3,353)
Increase in debt and equity securities (5) (1,975)
------ ------
Net cash used in investing activities (966) (5,328)
------ ------
Cash flows from financing activities:
Repayments of debt (313) (637)
Proceeds from issuance of debt 200 189
Proceeds from issuance of loan by
minority shareholder 231
Proceeds from exercise of stock options 100
Issuance of stock in connection with
the stock purchase plan 2
------ ------
Net cash provided by (used in)
financing activities 220 (448)
------ ------
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
Thirteen Fourteen
weeks ended weeks ended
September 2, September 3,
1995 1994
---- ----
(in thousands)
Effect of exchange rate changes on
cash and cash equivalents $ (119) $ 332
------ ------
DECREASE IN CASH AND CASH
EQUIVALENTS (77) (2,682)
Cash and cash equivalents
Beginning of period 3,962 6,851
------ ------
End of period $3,885 $4,169
====== ======
Supplemental disclosures of cash
flow information:
Cash paid (refunded) during the
period for:
Interest $ 40 $ 88
====== ======
Income taxes (net of $69,000 and
$448,000 in refunds in 1995 and
1994, respectively) $ 127 $ (187)
====== ======
The accompanying notes are an integral part of these financial statements.
-8-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 2, 1995 and September 3, 1994
(unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of September 2, 1995, the consolidated
statement of stockholders' equity for the period ended September 2,
1995, and the consolidated statements of earnings and cash flows for the
periods ended September 2, 1995 and September 3, 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 September
2, 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 1995
Annual Report on Form 10-K filed by the Company on September 1, 1995.
The results of operations for the periods ended September 2, 1995 and
September 3, 1994 are not necessarily indicative of the operating
results for the respective full years.
NOTE B - INVENTORIES
Inventories consist of the following:
September 2, June 3,
1995 1995
---- ----
(in thousands)
Finished goods $12,292 $11,856
Work in process 1,862 2,214
Raw materials 9,423 8,682
------- -------
$23,577 $22,752
======= =======
NOTE C - COMMON STOCK
Under the 1983 and 1984 Stock Option Plans, options for 11,000 shares were
granted at $6.00 per share, options for 16,950 shares were exercised at
prices ranging from $4.75 to $6.25 and options for 20,850 shares were
cancelled at prices ranging from $4.75 to $6.25 per share during the
thirteen weeks ended September 2, 1995.
Under the Employee Stock Purchase Plan, 350 shares were purchased at $4.57
per share during the thirteen weeks ended September 2, 1995. Total
proceeds received by the Company were $1,599.
-9-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 2, 1995 and September 3, 1994
(unaudited)
NOTE D - CONTINGENCIES
The Company is presently a defendant in two unrelated product liability
actions. These suits claim damages based upon alleged injuries
resulting from the use of one of the Company's products. The actions
are in their early stages and while the Company is actively defending
against the claims, it is unable to predict their outcome. It should be
noted that in these actions 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 the ultimate outcome in
these actions will have a material adverse effect on the consolidated
financial statements.
The Company has been sued by Olympia Holding Corporation p/k/a P-I-E
Nationwide, Inc. for $443,830. The suit, filed on October 5, 1992, is
presently pending in the 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 1993, Surgical Dynamics Inc.'s ("Surgical") lease agreement on the
Alameda, California office and production facilities was prematurely
terminated by Surgical, 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 to
settle the lease commitment. In 1993, Surgical accrued $600,000 for the
estimated settlement of the lease commitment. The final resolution is
dependent upon future events, the outcome of which is not fully
determinable at the present time.
NOTE E - RECLASSIFICATIONS
Certain reclassifications have been made to the prior year amounts to
conform to the current year presentation.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTERS ENDED SEPTEMBER 2, 1995 AND SEPTEMBER 3, 1994
The Company's quarter ended September 2, 1995 represents thirteen weeks
and the quarter ended September 3, 1994 represents fourteen weeks.
RESULTS OF OPERATIONS
SEGMENT OVERVIEW
The diagnostic products industry segment includes both contrast systems
and non-contrast systems. Diagnostic product sales, which increased 2% in
the quarter, accounted for 91% of sales in the current quarter versus 90% in
the comparable period of last year. The surgical products industry segment
includes the Nucleotome device and other surgical devices and accessories
used in spinal surgery. Surgical product sales, which decreased 10% in the
quarter, represented 9% of sales in the current quarter versus 10% in the
comparable period of the prior year.
Diagnostic segment results for the current quarter were adversely
affected by unabsorbed overhead costs associated with the relocation of a
portion of the Company's core manufacturing operations. These costs
resulted during the planned construction at the Company's Canadian
manufacturing facility. The effects of the relocation will continue to be
felt through the second fiscal quarter, resulting in lower than normal
Canadian gross profits. Diagnostic segment results for the current quarter
were positively affected by sales growth and improved manufacturing
efficiencies in the Company's AngioDynamics division.
Surgical product sales decreased 10% in the current quarter. Sales of
the Nucleotome device declined due to the increased use of alternative
surgical procedures, principally laminectomy. Sales growth in other
surgical products, particularly the Ray Threaded Fusion Cage ("Ray TFCTM"),
partially offset the decline in Nucleotome sales. The Ray TFC device is
used during a surgical procedure known as spinal fusion. The Company needs
regulatory approval to market this product domestically but has already
obtained clearance in certain foreign countries and is actively marketing in
these areas. Surgical segment results for the current quarter were also
adversely affected by increased operating expenses of $145,000, principally
due to expanded selling and marketing efforts. Surgical Dynamics
contributed losses of $170,000 to E-Z-EM's consolidated operations in the
current quarter, as compared to losses of $1,000 in the comparable quarter
of the prior year.
CONSOLIDATED RESULTS OF OPERATIONS
For the quarter ended September 2, 1995, the Company reported net
earnings of $569,000, or $.06 per common share, as compared to net earnings
of $1,050,000, or $.12 per common share, for the comparable period of last
year. Results for the current quarter were adversely impacted by unabsorbed
overhead costs during construction at the Company's Canadian facility, as
well as by decreased sales and increased operating expenses in the surgical
products segment. Results for the current quarter were positively affected
-11-
<PAGE>
by sales growth and improved manufacturing efficiencies in the Company's
AngioDynamics division.
Sales for the quarter ended September 2, 1995 increased 1% as compared
to the quarter ended September 3, 1994. Sales in the current quarter were
favorably affected by increased non-contrast systems sales of $720,000 and
price increases, which accounted for approximately 1 1/2% of sales in the
current quarter. The increase in non-contrast systems sales related almost
entirely to the AngioDynamics division, which includes the Pulse SprayTM
pulsed infusion system and Soft-VuTM angiographic catheter line. Sales in
the current quarter were adversely affected by decreased contrast system
sales of $586,000, which resulted from the reduced number of shipping days
in the domestic operations during the current quarter versus the comparable
prior year quarter, and decreased surgical product sales of $263,000. Sales
in international markets, including direct exports from the United States,
increased 2%, or $138,000 in the current quarter versus the comparable
period of last year principally due to increased sales of non-contrast
systems of $227,000, including $118,000 relating to custom contracts, and
contrast systems of $89,000, partially offset by decreased sales of
surgical products of $178,000.
Gross profit expressed as a percentage of sales decreased to 44% during
the current quarter from 46% in the comparable quarter of the prior year
due primarily to unabsorbed overhead costs during construction at the
Company's Canadian facility, partially offset by improved manufacturing
efficiencies in the Company's AngioDynamics division.
Selling and administrative expenses were $8,546,000 during the quarter
ended September 2, 1995 versus $8,227,000 during the quarter ended September
3, 1994. This increase of $319,000, or 4%, in the current quarter was
principally due to expanded selling and marketing efforts in the Company's
AngioDynamics division of $219,000 and in the surgical segment of $133,000.
Research and development ("R&D") expenditures decreased 8% in the
current quarter to $1,489,000, or 6% of sales, from $1,617,000, or 7% of
sales, in the comparable quarter of the prior year. This decline was due
primarily to reduced spending of $165,000 relating to the commercialization
of H. pylori test-related products. Of the R&D expenditures in the current
quarter, approximately 59% relate to interventional radiology projects, 15%
to contrast systems, 12% to spinal surgery projects, 6% to immunological
projects and 8% to other projects. R&D expenditures are expected to
continue at approximately current levels.
Other income, net of other expenses, decreased $182,000 in the current
quarter versus the comparable period of last year due to the discounting
effect of an interest free loan, which the Company repaid during the
comparable quarter of the prior year.
For the quarter ended September 2, 1995, the Company's effective tax
rate of 24% differed from the Federal statutory tax rate of 34% due
primarily to earnings of the Puerto Rican subsidiary, which are subject to
favorable United States tax treatment, partially offset by the fact that the
Company did not provide for the tax benefit on losses incurred in certain
jurisdictions, since it is more likely than not that such benefits will not
be realized. The Company's effective tax rate of 22% during the quarter
ended September 3, 1994 differed from the Federal statutory tax rate of 34%
due primarily to earnings of the Puerto Rican subsidiary, which are subject
to favorable United States tax treatment, and the utilization of net
-12-
<PAGE>
operating loss carryforwards in certain jurisdictions.
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 before minority share of subsidiary's
operations and net earnings is caused by the elimination of the 49% minority
interest in Surgical Dynamics.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended September 2, 1995, capital expenditures and
increased inventory levels were funded primarily by cash provided by
operations. In the past, the Company's policy has been to fund capital
requirements without incurring significant debt. At September 2, 1995, debt
declined to $1,941,000 from $2,343,000 at June 3, 1995 and from a previously
reported high of $6,219,000 at February 27, 1993. The Company has available
$4,894,000 under various bank lines of credit of which $350,000 was
outstanding at September 2, 1995.
From fiscal 1991 through the second quarter of fiscal 1993, the Company
paid quarterly cash dividends of $.05 per common share. In order to
preserve cash reserves, the Company issued 3% stock dividends in lieu of
cash dividends during the third quarter of fiscals 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 September 2, 1995, approximately 58% of the Company's assets consist
of inventories, accounts receivable, cash and cash equivalents, 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 3.58 to 1,
with net working capital of $33,435,000 at September 2, 1995, as compared to
the current ratio of 3.39 to 1, with net working capital of $33,254,000 at
June 3, 1995.
During the quarter ended September 2, 1995, the Company entered into a
license agreement to distribute a certain product with commitments which
could aggregate $550,000 over the next two to three fiscal years.
-13-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
Part II: Other Information
ITEM 1. LEGAL PROCEEDINGS
During the quarter ended September 2, 1995, the Company was named as a
defendant in a product liability action;
EILEEN GUINN AND WILBERN GUINN, PLAINTIFFS VS. ST. JOSEPH'S HOSPITAL
SISTERS OF THE THIRD ORDER OF ST. FRANCIS; BERLAND RADIOLOGY
ASSOCIATES, LTD.; GERALD CLAYCOMB, M.D.; DAWN STILLWAGON, R.N.; AND
E-Z-EM, INC., A CORPORATION, DEFENDANTS, pending in the Circuit Court,
Third Judicial Circuit, Madison County, Illinois, filed on August 22,
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 the
ultimate outcome in this action will have a material adverse effect on the
consolidated financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K PAGE
(a) Exhibit 27 - Financial data schedule 15
(b) No reports on Form 8-K were filed for the quarter ended
September 2, 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 October 11, 1995 /s/ Daniel R. Martin
----------------------------------
Daniel R. Martin, President, Chief
Executive Officer and Director
Date October 11, 1995 /s/ Dennis J. Curtin
----------------------------------
Dennis J. Curtin, Vice President-
Finance (Chief Accounting and
Financial Officer)
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Company's Form 10-Q for the quarter ended September 2, 1995 and is qualified
in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-01-1996
<PERIOD-END> SEP-02-1995
<CASH> 3,885
<SECURITIES> 508
<RECEIVABLES> 16,674
<ALLOWANCES> 485
<INVENTORY> 23,577
<CURRENT-ASSETS> 46,388
<PP&E> 41,105
<DEPRECIATION> 19,929
<TOTAL-ASSETS> 76,170
<CURRENT-LIABILITIES> 12,953
<BONDS> 875
<COMMON> 884
0
0
<OTHER-SE> 58,237
<TOTAL-LIABILITY-AND-EQUITY> 76,170
<SALES> 24,130
<TOTAL-REVENUES> 24,130
<CGS> 13,588
<TOTAL-COSTS> 13,588
<OTHER-EXPENSES> 10,035
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 81
<INCOME-PRETAX> 536
<INCOME-TAX> 131
<INCOME-CONTINUING> 569
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 569
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
