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 1, 1997
-------------
Commission file number 1-11479
-------
E-Z-EM, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-1999504
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
717 Main Street, Westbury, New York 11590
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 333-8230
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
On April 11, 1997, there were 4,035,346 shares of the registrant's Class A
Common Stock outstanding and 5,320,556 shares of the registrant's Class B Common
Stock outstanding.
Page 1 of 21
Exhibit Index on Page 20
<PAGE>
E-Z-EM, Inc. and Subsidiaries
INDEX
-----
Part I: Financial Information Page
- ------- --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets - March 1, 1997 and
June 1, 1996 3 - 4
Consolidated Statements of Operations - thirteen
and thirty-nine weeks ended March 1, 1997 and
March 2, 1996 5
Consolidated Statement of Stockholders' Equity -
thirty-nine weeks ended March 1, 1997 6
Consolidated Statements of Cash Flows - thirty-nine
weeks ended March 1, 1997 and March 2, 1996 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 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 20
-2-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 1, June 1,
ASSETS 1997 1996
---- ----
(unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 2,834 $ 3,363
Debt and equity securities 10,916 20,247
Accounts receivable, principally
trade, net 18,396 16,152
Inventories 27,831 23,708
Other current assets 4,167 2,936
------- ------
Total current assets 64,144 66,406
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 23,880 21,823
COST IN EXCESS OF FAIR VALUE OF NET ASSETS
ACQUIRED, less accumulated amortization 505 558
INTANGIBLE ASSETS, less accumulated
amortization 7,185 767
DEBT AND EQUITY SECURITIES 1,917 3,647
OTHER ASSETS 3,815 2,836
------- ------
$101,446 $96,037
======= ======
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
March 1, June 1,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
--------- ---------
(unaudited) (audited)
CURRENT LIABILITIES
Notes payable $ 6,060 $ 979
Current maturities of long-term debt 503 268
Accounts payable 5,968 5,095
Accrued liabilities 5,883 6,218
Accrued income taxes 290 338
--------- ---------
Total current liabilities 18,704 12,898
LONG-TERM DEBT, less current maturities 955 680
OTHER NONCURRENT LIABILITIES 1,816 1,856
CONTINGENCIES
--------- ---------
Total liabilities 21,475 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 March 1, 1997 and June 1, 1996 403 403
Class B (nonvoting), par value $.10 per
share - authorized, 10,000,000 shares;
issued and outstanding 5,293,648 shares
at March 1, 1997 and 5,199,615 shares
at June 1, 1996 529 520
Additional paid-in capital 15,872 15,165
Retained earnings 63,057 63,347
Unrealized holding gain on debt and equity
securities 1,246 2,360
Cumulative translation adjustments (1,136) (1,192)
--------- ---------
Total stockholders' equity 79,971 80,603
--------- ---------
$ 101,446 $ 96,037
========= =========
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
-------------------- -----------------------
March 1, March 2, March 1, March 2,
1997 1996 1997 1996
-------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 23,576 $ 21,550 $ 72,923 $ 66,554
Cost of goods sold 14,954 13,341 44,185 39,591
-------- -------- -------- --------
Gross profit 8,622 8,209 28,738 26,963
-------- -------- -------- --------
Operating expenses
Selling and administrative 8,325 7,225 24,832 22,278
Research and development 1,792 1,508 4,767 3,950
-------- -------- -------- --------
Total operating expenses 10,117 8,733 29,599 26,228
-------- -------- -------- --------
Operating profit (loss) (1,495) (524) (861) 735
Other income (expense)
Interest income 181 319 603 479
Interest expense (149) (69) (290) (198)
Other, net 40 108 140 294
-------- -------- -------- --------
Earnings (loss) from
continuing operations
before income taxes (1,423) (166) (408) 1,310
Income tax provision (benefit) (377) (175) (118) 55
-------- -------- -------- --------
Earnings (loss) from
continuing operations (1,046) 9 (290) 1,255
Discontinued operation:
Losses from operations, net
of income taxes (209)
Gain on sale, net of income
taxes of $6,073 19,619
-------- -------- -------- --------
NET EARNINGS (LOSS) $ (1,046) $ 9 $ (290) $ 20,665
======== ======== ======== ========
Primary earnings (loss) per common share
Continuing operations $ (.11) $ .00 $ (.03) $ .13
Discontinued operation .00 .00 .00 2.03
Total operations (.11) .00 (.03) 2.16
Fully diluted earnings (loss) per common share
Continuing operations $ (.11) $ .00 $ (.03) $ .13
Discontinued operation .00 .00 .00 2.01
Total operations (.11) .00 (.03) 2.14
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Thirty-nine weeks ended March 1, 1997
(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 93,038 9 698 707
Issuance of stock 995 9 9
Net loss (290) (290)
Unrealized holding loss on debt
and equity securities (1,114) (1,114)
Foreign currency translation
adjustments 56 56
--------- ---- --------- ---- ------- ------- ------ ------- -------
Balance at March 1, 1997 4,035,346 $403 5,293,648 $529 $15,872 $63,057 $1,246 $(1,136) $79,971
========= ==== ========= ==== ======= ======= ====== ======= =======
</TABLE>
The accompanying notes are an integral part of this financial statement.
-6-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Thirty-nine weeks ended
------------------------
March 1, March 2,
1997 1996
--------- ---------
(in thousands)
Cash flows from operating activities:
Net earnings (loss) $ (290) $ 20,665
Adjustments to reconcile net earnings
(loss) to net cash used in operating
activities
Depreciation and amortization 2,216 1,955
Gain on disposal of business (25,692)
Loss on sale of investments 18
Minority share of subsidiary's
operations (200)
Deferred income taxes 219 266
Changes in operating assets and
liabilities, net of acquisition
and disposition
Accounts receivable (2,244) 1,170
Inventories (3,901) (2,490)
Other current assets (1,131) (191)
Other assets (492) (620)
Accounts payable 873 (907)
Accrued liabilities (335) 89
Accrued income taxes (60) 446
Other noncurrent liabilities (2) 121
--------- ---------
Net cash used in operating
activities (5,129) (5,388)
--------- ---------
Cash flows from investing activities:
Additions to property, plant and
equipment, net (3,965) (2,824)
Acquisition of business (7,096)
Proceeds from disposal of business,
net of cash sold 26,785
Held-to-maturity securities
Purchases (104,253)
Proceeds from maturity 105,846
Available-for-sale securities
Purchases (16,880) (30,150)
Proceeds from sale 26,214 9,350
--------- ---------
Net cash (used in) provided by
investing activities (1,727) 4,754
--------- ---------
-7-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
Thirty-nine weeks ended
------------------------
March 1, March 2,
1997 1996
--------- ---------
(in thousands)
Cash flows from financing activities:
Proceeds from issuance of debt $ 6,432 $ 1,363
Repayments of debt (699) (619)
Proceeds from issuance of loan by
minority shareholder 238
Proceeds from exercise of stock options 707 798
Proceeds from issuance of stock in connection
with the stock purchase plan 9 5
------- -------
Net cash provided by financing
activities 6,449 1,785
------- -------
Effect of exchange rate changes on
cash and cash equivalents (122) (501)
------- -------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (529) 650
Cash and cash equivalents
Beginning of period 3,363 3,962
------- -------
End of period $ 2,834 $ 4,612
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 232 $ 109
======= =======
Income taxes (net of $421 and $509 in
refunds in 1997 and 1996, respectively) $ 228 $ 5,077
======= =======
The accompanying notes are an integral part of these financial statements.
-8-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 1, 1997 and March 2, 1996
(unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 1, 1997, the consolidated
statement of stockholders' equity for the period ended March 1, 1997, and
the consolidated statements of operations and cash flows for the periods
ended March 1, 1997 and March 2, 1996, 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 1, 1997 (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 March 1, 1997 and March 2, 1996 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 (the "Company"). Surgical Dynamics Inc.
("SDI"), a 51%-owned subsidiary, 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 the thirty-nine weeks ended
March 2, 1996 in the accompanying consolidated statements of operations.
NOTE B - EARNINGS (LOSS) PER COMMON SHARE
Primary and fully diluted earnings (loss) 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 excluded from both the primary
and fully diluted calculations for the periods ended March 1, 1997, since
their inclusion would be antidilutive, and included in both the primary
and fully diluted calculations for the periods ended March 2, 1996.
-9-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 1, 1997 and March 2, 1996
(unaudited)
NOTE B - EARNINGS (LOSS) PER COMMON SHARE (continued)
The weighted average number of common shares used was:
Thirteen weeks ended Thirty-nine weeks ended
-------------------- -----------------------
March 1, March 2, March 1, March 2,
1997 1996 1997 1996
---- ---- ---- ----
Primary 9,324,794 9,767,847 9,289,396 9,551,687
Fully diluted 9,324,794 9,787,597 9,289,396 9,658,330
NOTE C - INVENTORIES
Inventories consist of the following:
March 1, June 1,
1997 1996
---- ----
(in thousands)
Finished goods $14,713 $13,157
Work in process 2,050 1,159
Raw materials 11,068 9,392
------- -------
$27,831 $23,708
======= =======
NOTE D - ASSET PURCHASE
On January 8, 1997, the Company purchased the assets of Leocor, Inc.
("Leocor") and certain other assets directly from a principal shareholder
of Leocor for approximately $7,096,000, including acquisition costs.
Leocor is a Texas corporation, based in Houston, Texas, which develops and
manufactures angioplasty catheters. No liabilities were assumed in
connection with this acquisition. The acquisition was accounted for under
the purchase method with the results of operations being included in the
Company's consolidated statement of operations from the date of
acquisition. The fair value of the intangible assets acquired
($6,543,000), representing technology, trademarks, licenses and know-how,
are being amortized on a straight-line basis over fifteen years.
In connection with this acquisition, the Company also entered into a
consulting agreement with the principal shareholder of Leocor for
consideration of $200,000. The term of such consulting agreement is for a
period of two years from the acquisition date of January 8, 1997.
-10-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 1, 1997 and March 2, 1996
(unaudited)
NOTE D - ASSET PURCHASE (continued)
The Company also entered into an agreement to lease office space from a
minority shareholder of Leocor for a period of two years from the
acquisition date of January 8, 1997. Minimum future lease commitments
under this agreement approximate $188,000.
NOTE E - COMMON STOCK
Under the 1983 and 1984 Stock Option Plans, options for 10,000 shares were
granted at $10.75 per share, options for 93,038 shares were exercised at
prices ranging from $4.48 to $9.10 per share and options for 19,934 shares
were cancelled at prices ranging from $4.48 to $10.00 per share during the
thirty-nine weeks ended March 1, 1997.
Under the Employee Stock Purchase Plan, 995 shares were purchased at prices
ranging from $9.67 to $9.99 per share during the thirty-nine weeks ended
March 1, 1997. Total proceeds received by the Company approximated $9,000.
NOTE F - CONTINGENCIES
The Company is presently a defendant in two unrelated product liability
actions. These suits claim damages based upon alleged injuries resulting
from the use of one of the Company's products. The actions are in their
early stages and while the Company is actively defending against the
claims, it is unable to predict their outcome. It should be noted that in
one of these actions the Company is one among several defendants and, as
such, the Company's liability, if any, is not quantifiable at this time.
The Company does not believe that the ultimate outcome in these actions
will have a material adverse effect on the consolidated financial
statements.
The Company has been sued by Olympia Holding Corporation p/k/a P-I-E
Nationwide, Inc. for $443,830. The suit, filed on October 5, 1992, is
presently pending in the 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.
-11-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 1, 1997 and March 2, 1996
(unaudited)
NOTE G - SUBSEQUENT EVENT
On March 4, 1997, 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, will be distributed on April 21, 1997 to
shareholders of record on March 31, 1997.
NOTE H - RECLASSIFICATIONS
Certain reclassifications have been made to the prior year amounts to conform
to the current year presentation.
-12-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is based on the results of continuing
operations of the Company.
Quarters ended March 1, 1997 and March 2, 1996
- ----------------------------------------------
Results of Operations
- ---------------------
Segment Overview
----------------
The Diagnostic products industry segment includes both contrast systems and
non-contrast systems. Diagnostic product sales, which remained flat in the
quarter, accounted for 80% of sales in the current quarter versus 88% 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 75% in
the quarter, and represented 20% of sales in the current quarter versus 12% in
the comparable period of the prior year.
Diagnostic segment results for the current quarter were adversely affected by
increased operating expenses of $575,000 and lower gross profits, caused, in
part, by increased inventory reserves of $218,000. 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. The effects
of the relocation will continue to be felt through the first half of next fiscal
year, resulting in lower than normal gross profits in this segment.
AngioDynamics segment results for the current quarter were positively
affected by sales growth of 75%, resulting from international and domestic
market penetration, offset by increased operating expenses of $809,000. The
AngioStent(TM), a device used during coronary procedures, was introduced
internationally by the Company in the third quarter of the prior year and was
the major contributor to the international sales growth during the current
quarter. The AngioDynamics segment incurred an operating loss of $272,000 in the
current quarter, as compared to an operating loss of $299,000 in the comparable
quarter of the prior year.
Consolidated Results of Operations
----------------------------------
For the quarter ended March 1, 1997, the Company reported a net loss of
$1,046,000, or ($.11) per common share on both a primary and fully diluted
basis, as compared to net earnings of $9,000, or $.00 per common share on both a
primary and fully diluted basis, for the comparable period of last year.
Loss from continuing operations for the current quarter was $1,046,000, or
($.11) per common share on both a primary and fully diluted basis, as compared
to earnings from continuing operations of $9,000, or $.00 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
-13-
<PAGE>
quarter were adversely impacted by increased operating expenses in both industry
segments of $1,384,000 and by lower Diagnostic gross profits, partially offset
by AngioDynamics sales growth.
Net sales for the quarter ended March 1, 1997 increased 9% as compared to the
quarter ended March 2, 1996 due primarily to increased sales of AngioDynamics
products of $1,993,000. The AngioDynamics sales growth was due to international
market penetration, due primarily to the introduction of the AngioStent, and
domestic market penetration. Price increases had no effect on net sales in the
current quarter. Net sales in international markets, including direct exports
from the U.S., increased 21%, or $1,658,000 in the current quarter versus the
comparable period of last year due to increased sales of AngioDynamics products
of $1,126,000, contrast systems of $302,000 and non-contrast systems of
$230,000.
Gross profit expressed as a percentage of sales decreased to 37% during the
current quarter from 38% in the comparable quarter of the prior year due
primarily to increased inventory reserves of $218,000 in the Diagnostic segment.
During the current and prior year quarters, gross profit was negatively impacted
by unabsorbed overhead costs approximating $689,000 and $692,000, respectively.
Such costs were associated with the relocation of a portion of the Company's
contrast systems manufacturing operations. The Company's third fiscal quarters
traditionally have fewer production days than the other fiscal quarters,
resulting in somewhat lower gross profit percentages in such quarters.
Selling and administrative ("S&A") expenses were $8,325,000 during the
quarter ended March 1, 1997 versus $7,225,000 during the quarter ended March 2,
1996. This increase of $1,100,000, or 15%, in the current quarter was due to
increased AngioDynamics S&A expenses of $772,000 and Diagnostic S&A expenses of
328,000. Increased AngioDynamics S&A expenses can be attributed to expenses
supporting the 75% sales increase during the current quarter and increased
administrative expenses, partially resulting from the start-up of a facility in
Ireland and the acquisition of Leocor.
Research and development ("R&D") expenditures increased 19% in the current
quarter to $1,792,000, or 8% of sales, from $1,508,000, or 7% of sales, in the
comparable quarter of the prior year. This increase was due to increased
regulatory expenses of $430,000, partially offset by decreased spending of
$146,000 related to all other projects. Of the R&D expenditures in the current
quarter, approximately 32% relate to general regulatory costs, 29% to contrast
systems, 25% to AngioDynamics projects, 3% to immunological projects, and 11% to
other projects. R&D expenditures are expected to continue at approximately
current levels.
Other income, net of expenses, decreased $286,000 in the current quarter
versus the comparable period of last year due primarily to increased foreign
currency exchange losses of $158,000, as well as decreased interest income of
$138,000, resulting, in part, from the use of cash reserves to purchase the
assets of Leocor.
For the quarter ended March 1, 1997, the Company's effective tax benefit rate
of 26% differed from the Federal statutory tax rate of 34% due primarily to the
fact that the Company did not provide for the tax benefit on losses incurred in
a foreign jurisdiction, since it is more likely than not that such benefits will
not be realized, and losses incurred in a foreign jurisdiction subject to lower
tax rates, partially offset by earnings of the Company's Puerto Rican
subsidiary, which are subject to favorable U.S. tax treatment. 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
-14-
<PAGE>
favorable U.S. tax treatment. 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 U.S. 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, at that time, it
was more likely than not that such benefits would not be realized.
Thirty-nine weeks ended March 1, 1997 and March 2, 1996
- -------------------------------------------------------
Results of Operations
- ---------------------
Segment Overview
----------------
Diagnostic product sales, which remained flat during the thirty-nine weeks
ended March 1, 1997, accounted for 81% of sales in the current period versus 89%
in the comparable period of last year. AngioDynamics product sales, which
increased 89% during the thirty-nine weeks ended March 1, 1997, represented 19%
of sales in the current period, as compared to 11% in the prior year.
Diagnostic segment results for the current period were adversely affected by
increased operating expenses of $1,152,000 and lower gross profits, due
primarily to increased inventory reserves of $582,000 and approximately $499,000
of increased unabsorbed overhead costs associated with the relocation of a
portion of the Company's contrast systems manufacturing operations.
AngioDynamics segment results for the current period were positively affected
by sales growth of 89%, resulting from international and domestic market
penetration, partially offset by increased operating expenses of $2,219,000. The
AngioStent was the major contributor to the international sales growth during
the current period. The AngioDynamics segment incurred an operating loss of
$66,000 in the current period, as compared to an operating loss of $862,000 in
the comparable period of last year.
During the comparative period of the prior year, the Company discontinued the
operation of its surgical products industry segment when it sold SDI to United
States Surgical Corporation. As a result of this sale, the Company recognized a
gain, pretax 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 losses
from operations of SDI have been classified as a discontinued operation in the
consolidated statements of operations. The surgical products industry segment
included the Nucleotome(TM) device, the Ray Threaded Fusion Cage(TM) and other
surgical devices and accessories used in spinal surgery.
Consolidated Results of Operations
----------------------------------
For the thirty-nine weeks ended March 1, 1997, the Company reported a net
loss of $290,000, or ($.03) per common share on both a primary and fully diluted
basis, as compared to net earnings of $20,665,000, or $2.16 and $2.14 per common
share on a primary and fully diluted basis, respectively, for the comparable
period of last year. Last year's results included an
-15-
<PAGE>
after-tax gain on the sale of SDI of $19,619,000, or $2.05 and $2.03 per common
share on a primary and fully diluted basis, respectively.
Loss from continuing operations for the current period was $290,000, or
($.03) per common share on both a primary and fully diluted basis, as compared
to earnings from continuing operations of $1,255,000, or $.13 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 period were adversely
impacted by increased operating expenses in both industry segments of $3,371,000
and by lower Diagnostic gross profits, partially offset by AngioDynamics sales
growth.
Net sales for the thirty-nine weeks ended March 1, 1997 increased 10% as
compared to the thirty-nine weeks ended March 2, 1996 due primarily to increased
sales of AngioDynamics products of $6,658,000. The AngioDynamics sales growth
was due to international market penetration, due primarily to the introduction
of the AngioStent, and domestic market penetration. Price increases had no
effect on net sales in the current period. Net sales in international markets,
including direct exports from the U.S., increased 19%, or $4,662,000 in the
current period versus the comparable period of last year due to increased sales
of AngioDynamics products of $4,451,000 and non-contrast systems of $258,000,
partially offset by decreased sales of contrast systems of $47,000.
Gross profit expressed as a percentage of sales decreased to 39% during the
current period from 41% in the comparable period of last year due primarily to
increased inventory reserves of $582,000 in the Diagnostic segment and
approximately $499,000 of increased unabsorbed overhead costs associated with
the relocation of a portion of the Company's contrast systems manufacturing
operations.
S&A expenses were $24,832,000 during the thirty-nine weeks ended March 1,
1997 versus $22,278,000 during the thirty-nine weeks ended March 2, 1996. This
increase of $2,554,000, or 11%, in the current period was due to increased
AngioDynamics S&A expenses of $1,742,000 and increased Diagnostic S&A expenses
of $812,000. Increased AngioDynamics S&A expenses can be attributed to expenses
supporting the 89% sales increase during the current period and increased
administrative expenses, partially resulting from the start-up of a facility in
Ireland and the acquisition of Leocor. The increase in Diagnostic S&A expenses
resulted primarily from severance costs of $365,000 during the current period
and a gain on the sale of a facility of $145,000 during the comparative prior
year period.
R&D expenditures increased 21% in the current period to $4,767,000, or 7% of
sales, from $3,950,000, or 6% of sales, in the comparable prior year period.
This increase was due primarily to increased spending of $477,000 relating to
AngioDynamics projects and increased regulatory expenses of $470,000. Of the R&D
expenditures in the current period, approximately 36% relate to AngioDynamics
projects, 31% to contrast systems, 18% to general regulatory costs, 4% to
immunological projects, and 11% to other projects.
Other income, net of expenses, decreased $122,000 versus the comparable
period of last year due primarily to increased foreign currency exchange losses
of $100,000.
The Company's effective tax benefit rate of 29% during the thirty-nine weeks
ended March 1, 1997 differed from the Federal statutory tax rate of 34% due
primarily to non-deductible expenses, losses incurred in a foreign
-16-
<PAGE>
jurisdiction subject to lower tax rates, and 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, partially
offset by earnings of the Company's Puerto Rican subsidiary, which are subject
to favorable U.S. tax treatment, and tax-exempt interest income. 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 U.S. tax treatment.
Liquidity and Capital Resources
- -------------------------------
During the thirty-nine weeks ended March 1, 1997, the purchase of Leocor,
capital expenditures and increased inventory levels were funded primarily by
cash reserves and proceeds from the issuance of bank debt. In the past, the
Company's policy has been to fund capital requirements without incurring
significant debt. At March 1, 1997, debt (notes payable, current maturities of
long-term debt and long-term debt) was $7,518,000 as compared to $1,927,000 at
June 1, 1996. The Company has available $12,045,000 under four bank lines of
credit of which $5,230,000 was outstanding at March 1, 1997.
The Company's current policy has been to issue stock dividends. During each
third quarter of fiscal years 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.
On January 8, 1997, the Company purchased the assets of Leocor, Inc.
("Leocor") and certain other assets directly from a principal shareholder of
Leocor for approximately $7,096,000, including acquisition costs. Leocor is a
Texas corporation, based in Houston, Texas, which develops and manufactures
angioplasty catheters.
The purchase of Leocor is a strategic acquisition for the AngioDynamics
business segment. Angioplasty catheters are used as a delivery system for the
AngioStent and the acquisition enables AngioDynamics to vertically integrate its
stent manufacturing capability, as well as to compete in the worldwide
angioplasty market.
At March 1, 1997, approximately 59% of the Company's assets consist of
inventories, accounts receivable, debt and equity securities, 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
3.43 to 1, with net working capital of $45,440,000 at March 1, 1997, as compared
to the current ratio of 5.15 to 1, with net working capital of $53,508,000 at
June 1, 1996. The decline in both the current ratio and net working capital is a
direct result of the purchase of Leocor.
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-
-17-
<PAGE>
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.
-18-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
Part II: Other Information
Item 1. Legal Proceedings
-----------------
During the quarter ended March 1, 1997, the Company was named as a defendant
in a product liability action;
PATRICIA M. HELLER AND WAYNE HELLER, PLAINTIFFS VS. E-Z-EM, INC., A
CORPORATION, DEFENDANT, pending in the Court of Common Pleas, Montgomery County,
Pennsylvania, filed on February 25, 1997.
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. The Company does not believe that the ultimate outcome in this action
will have a material adverse effect on the consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Annual Meeting of Shareholders held March 5, 1997, the following
persons were elected as Directors of the Company:
Class III Directors: (until the 1999 Annual Meeting)
--------------------
Howard S. Stern
David P. Meyers
In this election, 3,405,589 votes were cast for Messrs. Stern and Meyers,
185,001 votes were cast against Messrs. Stern and Meyers, and no shares
abstained from voting.
The following Directors continue in office for the duration of their terms:
Class I Directors: (until the 1997 Annual Meeting)
------------------
Michael A. Davis, M.D.
James L. Katz, CPA, JD
Daniel R. Martin
Class II Directors: (until the 1998 Annual Meeting)
-------------------
Paul S. Echenberg
Donald A. Meyer
Robert M. Topol
The action of the Board of Directors in appointing Grant Thornton LLP as the
Company's independent auditors for fiscal year 1997 was approved by a vote of
3,589,391 in favor, 1,199 against, and no shares abstaining.
A proposed amendment to Section 4.1.1. of the Restated Certificate of
Incorporation of the Company to change the requirement for the approval of
certain significant matters from sixty-six percent (66%) of the holders of
-19-
<PAGE>
the total issued and outstanding shares of the Company's Class A Common Stock,
to sixty-six percent (66%) of the holders of shares of the Company's Class A
Common Stock voting on such matters was approved by a vote of 3,344,386 in
favor, 5,226 against, and 240,978 shares abstaining.
A proposed public offering of shares of the Company's wholly-owned
subsidiary, AngioDynamics, Inc., as part of a reorganization of the Company
whereby the business previously conducted by its AngioDynamics division is
separated from the Company was approved by a vote of 3,025,518 in favor, 323,933
against, and 241,139 shares abstaining.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
No. Description Page
--- ----------- ----
27 Financial data schedule 21
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended March 1, 1997.
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 15, 1997 /s/ Daniel R. Martin
-------------- ----------------------------------
Daniel R. Martin, President, Chief
Executive Officer and Director
Date April 15, 1997 /s/Dennis J.Curtin
-------------- -----------------------------------
Dennis J. Curtin, Vice President-
Chief Financial Officer
-20-
<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 1, 1997 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> MAY-31-1997
<PERIOD-END> MAR-01-1997
<CASH> 2,834
<SECURITIES> 10,916
<RECEIVABLES> 19,024
<ALLOWANCES> 628
<INVENTORY> 27,831
<CURRENT-ASSETS> 64,144
<PP&E> 44,606
<DEPRECIATION> 20,726
<TOTAL-ASSETS> 101,446
<CURRENT-LIABILITIES> 18,704
<BONDS> 955
0
0
<COMMON> 932
<OTHER-SE> 79,039
<TOTAL-LIABILITY-AND-EQUITY> 101,446
<SALES> 72,923
<TOTAL-REVENUES> 72,923
<CGS> 44,185
<TOTAL-COSTS> 44,185
<OTHER-EXPENSES> 29,599
<LOSS-PROVISION> 122
<INTEREST-EXPENSE> 290
<INCOME-PRETAX> (408)
<INCOME-TAX> (118)
<INCOME-CONTINUING> (290)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (290)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
