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 SeptemberDecember 2, 1995
----------------
Commission file number 0-13003
-------
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/X No
/ /------- ------
On October 11, 1995,January 12, 1996, there were 4,032,532 shares of the registrant's Class A
Common Stock outstanding and 4,812,4694,887,709 shares of the registrant's Class B
Common Stock outstanding.
Page 1 of 15
Exhibit Index on Page 1419
E-Z-EM, Inc. and Subsidiaries
INDEX
Part 1: Financial Information Page
- ------- --------------------- ----PART I: FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets - SeptemberDecember 2, 1995 and
June 3, 1995 3 - 4
Consolidated Statements of Earnings - thirteen and
twenty-six weeks ended SeptemberDecember 2, 1995 and fourteenthirteen
and twenty-seven weeks ended SeptemberDecember 3, 1994 5
Consolidated Statement of Stockholders' Equity -
thirteentwenty-six weeks ended SeptemberDecember 2, 1995 6
Consolidated Statements of Cash Flows - thirteentwenty-six
weeks ended SeptemberDecember 2, 1995 and fourteentwenty-seven weeks
ended SeptemberDecember 3, 1994 7 - 8
Notes to Consolidated Financial Statements 9 - 1012
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 1113 - 13
Part17
PART II: Other Information
- -------- -----------------OTHER INFORMATION
Item 1. Legal Proceedings 1418
Item 4. Submission of Matters to a Vote of Security
Holders 18
Item 6. Exhibits and Reports on Form 8-K 1419
-2-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
SeptemberDecember 2, June 3,
ASSETS 1995 1995
---- ----
(unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 3,8854,448 $ 3,962
Debt and equity securities 50826,531 485
Accounts receivable, principally
trade, net 16,18914,590 17,354
Inventories 23,57722,852 22,752
Other current assets 2,2291,807 2,602
------ -------------- -------
Total current assets 46,38870,228 47,155
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 21,17621,411 20,864
COST IN EXCESS OF FAIR VALUE OF NET ASSETS
ACQUIRED, less accumulated amortization 624598 633
INTANGIBLE ASSETS, less accumulated
amortization 642419 463
DEBT AND EQUITY SECURITIES 4,7705,060 4,352
OTHER ASSETS 2,5702,832 2,628
------ ------
$76,170-------- -------
$100,548 $76,095
====== ============== =======
The accompanying notes are an integral part of these financial statements.
-3-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
SeptemberDecember 2, June 3,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1995
---- ----
(unaudited) (audited)
CURRENT LIABILITIES
Notes payable $ 863494 $ 1,021
Current maturities of long-term debt 203204 208
Accounts payable 5,9935,733 6,713
Accrued liabilities 5,3745,486 5,559
Accrued income taxes 5206,067 400
------ -------------- -------
Total current liabilities 12,95317,984 13,901
LONG-TERM DEBT, less current maturities 875766 1,114
OTHER NONCURRENT LIABILITIES 1,7692,004 1,805
MINORITY INTEREST IN SUBSIDIARY 1,452 1,385
CONTINGENCIES
------ -------------- -------
Total liabilities 17,04920,754 18,205
------ -------------- -------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.10 per
share - authorized, 1,000,000 shares;
issued, none - -
Common stock
Class A (voting), par value $.10 per
share - authorized, 12,000,000 shares;
issued and outstanding 4,032,532 shares
at SeptemberDecember 2, 1995 and June 3, 1995 403 403
Class B (non-voting), par value $.10 per
share - authorized, 6,000,000 shares;
issued and outstanding 4,802,7624,887,689 shares
at SeptemberDecember 2, 1995 and 4,785,462
shares at June 3, 1995 481489 479
Additional paid-in capital 11,67012,231 11,570
Retained earnings 45,52265,609 44,953
Unrealized holding gain on debt and
equity securities 2,0762,304 1,786
Cumulative translation adjustments (1,031)(1,242) (1,301)
------ -------------- -------
Total stockholders' equity 59,12179,794 57,890
------ ------
$76,170-------- -------
$100,548 $76,095
====== ============== =======
The accompanying notes are an integral part of these financial statements.
-4-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Thirteen Fourteenweeks ended Twenty-six Twenty-seven
-------------------- weeks ended weeks ended
SeptemberDecember 2, SeptemberDecember 3, December 2, December 3,
1995 1994 1995 1994
---- ---- ---- ----
(in thousands, except per share data)
Net sales $24,130 $23,902$23,005 $21,377 $45,004 $42,922
Cost of goods sold 13,588 12,925
------ ------13,382 12,543 26,250 24,709
------- ------- ------- -------
Gross profit 10,542 10,977
------ ------9,623 8,834 18,754 18,213
------- ------- ------- -------
Operating expenses
Selling and administrative 8,546 8,2278,063 6,827 15,053 13,620
Research and development 1,489 1,617
------ ------1,125 1,502 2,442 2,970
------- ------- ------- -------
Total operating expenses 10,035 9,844
------ ------9,188 8,329 17,495 16,590
------- ------- ------- -------
Operating profit 507 1,133435 505 1,259 1,623
Other income (expense)
Interest income 59 286101 100 160 384
Interest expense (81) (113)(65) (75) (129) (170)
Other, net 51 38
------ ------135 193 186 231
------- ------- ------- -------
Earnings from continuing
operations before
income taxes and minority
share of subsidiary's operations 536 1,344606 723 1,476 2,068
Income tax provision 131 295
------ ------100 273 230 566
------- ------- ------- -------
Earnings before minority sharefrom continuing
operations 506 450 1,246 1,502
Discontinued operation:
Earnings (loss) from
operations, net of subsidiary's operations 405 1,049
Minority sharetaxes (38) 5 (209) 3
Gain on sale, net of subsidiary's operations 164 1
------ ------income
taxes of $6,073,000 19,619 19,619
------- ------- ------- -------
NET EARNINGS $20,087 $ 569455 $20,656 $ 1,050
====== ======1,505
======= ======= ======= =======
Earnings per common share
Primary $ .062.15 $ .12
====== ======.05 $ 2.25 $ .17
======= ======= ======= =======
Fully diluted $ .062.13 $ .12
====== ======.05 $ 2.21 $ .17
======= ======= ======= =======
Weighted average common shares
Primary 8,819,467 8,817,7379,354,645 8,817,945 9,178,723 8,828,170
========= ========= ========= =========
Fully diluted 9,209,386 8,856,3719,448,238 8,817,945 9,328,812 8,837,406
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
-5-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
ThirteenTwenty-six weeks ended SeptemberDecember 2, 1995
(unaudited)
(in thousands, except share data)
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
------ ------ ------ ------ ------- -------- ---------- ----------- -----
Balance at June 3, 1995 4,032,532 $403 4,785,462 $479 $11,570 $44,953 $1,786 $(1,301) $57,890
Exercise of stock options 16,950 2 98 100101,340 10 656 666
Issuance of stock 350 2 2887 5 5
Net earnings 569 56920,656 20,656
Unrealized holding gain on debt
and equity securities 290 290518 518
Foreign currency translation
adjustments 270 27059 59
--------- ---- --------- ---- ------- ------- ------ ------- -------
Balance at SeptemberDecember 2, 1995 4,032,532 $403 4,802,762 $481 $11,670 $45,522 $2,076 $(1,031) $59,1214,887,689 $489 $12,231 $65,609 $2,304 $(1,242) $79,794
========= ==== ========= ==== ======= ======= ====== ======= =======
The accompanying notes are an integral part of this financial statement.
-6-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Thirteen FourteenTwenty-six Twenty-seven
weeks ended weeks ended
SeptemberDecember 2, SeptemberDecember 3,
1995 1994
---- ----
(in thousands)
Cash flows from operating activities:
Net earnings $ 569 $1,050$20,656 $1,505
Adjustments to reconcile net earnings
to net cash provided by operating
activities
Depreciation and amortization 688 6661,338 1,384
Gain on disposal of business (25,692)
Deferred income taxes 340 (2)
Minority share of subsidiary's
operations (164) (1)
Deferred income taxes 17 20(200) 3
Changes in operating assets and
liabilities, net of disposition
Accounts receivable 1,165 2,954831 1,401
Inventories (825) (1,527)(2,267) (2,409)
Other current assets 373 723683 926
Other assets (273) (50)(316) (106)
Accounts payable (720) (434)326 510
Accrued liabilities (185) (733)328 178
Accrued income taxes 103 325,649 75
Other noncurrent liabilities 40 62
------ ------79 121
-------- -------
Net cash provided by operating
activities 788 2,762
------ ------1,755 3,586
-------- -------
Cash flows from investing activities:
Additions to property, plant and
equipment, net (961) (3,353)(2,284) (3,865)
Proceeds from disposal of business,
net of cash sold 26,785
Increase in debt and equity securities (5) (1,975)
------ ------(25,943) (1,980)
-------- -------
Net cash used in investing activities (966) (5,328)
------ ------(1,442) (5,845)
-------- -------
Cash flows from financing activities:
Repayments of debt (313) (637)(352) (712)
Proceeds from issuance of debt 200 189340
Proceeds from issuance of loan by
minority shareholder 231238
Proceeds from exercise of stock options 100666
Issuance of stock in connection with
the stock purchase plan 2
------ ------5
-------- -------
Net cash provided by (used in)
financing activities 220 (448)
------ ------557 (372)
-------- -------
-7-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
Thirteen FourteenTwenty-six Twenty-seven
weeks ended weeks ended
SeptemberDecember 2, SeptemberDecember 3,
1995 1994
---- ----
(in thousands)
Effect of exchange rate changes on
cash and cash equivalents $ (119)(384) $ 332233
------ ------
DECREASEINCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (77) (2,682)486 (2,398)
Cash and cash equivalents
Beginning of period 3,962 6,851
------ ------
End of period $3,885 $4,169$4,448 $4,453
====== ======
Supplemental disclosures of cash
flow information:
Cash paid (refunded) during the period for:
Interest $ 4063 $ 88127
====== ======
Income taxes (net of $69,000$68,000 and
$448,000$449,000 in refunds in 1995 and
1994, respectively) $ 127318 $ (187)111
====== ======
The accompanying notes are an integral part of these financial statements.
-8-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberDecember 2, 1995 and SeptemberDecember 3, 1994
(unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of SeptemberDecember 2, 1995, the consolidated
statement of stockholders' equity for the period ended SeptemberDecember 2, 1995,
and the consolidated statements of earnings and cash flows for the
periods ended SeptemberDecember 2, 1995 and SeptemberDecember 3, 1994, have been prepared
by the Company without audit. In the opinion of management, all
adjustments (which include only normally recurring adjustments)
necessary to present fairly the financial position, changes in
stockholders' equity, results of operations and cash flows at SeptemberDecember
2, 1995 (and for all periods presented) have been made.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted. It is suggested
that these consolidated financial statements be read in conjunction with
the financial statements and notes thereto included in the fiscal 1995
Annual Report on Form 10-K filed by the Company on September 1, 1995.
The results of operations for the periods ended SeptemberDecember 2, 1995 and
SeptemberDecember 3, 1994 are not necessarily indicative of the operating
results for the respective full years.
NOTE B - INVENTORIES
Inventories consist of the following:
SeptemberDecember 2, June 3,
1995 1995
---- ----
(in thousands)
Finished goods $12,292$11,519 $11,856
Work in process 1,8621,800 2,214
Raw materials 9,4239,533 8,682
------- -------
$23,577$22,852 $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
-9-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 2, 1995 and December 3, 1994
(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
$2.10 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 earnings.
Revenues attributable to the SDI operations were approximately
$3,475,000 for the period June 4, 1995 through November 22, 1995 and
$4,879,000 for the twenty-seven weeks ended December 3, 1994. 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
Under the 1983 and 1984 Stock Option Plans, options for 11,000 shares were
granted at $6.00 per share, options for 16,950101,340 shares were exercised at
prices ranging from $4.75 to $6.25 per share and options for 20,85042,125
shares were cancelled at prices ranging from $4.75 to $6.25$10.08 per share
during the thirteentwenty-six weeks ended SeptemberDecember 2, 1995.
Under the Employee Stock Purchase Plan, 350887 shares were purchased at
prices ranging from $4.57 to $6.38 per share during the thirteentwenty-six weeks
ended SeptemberDecember 2, 1995. Total proceeds received by the Company
were $1,599.
-9-approximated $5,000.
-10-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
SeptemberDecember 2, 1995 and SeptemberDecember 3, 1994
(unaudited)
NOTE DE - 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 suit has been brought by an individual plaintiff on his own behalf
and by the plaintiff on behalf of a class of persons allegedly injured
in a similar manner. 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 two unrelated product liability
actions. These suits claim damages based upon alleged injuries
resulting from the use of one of the Company's products. The actions
are in their early stages and while the Company is actively defending
against the claims, it is unable to predict their outcome. It should be
noted that in these actions the Company is one among several defendants
and, as such, the Company's liability, if any, is not quantifiable at
this time. The Company does not believe that the ultimate outcome in
these actions will have a material adverse effect on the consolidated
financial statements.
The Company has been sued by Olympia Holding Corporation p/k/a P-I-E
Nationwide, Inc. for $443,830. The suit, filed on October 5, 1992, is
presently pending in the United States Bankruptcy Court for the Middle
District of Florida. The case is in its preliminary stages. The
Company is being represented in this action by a law firm which is also
representing numerous other defendants being sued by the same plaintiff
on the same grounds - recovery for alleged undercharges for freight
carriage. It is not possible, at this stage, to determine what, if any,
liability exists with respect to the Company in this matter. The
Company will vigorously defend against this action; it has been informed
by legal counsel that there exist numerous valid defenses to this case.
During 1993, Surgical Dynamics Inc.'s ("Surgical") lease agreement on the
Alameda, California office and production facilities was prematurely
terminated by Surgical, a former 51%-owned subsidiary of the Company.
As of the termination, the remaining future minimum lease payments
totalled approximately $3,146,000. Surgical's management is negotiating to
settle the lease commitment. In 1993, Surgical accrued $600,000
for the estimated settlement of the lease commitment. Pursuant to the
terms of the Merger Agreement (reference is made to Note C), the Company
and the previous minority shareholder of Surgical 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.
-11-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 2, 1995 and December 3, 1994
(unaudited)
NOTE EF - RECLASSIFICATIONS
Certain reclassifications have been made to the prior year amounts to
conform to the current year presentation.
-10--12-
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 SEPTEMBERDECEMBER 2, 1995 AND SEPTEMBERDECEMBER 3, 1994
The Company's quarter ended September 2, 1995 represents thirteen weeks
and the quarter ended September 3, 1994 represents fourteen weeks.
RESULTS OF OPERATIONS
SEGMENT OVERVIEW
The diagnostic products industry segment includes both contrast systems
and non-contrast systems. Diagnostic product sales, which increased 2%3% in
the quarter, accounted for 91%88% of sales in the current quarter versus 90%92% in
the comparable period of last year. The surgicalAngioDynamics 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 58% in the
quarter, represented 12% of sales in the current quarter versus 8% in the
comparable period of the prior year.
During the current quarter, the Company discontinued the operation of
its surgical products industry segment when it sold Surgical Dynamics Inc.
("Surgical"), its 51%-owned subsidiary, to United States Surgical
Corporation. 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
$2.10 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 Surgical and the Company's proportionate share of
earnings (loss) from operations of Surgical 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. Surgical product sales, which decreased 10% in the
quarter, represented 9% of sales in the current quarter versus 10% in the
comparable period of the prior year.
Diagnostic segment results for the current quarter were adversely
affected by unabsorbed overhead costs associated with the relocation of a
portion of the Company's core manufacturing operations. Theseoperations, 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 secondthird fiscal quarter,
resulting in lower than normal Canadian gross profits. DiagnosticInvestment in new
marketing and product initiatives contributed to the increased selling and
marketing expenses.
AngioDynamics segment results for the current quarter were positively
affected by sales growth andof 58% coupled with improved manufacturing
efficiencies in the Company'sefficiencies. AngioDynamics division.
Surgical product sales decreased 10% in the current quarter. Sales of
the Nucleotome device declined due to the increased use of alternative
surgical procedures, principally laminectomy. Sales growth in other
surgical products, particularly the Ray Threaded Fusion Cage ("Ray TFCTM"),
partially offset the decline in Nucleotome sales. The Ray TFC device is
used during a surgical procedure known as spinal fusion. The Company needs
regulatory approval to market this product domestically but has already
obtained clearance in certain foreign countries and is actively marketing in
these areas. Surgical segment results for the current quarter were also
adversely affected by increasedincurred operating expenses of $145,000, principally
due to expanded selling and marketing efforts. Surgical Dynamics
contributed losses of $170,000 to E-Z-EM's consolidated operations$143,000 in the
current quarter, as compared to operating losses of $1,000$1,705,000 in the
comparable quarter of the prior year.
CONSOLIDATED RESULTS OF OPERATIONS
For the quarter ended SeptemberDecember 2, 1995, the Company reported net
earnings of $569,000,$20,087,000, or $.06$2.15 and $2.13 per common share on a primary
-13-
and fully diluted basis, respectively, as compared to net earnings of
$1,050,000,$455,000, or $.12$.05 per common share on both a primary and fully diluted
basis, for the comparable period of last year. Results for the current
quarter were positively impacted by the after-tax gain on the sale of
Surgical of $19,619,000, or $2.10 and $2.08 per common share on a primary
and fully diluted basis, respectively.
Earnings from continuing operations for the current quarter were
$506,000, or $.05 per common share on both a primary and fully diluted
basis, as compared to $450,000, or $.05 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 decreased salesincreased selling and
increased operatingmarketing expenses in the surgical
products segment. Results for the current quarter were positively affected
-11-
by sales growth and improved manufacturing efficiencies in the Company's AngioDynamics division.core business.
Sales for the quarter ended SeptemberDecember 2, 1995 increased 1%8% as compared
to the quarter ended SeptemberDecember 3, 1994. Sales in the current quarter were
favorably affected by1994 due primarily to increased
non-contrast systemsAngioDynamics sales of $720,000$975,000, which includes the Pulse SprayTM pulsed
infusion system and priceSoft-VuTM angiographic catheter line. Price increases,
which accounted for approximately 1 1/2% of sales in the current quarter. The increase inquarter
and increased non-contrast systems sales related almost
entirelyof $307,000 also contributed to the
AngioDynamics division, which includes the Pulse SprayTM
pulsed infusion system and Soft-VuTM angiographic catheter line. Sales in
the current quarter were adversely affected by decreased contrast system
sales of $586,000, which resulted from the reduced number of shipping days
in the domestic operations during the current quarter versus the comparable
prior year quarter, and decreased surgical product sales of $263,000.improvement. Sales in international markets, including direct exports
from the United States, increased 2%11%, or $138,000$884,000 in the current quarter
versus the comparable period of last year principally due to increased sales
of AngioDynamics products of $455,000, contrast systems of $292,000, and
non-contrast systems of $227,000, including $118,000$137,000, relating almost entirely to custom
contracts, and
contrast systems of $89,000, partially offset by decreased sales of
surgical products of $178,000.contracts.
Gross profit expressed as a percentage of sales decreasedincreased to 44%42% during
the current quarter from 46%41% in the comparable quarter of the prior year
due primarily to improved AngioDynamics manufacturing efficiencies,
partially offset by approximately $570,000 of unabsorbed overhead costs
during construction at the Company's Canadian facility, partially offset by improved manufacturing
efficiencies in the Company's AngioDynamics division.facility.
Selling and administrative ("S&A") expenses were $8,546,000$8,063,000 during the
quarter ended SeptemberDecember 2, 1995 versus $8,227,000$6,827,000 during the quarter ended
SeptemberDecember 3, 1994. This increase of $319,000,$1,236,000, or 4%18%, in the current
quarter was principally due to expanded domestic selling and marketing
efforts in the Company's core business approximating $756,000 and expanded
AngioDynamics division of $219,000selling and marketing efforts in both the surgical segment of $133,000.domestic and
international marketplace approximating $222,000. 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 decreased 8%25% in the
current quarter to $1,489,000,$1,125,000, or 6%5% of sales, from $1,617,000,$1,502,000, or 7% of
sales, in the comparable quarter of the prior year. This decline was due
primarily to reduced spending of $165,000$346,000 relating to AngioDynamics projects
and reduced spending of $117,000 relating to the commercialization of H.
pylori test-related products. Of the R&D expenditures in the current
quarter, approximately 59%46% relate to interventional radiologycontrast systems, 18% to AngioDynamics
projects, 7% to immunological projects, 15% to contrast systems, 12% to spinal surgery projects, 6% to immunologicalother projects and 8%14% to
other projects.general regulatory costs. R&D expenditures are expected to continue at
approximately current levels.
Other income, net of other expenses, decreased $182,000$47,000 in the current quarter
-14-
versus the comparable period of last year due to the discounting
effectdeclines in realized
foreign currency exchange gains of an interest free loan, which the Company repaid during the
comparable quarter$37,000 and licensing fee income of
the prior year.$20,000.
For the quarter ended SeptemberDecember 2, 1995, the Company's effective tax
rate of 24%17% differed from the Federal statutory tax rate of 34% due
primarily to earnings of the Puerto Rican subsidiary, which are subject to
favorable United States tax treatment, partially offset by the fact that the
Company did not provide for the tax benefit on losses incurred in certain
jurisdictions, since it is more likely than not that such benefits will not
be realized. The Company's effective tax rate of 22% during the quarter
ended September 3, 1994 differed from the Federal statutory tax rate of 34%35% due
primarily to earnings of the Puerto Rican subsidiary, which are subject to
favorable United States tax treatment, and the utilization of net -12-
operating
loss carryforwards in certain jurisdictions. The Company reports 100%Company's effective tax
rate was 38% during the quarter ended December 3, 1994 as compared to the
Federal statutory tax rate of 35%. Significant factors affecting the
Company's effective tax rate were earnings of the revenues and expenses relatedPuerto Rican subsidiary,
which are subject to favorable United States tax treatment, offset by 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.
TWENTY-SIX WEEKS ENDED DECEMBER 2, 1995 AND
TWENTY-SEVEN WEEKS ENDED DECEMBER 3, 1994
RESULTS OF OPERATIONS
SEGMENT OVERVIEW
Diagnostic product sales, which increased 1% during the twenty-six
weeks ended December 2, 1995, accounted for 89% of sales in the current
period versus 92% in the comparable period of last year. AngioDynamics
product sales, which increased 46% during the twenty-six weeks ended
December 2, 1995, represented 11% 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 51%-owned subsidiary,surgical products industry segment when it sold Surgical Dynamics Inc.,
("Surgical") to United States Surgical Corporation. As a result of this
sale, the manufacturerCompany recognized a gain, pre-tax of approximately $25,692,000,
after-tax of approximately $19,619,000, or $2.14 per common share on a
primary basis. The surgical products industry segment has been reported as
a discontinued operation and marketeraccordingly, the gain from the sale of Surgical
and the Company's proportionate share of earnings (loss) from operations of
Surgical have been reported separately from continuing operations in the
consolidated statements of earnings.
Diagnostic segment results for the current period were adversely
affected by unabsorbed overhead costs associated with the relocation of a
portion of the Nucleotome, but only 51%Company's core manufacturing operations, as well as by
increased selling and marketing expenses in the Company's core business.
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 its46% coupled with improved manufacturing
efficiencies. AngioDynamics incurred operating losses of $593,000 in the
current period, as compared to operating losses of $2,346,000 in the
comparable period of last year.
CONSOLIDATED RESULTS OF OPERATIONS
For the twenty-six weeks ended December 2, 1995, the Company reported
-15-
net earnings (loss). The variation
in each reported year between earnings before minorityof $20,656,000, or $2.25 and $2.21 per common share of subsidiary's
operationson a
primary and fully diluted basis, respectively, as compared to net earnings
is causedof $1,505,000, or $.17 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 eliminationafter-tax gain on the sale of
Surgical of $19,619,000, or $2.14 and $2.10 per common share on a primary
and fully diluted basis, respectively.
Earnings from continuing operations for the current period were
$1,246,000, or $.14 and $.13 per common share on a primary and fully diluted
basis, respectively, as compared to $1,502,000, or $.17 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 twenty-six weeks ended December 2, 1995 increased 5% as
compared to the twenty-seven weeks ended December 3, 1994 due primarily to
increased AngioDynamics sales of $1,566,000, which includes the Pulse
SprayTM pulsed infusion system and Soft-VuTM angiographic catheter line and
non-contrast systems sales of $437,000. 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
$1,200,000 in the current period versus the comparable period of last year
principally due to increased sales of AngioDynamics products of $573,000,
contrast systems of $381,000, and non-contrast systems of $246,000, relating
almost entirely to custom contracts.
Gross profit expressed as a percentage of sales was 42% 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
$1,240,000 of unabsorbed overhead costs during construction at the Company's
Canadian facility.
S&A expenses were $15,053,000 during the twenty- six weeks ended December
2, 1995 versus $13,620,000 during the twenty-seven weeks ended December 3, 1994.
This increase of $1,433,000, or 11%, in the current period was principally due
to expanded domestic selling and marketing efforts in the Company's core
business approximating $825,000 and expanded AngioDynamics selling and marketing
efforts in both the domestic and international marketplace approximating
$441,000. Investment in new marketing and product initiatives contributed to the
increased selling and marketing expenses in both industry segments.
R&D expenditures decreased 18% in the current period to $2,442,000, or
5% of sales, from $2,970,000, or 7% of sales, in the comparable prior year
period. This decline was due primarily to reduced spending of $283,000
relating to the commercialization of H. pylori test-related products and
reduced spending of $182,000 relating to AngioDynamics projects. Of the R&D
expenditures in the current period, approximately 36% relate to contrast
systems, 33% to AngioDynamics projects, 7% to immunological projects, 13% to
other projects and 11% to general regulatory costs.
Other income, net of expenses, decreased $228,000 versus the comparable
-16-
period of last year principally due to the discounting effect of an
interest free loan, which the Company repaid during the comparable period of
the 49% minority
interestprior year.
For the twenty-six weeks ended December 2, 1995, the Company's
effective tax rate of 16% differed from the Federal statutory tax rate of
35% due primarily to earnings of the Puerto Rican subsidiary, which are
subject to favorable United States tax treatment, and the utilization of net
operating loss carryforwards in Surgical Dynamics.certain jurisdictions. The Company's
effective tax rate of 27% during the twenty-seven weeks ended December 3,
1994 differed from the Federal statutory tax rate of 35% due primarily to
earnings of the Puerto Rican subsidiary, which are subject to favorable
United States tax treatment, and was partially offset by 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.
LIQUIDITY AND CAPITAL RESOURCES
During the quartertwenty-six weeks ended SeptemberDecember 2, 1995, capital
expenditures and increased inventory levels (on continuing operations) were
funded primarily by cash provided by operations. InAs a result of the past,sale of
Surgical Dynamics in November 1995, the Company increased its cash reserves
by approximately $27,000,000, of which approximately $6,000,000 in Federal
income taxes will be paid in February 1996. The proceeds from the sale of
Surgical have currently been invested in debt securities. The Company's
policy has been to fund capital requirements without incurring significant
debt. At SeptemberDecember 2, 1995, debt (notes payable, current maturities of
long-term debt and long-term debt) declined to $1,941,000$1,464,000 from $2,343,000
at June 3, 1995 and from a previously reported high of $6,219,000 at
February 27, 1993. The Company has available $4,894,000$4,732,000 under various bank
lines of credit of which $350,000 wasno amounts were outstanding at SeptemberDecember 2, 1995.
From fiscal 1991 through the second quarter of fiscal 1993, the Company
paid quarterly cash dividends of $.05 per common share. In orderThe Company's current policy has been to preserve cash reserves, the Company issued 3%issue stock dividends in lieu of
cash dividends duringdividends. During
the third quarter of fiscals 1993, 1994 and 1995.1995, 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 SeptemberDecember 2, 1995, approximately 58%68% of the Company's assets consist
of debt and equity securities, inventories, accounts receivable, and cash
and cash equivalents, and debt and
equity securities.equivalents. Inventories (on continuing operations) have increased
at a greater rate than sales as a result of broadened product lines. The
current ratio is 3.583.91 to 1, with net working capital of $33,435,000$52,244,000 at
SeptemberDecember 2, 1995, as compared to the current ratio of 3.39 to 1, with net
working capital of $33,254,000 at June 3, 1995. The improvement in both the
current ratio and net working capital is a direct result of the cash
proceeds received from the sale of Surgical Dynamics.
During the quarter ended September 2, 1995, the Company entered into a
license agreement to distribute a certain product with commitments which
could aggregate $550,000 over the next two to three fiscal years.
-13--17-
E-Z-EM, Inc. and Subsidiaries
Part II: Other Information
ITEM 1. LEGAL PROCEEDINGS
During the quarter ended September 2, 1995,Pursuant to a contractual agreement with Picker International, Inc.
("Picker"), the Company washas assumed the defense of a lawsuit in which
Picker, along with multiple other named as a
defendant in a product liability action;
EILEEN GUINN AND WILBERN GUINN, PLAINTIFFS VS. ST. JOSEPH'S HOSPITAL
SISTERS OF THE THIRD ORDER OF ST. FRANCIS; BERLAND RADIOLOGY
ASSOCIATES, LTD.; GERALD CLAYCOMB, M.D.; DAWN STILLWAGON, R.N.; AND
E-Z-EM, INC., A CORPORATION, DEFENDANTS, pending in the Circuit Court,
Third Judicial Circuit, Madison County, Illinois, filed on August 22,
1995.
This suit claims damages based upondefendants, has been sued for
injuries alleged injuries resultingto have resulted from the use of oneprotective aprons. The
suit has been brought by an individual plaintiff on his own behalf and by
the plaintiff on behalf of a class of persons allegedly injured in a similar
manner. 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
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.liability. 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 October 12, 1995, the
following persons were elected as Directors of the Company:
CLASS I DIRECTOR: (until the 1997 Annual Meeting)
Michael A. Davis
CLASS II DIRECTORS: (until the 1998 Annual Meeting)
Paul S. Echenberg
Donald A. Meyer
Robert M. Topol
In this election, 3,376,678 votes were cast for Mr. Davis, 3,378,278
votes were cast for Messrs. Echenberg and Topol, 3,378,263 votes were cast
for Mr. Meyer, 196,371 votes were cast against Mr. Davis, 194,771 votes were
cast against Messrs. Echenberg and Topol, 194,786 votes were cast against
Mr. Meyer, 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)
James L. Katz
Daniel R. Martin
CLASS III DIRECTORS: (until the 1996 Annual Meeting)
Phillip H. Meyers, M.D.
Irwin H. Nadel
Howard S. Stern
A proposed amendment to the Company's Restated Certificate of
Incorporation to (i) decrease the number of authorized shares of Class A
Common Stock from 12,000,000 to 6,000,000 and (ii) increase the number of
-18-
authorized shares of Class B Common Stock from 6,000,000 to 10,000,000 was
approved by a vote of 2,916,855 in favor, 652,977 against, and 3,217 shares
abstaining.
A proposed amendment to the Company's 1983 Employee Stock Option Plan
to (i) extend the term, (ii) approve an increase in the number of authorized
shares reserved for issuance from 1,500,000 to 1,600,000, and (iii) provide
that no recipient of options may be granted options in excess of twenty-five
(25%) percent of the maximum number of shares authorized to be issued was
approved by a vote of 2,892,027 in favor, 678,722 against, and 2,300 shares
abstaining.
A proposed amendment to the Company's 1984 Directors and Consultants
Stock Option Plan to (i) extend the term, (ii) approve an increase in the
number of authorized shares reserved for issuance from 300,000 to 400,000,
and (iii) provide that no recipient of options may be granted options in
excess of twenty-five percent (25%) of the maximum number of shares
authorized to be issued was approved by a vote of 3,123,217 in favor,
447,982 against, and 1,850 shares abstaining.
In addition, the action of the Board of Directors in appointing Grant
Thornton LLP as the Company's independent auditors for fiscal year 1996 was
approved by a vote of 3,570,683 in favor, 1,539 against, and 827 shares
abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
PAGE
(a) ExhibitEXHIBITS
No. Description
--- -----------
3(i) Restated Certificate of Incorporation, as amended
10(a) 1983 Stock Option Plan
10(b) 1984 Directors and Consultants Stock Option Plan
27 - Financial data schedule
15
(b) No reportsREPORTS ON FORM 8-K
During the quarter ended December 2, 1995, one report on Form 8-K,
were filed for the quarter ended
Septemberdated November 22, 1995, was filed. The report included Item 2 1995.(Disposition
of Assets) and Item 7 (Pro Forma Financial Information and Exhibits).
-19-
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, 1995January 12, 1996 /s/ Daniel R. Martin
---------------- ----------------------------------
Daniel R. Martin, President, Chief
Executive Officer and Director
Date October 11, 1995January 12, 1996 /s/ Dennis J. Curtin
---------------- ----------------------------------
Dennis J. Curtin, Vice President-
Finance (Chief Accounting and
Financial Officer)
-14-