-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Hjx42jTj0hv8BDx9FLsA0Qx/j3uFLZimOxu9YtS2LIn+KcQL6UN7p299iCBQcn4m sJkvO/NYnh5XQJue0tPyMw== 0000921895-95-000010.txt : 19950414 0000921895-95-000010.hdr.sgml : 19950414 ACCESSION NUMBER: 0000921895-95-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950225 FILED AS OF DATE: 19950407 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EZ EM INC CENTRAL INDEX KEY: 0000727008 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 111999504 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13003 FILM NUMBER: 95527584 BUSINESS ADDRESS: STREET 1: 717 MAIN ST CITY: WESTBURY STATE: NY ZIP: 11590 BUSINESS PHONE: 5163338230 10-Q 1 QUARTERLY REPORT 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 February 25, 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/ No / / On April 5, 1995, there were 4,032,532 shares of the registrant's Class A Common Stock outstanding and 4,785,462 shares of the registrant's Class B Common Stock outstanding. Page 1 of 20 Exhibit Index on Page 18 E-Z-EM, Inc. and Subsidiaries INDEX PART I: FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheets - February 25, 1995 and May 28, 1994 3 - 4 Consolidated Statements of Operations - twelve and thirty-nine weeks ended February 25, 1995 and thirteen and thirty-nine weeks ended February 26, 1994 5 Consolidated Statement of Stockholders' Equity - thirty-nine weeks ended February 25, 1995 6 Consolidated Statements of Cash Flows - thirty-nine weeks ended February 25, 1995 and February 26, 1994 7 - 8 Notes to Consolidated Financial Statements 9 - 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 - 17 PART II: OTHER INFORMATION Item 1. Legal Proceedings 18 Item 6. Exhibits and Reports on Form 8-K 18 -2- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands) February 25, May 28, ASSETS 1995 1994 ------ ------ (unaudited) (audited) CURRENT ASSETS Cash and cash equivalents $ 2,789 $ 6,851 Debt and equity securities 473 485 Accounts receivable, principally trade, net 15,591 17,587 Inventories 21,895 18,919 Other current assets 2,465 2,432 ------ ------ Total current assets 43,213 46,274 PROPERTY, PLANT AND EQUIPMENT - AT COST, less accumulated depreciation and amortization 20,768 18,572 COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED, less accumulated amortization 641 679 INTANGIBLE ASSETS, less accumulated amortization 484 467 DEBT AND EQUITY SECURITIES 5,545 3,264 OTHER ASSETS 2,857 2,275 ------ ------ $73,508 $71,531 ====== ====== The accompanying notes are an integral part of these financial statements. -3- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands) February 25, May 28, LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994 ------ ------ (unaudited) (audited) CURRENT LIABILITIES Notes payable $ 1,194 $ 777 Current maturities of long-term debt 183 2,307 Accounts payable 4,755 4,394 Accrued liabilities 5,057 5,246 Accrued income taxes 463 462 ------ ------ Total current liabilities 11,652 13,186 LONG-TERM DEBT, less current maturities 461 586 OTHER NONCURRENT LIABILITIES 1,670 1,553 MINORITY INTEREST IN SUBSIDIARY 1,957 1,937 CONTINGENCIES ------ ------ Total liabilities 15,740 17,262 ------ ------ 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 February 25, 1995 and May 28, 1994 403 403 Class B (non-voting), par value $.10 per share - authorized, 6,000,000 shares; issued and outstanding 4,785,212 shares at February 25, 1995 and 4,528,680 shares at May 28, 1994 479 453 Additional paid-in capital 11,570 10,505 Retained earnings 43,750 44,414 Unrealized holding gain on debt and equity securities 2,933 Cumulative translation adjustments (1,367) (1,506) ------ ------ Total stockholders' equity 57,768 54,269 ------ ------ $73,508 $71,531 ====== ====== The accompanying notes are an integral part of these financial statements. -4- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Twelve Thirteen Thirty-nine weeks ended weeks ended weeks ended ----------------------- February 25, February 26, February 25, February 26, 1995 1994 1995 1994 ------ ------ ------ ------ (in thousands, except per share data) Net sales $21,961 $22,633 $69,762 $66,721 Cost of goods sold 13,142 14,510 39,478 40,159 ------ ------ ------ ------ Gross profit 8,819 8,123 30,284 26,562 ------ ------ ------ ------ Operating expenses Selling and administrative 8,109 7,784 24,706 23,125 Research and development 1,712 2,068 4,985 5,669 ------ ------ ------ ------ Total operating expenses 9,821 9,852 29,691 28,794 ------ ------ ------ ------ Operating profit (loss) (1,002) (1,729) 593 (2,232) Other income (expense) Interest income 83 118 471 371 Interest expense (67) (98) (251) (312) Other, net 58 11 289 205 ------ ------ ------ ------ Earnings (loss) before income taxes and minority share of sub- sidiary's operations (928) (1,698) 1,102 (1,968) Income tax provision 386 268 908 859 ------ ------ ------ ------ Earnings (loss) before minority share of sub- sidiary's operations (1,314) (1,966) 194 (2,827) Minority share of subsidiary's operations 237 55 234 (29) ------ ------ ------ ------ NET EARNINGS (LOSS) $(1,077) $(1,911) $ 428 $(2,856) ===== ===== ===== ===== Earnings (loss) per common share Primary and fully diluted $ (.12) $ (.22) $ .05 $ (.32) ===== ===== ===== ===== Weighted average common shares Primary and fully diluted 8,817,744 8,817,609 8,817,742 8,816,542 ========= ========= ========= ========= The accompanying notes are an integral part of these financial statements. -5- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Thirty-nine weeks ended February 25, 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 May 28, 1994 4,032,532 $403 4,528,680 $453 $10,505 $44,414 $(1,506) $54,269 Issuance of stock 20 3% common stock dividend ($1,383 paid in cash in lieu of fractional shares) 256,512 26 1,065 (1,092) (1) Net earnings 428 428 Unrealized holding gain on debt and equity securities $2,933 2,933 Foreign currency translation adjustments 139 139 --------- ---- --------- ---- ------- ------- ------ ------- ------- Balance at February 25, 1995 4,032,532 $403 4,785,212 $479 $11,570 $43,750 $2,933 $(1,367) $57,768 ========= === ========= === ====== ====== ===== ===== ======
The accompanying notes are an integral part of this financial statement. -6- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Thirty-nine weeks ended ----------------------- February 25, February 26, 1995 1994 ---- ---- (in thousands) Cash flows from operating activities: Net earnings (loss) $ 428 $(2,856) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities Depreciation and amortization 2,067 2,076 Gain on sale of investments (33) Minority share of subsidiary's operations (234) 29 Changes in operating assets and liabilities Accounts receivable 1,996 2,128 Inventories (2,976) 327 Other current assets (33) (24) Other assets 24 7 Accounts payable 361 233 Accrued liabilities (190) 50 Accrued income taxes 1 (118) Other noncurrent liabilities 89 138 ----- ----- Net cash provided by operating activities 1,533 1,957 ----- ----- Cash flows from investing activities: Additions to property, plant and equipment, net (4,152) (1,677) Increase in debt and equity securities (19) (233) ----- ----- Net cash used in investing activities (4,171) (1,910) ----- ----- Cash flows from financing activities: Repayments of debt (3,047) (879) Proceeds from issuance of debt 1,134 891 Proceeds from minority shareholder 254 Issuance of stock in connection with the stock purchase plan 22 ----- ----- Net cash (used in) provided by financing activities (1,659) 34 ----- ----- -7- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (unaudited) Thirty-nine weeks ended ----------------------- February 25, February 26, 1995 1994 ---- ---- (in thousands) Effect of exchange rate changes on cash and cash equivalents $ 235 $ (760) ----- ----- DECREASE IN CASH AND CASH EQUIVALENTS (4,062) (679) Cash and cash equivalents Beginning of period 6,851 7,054 ----- ----- End of period $2,789 $6,375 ===== ===== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 171 $ 239 ===== ===== Income taxes (net of refunds of $449,000 and $245,000 in 1995 and 1994, respectively) $ 404 $ 615 ===== ===== The accompanying notes are an integral part of these financial statements. -8- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS February 25, 1995 and February 26, 1994 (unaudited) NOTE A - CONSOLIDATED FINANCIAL STATEMENTS The consolidated balance sheet as of February 25, 1995, the consolidated statement of stockholders' equity for the period ended February 25, 1995, and the consolidated statements of operations and cash flows for the periods ended February 25, 1995 and February 26, 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 February 25, 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 1994 Annual Report on Form 10-K filed by the Company on August 26, 1994. The results of operations for the periods ended February 25, 1995 and February 26, 1994 are not necessarily indicative of the operating results for the respective full years. NOTE B - DEBT AND EQUITY SECURITIES The Company has adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). Pursuant to SFAS 115, this Statement has not been applied retroactively to prior years' financial statements. Pursuant to SFAS 115, debt and equity securities are to be classified in three categories and accounted for as follows: Debt securities that the Company has the positive intent and ability to hold to maturity are classified as "held-to-maturity securities" and reported at amortized cost; debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as "trading securities" and reported at fair value, with unrealized gains and losses included in operations; and debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as "available-for-sale securities" and reported at fair value, with unrealized gains and losses excluded from operations and reported as a separate component of stockholders' equity. Cost is determined using the specific identification method. -9- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) February 25, 1995 and February 26, 1994 (unaudited) NOTE B - DEBT AND EQUITY SECURITIES (continued) Debt and equity securities at February 25, 1995 consist of the following: Unrealized Amortized Fair Holding Cost Value Gain (Loss) -------- ----- ----------- (in thousands) CURRENT Held-to-maturity securities (carried on the balance sheet at amortized cost) Debt securities $ 75 $ 75 ----- ----- Available-for-sale securities (carried on the balance sheet at fair value) Equity securities 398 354 $ (35) Other 44 44 ----- ----- ----- 442 398 (35) ----- ----- ----- $ 517 $ 473 $ (35) ===== ===== ===== NONCURRENT Held-to-maturity securities (carried on the balance sheet at amortized cost) Debt securities with maturities after one year through five years $1,594 $1,616 ----- ----- Available-for-sale securities (carried on the balance sheet at fair value) Equity securities 1,662 3,950 $2,288 Other 1 1 ----- ----- ----- 1,663 3,951 2,288 ----- ----- ----- $3,257 $5,567 $2,288 ===== ===== ===== -10- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) February 25, 1995 and February 26, 1994 (unaudited) NOTE C - INVENTORIES Inventories consist of the following: February 25, May 28, 1995 1994 ------ ------ (in thousands) Finished goods $10,177 $ 8,927 Work in process 2,135 1,704 Raw materials 9,583 8,288 ------ ------ $21,895 $18,919 ====== ====== NOTE D - COMMON STOCK On January 24, 1995, the Board of Directors declared a 3% stock dividend on shares of Class A and Class B Common Stock. The dividend, payable in non-voting Class B Stock, was distributed on March 16, 1995 to shareholders of record on February 24, 1995. Earnings (loss) per common share have been retroactively adjusted to reflect the stock dividend. Under the 1983 and 1984 Stock Option Plans, options for 1,013,415 shares were granted at prices ranging from $4.25 to $4.75 per share, options for 407,368 shares were cancelled at prices ranging from $4.75 to $16.75 per share and no options were exercised during the thirty-nine weeks ended February 25, 1995. Under the Employee Stock Purchase Plan, 20 shares were purchased at $4.46 per share during the thirty-nine weeks ended February 25, 1995. Total proceeds received by the Company approximated $89.00. NOTE E - 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 its liability in this case will exceed its insurance coverage. The Company was the defendant in a product liability action with respect to an alleged adverse reaction to one of its products. Such action was settled in October 1994. The settlement was covered by insurance. -11- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS February 25, 1995 and February 26, 1994 (unaudited) NOTE E - CONTINGENCIES (continued) During March 1994, the Company began recalling its effervescent granules and colon cleansing products due to packaging and formulation problems, which might have resulted in inconsistent product performance over time. The recalls were initiated by the Company's desire to ensure complete product efficacy, as patient safety issues were not involved. The Company recorded a pre-tax provision in the aggregate amount of $1,546,000 during fiscal 1994, with respect to such recalls. These products currently account for less than five percent of the Company's sales volume. Included in accrued liabilities and inventory are reserves related to these recalls of approximately $50,000 and $174,000, respectively, at February 25, 1995. 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 fiscal 1993, Surgical Dynamics Inc.'s ("Surgical") lease agreement on the Alameda, California office and production facilities was terminated prematurely. Surgical is a 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 with its former landlord to settle the lease commitment. In fiscal 1993, Surgical accrued $600,000 for the estimated settlement of the lease commitment. The final resolution of actual amounts, however, is dependent upon future events, the outcome of which is not fully determinable at the present time. NOTE F - RECLASSIFICATIONS Certain reclassifications have been made to the prior year amounts to conform to the current year presentation. -12- E-Z-EM, Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS QUARTERS ENDED FEBRUARY 25, 1995 AND FEBRUARY 26, 1994 The Company's quarter ended February 25, 1995 represents twelve weeks and the quarter ended February 26, 1994 represents 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 3% during the quarter, accounted for 90% of sales in the current quarter versus 91% in the comparable prior year quarter. The surgical products industry segment includes the Nucleotome device and other surgical devices and accessories used in spinal surgery. Surgical product sales, which increased 1% during the quarter, represented 10% of sales in the current quarter versus 9% in the comparable prior year quarter. Diagnostic segment results for the current quarter were adversely affected by reduced sales, resulting, in part, from the reduced number of shipping days in the domestic operations during the current quarter. Diagnostic results for the comparable quarter of the prior year were adversely impacted by the anticipated cost of product recalls, which the Company began in March 1994, due to packaging and formulation problems with its effervescent granules and colon cleansing products. Diagnostic results for the comparable quarter of the prior year were also adversely affected by a decline in sales of contrast systems in the domestic market. The Company attributes the sales decline in the comparable quarter of the prior year to the turmoil in the healthcare industry from proposed reform, which resulted in reduced patient procedures, consequent purchasing cutbacks on the part of hospitals, and a generalized slowdown in our customers' orders. Surgical segment results for the current quarter were adversely affected by increased operating expenses of $204,000, principally due to expanded selling and marketing efforts in both the domestic and international marketplace. Surgical Dynamics contributed losses of $246,000 to E-Z-EM's consolidated operations in the current quarter, as compared to losses of $57,000 in the comparable quarter of the prior year. CONSOLIDATED RESULTS OF OPERATIONS For the quarter ended February 25, 1995, the Company reported a net loss of $1,077,000, or ($.12) per common share, as compared to a net loss of $1,911,000, or ($.22) per common share, for the comparable period of last year. Results for the current quarter were adversely affected by reduced sales, resulting, in part, from the reduced number of shipping days in the domestic operations during the current quarter. Results for the comparable quarter of the prior year were adversely impacted by the reserve for product recalls of $1,008,000 and severance benefits accrued or paid to terminated employees of $480,000. The reserve for product recalls is included in cost of goods sold and selling and administrative expenses in the consolidated statements of operations. -13- Sales for the quarter ended February 25, 1995 decreased 3% as compared to the quarter ended February 26, 1994 due primarily to decreased contrast system sales of $1,063,000, which resulted from the reduced number of shipping days in the domestic operations during the current quarter versus the comparable prior year quarter, partially offset by price increases, which accounted for approximately 2% of sales in the current quarter. Sales in international markets, including direct exports from the United States, increased 3%, or $241,000, in the current quarter versus the comparable period of last year due primarily to increased sales of non-contrast systems. Gross profit expressed as a percentage of sales increased to 40% during the current quarter from 36% in the comparable period of last year. The lower gross profit percentage in the comparable period of the prior year was due primarily to the reserve for product recalls of $884,000 and severance benefits accrued or paid to terminated employees of $194,000. 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 $8,109,000 during the quarter ended February 25, 1995 versus $7,784,000 during the quarter ended February 26, 1994. This increase of $325,000, or 4%, in the current quarter was principally due to expanded diagnostic S&A efforts in the international marketplace approximating $172,000 and expanded surgical selling and marketing efforts in both the domestic and international marketplace of $132,000. Research and development ("R&D") expenditures decreased 17% in the current quarter to $1,712,000, or 8% of sales, from $2,068,000, or 9% of sales, in the comparable prior year quarter. Included in the comparable prior year quarter were severance benefits accrued or paid to terminated employees approximating $261,000. Of the R&D expenditures in the current quarter, approximately 64% relate to interventional radiology projects, 12% to spinal surgery projects, 10% to contrast systems, 8% to immunological projects and 6% to other projects. R&D expenditures are expected to continue at approximately current levels and significant revenues resulting from future product commercialization are not anticipated during the balance of this fiscal year. Other income, net of expenses, increased $43,000 during the current quarter versus the comparable period of last year due to foreign currency exchange gains realized in the current quarter. For the quarter ended February 25, 1995, the Company reported an income tax provision of $386,000 notwithstanding a loss before income taxes and minority share of subsidiary's operations of $928,000. In general, this was due to the fact that the Company did not provide for the tax benefit on losses incurred in certain jurisdictions, since it is more likely than not that such benefits will not be realized. For the quarter ended February 26, 1994, the Company reported an income tax provision of $268,000 notwithstanding a loss before income taxes and minority share of subsidiary's operations of $1,698,000. In general, this was due to the fact that the Company did not provide for the tax benefit on losses incurred in certain jurisdictions, since it is more likely than not that such benefits will not be realized, and was partially offset by earnings of the Puerto Rican subsidiary, which are subject to favorable United States tax treatment. -14- The Company reports 100% of the revenues and expenses related to its 51%-owned subsidiary, Surgical Dynamics Inc., the manufacturer and marketer of the Nucleotome, but only 51% of its net earnings (loss). The variation in each reported year between earnings (loss) before minority share of subsidiary's operations and net earnings (loss) is caused by the elimination of the 49% minority interest in Surgical Dynamics. THIRTY-NINE WEEKS ENDED FEBRUARY 25, 1995 AND FEBRUARY 26, 1994 RESULTS OF OPERATIONS SEGMENT OVERVIEW Diagnostic product sales, which increased 4% during the thirty-nine weeks ended February 25, 1995, accounted for 90% of sales in the current period versus 91% in the comparable period of last year. Surgical product sales, which increased 12% during the thirty-nine weeks ended February 25, 1995, represented 10% of sales in the current period, as compared to 9% in the prior year. Diagnostic results for the current period were positively impacted by increased sales demand and improved gross margins, partially offset by increased domestic selling and marketing expenses. Diagnostic results for the comparable period of the prior year were adversely affected by the anticipated cost of product recalls, as well as a decline in sales of contrast systems in the domestic market. The Company attributes the sales decline in the comparable period of the prior year to the turmoil in the healthcare industry from proposed reform. Surgical product sales increased 12% in the current period due primarily to the introduction of the Nucleotome EndoFlexTM (the "EndoFlex"), a device used in endoscopic lumbar discectomy. The EndoFlex provides maneuverable flexible cutting, endoscopic visualization, and safe effective removal of disc material through a single 4.5 mm incision. Surgical results for the current period were adversely affected by increased operating expenses of $645,000, principally due to expanded selling and marketing efforts in both the domestic and international marketplace. Surgical Dynamics contributed losses of $243,000 to E-Z-EM's consolidated operations in the current period, as compared to earnings of $30,000 in the comparable period of the prior year. CONSOLIDATED RESULTS OF OPERATIONS For the thirty-nine weeks ended February 25, 1995, the Company reported net earnings of $428,000, or $.05 per common share, as compared to a net loss of $2,856,000, or ($.32) per common share, for the comparable period of last year. Results for the current period were positively impacted by increased sales demand in both the diagnostic and surgical segments, coupled with improved gross margins in the diagnostic segment, partially offset by increased domestic selling and marketing expenses in both industry segments. Results for the comparable period of last year were adversely impacted by the reserve for product recalls and related in-house inventory of $1,474,000 and severance benefits accrued or paid to terminated employees of $550,000. The reserve for product recalls and related in-house inventory is included in cost of goods sold and S&A expenses in the consolidated statements of operations. Results for the comparable period of last year were also adversely impacted by reduced manufacturing activity in the diagnostic -15- segment, which resulted from both high opening inventory levels and lower than expected demand for contrast systems products due to uncertainty surrounding the numerous Congressional healthcare reform proposals. Sales for the thirty-nine weeks ended February 25, 1995 increased 5% as compared to the thirty-nine weeks ended February 26, 1994 due primarily to price increases, which accounted for approximately 2% of sales in the current period, and increased non-contrast systems sales of $1,298,000, which includes the AngioDynamics division's Pulse SprayTM pulsed infusion system and Soft-VuTM angiographic catheter line. Increased surgical product sales of $592,000 also contributed to the sales improvement in the current period. Sales in international markets, including direct exports from the United States, increased 8%, or $2,002,000, in the current period versus the comparable period of last year due primarily to increased sales of contrast systems of $894,000, non-contrast systems of $745,000 and surgical products of $363,000. Gross profit expressed as a percentage of sales increased to 43% during the current period from 40% in the comparable period of last year. The lower gross profit percentage in the comparable period of the prior year was due primarily to: The reserve for product recalls and related in-house inventory of $1,350,000; reduced manufacturing activity in the diagnostic segment, which resulted from both high opening inventory levels and lower than expected demand for contrast systems products due to uncertainty surrounding the numerous Congressional healthcare reform proposals; and severance benefits accrued or paid to terminated employees of $258,000. S&A expenses were $24,706,000 during the thirty-nine weeks ended February 25, 1995 versus $23,125,000 during the comparable period of last year. This increase of $1,581,000, or 7%, in the current period was due principally to expanded S&A efforts in the Company's diagnostic segment approximating $976,000, and expanded surgical selling and marketing efforts in both the domestic and international marketplace of $559,000. R&D expenditures decreased 12% in the current period to $4,985,000, or 7% of sales, from $5,669,000, or 8% of sales, in the comparable prior year period. This decline was due primarily to reduced spending of $849,000 resulting from a product introduction into the domestic marketplace related to diagnostic tests for detecting and monitoring H. pylori, the bacterium believed to cause gastritis, ulcers and possibly stomach cancer. Increased spending in the field of interventional radiology of $494,000 was partially offset by reduced contrast system spending of $368,000, primarily due to staff reductions. Of the R&D expenditures in the current period, approximately 60% relate to interventional radiology projects, 12% to immunological projects, 11% to contrast systems, 10% to spinal surgery projects and 7% to other projects. Other income, net of expenses, increased $245,000 during the current period versus the comparable period of last year, principally due to the discounting effect of an interest free loan, which the Company repaid during the current period. The Company's effective tax rate of 82% during the thirty-nine weeks ended February 25, 1995 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 certain jurisdictions, since it is more likely than not that such benefits will not be realized, and was partially offset by earnings of the Puerto Rican subsidiary, which are subject to favorable -16- United States tax treatment. For the thirty-nine weeks ended February 26, 1994, the Company reported an income tax provision of $859,000 notwithstanding a loss before income taxes and minority share of subsidiary's operations of $1,968,000. In general, this was due to the fact that the Company did not provide for the tax benefit on losses incurred in certain jurisdictions, since it is more likely than not that such benefits will not be realized, and was partially offset by earnings of the Puerto Rican subsidiary, which are subject to favorable United States tax treatment. LIQUIDITY AND CAPITAL RESOURCES During the thirty-nine weeks ended February 25, 1995, capital expenditures, primarily related to the acquisition of the Canadian facility, increased inventory levels and repayments of debt were funded primarily by cash provided by operations and cash reserves. In the past, the Company's policy has been to fund capital requirements without incurring significant debt. At February 25, 1995, debt declined to $1,838,000 from $3,670,000 at May 28, 1994 and from a previously reported high of $6,219,000 at February 27, 1993. The Company has available $5,219,000 under various bank lines of credit of which $150,000 was outstanding at February 25, 1995. From fiscal 1991 through the second quarter of fiscal 1993, the Company paid quarterly cash dividends of $.05 per common stock. In order to preserve cash reserves, the Company issued 3% stock dividends in lieu of cash dividends during the third quarters of fiscal's 1993, 1994 and 1995. 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 February 25, 1995, approximately 55% of the Company's assets consist of inventories, accounts receivable, short-term certificates of deposit and cash, and debt and equity securities. Inventories have increased at a greater rate than sales as a result of broadened product lines. The current ratio is 3.71 to 1, with net working capital of $31,561,000 at February 25, 1995, as compared to the current ratio of 3.51 to 1, with net working capital of $33,088,000 at May 28, 1994. -17- E-Z-EM, Inc. and Subsidiaries Part II: Other Information ITEM 1. LEGAL PROCEEDINGS During the quarter ended February 25, 1995, the Company was named as a defendant in a product liability action; MARGARET J. LEMLEY AND JAMES LEMLEY, PLAINTIFFS VS. INLAND VALLEY REGIONAL MEDICAL CENTER, INC., NORTH COAST IMAGING RADIOLOGY MEDICAL GROUP, INC., E-Z-EM, INC., MALLINCKRODT MEDICAL, INC., THOMAS MCGREEVY, M.D., BARBARA LARSON, CAROLYN HOHENBERGER, DEFENDANTS, pending in the Superior Court of the State of California, County of Riverside, filed on January 30, 1995. 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 its liability in this case will exceed its insurance coverage. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 11 - Statement re computation of per share earnings Exhibit 27 - Financial data schedule (b) No reports on Form 8-K were filed for the quarter ended February 25, 1995. 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 5, 1995 /s/ Daniel R. Martin ------------- ---------------------------------- Daniel R. Martin, President, Chief Executive Officer and Director Date April 5, 1995 /s/ Dennis J. Curtin ------------- ---------------------------------- Dennis J. Curtin, Vice President- Finance (Chief Accounting and Financial Officer) -18- EX-11 2 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS E-Z-EM, Inc. and Subsidiaries EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (unaudited) Twelve Thirteen Thirty-nine weeks ended weeks ended weeks ended ----------------------- February 25, February 26, February 25, February 26, 1995 1994 1995 1994 ---- ---- ---- ---- (in thousands, except per share data) Net earnings (loss) $(1,077) $(1,911) $ 428 $(2,856) COMPUTATION OF WEIGHTED AVERAGE COMMON SHARES Weighted average common shares outstanding 8,818 8,818 8,818 8,817 Incremental common shares for full dilution of stock options using applicable market price 13 ----- ----- ----- ----- Weighted average common shares on a fully diluted basis 8,818 8,818 8,831 8,817 ----- ----- ----- ----- Fully diluted earnings (loss) per common share $ (.12) $ (.22) $ .05 $ (.32) ===== ===== ===== ===== EX-27 3 ARTICLE 5 FDS FOR 3RD QUARTER 10-Q
5 This Schedule contains summary financial information extracted from the Company's Form 10-Q for the quarter ended February 25, 1995 and is qualified in its entirety by reference to such Financial Statements. 1,000 9-MOS JUN-03-1995 FEB-25-1995 2,789 473 16,049 458 21,895 43,213 39,619 18,851 73,508 11,652 461 882 0 0 56,886 73,508 69,762 69,762 39,478 39,478 29,691 64 67 (928) 386 (1,077) 0 0 0 (1,077) (.12) (.12)
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