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 August 31, 1996
---------------
Commission file number 0-13003
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E-Z-EM, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-1999504
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
717 Main Street, Westbury, New York 11590
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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 / /
On October 11, 1996, there were 4,035,346 shares of the registrant's Class A
Common Stock outstanding and 5,264,632 shares of the registrant's Class B Common
Stock outstanding.
Page 1 of 15
Exhibit Index on Page 14
<PAGE>
E-Z-EM, Inc. and Subsidiaries
INDEX
PART 1: FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets - August 31, 1996 and
June 1, 1996 3 - 4
Consolidated Statements of Earnings - thirteen weeks
ended August 31, 1996 and September 2, 1995 5
Consolidated Statement of Stockholders' Equity - thirteen
weeks ended August 31, 1996 6
Consolidated Statements of Cash Flows - thirteen weeks
ended August 31, 1996 and September 2, 1995 7 - 8
Notes to Consolidated Financial Statements 9 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 13
PART II: OTHER INFORMATION
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
August 31, June 1,
ASSETS 1996 1996
---- ----
(unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 2,674 $ 3,363
Debt and equity securities 19,426 20,247
Accounts receivable, principally
trade, net 16,304 16,152
Inventories 25,974 23,708
Other current assets 3,163 2,936
------ ------
Total current assets 67,541 66,406
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 21,761 21,823
COST IN EXCESS OF FAIR VALUE OF NET ASSETS
ACQUIRED, less accumulated amortization 542 558
INTANGIBLE ASSETS, less accumulated
amortization 750 767
DEBT AND EQUITY SECURITIES 2,081 3,647
OTHER ASSETS 3,474 2,836
------- -------
$96,149 $96,037
======= =======
The accompanying notes are an integral part of these financial statements.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
August 31, June 1,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996
------ ------
(unaudited) (audited)
CURRENT LIABILITIES
Notes payable $ 1,407 $ 979
Current maturities of long-term debt 266 268
Accounts payable 5,779 5,095
Accrued liabilities 5,411 6,218
Accrued income taxes 506 338
------- -------
Total current liabilities 13,369 12,898
LONG-TERM DEBT, less current maturities 616 680
OTHER NONCURRENT LIABILITIES 1,894 1,856
CONTINGENCIES ------ ------
Total liabilities 15,879 15,434
------ ------
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
at August 31, 1996 and June 1, 1996 403 403
Class B (nonvoting), par value $.10 per
share - authorized, 10,000,000 shares;
issued and outstanding 5,219,189 shares
at August 31, 1996 and 5,199,615 shares
at June 1, 1996 522 520
Additional paid-in capital 15,303 15,165
Retained earnings 63,860 63,347
Unrealized holding gain on debt and equity
securities 1,348 2,360
Cumulative translation adjustments (1,166) (1,192)
------- -------
Total stockholders' equity 80,270 80,603
------- -------
$96,149 $96,037
====== ======
The accompanying notes are an integral part of these financial statements.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
(in thousands, except share and per share data)
Thirteen weeks ended
--------------------
August 31, September 2,
1996 1995
---- ----
Net sales $23,355 $21,999
Cost of goods sold 13,490 12,868
------ ------
Gross profit 9,865 9,131
------ ------
Operating expenses
Selling and administrative 7,835 6,990
Research and development 1,523 1,317
------ ------
Total operating expenses 9,358 8,307
------ ------
Operating profit 507 824
Other income (expense)
Interest income 213 59
Interest expense (61) (64)
Other, net 50 51
----- -----
Earnings from continuing operations
before income taxes 709 870
Income tax provision 196 130
----- -----
Earnings from continuing operations 513 740
Discontinued operation:
Losses from operations, net of income tax
provision of $1 in 1995 (171)
----- ------
NET EARNINGS $ 513 $ 569
===== =====
Earnings from continuing operations per common share
Primary and fully diluted $ .05 $ .08
===== =====
Earnings per common share
Primary and fully diluted $ .05 $ .06
===== =====
Weighted average common shares
Primary 10,071,568 9,267,075
========== =========
Fully diluted 10,071,568 9,473,659
========== =========
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Thirteen weeks ended August 31, 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 1, 1996 4,035,346 $403 5,199,615 $520 $15,165 $63,347 $2,360 $(1,192) $80,603
Exercise of stock options 19,057 2 133 135
Issuance of stock 517 5 5
Net earnings 513 513
Unrealized holding loss on debt
and equity securities (1,012) (1,012)
Foreign currency translation
adjustments 26 26
--------- --- --------- --- ------ ------ ------ ----- -------
Balance at August 31, 1996 4,035,346 $403 5,219,189 $522 $15,303 $63,860 $1,348 $(1,166) $80,270
========= === ========= === ====== ====== ====== ===== =======
</TABLE>
The accompanying notes are an integral part of this financial statement.
-6-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Thirteen weeks ended
-----------------------
August 31, September 2,
1996 1995
---- ----
Cash flows from operating activities:
Net earnings $ 513 $ 569
Adjustments to reconcile net earnings
to net cash (used in) provided by
operating activities
Depreciation and amortization 690 688
Loss on sale of investments 27
Minority share of subsidiary's
operations (164)
Deferred income taxes 7 17
Changes in operating assets and
liabilities
Accounts receivable (152) 1,165
Inventories (2,266) (825)
Other current assets (227) 373
Other assets (97) (273)
Accounts payable 684 (720)
Accrued liabilities (807) (185)
Accrued income taxes 161 103
Other noncurrent liabilities 41 40
----- -----
Net cash (used in) provided by
operating activities (1,426) 788
------- -----
Cash flows from investing activities:
Additions to property, plant and
equipment, net (593) (961)
(Increase) decrease in debt and equity
securities 807 (5)
----- ------
Net cash provided by (used in) investing
activities 214 (966)
----- ------
Cash flows from financing activities:
Proceeds from issuance of debt 750 200
Repayments of debt (377) (313)
Proceeds from issuance of loan by
minority shareholder 231
Proceeds from exercise of stock options 135 100
Proceeds from issuance of stock in connection
with the stock purchase plan 5 2
----- -----
Net cash provided by financing activities 513 220
----- -----
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
(in thousands)
Thirteen weeks ended
-----------------------
August 31, September 2,
1996 1995
---- ----
Effect of exchange rate changes on
cash and cash equivalents $ 10 $ (119)
------ -------
DECREASE IN CASH AND CASH
EQUIVALENTS (689) (77)
Cash and cash equivalents
Beginning of period 3,363 3,962
------ -------
End of period $2,674 $3,885
===== =====
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 20 $ 40
===== =====
Income taxes (net of $12 and $69
in refunds in 1996 and 1995,
respectively) $ 15 $ 127
===== =====
The accompanying notes are an integral part of these financial statements.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 1996 and September 2, 1995
(unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of August 31, 1996, the consolidated
statement of stockholders' equity for the period ended August 31, 1996, and
the consolidated statements of earnings and cash flows for the periods ended
August 31, 1996 and September 2, 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 August 31, 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 1996 Annual Report on
Form 10-K filed by the Company on August 30, 1996. The results of operations
for the periods ended August 31, 1996 and September 2, 1995 are not
necessarily indicative of the operating results for the respective full
years.
The consolidated financial statements include the accounts of E-Z-EM, Inc. and
all 100%-owned subsidiaries, 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 Company's proportionate share of losses from operations of
SDI have been classified as a discontinued operation for the thirteen weeks
ended September 2, 1995 in the accompanying consolidated statements of
earnings.
NOTE B - INVENTORIES
Inventories consist of the following:
August 31, June 1,
1996 1996
------ ------
(in thousands)
Finished goods $14,267 $13,157
Work in process 1,090 1,159
Raw materials 10,617 9,392
------ ------
$25,974 $23,708
====== ======
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
August 31, 1996 and September 2, 1995
(unaudited)
NOTE C - COMMON STOCK
Under the 1983 and 1984 Stock Option Plans, options for 19,057 shares were
exercised at prices ranging from $4.48 to $5.72 per share, options for 2,455
shares were cancelled at prices ranging from $4.48 to $9.10 per share and no
options were granted during the thirteen weeks ended August 31, 1996.
Under the Employee Stock Purchase Plan, 517 shares were purchased at $9.67 per
share during the thirteen weeks ended August 31, 1996. Total proceeds
received by the Company approximated $5,000.
NOTE D - 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 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.
NOTE E - RECLASSIFICATIONS
Certain reclassifications have been made to the prior year amounts to conform
to the current year presentation.
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is based on the results of continuing
operations of the Company.
QUARTERS ENDED AUGUST 31, 1996 AND SEPTEMBER 2, 1995
The Company's quarters ended August 31, 1996 and September 2, 1995 both
represent thirteen weeks.
RESULTS OF OPERATIONS
SEGMENT OVERVIEW
The Diagnostic products industry segment includes both contrast systems and
non-contrast systems. Diagnostic product sales, which decreased 5% in the
quarter, accounted for 80% of sales in the current quarter versus 90% in the
comparable period of last year. The AngioDynamics products industry segment
includes stent products, angiographic and fluid management products, and
thrombolytic products used in the interventional medicine marketplace.
AngioDynamics product sales, net of intersegment eliminations, increased 105% in
the quarter and represented 20% of sales in the current quarter versus 10% in
the comparable period of the prior year.
Diagnostic segment results for both the current quarter and comparative
quarter of last year were adversely affected by unabsorbed overhead costs
associated with the relocation of a portion of the Company's contrast systems
manufacturing operations. These costs resulted during the planned construction
at the Company's Canadian manufacturing facility. The effects of the relocation
will continue to be felt through the third fiscal quarter of the current year,
resulting in lower than normal Canadian gross profits. Diagnostic results for
the current quarter were also adversely affected by a decline in sales, coupled
with increased selling and marketing expenses in the Company's contrast systems
business.
AngioDynamics segment results for the current quarter were positively
affected by sales growth of 105%, resulting from domestic and international
market penetration and the introduction of the AngioStentTM. The AngioStent, a
device used during coronary procedures as a treatment for atherosclerosis, was
introduced in the third quarter of the prior year in certain international
markets. AngioDynamics contributed operating profits of $419,000 to E-Z-EM's
consolidated operations in the current quarter, an improvement of $868,000 as
compared to operating losses of $449,000 in the comparable quarter of the prior
year. Approximately $200,000 of this improvement is due to the
commercialization, in the second quarter of the prior year, of the Company's
CO2JECTTM system, which delivers carbon dioxide gas as a replacement for more
expensive iodinated contrast media.
CONSOLIDATED RESULTS OF OPERATIONS
For the quarter ended August 31, 1996, the Company reported net earnings of
$513,000, or $.05 per common share on both a primary and fully diluted basis, as
compared to net earnings of $569,000, or $.06 per common share on both a primary
and fully diluted basis, for the comparable period of last year.
-11-
<PAGE>
Earnings from continuing operations for the current quarter were $513,000,
or $.05 per common share on both a primary and fully diluted basis, as compared
to $740,000, or $.08 per common share on both a primary and fully diluted basis,
for the comparable period of last year. Results from continuing operations for
both the current quarter and comparative quarter of last year were adversely
impacted by unabsorbed overhead costs associated with the relocation of a
portion of the Company's contrast systems manufacturing operations. Results from
continuing operations for the current quarter were also adversely affected by a
decline in sales, coupled with increased selling and marketing expenses, in the
Company's contrast systems business, partially offset by AngioDynamics sales
growth.
Net sales for the quarter ended August 31, 1996 increased 6%, or
$1,356,000, as compared to the quarter ended September 2, 1995. Net sales in the
current quarter were favorably affected by increased AngioDynamics sales of
$2,358,000 and price increases, which accounted for nearly 1% of sales in the
current quarter. The AngioDynamics sales growth was due to domestic and
international market penetration and the introduction of the AngioStent. Net
sales in the current quarter were adversely affected by a decline in the
Company's sales of contrast systems. Net sales in international markets,
including direct exports from the U.S., increased 15%, or $1,149,000, in the
current quarter versus the comparable period of last year due to increased sales
of AngioDynamics products of $1,816,000, partially offset by decreased sales of
non-contrast systems of $379,000 and contrast systems of $288,000.
Gross profit expressed as a percentage of sales was 42% during both the
current quarter and the comparable quarter of the prior year. During the current
and prior year quarter, gross profit was negatively impacted by unabsorbed
overhead costs approximating $719,000 and $670,000, respectively. Such costs
were associated with the relocation of a portion of the Company's contrast
systems manufacturing operations.
Selling and administrative ("S&A") expenses were $7,835,000 during the
quarter ended August 31, 1996 versus $6,990,000 during the quarter ended
September 2, 1995. This increase of $845,000, or 12%, in the current quarter was
principally due to increased selling and marketing expenses in the Company's
contrast systems business of $384,000 and increased AngioDynamics S&A expenses
of $303,000. Investment in new product introductions and marketing initiatives
contributed to the increased selling and marketing expenses in both industry
segments. The Company realized a gain on the sale of a facility of $143,000
during the quarter ended September 2, 1995 which also affected the
quarter-to-quarter comparison.
Research and development ("R&D") expenditures increased 16% in the current
quarter to $1,523,000, or 7% of sales, from $1,317,000, or 6% of sales, in the
comparable quarter of the prior year due to increased contrast systems spending.
Of the R&D expenditures in the current quarter, approximately 39% relate to
contrast systems, 36% to AngioDynamics projects, 4% to immunological projects,
12% 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 $156,000 in the current quarter
versus the comparable period of last year due primarily to increased interest
income of $154,000, resulting from the investment of proceeds arising from the
sale of Surgical Dynamics in the second quarter of the prior year.
-12-
<PAGE>
The Company's effective tax rate of 28% during the quarter ended August 31,
1996 differed from the Federal statutory tax rate of 34% due primarily to
earnings of the Puerto Rican subsidiary, which are subject to favorable U.S. tax
treatment, tax-exempt interest income, and the utilization of net operating loss
carryforwards in a certain jurisdiction. For the quarter ended September 2,
1995, the Company's effective tax rate of 15% differed from the Federal
statutory tax rate of 35% due primarily to earnings of the Puerto Rican
subsidiary, which are subject to favorable U.S. tax treatment.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended August 31, 1996, increased inventory levels and
capital expenditures were funded primarily by cash reserves. In the past, the
Company's policy has been to fund capital requirements without incurring
significant debt. At August 31, 1996, debt was $2,289,000 as compared to
$1,927,000 at June 1, 1996. The Company has available $4,731,000 under two bank
lines of credit of which $948,000 was outstanding at August 31, 1996.
The Company's current policy is to issue stock dividends. During the third
quarter of fiscals 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 August 31, 1996, approximately 67% of the Company's assets consist of
inventories, debt and equity securities, accounts receivable, and cash and cash
equivalents. Inventories have increased at a greater rate than sales as a result
of broadened product lines, and safety stock during the relocation of a portion
of the Company's contrast systems manufacturing operations. The current ratio is
5.05 to 1, with net working capital of $54,172,000 at August 31, 1996, as
compared to the current ratio of 5.15 to 1, with net working capital of
$53,508,000 at June 1, 1996.
This Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which are intended to be covered by the safe
harbors created thereby. Investors are cautioned that all forward- looking
statements involve risks and uncertainty, including without limitation, the
ability of the Company to develop its products, as well as general market
conditions, competition and pricing. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this Form 10-Q
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
-13-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
Part II: Other Information
ITEM 5. OTHER INFORMATION
During September 1996, the Company announced that AngioDynamics, Inc., a
wholly-owned subsidiary, will offer up to 20% of its equity to the public. The
offering is expected to occur in early 1997 and is expected to be a firm
commitment underwriting. The offering will be made only by means of a
prospectus.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K PAGE
(a) Exhibit 27 - Financial data schedule 15
(b) No reports on Form 8-K were filed for the quarter
ended August 31, 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 October 11, 1996 /s/ Daniel R. Martin
------------------ -----------------------------------
Daniel R. Martin, President, Chief
Executive Officer and Director
Date October 11, 1996 /s/ Dennis J. Curtin
------------------ -----------------------------------
Dennis J. Curtin, Vice President-
Chief Financial Officer
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-Q for the quarter ended August 31, 1996 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> AUG-31-1996
<CASH> 2,674
<SECURITIES> 19,426
<RECEIVABLES> 16,861
<ALLOWANCES> 557
<INVENTORY> 25,974
<CURRENT-ASSETS> 67,541
<PP&E> 41,300
<DEPRECIATION> 19,539
<TOTAL-ASSETS> 96,149
<CURRENT-LIABILITIES> 13,369
<BONDS> 616
0
0
<COMMON> 925
<OTHER-SE> 79,345
<TOTAL-LIABILITY-AND-EQUITY> 96,149
<SALES> 23,355
<TOTAL-REVENUES> 23,355
<CGS> 13,490
<TOTAL-COSTS> 13,490
<OTHER-EXPENSES> 9,358
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 61
<INCOME-PRETAX> 709
<INCOME-TAX> 196
<INCOME-CONTINUING> 513
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 513
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
