UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 1, 1996 Commission file number 1-11479
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E-Z-EM, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 11-1999504
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
717 Main Street, Westbury, New York 11590
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 333-8230
Securities registered pursuant to Section 12(b) of the Act: Class A
Common Stock, par value $.10 and Class B Common Stock, par value $.10
Securities registered pursuant to Section 12(g) of the Act: None
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /X/
The aggregate market value of the registrant's voting Class A Common
Stock held by non-affiliates on August 5, 1996 was $21,655,000.
On August 5, 1996, there were 4,035,346 shares of the registrant's
Class A Common Stock outstanding and 5,209,655 shares of the
registrant's Class B Common Stock outstanding.
Page 1 of 40
Exhibit Index on Page 2
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
----
(a) l. FINANCIAL STATEMENTS
The following consolidated financial statements and
supplementary data of Registrant and its subsidiaries required
by Part II, Item 8, are included in Part IV of this report:
Report of Independent Certified Public Accountants 5
Consolidated balance sheets - June 1, 1996 and
June 3, 1995 6
Consolidated statements of earnings - fifty-two weeks
ended June 1, 1996, fifty-three weeks ended June 3,
1995 and fifty-two weeks ended May 28, 1994 8
Consolidated statements of stockholders' equity - fifty-
two weeks ended June 1, 1996, fifty-three weeks ended
June 3, 1995 and fifty-two weeks ended May 28, 1994 9
Consolidated statements of cash flows - fifty-two weeks
ended June 1, 1996, fifty-three ended June 3, 1995
and fifty-two weeks ended May 28, 1994 10
Notes to consolidated financial statements 12
(a) 2. FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedule
is included in Part IV of this report:
Schedule II - Valuation and qualifying accounts 35
All other schedules are omitted because they are not applicable,
or not required, or because the required information is included in the
consolidated financial statements or notes thereto.
(a) 3. EXHIBITS
3(i) Restated certificate of incorporation, as amended (a)
3(ii) Amended Bylaws (b)
10(a) Agreement and Plan of Merger dated November 7, 1995
among United States Surgical Corporation, USSC
Acquisition Corporation, Surgical Dynamics Inc.,
and E-Z-EM, Inc. and Calmed Laboratories, Inc.
and E-Z-SUB, Inc. (c)
10(b) 1983 Stock Option Plan (d)
10(c) 1984 Directors and Consultants Stock Option Plan (e)
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<PAGE>
Page
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(a) 3. EXHIBITS (CONTINUED)
10(d) Income Deferral Program (f)
13 Annual report to security holders (g)
21 Subsidiaries of the Company 36
22 Proxy statement to security holders (g)
23 Consent of Independent Certified Public Accountants 37
27 Financial Data Schedule 38
99(a) Report of Jacques, Davis, Lefaivre & Associes,
Independent Certified Public Accountants other than
Principal Accountants 39
99(b) Report of Price Waterhouse LLP, Independent Certified
Public Accountants other than Principal Accountants 40
- -------------------
(a) Incorporated by reference to Exhibit 3(i) of the
Company's quarterly report filed on Form 10-Q
for the quarterly period ended December 2, 1995
(b) Incorporated by reference to Exhibit 3(ii) of the
Company's annual report filed on Form 10-K for
the fiscal year ended May 28, 1994
(c) Incorporated by reference to Exhibit 10 of the
Company's current report filed on Form 8-K/A
dated November 22, 1995
(d) Incorporated by reference to Exhibit 10(a) of the
Company's quarterly report filed on Form 10-Q for
the quarterly period ended December 2, 1995
(e) Incorporated by reference to Exhibit 10(b) of the
Company's quarterly report filed on Form 10-Q for
the quarterly period ended December 2, 1995
(f) Incorporated by reference to Exhibit 10(c) of the
Company's annual report filed on Form 10-K for
the fiscal year ended May 29, 1993
(g) To be filed on a subsequent date
(b) 1. REPORTS ON FORM 8-K
No reports on Form 8-K were filed for the quarter ended June 1,
1996.
Schedules other than those shown above are not submitted as the
subject matter thereof is either not required or is not present in
amounts sufficient to require submission in accordance with the
instructions in Regulation S-X or the information required is included
in the Notes to Consolidated Financial Statements.
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<PAGE>
SIGNATURE
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 November 20, 1996 /s/ Dennis J. Curtin
---------------------------------
Dennis J. Curtin, Vice President-
Chief Financial Officer
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<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
E-Z-EM, Inc.
We have audited the accompanying consolidated balance sheets of E-Z-EM,
Inc. and Subsidiaries as of June 1, 1996 and June 3, 1995, and the
related consolidated statements of earnings, stockholders' equity and
cash flows for the fifty-two weeks ended June 1, 1996, the fifty-three
weeks ended June 3, 1995 and the fifty-two weeks ended May 28, 1994.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the
financial statements of a certain subsidiary, which statements reflect
total assets constituting approximately 16% in 1996 and 20% in 1995 and
net sales constituting approximately 12% in 1996, 13% in 1995 and 15%
in 1994 of the related consolidated totals. We also did not audit the
financial statements of a certain subsidiary for the fifty-two weeks
ended May 28, 1994, for which the results of operations have been
classified as a discontinued operation for all periods presented.
Those statements were audited by other auditors, whose reports thereon
have been furnished to us, and our opinion, insofar as it relates to
the amounts included for these subsidiaries, is based solely upon the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other
auditors, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of E-Z-EM,
Inc. and Subsidiaries as of June 1, 1996 and June 3, 1995, and the
consolidated results of their operations and their consolidated cash
flows for the fifty-two weeks ended June 1, 1996, the fifty-three weeks
ended June 3, 1995 and the fifty-two weeks ended May 28, 1994, in
conformity with generally accepted accounting principles.
We have also audited the financial statement schedule listed in the
Index at Item 14(a)(2). In our opinion, this schedule presents fairly,
in all material respects, the information required to be set forth
therein.
GRANT THORNTON LLP
Certified Public Accountants
Melville, New York
August 8, 1996
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 1, June 3,
ASSETS 1996 1995
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 3,363 $ 3,962
Debt and equity securities 20,247 485
Accounts receivable, principally
trade, net of allowance for
doubtful accounts of $527 in
1996 and $465 in 1995 16,152 17,354
Inventories 23,708 22,752
Other current assets 2,936 2,602
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Total current assets 66,406 47,155
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 21,823 20,864
COST IN EXCESS OF FAIR VALUE OF NET
ASSETS ACQUIRED, less accumulated
amortization of $411 in 1996 and
$354 in 1995 558 633
INTANGIBLE ASSETS, less accumulated
amortization of $345 in 1996 and
$492 in 1995 767 463
DEBT AND EQUITY SECURITIES 3,647 4,352
OTHER ASSETS 2,836 2,628
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$96,037 $76,095
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The accompanying notes are an integral part of these statements.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
June 1, June 3,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
---- ----
CURRENT LIABILITIES
Notes payable $ 979 $ 1,021
Current maturities of long-term debt 268 208
Accounts payable 5,095 6,713
Accrued liabilities 6,218 5,559
Accrued income taxes 338 400
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Total current liabilities 12,898 13,901
LONG-TERM DEBT, less current maturities 680 1,114
OTHER NONCURRENT LIABILITIES 1,856 1,805
MINORITY INTEREST IN SUBSIDIARY 1,385
COMMITMENTS AND CONTINGENCIES
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Total liabilities 15,434 18,205
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STOCKHOLDERS' EQUITY
Preferred stock, par value $.10 per share -
authorized, 1,000,000 shares; issued, none - -
Common stock
Class A (voting), par value $.10 per
share - authorized, 6,000,000 shares;
issued and outstanding, 4,035,346 shares
in 1996 and 4,032,532 shares in 1995 403 403
Class B (nonvoting), par value $.10 per
share - authorized, 10,000,000 shares;
issued and outstanding, 5,199,615
shares in 1996 and 4,785,462 shares
in 1995 520 479
Additional paid-in capital 15,165 11,570
Retained earnings 63,347 44,953
Unrealized holding gain on debt and equity
securities 2,360 1,786
Cumulative translation adjustments (1,192) (1,301)
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Total stockholders' equity 80,603 57,890
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$96,037 $76,095
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The accompanying notes are an integral part of these statements.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
Fifty-two Fifty-three Fifty-two
weeks ended weeks ended weeks ended
June 1, June 3, May 28,
1996 1995* 1994*
------- ------- -------
Net sales $91,932 $88,526 $85,645
Cost of goods sold 55,518 51,845 52,028
------- ------- -------
Gross profit 36,414 36,681 33,617
------- ------- -------
Operating expenses
Selling and administrative 30,134 27,767 25,520
Research and development 5,323 6,077 6,897
------- ------- -------
Total operating expenses 35,457 33,844 32,417
------- ------- -------
Operating profit 957 2,837 1,200
Other income (expense)
Interest income 735 551 429
Interest expense (264) (286) (386)
Other, net 512 457 285
------- ------- -------
Earnings from continuing
operations before income taxes 1,940 3,559 1,528
Income tax provision 243 1,086 1,149
------- ------- -------
Earnings from continuing
operations 1,697 2,473 379
Discontinued operation:
Losses from operations, net of
income tax provision (benefit)
of $10, $142 and $(261) in 1996,
1995 and 1994, respectively (209) (843) (102)
Gain on sale, net of income tax
provision of $6,019 19,520
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NET EARNINGS $21,008 $ 1,630 $ 277
======= ======= =======
Primary earnings per common share
Continuing operations $ .17 $ .27 $ .04
Discontinued operation 1.99 (.09) (.01)
Total operations 2.16 .18 .03
Fully diluted earnings per common share
Continuing operations $ .17 $ .27 $ .04
Discontinued operation 1.97 (.09) (.01)
Total operations 2.14 .18 .03
* Reclassified to reflect the discontinued operation.
The accompanying notes are an integral part of these statements.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Fifty-two weeks ended June 1, 1996, fifty-three weeks ended
June 3, 1995 and fifty-two weeks ended May 28, 1994
(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 May 29, 1993 4,032,533 $403 4,275,175 $428 $ 9,248 $45,399 $ - $ (477) $55,001
Issuance of stock (1) 4,479 22 22
3% common stock dividend 249,026 25 1,235 (1,262) (2)
Net earnings 277 277
Foreign currency translation
adjustments (1,029) (1,029)
--------- ---- --------- ---- ------- ------- ------ ------- -------
Balance at May 28, 1994 4,032,532 403 4,528,680 453 10,505 44,414 - (1,506) 54,269
Unrealized holding gain on
debt and equity securities
at May 29, 1994 3,531 3,531
Issuance of stock 270 1 1
3% common stock dividend 256,512 26 1,064 (1,091) (1)
Net earnings 1,630 1,630
Unrealized holding loss on
debt and equity securities (1,745) (1,745)
Foreign currency translation
adjustments 205 205
--------- ---- --------- ---- ------- ------- ------ ------- -------
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 2,813 145,369 14 1,005 1,019
Issuance of stock 1 933 5 5
3% common stock dividend 267,851 27 2,585 (2,614) (2)
Net earnings 21,008 21,008
Unrealized holding gain on
debt and equity securities 574 574
Foreign currency translation
adjustments 109 109
--------- ---- --------- ---- ------- ------- ------ ------- -------
Balance at June 1, 1996 4,035,346 $403 5,199,615 $520 $15,165 $63,347 $2,360 $(1,192) $80,603
========= ==== ========= ==== ======= ======= ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Fifty-two Fifty-three Fifty-two
weeks ended weeks ended weeks ended
June 1, June 3, May 28,
1996 1995 1994
------ ------ ------
Cash flows from operating activities:
Net earnings $21,008 $1,630 $ 277
Adjustments to reconcile net
earnings to net cash (used in)
provided by operating activities
Depreciation and amortization 2,552 2,800 2,728
Gain on disposal of business (25,539)
Gain on sale of assets (193)
Gain on sale of investments (24)
Minority share of subsidiary's
operations (200) (810) (97)
Deferred income taxes 60 282 (61)
Changes in operating assets
and liabilities, net of
disposition
Accounts receivable (731) 233 (1,077)
Inventories (3,123) (3,833) 1,637
Other current assets (446) (305) 372
Other assets (754) 128 (116)
Accounts payable (312) 2,319 616
Accrued liabilities 905 312 (960)
Accrued income taxes 22 (107) (309)
Other noncurrent liabilities 168 190 36
------ ------ ------
Net cash (used in) provided
by operating activities (6,583)* 2,839 3,022
------ ------ ------
Cash flows from investing activities:
Additions to property, plant and
equipment, net (4,231) (4,812) (2,175)
Proceeds from disposal of business,
net of cash sold 26,785
Proceeds from sale of assets 485
Held-to-maturity securities
Purchases (104,253) (1,958)
Proceeds from maturity 105,846 1,964 6
Available-for-sale securities
Purchases (39,750) (31) (793)
Proceeds from sale 19,995 844
------ ------ ------
Net cash provided by (used in)
investing activities 4,877 (4,837) (2,118)
------ ------ ------
* Includes income taxes paid on the disposition of Surgical Dynamics
Inc. of approximately $6,019.
The accompanying notes are an integral part of these statements.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
Fifty-two Fifty-three Fifty-two
weeks ended weeks ended weeks ended
June 1, June 3, May 28,
1996 1995 1994
------ ------ ------
Cash flows from financing activities:
Proceeds from issuance of debt $ 1,121 $1,686 $ 892
Repayments of debt (910) (3,374) (1,254)
Proceeds from issuance of loan
by minority shareholder 238 258
Proceeds from exercise of stock
options 1,019
Issuance of stock in connection with
the stock purchase plan 5 1 22
------ ------ ------
Net cash provided by (used in)
financing activities 1,473 (1,429) (340)
------ ------ ------
Effect of exchange rate changes on
cash and cash equivalents (366) 538 (767)
------ ------ ------
DECREASE IN CASH AND CASH
EQUIVALENTS (599) (2,889) (203)
Cash and cash equivalents
Beginning of year 3,962 6,851 7,054
------ ------ ------
End of year $3,363 $3,962 $6,851
====== ====== ======
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $ 136 $ 201 $ 360
====== ====== ======
Income taxes (net of $508,
$449 and $263 in refunds
in 1996, 1995 and 1994,
respectively) $6,319 $ 674 $1,050
====== ====== ======
The accompanying notes are an integral part of these statements.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies is presented to assist
the reader in understanding and evaluating the consolidated
financial statements. These policies are in conformity with
generally accepted accounting principles and have been applied
consistently in all material respects.
Basis Of Consolidation
----------------------
The consolidated financial statements include the accounts of E-Z-EM,
Inc. and all 100%-owned subsidiaries, as well as the accounts of
Surgical Dynamics Inc. ("SDI"), a 51%-owned subsidiary prior to its
sale in November 1995 (the "Company"). SDI has been reported as a
discontinued operation and, accordingly, the gain from the sale of
SDI and the Company's proportionate share of losses from operations
of SDI have been classified as a discontinued operation for all
periods presented in the accompanying consolidated statements of
earnings. The discontinued operation has not been segregated in
the accompanying statements of consolidated cash flows and,
therefore, amounts for certain captions will not agree with the
respective consolidated statements of earnings. The Company is
primarily engaged in developing, manufacturing and marketing
diagnostic products used by radiologists and other physicians
during image-assisted procedures to detect physical abnormalities
and diseases.
Operations outside the U.S. are included in the consolidated
financial statements and consist of: a subsidiary operating a
mining and chemical processing operation in Nova Scotia, Canada and
a manufacturing and marketing facility in Montreal, Canada; a
subsidiary manufacturing products located in Puerto Rico; a
subsidiary manufacturing and marketing products located in Japan; a
subsidiary promoting and distributing products located in Holland;
and a subsidiary promoting and distributing products located in the
United Kingdom.
Fiscal Year
-----------
The Company reports on a fiscal year which concludes on the Saturday
nearest to May 31. Fiscal year 1996 ended on June 1, 1996 for a
reporting period of fifty-two weeks, fiscal year 1995 ended on June
3, 1995 for a reporting period of fifty-three weeks and fiscal
year 1994 ended on May 28, 1994 for a reporting period of fifty-two
weeks.
Cash and Cash Equivalents
-------------------------
The Company considers all unrestricted highly liquid investments
purchased with a maturity of less than three months to be cash
equivalents. Included in cash equivalents are certificates of
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
deposit and Eurodollar investments of $1,796,000 and $1,133,000 at
June 1, 1996 and June 3, 1995, respectively. The carrying amount
of these financial instruments reasonably approximates fair value
because of their short maturity. Foreign-denominated cash and cash
equivalents aggregated $1,101,000 and $1,695,000 at June 1, 1996
and June 3, 1995, respectively.
Debt and Equity Securities
--------------------------
Effective in fiscal 1995, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115"). In accordance with
the provisions of SFAS 115, this Statement was not applied
retroactively to financial statements prior to fiscal 1995.
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, net of the related
tax effects. Cost is determined using the specific identification
method.
Inventories
-----------
Inventories are stated at the lower of cost (on the first-in, first-
out method) or market. Appropriate consideration is given to
deterioration, obsolescence and other factors in evaluating net
realizable value.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed principally using the
straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the terms of the related
leases or the useful life of the improvements, whichever is
shorter. Expenditures for repairs and maintenance are charged to
expense as incurred. Renewals and betterments are capitalized.
Depreciation expense from continuing operations was $2,308,000,
$2,273,000 and $2,230,000 in 1996, 1995 and 1994, respectively.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cost in Excess of Fair Value of Net Assets Acquired
---------------------------------------------------
The excess cost is being amortized on a straight-line basis over 5
and 40 year periods. On an ongoing basis, management reviews the
valuation and amortization of this asset to determine possible
impairment by comparing the carrying value to the undiscounted
future cash flows of the related asset. Amortization from
continuing operations was $73,000, $70,000 and $65,000 in 1996,
1995 and 1994, respectively.
Intangible Assets
-----------------
Intangible assets are being amortized on a straight-line basis over
the estimated useful lives of the respective assets ranging from
five to fifteen and one-half years. Amortization from continuing
operations was $47,000, $44,000 and $41,000 in 1996, 1995 and 1994,
respectively.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 ("SFAS 121")
that established accounting standards for the impairment of long-
lived assets, certain intangibles and goodwill related to those
assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS 121 is required
to be adopted for fiscal years beginning after December 15, 1995.
In accordance with SFAS 121, it is the Company's policy to
periodically review and evaluate whether there has been a permanent
impairment in the value of intangibles and adjust the carrying
value accordingly. Factors considered in the valuation include
current operating results, trends and anticipated undiscounted
future cash flows. Accordingly, the adoption of SFAS 121 is not
expected to have a significant effect on the consolidated financial
statements of the Company.
Income Taxes
------------
In accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109"), deferred income
taxes are recognized for temporary differences between financial
statement and income tax bases of assets and liabilities and loss
carryforwards and tax credit carryforwards for which income tax
benefits are expected to be realized in future years. A valuation
allowance has been established to reduce deferred tax assets as it
is more likely than not that all, or some portion, of such deferred
tax assets will not be realized. The effect on deferred taxes of a
change in tax rates is recognized in income in the period that
includes the enactment date.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign Currency Translation
----------------------------
In accordance with Statement of Financial Accounting Standards No.
52, "Foreign Currency Translation," the Company has determined that
the functional currency for each of its foreign subsidiaries is the
local currency. This assessment considers that the day-to-day
operations are not dependent upon the economic environment of the
parent's functional currency, financing is effected through their
own operations, and the foreign operations primarily generate and
expend foreign currency. Foreign currency translation adjustments
are accumulated as a separate component of stockholders' equity.
Earnings Per Common Share
-------------------------
Primary and fully diluted earnings per common share are computed on
the basis of the weighted average number of common shares
outstanding plus the common stock equivalents which would arise
from the exercise of stock options, if the latter causes dilution
in earnings per common share in excess of 3%. Common stock
equivalents are included in both the primary and fully diluted
calculations for 1996, 1995 and 1994.
The weighted average number of common shares used was:
1996 1995 1994
---- ---- ----
Primary 9,723,626 9,087,678 9,081,038
Fully diluted 9,832,676 9,092,403 9,081,084
The weighted average number of common shares and the per share
amounts for all periods presented have been retroactively restated
to reflect the total shares issued after the 3% stock dividends
described in Note K.
Stock-Based Compensation
------------------------
Adoption of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") is required
for fiscal years beginning after December 15, 1995 and allows for a
choice of the method of accounting used for stock-based
compensation. Entities may elect the "intrinsic value" method
based on APB No. 25 "Accounting for Stock Issued to Employees" or
the new "fair value" method contained in SFAS 123. The Company
intends to implement SFAS 123 in fiscal 1997 by continuing to
account for stock-based compensation under the guidelines of APB
No. 25. As required by SFAS 123, the pro forma effects on net
earnings and earnings per common share will be determined as if the
fair value based method had been applied and disclosed in the notes
to the consolidated financial statements.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at year-end and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Reclassifications
-----------------
Certain reclassifications have been made to the prior year amounts to
conform to the 1996 presentation.
NOTE B - DISCONTINUED OPERATION
On November 22, 1995 (the "Closing Date"), E-Z-EM, Inc. completed the
sale of all of the capital stock of SDI held by E-Z-EM, Inc.
through its subsidiary, E-Z-SUB, Inc., (collectively, the
"Company") to United States Surgical Corporation ("USSC") pursuant
to the terms of an Agreement and Plan of Merger Agreement dated
November 7, 1995 (the "Merger Agreement") by and among USSC, USSC
Acquisition Corporation, SDI, CalMed Laboratories, Inc. ("CalMed")
and the Company. As of the Closing Date, the Company owned 51%
(approximately 47% on a fully diluted basis after taking into
account outstanding options) of the outstanding capital stock of
SDI and CalMed, a company not affiliated with E-Z-EM, Inc., owned
49% (approximately 45% on a fully diluted basis after taking into
account outstanding options) of the outstanding capital stock of
SDI. The aggregate consideration paid for SDI was $59,900,000 in
cash, which amount included repayment by USSC of $200,000 of loans
owed by SDI to its shareholders. After closing costs and payments
made to option holders, the Company received, at closing, cash
proceeds of $27,073,000 for the sale of its interest in SDI. In
addition, $510,000 of the consideration payable to the Company is
being held back by USSC as a nonexclusive source of indemnification
for breaches of representations and warranties, and to the extent
not drawn upon, will be repaid to the Company two years after the
Closing Date. As a result of this sale, the Company recognized a
gain, pretax, of approximately $25,539,000, after-tax of
approximately $19,520,000, or $2.01 per common share on a primary
basis. The effective tax rate of 24% on the gain on the sale of
SDI differs from the Federal statutory tax rate of 35% due
primarily to the utilization of previously unrecorded tax loss and
tax credit carryforwards.
-16-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE B - DISCONTINUED OPERATION (continued)
SDI is a manufacturer of minimally invasive surgical devices for the
spine, including the NucleotomeTM for use in percutaneous
diskectomy and the Ray Threaded Fusion CageTM spine implants for
use in interbody fusions.
SDI has been reported as a discontinued operation and, accordingly,
the gain from the sale of SDI and the Company's proportionate share
of losses from operations of SDI have been classified as a
discontinued operation for all periods presented in the
accompanying consolidated statements of earnings. Revenues
attributable to the SDI operations were approximately $3,475,000
for the period June 4, 1995 through November 22, 1995 and
$9,071,000 and $8,478,000 for the fiscal years ended June 3, 1995
and May 28, 1994. Changes in operating assets and liabilities
reflected in the consolidated statements of cash flows include
amounts pertaining to the operations of SDI.
NOTE C - DEBT AND EQUITY SECURITIES
Debt and equity securities at June 1, 1996 consist of the following:
Unrealized
Amortized Fair holding
cost value gain (loss)
------- ------- ------
(in thousands)
Current
Available-for-sale securities
(carried on the balance
sheet at fair value)
Debt securities $19,787 $19,776 $ (11)
Equity securities 398 376 (13)
Other 95 95
------- ------- ------
$20,280 $20,247 $ (24)
======= ======= ======
Noncurrent
Available-for-sale securities
(carried on the balance
sheet at fair value)
Equity securities $1,675 $3,646 $1,971
Other 1 1
------- ------- ------
$1,676 $3,647 $1,971
======= ======= ======
-17-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE C - DEBT AND EQUITY SECURITIES (continued)
Debt and equity securities at June 3, 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 398 357 $ (31)
Other 53 53
------ ------ ------
451 410 (31)
------ ------ ------
$ 526 $ 485 $ (31)
====== ====== ======
Noncurrent
Held-to-maturity securities
(carried on the balance
sheet at amortized cost)
Debt securities with
maturities after one
year through five years $1,593 $1,605
------ ------
Available-for-sale securities
(carried on the balance
sheet at fair value)
Equity securities 1,670 2,758 $1,088
Other 1 1
------ ------ ------
1,671 2,759 1,088
------ ------ ------
$3,264 $4,364 $1,088
====== ====== ======
-18-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE D - INVENTORIES
Inventories consist of the following:
June 1, June 3,
1996 1995
---- ----
(in thousands)
Finished goods $13,157 $11,856
Work in process 1,159 2,214
Raw materials 9,392 8,682
------- -------
$23,708 $22,752
======= =======
NOTE E - PROPERTY, PLANT AND EQUIPMENT, AT COST
Property, plant and equipment are summarized as follows:
Estimated
useful June 1, June 3,
lives 1996 1995
----- ---- ----
(in thousands)
Building and building
improvements 10 to 39 years $11,661 $11,176
Machinery and equipment 2 to 10 years 24,008 23,897
Leasehold improvements Term of lease 1,568 1,816
------- -------
37,237 36,889
Less accumulated depreciation
and amortization 18,903 19,709
------- -------
18,334 17,180
Land 3,489 3,684
------- -------
$21,823 $20,864
======= =======
-19-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE F - INCOME TAXES
Income tax expense (benefit) from continuing operations analyzed by
category and by income statement classification is summarized as
follows:
1996 1995 1994
------ ------ ------
(in thousands)
Current
Federal $ 413 $ 1 $ 1
State and local 31 60 59
Foreign (261) 877 1,015
------ ------ ------
Subtotal 183 938 1,075
Deferred 60 148 74
------ ------ ------
Total $ 243 $1,086 $1,149
====== ====== ======
Temporary differences which give rise to deferred tax assets and
liabilities are summarized as follows:
June 1, June 3,
1996 1995
----- -----
(in thousands)
Deferred tax assets
Difference between book and tax basis
in investment sold to Canadian
subsidiary $1,137 $1,137
Tax credit carryforwards 638 1,295
Tax operating loss carryforwards 372 3,767
Capital loss carryforwards 453
Alternative minimum tax ("AMT")
credit carryforward 165
Expenses incurred not currently
deductible 1,191 1,455
Unrealized investment losses 722 877
Deferred compensation costs 547 487
Inventories 291 243
Other 89 67
----- -----
Gross deferred tax asset 4,987 9,946
----- -----
-20-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE F - INCOME TAXES (continued)
June 1, June 3,
1996 1995
------ ------
(in thousands)
Deferred tax liabilities
Excess tax over book depreciation $1,074 $ 914
Unrealized investment gains 305 144
Tax on unremitted profits of Puerto
Rican subsidiary 67 145
Other 86 109
------ ------
Gross deferred tax liability 1,532 1,312
Valuation allowance (3,040) (7,861)
------ ------
Net deferred tax asset $ 415 $ 773
====== ======
In 1994, the Company sold to its Canadian subsidiary warrants to
purchase 396,396 shares of stock in ISG Technologies, Inc. This
transaction generated a capital gain for tax purposes of
approximately $3,344,000, utilizing a portion of the Company's
capital loss carryforward and giving rise to a temporary difference
pertaining to the difference between the financial statement and
tax basis in this asset.
During 1996, the Company utilized tax operating and capital losses,
tax credit and AMT credit carryforwards of approximately
$8,279,000, $596,000 and $121,000, respectively, in connection with
the sale of SDI described in Note B.
If not utilized, the tax operating loss carryforwards will expire in
various amounts over the years 1997 through 2010. The tax credit
carryforwards will expire in various amounts over the years 1997
through 2003.
Deferred income taxes are provided for the expected Tollgate tax on
the undistributed earnings of the Company's Puerto Rican
subsidiary, which are expected to be distributed at some time in
the future.
-21-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE F - INCOME TAXES (continued)
At June 1, 1996, undistributed earnings of certain foreign
subsidiaries aggregated $13,339,000 which will not be subject to
U.S. tax until distributed as dividends. Any taxes paid to foreign
governments on these earnings may be used, in whole or in part, as
credits against the U.S. tax on any dividends distributed from such
earnings. It is not practical to estimate the amount of U.S. tax,
if any, that might be payable on the eventual remittance of such
earnings. On remittance, certain foreign countries impose
withholding taxes that are then available for use as credits
against a U.S. tax liability, if any, subject to certain
limitations. The amount of withholding tax that would be payable
on remittance of the entire amount of undistributed earnings would
approximate $667,000. Under the provisions of the Omnibus Budget
Reconciliation Act of 1993, undistributed earnings of foreign
subsidiaries may be taxable in certain situations for fiscal years
beginning after September 30, 1993.
Deferred tax assets and liabilities are included in the consolidated
balance sheets as follows:
June 1, June 3,
1996 1995
------- -------
(in thousands)
Current - Accrued income taxes $(118) $(220)
Noncurrent - Other assets 533 993
----- -----
Net deferred tax asset $ 415 $ 773
===== =====
Earnings (loss) from continuing operations before income taxes for
U.S. and international operations consist of the following:
1996 1995 1994
------ ------ -------
(in thousands)
U.S. $2,280 $ 805 $(1,563)
International (340) 2,754 3,091
------ ------ -------
$1,940 $3,559 $ 1,528
====== ====== =======
-22-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE F - INCOME TAXES (continued)
The Company's consolidated income tax provision has differed from the
amount which would be provided by applying the U.S. Federal
statutory income tax rate to the Company's earnings from continuing
operations before income taxes for the following reasons:
1996 1995 1994
------ ------ ------
(in thousands)
Income tax provision $243 $1,086 $1,149
Effect of:
State income taxes, net of
Federal tax benefit (21) (22) (19)
Research and development credit 95 24 11
Earnings of the Puerto Rican
subsidiary, net of Puerto
Rico Corporate tax and
Tollgate tax 348 373 367
Earnings of the Foreign Sales
Corporation 16
Tax-exempt portion of
investment income 137 7 13
Nondeductible expenses (251) (138) (53)
Losses of entities generating
no current tax benefit (79) (83) (1,034)
Utilization of tax operating
and capital loss
carryforwards 61 50
Change in valuation allowance 74
Other 56 (37) 36
---- ------- ------
Income tax provision at
statutory tax rate of 35% in
1996 and 34% in 1995 and 1994 $679 $1,210 $ 520
==== ====== ======
The Company has an agreement with the Commonwealth of Puerto Rico
pursuant to which its operations in Puerto Rico are subject to a
partial tax exemption which expires January 23, 2007. Commonwealth
taxes are currently being provided on earnings of the subsidiary.
The U.S. Federal income tax returns of the Company through May 30,
1992 have been closed by the Internal Revenue Service.
-23-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE G - DEBT
Short-term debt consists of the following:
June 1, June 3,
1996 1995
------- -------
(in thousands)
Japanese bank
2.63% note (1) $462
4.00% note (1) $ 607
Bank, lines of credit
6.5% (2) 287
10.75% 150
Other financial institutions
6.12% note, unsecured 230
6.37% note, unsecured 264
---- ------
$979 $1,021
==== ======
Long-term debt consists of the following:
June 1, June 3,
1996 1995
------- -------
(in thousands)
Japanese bank loans, due December 1998
through March 2001, 1.45% to 4.10% (1) $948 $1,277
Obligations under capital leases 45
---- ------
948 1,322
Less current maturities 268 208
---- ------
$680 $1,114
==== ======
(1) Collateralized by property, plant and equipment having a net
carrying value of $1,900,000 at June 1, 1996.
(2) The Company's Canadian subsidiary has available $730,600
(Canadian $1,000,000) under this line of credit with a bank,
which is collateralized by accounts receivable and expires on
September 30, 1996.
The Company has available $4,000,000 under an unsecured line of
credit with a bank, which expires on November 30, 1996. At June 1,
1996, no amounts were outstanding under this line of credit.
-24-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE G - DEBT (continued)
The Company believes that the carrying amount of its debt
approximates the fair value as the variable interest rates
approximate current prevailing interest rates.
During 1996 and 1995, the weighted average interest rates on short-
term debt were 5.93% and 5.48%, respectively.
NOTE H - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
June 1, June 3,
1996 1995
------ ------
(in thousands)
Payroll and related expenses $3,146 $3,341
Accrued sales rebates 1,040 370
Accrued lease settlement (Note J) 510 600
Other 1,522 1,248
------ ------
$6,218 $5,559
====== ======
NOTE I - RETIREMENT PLANS
E-Z-EM, Inc. and certain domestic subsidiaries ("E-Z-EM") provide
pension benefits through a Profit-Sharing Plan, under which E-Z-EM
makes discretionary contributions to eligible employees, and a
companion 401(k) Plan, under which eligible employees can defer a
portion of their annual compensation, part of which is matched by
E-Z-EM. These plans cover all E-Z-EM employees not otherwise
covered by collective bargaining agreements. In 1996, 1995 and
1994, profit-sharing contributions were $468,000, $464,000 and
$457,000, respectively, and 401(k) matching contributions were
$316,000, $292,000 and $274,000, respectively.
E-Z-EM Canada Inc., a wholly-owned subsidiary of the Company, also
provides pension benefits to eligible employees through a Defined
Contribution Plan. In 1996, 1995 and 1994, contributions were
$45,000, $53,000 and $88,000, respectively.
-25-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE J - COMMITMENTS AND 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 the ultimate
outcome in this action will have a material adverse effect on the
consolidated financial statements.
The Company was the defendant in a product liability action with
respect to an alleged injury resulting from the use of one of its
products. The Company was dismissed without prejudice from such
action in February 1996.
Pursuant to a contractual agreement with Picker International, Inc.
("Picker"), the Company assumed the defense of a lawsuit in which
Picker, along with multiple other named defendants, had been sued
for injuries alleged to have resulted from the use of protective
aprons. The plaintiff has recently abandoned this action.
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 U.S. Bankruptcy Court for the Middle
District of Florida. 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, SDI's lease agreement on the Alameda, California, office
and production facilities was prematurely terminated by SDI, a
former 51%-owned subsidiary of the Company. In 1993, SDI accrued
$600,000 for the estimated settlement of the lease commitment.
Pursuant to the terms of the Merger Agreement described in Note B,
the $600,000 liability was assumed by USSC (the purchaser of SDI),
and the Company and the previous minority shareholder of SDI
assumed any liability in excess of $600,000 in connection with the
lease termination. The dispute was settled in July 1996 for
$1,600,000, of which the Company was liable for $510,000, or 51% of
the $1,000,000 excess. Such amount is included in accrued
liabilities at June 1, 1996.
-26-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE J - COMMITMENTS AND 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 pretax
provision in the aggregate amount of $1,546,000 during 1994, with
respect to such recalls. During 1995, such recall was completed
and the Company reduced this provision by $156,000 based upon the
actual results of the recall. Such amounts are reflected in cost
of goods sold in the consolidated statements of earnings. These
products currently account for less than five percent of the
Company's sales volume.
The Company leases several facilities from related parties. During
1996, 1995 and 1994, aggregate rental costs under all operating
leases from continuing operations, which primarily consist of
facility rentals, were approximately $1,131,000, $1,041,000 and
$1,288,000, respectively, of which approximately $202,000, $205,000
and $198,000 were paid to related parties. Future annual
operating lease payments in the aggregate, which include escalation
clauses and real estate taxes, with initial remaining terms of more
than one year at June 1, 1996, are summarized as follows:
Total Related party
leases leases
------ -------------
(in thousands)
1997 $ 759 $ 69
1998 465 25
1999 399
2000 414
2001 429
Thereafter 2,531
------ ----
$4,997 $ 94
====== ====
-27-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE J - COMMITMENTS AND CONTINGENCIES (continued)
The Company has an employment contract with a key executive that
provides for a term of eight years. Future annual commitments with
respect to this contract at June 1, 1996, are summarized as
follows:
(in thousands)
1997 $ 250
1998 250
1999 250
2000 250
2001 250
2002 125
------
$1,375
======
NOTE K - COMMON STOCK
In August 1983, the Company adopted a Stock Option Plan (the "1983
Plan"). The 1983 Plan provides for the grant to key employees of
both nonqualified stock options and incentive stock options. A
total of 1,742,694 shares of the Company's Common Stock may be
issued under the 1983 Plan pursuant to the exercise of options.
All stock options must have an exercise price of not less than the
market value of the shares on the date of grant. Options will be
exercisable over a period of time to be designated by the
administrators of the 1983 Plan (but not more than 10 years from
the date of grant) and will be subject to such other terms and
conditions as the administrators may determine. The 1983 Plan
terminates in December 2005.
In August 1984, the Company adopted a second Stock Option Plan (the
"1984 Plan"). The 1984 Plan provides for the grant to members of
the Board of Directors and consultants of nonqualified stock
options. A total of 435,553 shares of the Company's Common Stock
may be issued under the 1984 Plan pursuant to the exercise of
options. All stock options must have an exercise price of not less
than the market value of the shares on the date of grant. Options
will be exercisable over a period of time to be designated by the
administrators of the 1984 Plan (but not more than 10 years from
the date of grant) and will be subject to such other terms and
conditions as the administrators may determine. The 1984 Plan
terminates in December 2005.
-28-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE K - COMMON STOCK (continued)
On June 1, 1996, options for 640,180 shares were exercisable at
prices ranging from $3.88 to $11.33 per share under the 1983 Plan
and 185,954 shares were exercisable at prices ranging from $3.88 to
$11.38 per share under the 1984 Plan. On June 1, 1996, there
remained 207,088 and 103,636 shares available for granting of
options under the 1983 and 1984 Plans, respectively.
The following schedules summarize the changes in stock options for
the three fiscal years ended June 1, 1996:
1983 Plan 1984 Plan
------------------------- -------------------------
Number of Option price Number of Option price
shares per share shares per share
--------- ------------ --------- ------------
Outstanding at
May 29, 1993 806,867 $5.58 to $12.02 133,437 $5.58 to $15.79
Granted 2,185 4.58 7,957 4.71
Cancelled (111,544) 5.58 to 11.33
------------------------- -------------------------
Outstanding at
May 28, 1994 697,508 4.58 to 12.02 141,394 4.71 to 15.79
Granted 968,882 3.88 to 4.48 178,875 3.88 to 4.48
Cancelled (394,542) 4.48 to 12.02 (74,793) 5.58 to 15.79
------------------------- -------------------------
Outstanding at
June 3, 1995 1,271,848 3.88 to 11.33 245,476 3.88 to 15.03
Granted 81,612 9.10 52,350 5.83 to 13.25
Cancelled (45,111) 4.48 to 9.23 (5,909) 15.03
Exercised (145,682) 4.01 to 11.33 (2,500) 4.71
------------------------- -------------------------
Outstanding at
June 1, 1996 1,162,667 $3.88 to $11.33 289,417 $3.88 to $13.25
========================== ========================
On June 1, 1996, the weighted average exercise price for outstanding
options under the 1983 and 1984 Plans was $5.16 and $5.97 per
share, respectively.
Options granted prior to the Company's recapitalization on October
26, 1992 are exercisable one-half in Class A Common Stock and one-
half in Class B Common Stock. Options granted after the
recapitalization are exercisable in Class B Common Stock.
In August 1985, the Company adopted an Employee Stock Purchase Plan
(the "Employee Plan"). The Employee Plan provides for the purchase
by employees of Company stock at a discounted price of 85% of the
market value of the shares on the date of purchase. A total of
150,000 shares of the Company's Common Stock may be purchased under
the Employee Plan which terminates on September 30, 1998. During
1996, employees purchased 932 shares, at prices ranging from $4.57
to $8.82. Total proceeds received by the Company approximated
$5,000.
-29-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE K - COMMON STOCK (continued)
On January 10, 1994, the Board of Directors declared a 3% stock
dividend on shares of Class A and Class B Common Stock. The
dividend, payable in nonvoting Class B Stock, was distributed on
March 11, 1994 to shareholders of record on February 11, 1994. 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 nonvoting Class B Stock, was distributed on
March 16, 1995 to shareholders of record on February 24, 1995. On
January 23, 1996, the Board of Directors declared a 3% stock
dividend on shares of Class A and Class B Common Stock. The
dividend, payable in nonvoting Class B Stock, was distributed on
March 15, 1996 to shareholders of record on February 23, 1996.
Earnings per common share have been retroactively adjusted to
reflect the stock dividends.
NOTE L - OTHER RELATED PARTIES
A director provided services, both as a consultant and employee, to
the Company during 1996, 1995 and 1994. Fees for such services,
including fees relating to attendance at directors' meetings, were
approximately $319,000, $165,000 and $88,000 during 1996, 1995 and
1994, respectively. In connection with the sale of SDI in November
1995, this director resigned as a director of SDI and received an
investment banker's fee of $905,000, a bonus of $191,000 arising
from the sale and a payment of $268,000 in connection with the
surrender of outstanding stock options in SDI.
In connection with the sale of SDI, an executive officer resigned as
a director of SDI and received a bonus of $191,000 arising from the
sale and a payment of $268,000 in connection with the surrender of
outstanding stock options in SDI.
Two other directors provided consulting services to the Company
during 1996, 1995 and 1994. Fees for such services, including fees
relating to attendance at directors' meetings, were approximately
$196,000, $196,000 and $195,000 during 1996, 1995 and 1994,
respectively.
-30-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE M - INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS
The Company is engaged in the manufacture and distribution of a wide
variety of products which are classified into two industry
segments: Diagnostic products and AngioDynamics products.
Diagnostic products encompass both contrast systems, consisting of
barium sulfate formulations and related medical devices used in X-
ray, CT-scanning and other 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 stent products, angiographic and fluid management
products, and thrombolytic products used in the interventional
medicine marketplace. The Company's primary business activity is
conducted with radiologists and hospitals, located throughout the
U.S. and abroad, through numerous distributors. The Company's
exposure to credit risk is dependent, to a certain extent, on the
healthcare industry. The Company performs ongoing credit
evaluations of its customers and does not generally require
collateral; however, in certain circumstances, the Company may
require letters of credit from its customers.
In the tables below, operating profit (loss) from continuing
operations includes total net sales less operating expenses.
Identifiable assets are those associated with industry segment or
geographic area operations, excluding loans to or investments in
another industry segment or geographic area operation.
Intersegment sales and intergeographic sales are not material.
In 1996, 1995 and 1994, there was one customer to whom sales of
Diagnostic products represented 16%, 15% and 16% of total sales,
respectively. Approximately 21% and 17% of accounts receivable
pertained to this customer at June 1, 1996 and June 3, 1995,
respectively.
-31-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE M - INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS (continued)
Industry Segments 1996 1995* 1994*
------- ------- -------
(in thousands)
Net Sales
Diagnostic products $80,936 $81,525 $80,966
AngioDynamics products 11,696 7,396 5,001
Eliminations (700) (395) (322)
------- ------- -------
Total Net Sales $91,932 $88,526 $85,645
======= ======= =======
Operating Profit (Loss)
Diagnostic products $2,509 $7,452 $4,658
AngioDynamics products (1,536) (4,603) (3,468)
Eliminations (16) (12) 10
------- ------- -------
Total Operating Profit $ 957 $2,837 $1,200
======= ======= =======
Identifiable Assets
Diagnostic products $83,304 $62,585 $59,760
AngioDynamics products 12,945 8,529 6,911
Discontinued operation 5,033 5,162
Eliminations (212) (52) (302)
------- ------- -------
Total Identifiable Assets $96,037 $76,095 $71,531
======= ======= =======
Depreciation and Amortization
Diagnostic products $2,111 $2,109 $1,986
AngioDynamics products 317 278 350
Discontinued operation 124 413 392
------- ------- -------
Total Depreciation and
Amortization $2,552 $2,800 $2,728
======= ======= =======
Capital Expenditures
Diagnostic products $3,850 $4,187 $1,330
AngioDynamics products 370 361 527
Discontinued operation 11 264 318
------- ------- -------
Total Capital Expenditures $4,231 $4,812 $2,175
======= ======= =======
* Net sales and operating profit (loss) amounts have been reclassified
to reflect the discontinued operation described in Note B.
-32-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE M - INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS (continued)
Geographic Areas
The following geographic area data includes net sales, operating
profit (loss) generated by and assets employed in operations
located in each area:
1996 1995* 1994*
------- ------- -------
(in thousands)
Net Sales
U.S. operations $71,939 $65,073 $63,422
International operations:
Canada 12,254 14,100 14,301
Other 13,456 13,763 12,196
Eliminations (5,717) (4,410) (4,274)
------- ------- -------
Total Net Sales $91,932 $88,526 $85,645
======= ======= =======
Operating Profit (Loss)
U.S. operations $1,084 $ 118 $(2,086)
International operations:
Canada (410) 2,350 3,143
Other 225 456 100
Eliminations 58 (87) 43
------- ------- -------
Total Operating Profit $ 957 $2,837 $ 1,200
======= ======= =======
Identifiable Assets
U.S. operations:
Continuing operations $73,604 $47,590 $48,356
Discontinued operation 5,033 5,162
International operations:
Canada 15,543 15,816 12,433
Other 8,067 8,857 7,731
Eliminations (1,177) (1,201) (2,151)
------- ------- -------
Total Identifiable Assets $96,037 $76,095 $71,531
======= ======= =======
* Net sales and operating profit (loss) amounts have been reclassified
to reflect the discontinued operation described in Note B.
-33-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE M - INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS (continued)
The Company's domestic export sales by geographic area are summarized
as follows:
1996 1995 1994
------ ------ ------
(in thousands)
Europe $5,655 $2,605 $1,728
Other 3,783 3,421 3,206
------ ------ ------
$9,438 $6,026 $4,934
====== ====== ======
NOTE N - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly results of operations during 1996 and 1995 were as follows:
1996
----------------------------------
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
(in thousands, except per share data)
Net sales $21,999 $23,005 $21,550 $25,378
Gross profit 9,131 9,623 8,209 9,451
Net earnings 569 20,087 9 343
Earnings per common share (1)
Primary (2) .06 2.09 .00 .03
Fully diluted (2) .06 2.07 .00 .03
1995 (3)
----------------------------------
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
(in thousands, except per share data)
Net sales $21,545 $21,377 $19,856 $25,748
Gross profit 9,379 8,834 7,455 11,013
Net earnings (loss) 1,050 455 (1,077) 1,202
Earnings (loss) per common
share (1)
Primary and fully diluted .12 .05 (.12) .13
(1) Earnings per common share have been retroactively restated to
reflect the total shares issued after the 3% stock dividends
described in Note K.
(2) The sum of the quarters does not equal the fiscal year due to
rounding and changes in the calculation of weighted average shares.
(3) Reclassified to reflect the discontinued operation described in
Note B.
-34-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
--------------------
(1) (2)
Balance Charged to Balance
at Charged to other at end
beginning costs and accounts- Deductions- of
Description of period expenses describe describe period
----------- --------- -------- -------- -------- ------
Fifty-two weeks
ended May 28, 1994
Allowance for
doubtful accounts.. $353 $149 $ 96 (a) $406
=== === === ===
Fifty-three weeks
ended June 3, 1995
Allowance for
doubtful accounts.. $406 $ 91 $ 32 (a) $465
=== === === ===
Fifty-two weeks
ended June 1, 1996
Allowance for
doubtful accounts.. $465 $176 $114 (b) $527
=== === === ===
(a) Amounts written off as uncollectible.
(b) Represents amounts written off as uncollectible of $64,000 and an
amount deducted in conjunction with the sale of SDI of $50,000.
-35-
Subsidiaries of the Registrant
- ------------------------------
The Registrant, E-Z-EM, Inc., is a Delaware corporation. The
subsidiaries of the Registrant included in the consolidated financial
statements are as follows:
Incorporated
------------
AngioDynamics, Inc. Delaware
E-Z-EM Belgium B.V.B.A. Belgium
E-Z-EM Canada Inc. Canada
E-Z-EM Caribe, Inc. Delaware
E-Z-EM International, Inc. Barbados
E-Z-EM Ltd. England
E-Z-EM Nederland B.V. Holland
E-Z-SUB, Inc. Delaware
Enteric Products, Inc. Delaware
Toho Kagaku Kenkyusho Co., Ltd. Japan
All subsidiaries of the Registrant are wholly-owned.
-36-
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in Registration Statements
No. 33-00184 and No. 33-43168 of E-Z-EM, Inc. on Form S-8 of our report
dated August 8, 1996, appearing in the Annual Report on Form 10-K of
E-Z-EM, Inc. and Subsidiaries for the fifty-two weeks ended June 1,
1996.
GRANT THORNTON LLP
Melville, New York
August 28, 1996
-37-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Company's Form 10-K for the fifty-two weeks ended June 1, 1996 and is
qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-01-1996
<PERIOD-END> JUN-01-1996
<CASH> 3,363
<SECURITIES> 20,247
<RECEIVABLES> 16,679
<ALLOWANCES> 527
<INVENTORY> 23,708
<CURRENT-ASSETS> 66,406
<PP&E> 40,726
<DEPRECIATION> 18,903
<TOTAL-ASSETS> 96,037
<CURRENT-LIABILITIES> 12,898
<BONDS> 680
0
0
<COMMON> 923
<OTHER-SE> 79,680
<TOTAL-LIABILITY-AND-EQUITY> 96,037
<SALES> 91,932
<TOTAL-REVENUES> 91,932
<CGS> 55,518
<TOTAL-COSTS> 55,518
<OTHER-EXPENSES> 35,457
<LOSS-PROVISION> 176
<INTEREST-EXPENSE> 264
<INCOME-PRETAX> 1,940
<INCOME-TAX> 243
<INCOME-CONTINUING> 1,697
<DISCONTINUED> 19,311
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,008
<EPS-PRIMARY> 2.16
<EPS-DILUTED> 2.14
</TABLE>
AUDITORS' REPORT
To the shareholder of
E-Z-EM Canada Inc.
We have audited the consolidated balance sheets of "E-Z-EM CANADA INC."
as of May 31, 1996 and 1995 and the consolidated statements of
earnings, retained earnings and changes in financial position for the
years ended May 31, 1996, 1995 and 1994. These financial statements
are the responsibility of the company's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly,
in all material respects, the financial position of the company as of
May 31, 1996 and 1995 and the results of their operations and the
changes in their financial position for the years ended May 31, 1996,
1995 and 1994 in accordance with generally accepted accounting
principles.
Jacques, Davis, Lefaivre & Associes
Chartered Accountants
Montreal, July 10, 1996
-39-
Report of Independent Accountants
To the Board of Directors and Stockholders
of Surgical Dynamics Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and retained earnings and
of cash flows present fairly, in all material respects, the financial
position of Surgical Dynamics Inc. and its subsidiaries at May 31, 1994
and 1993, and the results of their operations and their cash flows for
each of the three years in the period ended May 31, 1994, in conformity
with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 8 to the consolidated financial statements, the
accompanying financial statements included an estimated liability
related to the early termination of a lease agreement. The Company is
in negotiations with its former landlord. The final resolution of
actual settlement amounts, however, is dependent upon future events,
the outcome of which is not fully determinable at the present time.
Price Waterhouse LLP
San Francisco, California
July 12, 1994
-40-
