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 March 2, 1996
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Commission file number 0-13003
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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
--------------
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
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On April 8, 1996, there were 4,032,533 shares of the registrant's Class A Common
Stock outstanding and 5,176,601 shares of the registrant's Class B Common Stock
outstanding.
Page 1 of 20
Exhibit Index on Page 19
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E-Z-EM, Inc. and Subsidiaries
INDEX
PART I: FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets - March 2, 1996 and
June 3, 1995 3 - 4
Consolidated Statements of Operations - thirteen and
thirty-nine weeks ended March 2, 1996 and twelve
and thirty-nine weeks ended February 25, 1995 5
Consolidated Statement of Stockholders' Equity -
thirty-nine weeks ended March 2, 1996 6
Consolidated Statements of Cash Flows - thirty-nine
weeks ended March 2, 1996 and February 25, 1995 7 - 8
Notes to Consolidated Financial Statements 9 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 18
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
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E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 2, June 3,
ASSETS 1996 1995
-------- -------
(unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 4,612 $ 3,962
Debt and equity securities 20,288 485
Accounts receivable, principally
trade, net 14,251 17,354
Inventories 23,075 22,752
Other current assets 2,681 2,602
------ ------
Total current assets 64,907 47,155
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 21,364 20,864
COST IN EXCESS OF FAIR VALUE OF NET ASSETS
ACQUIRED, less accumulated amortization 577 633
INTANGIBLE ASSETS, less accumulated
amortization 707 463
DEBT AND EQUITY SECURITIES 4,478 4,352
OTHER ASSETS 2,818 2,628
------ ------
$94,851 $76,095
====== ======
The accompanying notes are an integral part of these financial statements.
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E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 2, June 3,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
---- ----
(unaudited) (audited)
CURRENT LIABILITIES
Notes payable $ 1,459 $ 1,021
Current maturities of long-term debt 267 208
Accounts payable 4,500 6,713
Accrued liabilities 5,249 5,559
Accrued income taxes 847 400
------ ------
Total current liabilities 12,322 13,901
LONG-TERM DEBT, less current maturities 765 1,114
OTHER NONCURRENT LIABILITIES 1,921 1,805
MINORITY INTEREST IN SUBSIDIARY 1,385
CONTINGENCIES
------ ------
Total liabilities 15,008 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, 6,000,000 shares;
issued and outstanding 4,032,532 shares
at March 2, 1996 and June 3, 1995 403 403
Class B (non-voting), par value $.10 per
share - authorized, 10,000,000 shares;
issued and outstanding 5,174,195 shares
at March 2, 1996 and 4,785,462 shares
at June 3, 1995 518 479
Additional paid-in capital 14,946 11,570
Retained earnings 63,004 44,953
Unrealized holding gain on debt and
equity securities 2,251 1,786
Cumulative translation adjustments (1,279) (1,301)
------ ------
Total stockholders' equity 79,843 57,890
------ ------
$94,851 $76,095
====== ======
The accompanying notes are an integral part of these financial statements.
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E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Thirteen Twelve Thirty-nine weeks ended
weeks ended weeks ended -----------------------
March 2, February 25, March 2, February 25,
1996 1995 1996 1995
---- ---- ---- ----
(in thousands, except per share data)
Net sales $21,550 $19,856 $66,554 $62,778
Cost of goods sold 13,341 12,401 39,591 37,110
------ ------ ------ ------
Gross profit 8,209 7,455 26,963 25,668
------ ------ ------ ------
Operating expenses
Selling and administrative 7,225 6,532 22,278 20,152
Research and development 1,508 1,502 3,950 4,472
------ ------ ------ ------
Total operating expenses 8,733 8,034 26,228 24,624
------ ------ ------ ------
Operating profit (loss) (524) (579) 735 1,044
Other income (expense)
Interest income 319 83 479 467
Interest expense (69) (58) (198) (228)
Other, net 108 58 294 289
------ ------ ------ ------
Earnings (loss) from
continuing operations
before income taxes (166) (496) 1,310 1,572
Income tax provision (benefit) (175) 335 55 901
------ ------ ------ ------
Earnings (loss) from
continuing operations 9 (831) 1,255 671
Discontinued operation:
Earnings (loss) from
operations, net of taxes (246) (209) (243)
Gain on sale, net of income
taxes of $6,073,000 19,619
------ ------ ------ ------
NET EARNINGS (LOSS) $ 9 $(1,077) $20,665 $ 428
===== ===== ====== =====
Earnings (loss) per common share
Primary $ .00 $ (.12) $ 2.16 $ .05
===== ===== ====== =====
Fully diluted $ .00 $ (.12) $ 2.14 $ .05
===== ===== ====== =====
Weighted average common shares
Primary 9,767,847 9,081,965 9,551,687 9,088,881
========= ========= ========= =========
Fully diluted 9,787,597 9,081,965 9,658,330 9,095,007
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
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E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Thirty-nine weeks ended March 2, 1996
(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 119,975 12 786 798
Issuance of stock 907 5 5
3% common stock dividend
($3,075 paid in cash in
lieu of fractional shares) 267,851 27 2,585 (2,614) (2)
Net earnings 20,665 20,665
Unrealized holding gain on debt
and equity securities 465 465
Foreign currency translation
adjustments 22 22
--------- --- --------- --- ------ ------ ----- ------ ------
Balance at March 2, 1996 4,032,532 $403 5,174,195 $518 $14,946 $63,004 $2,251 $(1,279) $79,843
========= === ========= === ====== ====== ===== ===== ======
</TABLE>
The accompanying notes are an integral part of this financial statement.
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E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Thirty-nine weeks ended
-----------------------
March 2, February 25,
1996 1995
---- ----
(in thousands)
Cash flows from operating activities:
Net earnings $20,665 $ 428
Adjustments to reconcile net earnings
to net cash (used in) provided by
operating activities
Depreciation and amortization 1,955 2,067
Gain on disposal of business (25,692)
Deferred income taxes 266
Minority share of subsidiary's
operations (200) (234)
Changes in operating assets and
liabilities, net of disposition
Accounts receivable 1,170 1,996
Inventories (2,490) (2,976)
Other current assets (191) (33)
Other assets (620) (151)
Accounts payable (907) 361
Accrued liabilities 89 (190)
Accrued income taxes 446 101
Other noncurrent liabilities 121 165
------ -----
Net cash (used in) provided by
operating activities (5,388) 1,534
------ -----
Cash flows from investing activities:
Additions to property, plant and
equipment, net (2,824) (4,152)
Proceeds from disposal of business,
net of cash sold 26,785
Increase in debt and equity securities (19,207) (19)
------ -----
Net cash provided by (used in)
investing activities 4,754 (4,171)
------ -----
Cash flows from financing activities:
Proceeds from issuance of debt 1,363 1,134
Repayments of debt (619) (3,047)
Proceeds from issuance of loan by
minority shareholder 238 254
Proceeds from issuance of stock options 798
Issuance of stock in connection with
the stock purchase plan 5
------ -----
Net cash provided by (used in)
financing activities 1,785 (1,659)
------ -----
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E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
Thirty-nine weeks ended
-----------------------
March 2, February 25,
1996 1995
---- ----
(in thousands)
Effect of exchange rate changes on
cash and cash equivalents $ (501) $ 234
----- -----
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 650 (4,062)
Cash and cash equivalents
Beginning of period 3,962 6,851
----- -----
End of period $4,612 $2,789
===== =====
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest $ 109 $ 171
===== =====
Income taxes (net of refunds of
$509,000 and $449,000 in 1996
and 1995, respectively) $5,077 $ 404
===== =====
The accompanying notes are an integral part of these financial statements.
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E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 2, 1996 and February 25, 1995
(unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 2, 1996, the consolidated statement
of stockholders' equity for the period ended March 2, 1996, and the
consolidated statements of operations and cash flows for the periods ended
March 2, 1996 and February 25, 1995, 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 March 2, 1996 (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 March 2, 1996 and February 25, 1995 are not
necessarily indicative of the operating results for the respective full
years.
NOTE B - INVENTORIES
Inventories consist of the following:
March 2, June 3,
1996 1995
---- ----
(in thousands)
Finished goods $12,546 $11,856
Work in process 1,438 2,214
Raw materials 9,091 8,682
------ ------
$23,075 $22,752
====== ======
NOTE C - DISCONTINUED OPERATION
On November 22, 1995 (the "Closing Date"), the Registrant completed the sale
of all of the capital stock of Surgical Dynamics Inc. ("SDI") held by the
Registrant 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
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 2, 1996 and February 25, 1995
(unaudited)
NOTE C - DISCONTINUED OPERATION (continued)
the outstanding capital stock of SDI and CalMed, a company not affiliated
with the Registrant, 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 non-exclusive 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,
pre-tax of approximately $25,692,000, after-tax of approximately
$19,619,000, or $2.05 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.
SDI is a leading 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 earnings
(loss) from operations of SDI have been reported separately from continuing
operations in the consolidated statements of operations. Revenues
attributable to the SDI operations were approximately $3,475,000 for the
period June 4, 1995 through November 22, 1995 and $6,984,000 for the
thirty-nine weeks ended February 25, 1995. Changes in operating assets and
liabilities reflected in the consolidated statements of cash flows includes
amounts pertaining to the operations of SDI.
NOTE D - COMMON STOCK
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
non-voting Class B Stock, was distributed on March 15, 1996 to shareholders
of record on February 23, 1996. Earnings (loss) per common share have been
retroactively adjusted to reflect the stock dividend.
Under the 1983 and 1984 Stock Option Plans, options for 124,235 shares were
granted at prices ranging from $6.00 to $9.38 per share, options for 119,975
shares were exercised at prices ranging from $4.25 to $6.25 per share and
options for 42,125 shares were cancelled at prices ranging
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E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 2, 1996 and February 25, 1995
(unaudited)
NOTE D - COMMON STOCK (continued)
from $4.75 to $10.08 per share during the thirty-nine weeks ended March 2,
1996.
Under the Employee Stock Purchase Plan, 907 shares were purchased at prices
ranging from $4.57 to $8.18 per share during the thirty-nine weeks ended
March 2, 1996. Total proceeds received by the Company approximated $5,000.
NOTE E - CONTINGENCIES
Pursuant to a contractual agreement with Picker International, Inc.
("Picker"), the Company has assumed the defense of a lawsuit in which
Picker, along with multiple other named defendants, has been sued for
injuries alleged to have resulted from the use of protective aprons. The
litigation is in its preliminary stages, and it is not possible, at this
time, to ascertain the extent, if any, of the Company's liability. 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 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.
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.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 2, 1996 and February 25, 1995
(unaudited)
NOTE E - CONTINGENCIES (continued)
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. As of the termination, the remaining future
minimum lease payments totalled approximately $3,146,000. In 1993, SDI
accrued $600,000 for the estimated settlement of the lease commitment.
Pursuant to the terms of the Merger Agreement (reference is made to Note C),
the Company and the previous minority shareholder of SDI assumed any
liability in excess of $600,000 in connection with the lease termination.
The final resolution is dependent upon future events, the outcome of which
is not fully determinable at the present time.
NOTE F - RECLASSIFICATIONS
Certain reclassifications have been made to the prior year amounts to conform
to the current year presentation.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is based on the results of continuing
operations of the Company.
QUARTERS ENDED MARCH 2, 1996 AND FEBRUARY 25, 1995
The Company's quarter ended March 2, 1996 represents thirteen weeks and the
quarter ended February 25, 1995 represents twelve weeks.
RESULTS OF OPERATIONS
SEGMENT OVERVIEW
The diagnostic products industry segment includes both contrast systems and
non-contrast systems. Diagnostic product sales, which increased 3% in the
quarter, accounted for 87% of sales in the current quarter versus 92% in the
comparable period of last year. The AngioDynamics products industry segment
includes the Pulse SprayTM pulsed infusion and CO2 Angiographic Injection
systems and various specialty catheters, including the Soft-VuTM angiographic
catheter. AngioDynamics markets to radiologists and cardiologists. AngioDynamics
product sales, which increased 66% in the quarter, represented 13% of sales in
the current quarter versus 8% 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, as well as by increased selling and
marketing expenses in the Company's core business. The unabsorbed overhead 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
fourth fiscal quarter, resulting in lower than normal Canadian gross profits.
Investment in new marketing and product initiatives contributed to the increased
selling and marketing expenses.
Diagnostic segment results for the comparable quarter of the prior year
were adversely affected by reduced sales, resulting, in part, from the reduced
number of shipping days in the domestic operations during that quarter.
AngioDynamics segment results for the current quarter were positively
affected by sales growth of 66% coupled with improved manufacturing
efficiencies. AngioDynamics incurred operating losses of $314,000 in the current
quarter, as compared to operating losses of $1,190,000 in the comparable quarter
of the prior year. Included in these operating losses were losses of $346,000 in
the current quarter and $538,000 in the comparable quarter of the prior year
relating to AngioDynamics' CO2 Angiographic operations, which resulted primarily
from its continued research and development. The initial overseas commercial
sale of the Company's CO2jectTM system, which delivers carbon dioxide gas as a
replacement for more expensive iodinated contrast media, occurred in the second
quarter.
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<PAGE>
CONSOLIDATED RESULTS OF OPERATIONS
For the quarter ended March 2, 1996, the Company reported net earnings of
$9,000, or $.00 per common share on both a primary and fully diluted basis, as
compared to a net loss of $1,077,000, or ($.12) per common share on both a
primary and fully diluted basis, for the comparable period of last year.
Earnings from continuing operations for the current quarter were $9,000, or
$.00 per common share on both a primary and fully diluted basis, as compared to
a loss from continuing operations of $831,000, or ($.09) per common share on
both a primary and fully diluted basis, for the comparable period of last year.
Results from continuing operations for the current quarter were positively
affected by sales growth and improved AngioDynamics manufacturing efficiencies,
and were adversely impacted by unabsorbed overhead costs during construction at
the Company's Canadian facility, as well as by increased selling and marketing
expenses in the Company's core business. Results for the comparable quarter of
the prior year were adversely affected by lower sales, resulting, in part, from
the reduced number of shipping days in the domestic operations during that
quarter.
Sales for the quarter ended March 2, 1996 increased 9% as compared to the
quarter ended February 25, 1995 due primarily to increased AngioDynamics sales
of $1,110,000, which includes the Pulse SprayTM pulsed infusion system and
Soft-VuTM angiographic catheter line, and non-contrast systems sales of
$910,000. Sales for the quarter ended February 25, 1995 were adversely affected
by the reduced number of shipping days in the domestic operations during the
comparable quarter of the prior year. Price increases, which accounted for
approximately 1 1/2% of sales in the current quarter, partially offset the
reduced demand for the Company's core contrast systems. Sales in international
markets, including direct exports from the United States, increased 7%, or
$535,000 in the current quarter versus the comparable period of last year
principally due to increased sales of AngioDynamics products of $479,000.
Gross profit expressed as a percentage of sales was 38% during both the
current quarter and the comparable quarter of the prior year. Gross profit in
the current quarter was positively affected by improved AngioDynamics
manufacturing efficiencies, and was negatively impacted by approximately
$692,000 of unabsorbed overhead costs during construction at the Company's
Canadian facility. The Company's third fiscal quarters traditionally have fewer
production days than the other fiscal quarters, resulting in somewhat lower
gross profit percentages in such quarters.
Selling and administrative ("S&A") expenses were $7,225,000 during the
quarter ended March 2, 1996 versus $6,532,000 during the quarter ended February
25, 1995. This increase of $693,000, or 11%, in the current quarter was
principally due to expanded domestic selling and marketing efforts in the
Company's core business approximating $322,000 and expanded AngioDynamics
selling and marketing efforts in both the domestic and international marketplace
approximating $239,000. Investment in new marketing and product initiatives
contributed to the increased selling and marketing expenses in both industry
segments.
Research and development ("R&D") expenditures increased less than 1% in the
current quarter to $1,508,000, or 7% of sales, from $1,502,000, or 8% of sales,
in the comparable quarter of the prior year. Reduced spending of $205,000
relating to AngioDynamics projects and $43,000 relating to the
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<PAGE>
commercialization of H. pylori test-related products offset increased spending
of $130,000 and $124,000 relating to contrast systems and other projects,
respectively. Of the R&D expenditures in the current quarter, approximately 36%
relate to contrast systems, 28% to AngioDynamics projects, 6% to immunological
projects, 21% to other projects and 9% to general regulatory costs. R&D
expenditures are expected to continue at approximately current levels.
Other income, net of expenses, increased $275,000 in the current quarter
versus the comparable period of last year due primarily to increased interest
income of $236,000, resulting from the investment of SDI sale proceeds.
For the quarter ended March 2, 1996, the Company's unusually high effective
tax benefit rate of 105% differed from the Federal statutory tax rate of 35% due
primarily to earnings of the Company's Puerto Rican subsidiary, which are
subject to favorable United States tax treatment, a $74,000 reversal in the
Company's valuation allowance, and tax-exempt interest income, partially offset
by the fact that the Company did not provide for the tax benefit on losses
incurred in a foreign jurisdiction, since it is more likely than not that such
benefits will not be realized. For the quarter ended February 25, 1995, the
Company reported an income tax provision of $335,000 notwithstanding a loss from
continuing operations before income taxes of $496,000. In general, this was due
to the fact that the Company did not provide for the tax benefit on losses
incurred in certain jurisdictions, since, at that time, it was more likely than
not that such benefits would not be realized.
THIRTY-NINE WEEKS ENDED MARCH 2, 1996 AND FEBRUARY 25, 1995
RESULTS OF OPERATIONS
SEGMENT OVERVIEW
Diagnostic product sales, which increased 2% during the thirty-nine weeks
ended March 2, 1996, accounted for 88% of sales in the current period versus 92%
in the comparable period of last year. AngioDynamics product sales, which
increased 53% during the thirty-nine weeks ended March 2, 1996, represented 12%
of sales in the current period, as compared to 8% in the prior year.
During the current period, the Company discontinued the operation of its
surgical products industry segment when it sold SDI, its 51%-owned subsidiary,
to USSC. As a result of this sale, the Company recognized a gain, pre-tax of
approximately $25,692,000, after-tax of approximately $19,619,000, or $2.05 per
common share on a primary basis. The surgical products industry segment has been
reported as a discontinued operation and accordingly, the gain from the sale of
SDI and the Company's proportionate share of earnings (loss) from operations of
SDI have been reported separately from continuing operations in the consolidated
statements of earnings. The surgical products industry segment included the
Nucleotome device, the Ray Threaded Fusion CageTM and other surgical devices and
accessories used in spinal surgery.
Diagnostic segment results for the current period were adversely affected
by unabsorbed overhead costs associated with the relocation of a portion of the
Company's core manufacturing operations, as well as by increased selling and
marketing expenses in the Company's core business.
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<PAGE>
Investment in new marketing and product initiatives contributed to the increased
selling and marketing expenses.
AngioDynamics segment results for the current period were positively
affected by sales growth of 53% coupled with improved manufacturing
efficiencies. AngioDynamics incurred operating losses of $907,000 in the current
period, as compared to operating losses of $3,536,000 in the comparable period
of last year. Included in these operating losses were losses of $1,015,000 in
the current period and $1,251,000 in the comparable period of last year relating
to AngioDynamics' CO2 Angiographic operations, which resulted primarily from its
continued research and development.
CONSOLIDATED RESULTS OF OPERATIONS
For the thirty-nine weeks ended March 2, 1996, the Company reported net
earnings of $20,665,000, or $2.16 and $2.14 per common share on a primary and
fully diluted basis, respectively, as compared to net earnings of $428,000, or
$.05 per common share on both a primary and fully diluted basis, for the
comparable period of last year. Results for the current period were positively
impacted by the after-tax gain on the sale of Surgical of $19,619,000, or $2.05
and $2.03 per common share on a primary and fully diluted basis, respectively.
Earnings from continuing operations for the current period were $1,255,000,
or $.13 per common share on both a primary and fully diluted basis, as compared
to $671,000, or $.07 per common share on both a primary and fully diluted basis,
for the comparable period of last year. Results from continuing operations for
the current quarter were adversely impacted by unabsorbed overhead costs during
construction at the Company's Canadian facility, as well as by increased selling
and marketing expenses in the Company's core business, and were positively
affected by sales growth and improved AngioDynamics manufacturing efficiencies.
Sales for the thirty-nine weeks ended March 2, 1996 increased 6% as
compared to the thirty-nine weeks ended February 25, 1995 due primarily to
increased AngioDynamics sales of $2,676,000, which includes the Pulse SprayTM
pulsed infusion system and Soft-VuTM angiographic catheter line, and
non-contrast systems sales of $1,343,000. Price increases, which accounted for
approximately 1 1/2% of sales in the current period, offset the reduced demand
for the Company's core contrast systems. Sales in international markets,
including direct exports from the United States, increased 8%, or $1,735,000 in
the current period versus the comparable period of last year principally due to
increased sales of AngioDynamics products of $1,052,000 and custom contracts of
$586,000.
Gross profit expressed as a percentage of sales was 41% during both the
current period and the comparable period of last year. Gross profit in the
current period was positively affected by improved AngioDynamics manufacturing
efficiencies, and was negatively impacted by approximately $1,932,000 of
unabsorbed overhead costs during construction at the Company's Canadian
facility.
S&A expenses were $22,278,000 during the thirty-nine weeks ended March 2,
1996 versus $20,152,000 during the thirty-nine weeks ended February 25, 1995.
This increase of $2,126,000, or 11%, in the current period was principally due
to expanded domestic selling and marketing efforts in the Company's core
business approximating $1,147,000 and expanded AngioDynamics
-16-
<PAGE>
selling and marketing efforts in both the domestic and international marketplace
approximating $680,000. Investment in new marketing and product initiatives
contributed to the increased selling and marketing expenses in both industry
segments.
R&D expenditures decreased 12% in the current period to $3,950,000, or 6%
of sales, from $4,472,000, or 7% of sales, in the comparable prior year period.
This decline was due primarily to reduced spending of $387,000 relating to
AngioDynamics projects and reduced spending of $327,000 relating to the
commercialization of H. pylori test-related products, partially offset by
increased contrast system spending of $236,000. Of the R&D expenditures in the
current period, approximately 36% relate to contrast systems, 31% to
AngioDynamics projects, 7% to immunological projects, 16% to other projects and
10% to general regulatory costs.
Other income, net of expenses, increased $47,000 versus the comparable
period of last year. Increased interest income relating to the investment of SDI
sale proceeds was partially offset by the discounting effect of an interest free
loan, which the Company repaid during the comparable period of the prior year.
For the thirty-nine weeks ended March 2, 1996, the Company's unusually low
effective tax rate of 4% differed from the Federal statutory tax rate of 35% due
primarily to earnings of the Company's Puerto Rican subsidiary, which are
subject to favorable United States tax treatment. The Company's effective tax
rate of 57% during the thirty-nine weeks ended February 25, 1995 differed from
the Federal statutory tax rate of 35% due primarily to the fact that the Company
did not provide for the tax benefit on losses incurred in certain jurisdictions,
since, at that time, it was more likely than not that such benefits would not be
realized, and was partially offset by earnings of the Company's Puerto Rican
subsidiary, which are subject to favorable United States tax treatment.
LIQUIDITY AND CAPITAL RESOURCES
During the thirty-nine weeks ended March 2, 1996, capital expenditures and
increased inventory levels (on continuing operations) were funded primarily by
cash reserves. As a result of the sale of SDI in November 1995, the Company
increased its cash reserves by approximately $22,000,000. The proceeds from the
sale of SDI have currently been invested in debt securities. The Company's
policy has been to fund capital requirements without incurring significant debt.
At March 2, 1996, debt (notes payable, current maturities of long-term debt and
long-term debt) was $2,491,000 versus $2,343,000 at June 3, 1995. The Company
has available $4,729,000 under various bank lines of credit of which $525,000
was outstanding at March 2, 1996.
The Company's current policy has been to issue stock dividends. During the
third quarter of fiscals 1993, 1994, 1995 and 1996, the Company issued 3% stock
dividends.
Presently, the Company is continuing to look for both new and complementary
lines of business for expansion in order to ensure its continued growth.
At March 2, 1996, approximately 66% of the Company's assets consist of
inventories, debt and equity securities, accounts receivable, and cash and cash
equivalents. Inventories (on continuing operations) have increased at
-17-
<PAGE>
a greater rate than sales as a result of broadened product lines. The current
ratio is 5.27 to 1, with net working capital of $52,585,000 at March 2, 1996, as
compared to the current ratio of 3.39 to 1, with net working capital of
$33,254,000 at June 3, 1995. The improvement in both the current ratio and net
working capital is a direct result of the cash proceeds received from the sale
of SDI.
-18-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
Part II: Other Information
ITEM 1. LEGAL PROCEEDINGS
Previously, the Company was named as a defendant in the following 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 claimed damages based upon alleged injuries resulting from the
use of one of the Company's products. During the quarter ended March 2, 1996,
the Company was dismissed without prejudice from such action.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K PAGE
(a) Exhibit 27 - Financial data schedule 20
(b) No reports on Form 8-K were filed for the quarter
ended March 2, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
E-Z-EM, Inc.
----------------------------------
(Registrant)
Date: April 11, 1996 /s/ Daniel R. Martin
----------------------------------
Daniel R. Martin, President, Chief
Executive Officer and Director
Date: April 11, 1996 /s/ Dennis J. Curtin
----------------------------------
Dennis J. Curtin, Vice President-
Chief Financial Officer
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Company's Form 10-Q for the quarter ended March 2, 1996 and is qualified in its
entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-01-1996
<PERIOD-END> MAR-02-1996
<CASH> 4,612
<SECURITIES> 20,288
<RECEIVABLES> 14,772
<ALLOWANCES> 521
<INVENTORY> 23,075
<CURRENT-ASSETS> 64,907
<PP&E> 39,800
<DEPRECIATION> 18,436
<TOTAL-ASSETS> 94,851
<CURRENT-LIABILITIES> 12,322
<BONDS> 765
0
0
<COMMON> 921
<OTHER-SE> 78,922
<TOTAL-LIABILITY-AND-EQUITY> 94,851
<SALES> 66,554
<TOTAL-REVENUES> 66,554
<CGS> 39,591
<TOTAL-COSTS> 39,591
<OTHER-EXPENSES> 26,228
<LOSS-PROVISION> 126
<INTEREST-EXPENSE> 198
<INCOME-PRETAX> 1,310
<INCOME-TAX> 55
<INCOME-CONTINUING> 1,255
<DISCONTINUED> 19,410
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,665
<EPS-PRIMARY> 2.16
<EPS-DILUTED> 2.14
</TABLE>
