-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ImEINBVColw/oKPU9ylHxcpUSO68JHFL2VxbZtsPRV7fCcUbaFtvgu9XEYXUHS5b kX1y/vpd1Qqn+Bjat9LYbA== 0000921895-97-000019.txt : 19970115 0000921895-97-000019.hdr.sgml : 19970115 ACCESSION NUMBER: 0000921895-97-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961130 FILED AS OF DATE: 19970114 SROS: AMEX 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: 001-11479 FILM NUMBER: 97505613 BUSINESS ADDRESS: STREET 1: 717 MAIN ST CITY: WESTBURY STATE: NY ZIP: 11690 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 November 30, 1996 ----------------- 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 January 6, 1997, there were 4,035,346 shares of the registrant's Class A Common Stock outstanding and 5,287,693 shares of the registrant's Class B Common Stock outstanding. Page 1 of 18 Exhibit Index on Page 17 E-Z-EM, Inc. and Subsidiaries INDEX Part I: Financial Information Page - ------ --------------------- ---- Item 1. Financial Statements Consolidated Balance Sheets - November 30, 1996 and June 1, 1996 3 - 4 Consolidated Statements of Earnings - thirteen and twenty-six weeks ended November 30, 1996 and December 2, 1995 5 Consolidated Statement of Stockholders' Equity - twenty-six weeks ended November 30, 1996 6 Consolidated Statements of Cash Flows - twenty-six weeks ended November 30, 1996 and December 2, 1995 7 - 8 Notes to Consolidated Financial Statements 9 - 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 16 Part II: Other Information - ------- ----------------- Item 6. Exhibits and Reports on Form 8-K 17 -2- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands) November 30, June 1, ASSETS 1996 1996 ---- ---- (unaudited) (audited) CURRENT ASSETS Cash and cash equivalents $ 3,969 $ 3,363 Debt and equity securities 17,927 20,247 Accounts receivable, principally trade, net 19,896 16,152 Inventories 27,370 23,708 Other current assets 2,676 2,936 -------- ------- Total current assets 71,838 66,406 PROPERTY, PLANT AND EQUIPMENT - AT COST, less accumulated depreciation and amortization 23,758 21,823 COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED, less accumulated amortization 530 558 INTANGIBLE ASSETS, less accumulated amortization 758 767 DEBT AND EQUITY SECURITIES 1,403 3,647 OTHER ASSETS 3,911 2,836 -------- ------- $102,198 $96,037 ======== ======= The accompanying notes are an integral part of these financial statements. -3- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) November 30, June 1, LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996 ---- ---- (unaudited) (audited) CURRENT LIABILITIES Notes payable $ 4,712 $ 979 Current maturities of long-term debt 520 268 Accounts payable 6,398 5,095 Accrued liabilities 6,222 6,218 Accrued income taxes 489 338 -------- ------- Total current liabilities 18,341 12,898 LONG-TERM DEBT, less current maturities 1,127 680 OTHER NONCURRENT LIABILITIES 1,919 1,856 CONTINGENCIES -------- ------- Total liabilities 21,387 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 November 30, 1996 and June 1, 1996 403 403 Class B (nonvoting), par value $.10 per share - authorized, 10,000,000 shares; issued and outstanding 5,277,819 shares at November 30, 1996 and 5,199,615 shares at June 1, 1996 528 520 Additional paid-in capital 15,743 15,165 Retained earnings 64,103 63,347 Unrealized holding gain on debt and equity securities 908 2,360 Cumulative translation adjustments (874) (1,192) -------- ------- Total stockholders' equity 80,811 80,603 -------- ------- $102,198 $96,037 ======== ======= The accompanying notes are an integral part of these financial statements. -4- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS (unaudited) Thirteen weeks ended Twenty-six weeks ended -------------------- ---------------------- November 30, December 2, November 30, December 2, 1996 1995 1996 1995 ---- ---- ---- ---- (in thousands, except per share data) Net sales $25,992 $23,005 $49,347 $45,004 Cost of goods sold 15,741 13,382 29,231 26,250 ------- ------- ------- ------- Gross profit 10,251 9,623 20,116 18,754 ------- ------- ------- ------- Operating expenses Selling and administrative 8,672 8,063 16,507 15,053 Research and development 1,452 1,125 2,975 2,442 ------- ------- ------- ------- Total operating expenses 10,124 9,188 19,482 17,495 ------- ------- ------- ------- Operating profit 127 435 634 1,259 Other income (expense) Interest income 209 101 422 160 Interest expense (80) (65) (141) (129) Other, net 50 135 100 186 ------- ------- ------- ------- Earnings from continuing operations before income taxes 306 606 1,015 1,476 Income tax provision 63 100 259 230 ------- ------- ------- ------- Earnings from continuing operations 243 506 756 1,246 Discontinued operation: Losses from operations, net of income taxes (38) (209) Gain on sale, net of income taxes of $6,073 19,619 19,619 ------- ------- ------- ------- NET EARNINGS $ 243 $20,087 $ 756 $20,656 ======= ======= ======= ======= Primary earnings per common share Continuing operations $ .02 $ .05 $ .08 $ .13 Discontinued operation .00 2.04 .00 2.06 Total operations .02 2.09 .08 2.19 Fully diluted earnings per common share Continuing operations $ .02 $ .05 $ .08 $ .13 Discontinued operation .00 2.02 .00 2.02 Total operations .02 2.07 .08 2.15 The accompanying notes are an integral part of these financial statements. -5- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Twenty-six weeks ended November 30, 1996 (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 1, 1996 4,035,346 $403 5,199,615 $520 $15,165 $63,347 $2,360 $(1,192) $80,603 Exercise of stock options 77,209 8 569 577 Issuance of stock 995 9 9 Net earnings 756 756 Unrealized holding loss on debt and equity securities (1,452) (1,452) Foreign currency translation adjustments 318 318 --------- ---- --------- ---- ------- ------- ------ ------- ------- Balance at November 30, 1996 4,035,346 $403 5,277,819 $528 $15,743 $64,103 $ 908 $ (874) $80,811 ========= ==== ========= ==== ======= ======= ====== ======= =======
The accompanying notes are an integral part of this financial statement. -6- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Twenty-six weeks ended ---------------------- November 30, December 2, 1996 1995 ---- ---- (in thousands) Cash flows from operating activities: Net earnings $ 756 $20,656 Adjustments to reconcile net earnings to net cash (used in) provided by operating activities Depreciation and amortization 1,395 1,338 Gain on disposal of business (25,692) Loss on sale of investments 27 Minority share of subsidiary's operations (200) Deferred income taxes 6 340 Changes in operating assets and liabilities, net of disposition Accounts receivable (3,744) 831 Inventories (3,662) (2,267) Other current assets 260 683 Other assets (332) (316) Accounts payable 1,303 326 Accrued liabilities 4 328 Accrued income taxes 145 5,649 Other noncurrent liabilities 82 79 ------- ------- Net cash (used in) provided by operating activities (3,760) 1,755 ------- ------- Cash flows from investing activities: Additions to property, plant and equipment, net (3,260) (2,284) Proceeds from disposal of business, net of cash sold 26,785 Held-to-maturity securities Purchases (26,000) Proceeds from maturity 1,093 Available-for-sale securities Purchases (14,805) (1,036) Proceeds from sale 17,127 ------- ------- Net cash used in investing activities (938) (1,442) ------- ------- -7- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (unaudited) Twenty-six weeks ended ---------------------- November 30, December 2, 1996 1995 ---- ---- (in thousands) Cash flows from financing activities: Proceeds from issuance of debt $4,850 Repayments of debt (357) $ (352) Proceeds from issuance of loan by minority shareholder 238 Proceeds from exercise of stock options 577 666 Proceeds from issuance of stock in connection with the stock purchase plan 9 5 ------ ------ Net cash provided by financing activities 5,079 557 ------ ------ Effect of exchange rate changes on cash and cash equivalents 225 (384) ------ ------ INCREASE IN CASH AND CASH EQUIVALENTS 606 486 Cash and cash equivalents Beginning of period 3,363 3,962 ------ ------ End of period $3,969 $4,448 ====== ====== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 59 $ 63 ====== ====== Income taxes (net of $203 and $68 in refunds in 1996 and 1995, respectively) $ 228 $ 318 ====== ====== The accompanying notes are an integral part of these financial statements. -8- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS November 30, 1996 and December 2, 1995 (unaudited) NOTE A - CONSOLIDATED FINANCIAL STATEMENTS The consolidated balance sheet as of November 30, 1996, the consolidated statement of stockholders' equity for the period ended November 30, 1996, and the consolidated statements of earnings and cash flows for the periods ended November 30, 1996 and December 2, 1995, have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normally recurring adjustments) necessary to present fairly the financial position, changes in stockholders' equity, results of operations and cash flows at November 30, 1996 (and for all periods presented) have been made. Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the fiscal 1996 Annual Report on Form 10-K filed by the Company on August 30, 1996. The results of operations for the periods ended November 30, 1996 and December 2, 1995 are not necessarily indicative of the operating results for the respective full years. The consolidated financial statements include the accounts of E-Z-EM, Inc. and all 100%-owned subsidiaries, as well as the accounts of Surgical Dynamics Inc. ("SDI"), a 51%-owned subsidiary prior to its sale in November 1995 (the "Company"). SDI has been reported as a discontinued operation and, accordingly, the 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 twenty-six weeks ended December 2, 1995 in the accompanying consolidated statements of earnings. NOTE B - EARNINGS PER COMMON SHARE Primary and fully diluted earnings 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 included in both the primary and fully diluted calculations for all periods presented. The weighted average number of common shares used was: Thirteen weeks ended Twenty-six weeks ended -------------------- ---------------------- November 30, December 2, November 30, December 2, 1996 1995 1996 1995 ---- ---- ---- ---- Primary 10,026,790 9,620,137 10,049,169 9,443,606 Fully diluted 10,026,925 9,713,730 10,049,237 9,593,695 -9- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS November 30, 1996 and December 2, 1995 (unaudited) NOTE C - INVENTORIES Inventories consist of the following: November 30, June 1, 1996 1996 ---- ---- (in thousands) Finished goods $14,387 $13,157 Work in process 1,108 1,159 Raw materials 11,875 9,392 ------- ------- $27,370 $23,708 ======= ======= NOTE D - COMMON STOCK Under the 1983 and 1984 Stock Option Plans, options for 77,209 shares were exercised at prices ranging from $4.48 to $5.72 per share, options for 19,931 shares were cancelled at prices ranging from $4.48 to $10.00 per share and no options were granted during the twenty-six weeks ended November 30, 1996. Under the Employee Stock Purchase Plan, 995 shares were purchased at prices ranging from $9.67 to $9.99 per share during the twenty-six weeks ended November 30, 1996. Total proceeds received by the Company approximated $9,000. 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 the ultimate outcome in this action will have a material adverse effect on the consolidated financial statements. The Company has been sued by Olympia Holding Corporation p/k/a P-I-E Nationwide, Inc. for $443,830. The suit, filed on October 5, 1992, is presently pending in the U.S. Bankruptcy Court for the Middle District of Florida. The Company is being represented in this action by a law firm which is also representing numerous other defendants being sued by the same plaintiff on the same grounds - recovery for alleged undercharges for freight carriage. It is not possible, at this stage, to determine what, if any, liability exists with respect to the Company -10- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS November 30, 1996 and December 2, 1995 (unaudited) NOTE E - CONTINGENCIES (continued) in this matter. The Company will vigorously defend against this action; it has been informed by legal counsel that there exist numerous valid defenses to this case. NOTE F - SUBSEQUENT EVENT On January 8, 1997, the Company acquired the assets of Leocor, Inc. ("Leocor"), and certain other assets directly from a principal shareholder of Leocor, for aggregate consideration approximating $7,000,000. Leocor is a Texas corporation, based in Houston, Texas, which develops and manufactures angioplasty catheters. Leocor's total assets were approximately $1,200,000 at September 30, 1996. Leocor's net sales approximated $900,000 and $700,000 and its losses from operations approximated $200,000 and $700,000 for the nine months ended September 30, 1996 and the year ended December 31, 1995, respectively. NOTE G - RECLASSIFICATIONS Certain reclassifications have been made to the prior year amounts to conform to the current year presentation. -11- 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 NOVEMBER 30, 1996 AND DECEMBER 2, 1995 RESULTS OF OPERATIONS SEGMENT OVERVIEW The Diagnostic products industry segment includes both contrast systems and non-contrast systems. Diagnostic product sales, which increased 3% in the quarter, accounted for 81% of sales in the current quarter versus 89% 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 90% in the quarter and represented 19% of sales in the current quarter versus 11% in the comparable period of the prior year. Diagnostic segment results for both the current quarter and comparative quarter of last year were adversely affected by unabsorbed overhead costs associated with the relocation of a portion of the Company's contrast systems manufacturing operations. These costs resulted from the planned construction at the Company's Canadian manufacturing facility. The effects of the relocation will continue to be felt through the fourth fiscal quarter of the current year, resulting in lower than normal Diagnostic segment gross profits. AngioDynamics segment results for the current quarter were positively affected by sales growth of 90%, resulting from domestic and international market penetration and the introduction of the AngioStentTM, offset by increased operating expenses. The AngioStent, a device used during coronary procedures as a treatment for atherosclerosis, was introduced by the Company in the third quarter of the prior year in certain international markets. The AngioDynamics segment incurred an operating loss of $213,000 in the current quarter, as compared to an operating loss of $114,000 in the comparable quarter of last year. During the comparative quarter of the prior year, the Company discontinued the operation of its surgical products industry segment when it sold SDI, its 51%-owned subsidiary, to United States Surgical Corporation ("USSC"). 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 $2.04 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 earnings. The surgical products industry segment included the NucleotomeTM device, the Ray Threaded Fusion CageTM and other surgical devices and accessories used in spinal surgery. -12- CONSOLIDATED RESULTS OF OPERATIONS For the quarter ended November 30, 1996, the Company reported net earnings of $243,000, or $.02 per common share on both a primary and fully diluted basis, as compared to net earnings of $20,087,000, or $2.09 and $2.07 per common share on a primary and fully diluted basis, respectively, for the comparable quarter of last year. Last year's results included an after-tax gain on the sale of SDI of $19,619,000, or $2.04 and $2.02 per common share on a primary and fully diluted basis, respectively. Earnings from continuing operations for the current quarter were $243,000, or $.02 per common share on both a primary and fully diluted basis, as compared to $506,000, or $.05 per common share on both a primary and fully diluted basis, for the comparable period of the prior year. Results from continuing operations for both the current quarter and comparative quarter of the prior year were adversely impacted by unabsorbed overhead costs associated with the relocation of a portion of the Company's contrast systems manufacturing operations. Net sales for the quarter ended November 30, 1996 increased 13%, or $2,987,000, as compared to the quarter ended December 2, 1995 due to increased sales of AngioDynamics products of $2,307,000 and non-contrast systems of $745,000. The AngioDynamics sales growth was due to domestic and international market penetration and the introduction of the AngioStent. 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 22%, or $1,855,000 in the current quarter versus the comparable period of last year due to increased sales of AngioDynamics products of $1,509,000 and non-contrast systems of $640,000, partially offset by decreased sales of contrast systems of $294,000. Gross profit expressed as a percentage of sales decreased to 39% during the current quarter from 42% in the comparable quarter of the prior year due primarily to approximately $453,000 of increased unabsorbed overhead costs associated with the relocation of a portion of the Company's contrast systems manufacturing operations. Selling and administrative ("S&A") expenses were $8,672,000 during the quarter ended November 30, 1996 versus $8,063,000 during the quarter ended December 2, 1995. This increase of $609,000, or 8%, in the current quarter was due to increased AngioDynamics S&A expenses, resulting, in part, from investment in new product introductions and selling and marketing initiatives. In the Diagnostic segment, severance costs of $322,000 offset reductions in selling & marketing expenses in the contrast systems business. Research and development ("R&D") expenditures increased 29% in the current quarter to $1,452,000, or 6% of sales, from $1,125,000, or 5% of sales, in the comparable quarter of last year. This increase was due primarily to increased spending of $498,000 relating to AngioDynamics projects, partially offset by reduced contrast system spending of $117,000. Of the R&D expenditures in the current quarter, approximately 48% relate to AngioDynamics projects, 27% to contrast systems, 4% to immunological projects, 10% to other projects and 11% to general regulatory costs. R&D expenditures are expected to continue at approximately current levels. Other income, net of expenses, increased $8,000 in the current quarter versus the comparable period of last year. There were no materially significant factors affecting the other income comparison. -13- The Company's effective tax rate of 21% during the quarter ended November 30, 1996 differed from the Federal statutory tax rate of 34% due primarily to earnings of the Puerto Rican subsidiary, which are subject to favorable U.S. tax treatment, and tax-exempt interest income. For the quarter ended December 2, 1995, the Company's effective tax rate of 17% differed from the Federal statutory tax rate of 35% due primarily to earnings of the Puerto Rican subsidiary, which are subject to favorable U.S. tax treatment, and the utilization of net operating loss carryforwards in certain jurisdictions. TWENTY-SIX WEEKS ENDED NOVEMBER 30, 1996 AND DECEMBER 2, 1995 RESULTS OF OPERATIONS SEGMENT OVERVIEW Diagnostic product sales, which decreased 1% during the twenty-six weeks ended November 30, 1996, accounted for 81% of sales in the current period versus 89% in the comparable period of last year. AngioDynamics product sales, which increased 97% during the twenty-six weeks ended November 30, 1996, represented 19% of sales in the current period, as compared to 11% in the prior year. Diagnostic segment results for both the current period and comparative period 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. AngioDynamics segment results for the current period were positively affected by sales growth of 97%, resulting from domestic and international market penetration and the introduction of the AngioStent, partially offset by increased operating expenses. The AngioDynamics segment contributed an operating profit of $206,000 to the Company's consolidated operations in the current period, an improvement of $769,000 as compared to an operating loss of $563,000 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 USSC. 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 $2.08 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 earnings. CONSOLIDATED RESULTS OF OPERATIONS For the twenty-six weeks ended November 30, 1996, the Company reported net earnings of $756,000, or $.08 per common share on both a primary and fully diluted basis, as compared to net earnings of $20,656,000, or $2.19 and $2.15 per common share on a primary and fully diluted basis, respectively, for the comparable period of last year. Last year's results included an after-tax gain on the sale of SDI of $19,619,000, or $2.08 and $2.04 per common share on a primary and fully diluted basis, respectively. Earnings from continuing operations for the current period were $756,000, or $.08 per common share on both a primary and fully diluted -14- basis, as compared to $1,246,000, or $.13 per common share on both a primary and fully diluted basis, for the comparable period of the prior year. Results from continuing operations for both the current period and comparative period of the prior year were adversely impacted by unabsorbed overhead costs associated with the relocation of a portion of the Company's contrast systems manufacturing operations. Results from continuing operations for the current period were positively affected by AngioDynamics sales growth, partially offset by increased operating expenses in both industry segments. Net sales for the twenty-six weeks ended November 30, 1996 increased 10%, or $4,343,000, as compared to the twenty-six weeks ended December 2, 1995. Net sales in the current quarter were favorably affected by increased AngioDynamics sales of $4,665,000 and non-contrast systems of $708,000. The AngioDynamics sales growth was due to domestic and international market penetration and the introduction of the AngioStent. Net sales in the current quarter were adversely affected by a decline in the Company's sales of contrast systems of $1,189,000. 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 18%, or $3,004,000 in the current period versus the comparable period of last year due to increased sales of AngioDynamics products of $3,325,000 and non-contrast systems of $261,000, partially offset by decreased sales of contrast systems of $582,000. Gross profit expressed as a percentage of sales decreased to 41% during the current period from 42% in the comparable period of last year due primarily to approximately $502,000 of increased unabsorbed overhead costs associated with the relocation of a portion of the Company's contrast systems manufacturing operations. S&A expenses were $16,507,000 during the twenty-six weeks ended November 30, 1996 versus $15,053,000 during the twenty-six weeks ended December 2, 1995. This increase of $1,454,000, or 10%, in the current period was due to increased AngioDynamics S&A expenses of $970,000 and increased Diagnostic S&A expenses of $484,000, resulting from severance costs of $322,000 during the current period and a gain on the sale of a facility of $150,000 during the comparative prior year period. Investment in new product introductions and selling and marketing initiatives contributed to the increased S&A expenses in the AngioDynamics segment. R&D expenditures increased 22% in the current period to $2,975,000, or 6% of sales, from $2,442,000, or 5% of sales, in the comparable prior year period due primarily to increased spending of $438,000 relating to AngioDynamics projects and increased contrast system spending of $87,000. Of the R&D expenditures in the current period, approximately 42% relate to AngioDynamics projects, 33% to contrast systems, 4% to immunological projects, 11% to other projects and 10% to general regulatory costs. Other income, net of expenses, increased $164,000 versus the comparable period of last year due to increased interest income, resulting from the investment of proceeds arising from the sale of SDI in the second quarter of the prior year. The Company's effective tax rate of 26% during the twenty-six weeks ended November 30, 1996 differed from the Federal statutory tax rate of 34% due primarily to earnings of the Puerto Rican subsidiary, which are subject to favorable U.S. tax treatment, tax-exempt interest income, and the utilization of net operating loss carryforwards in a certain jurisdiction. -15- 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 U.S. tax treatment, and the utilization of net operating loss carryforwards in certain jurisdictions. LIQUIDITY AND CAPITAL RESOURCES During the twenty-six weeks ended November 30, 1996, increased inventory levels and capital expenditures were funded primarily by proceeds from the issuance of bank debt and cash reserves. In the past, the Company's policy has been to fund capital requirements without incurring significant debt. At November 30, 1996, debt (notes payable, current maturities of long-term debt and long-term debt) was $6,359,000 as compared to $1,927,000 at June 1, 1996. The Company has available $10,481,000 under three bank lines of credit of which $4,272,000 was outstanding at November 30, 1996. The Company's current policy is 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. At November 30, 1996, approximately 68% 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 3.92 to 1, with net working capital of $53,497,000 at November 30, 1996, as compared to the current ratio of 5.15 to 1, with net working capital of $53,508,000 at June 1, 1996. On January 8, 1997, the Company acquired the assets of Leocor, and certain other assets directly from a principal shareholder of Leocor, for aggregate consideration approximating $7,000,000. This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are intended to be covered by the safe harbors created thereby. Investors are cautioned that all forward- looking statements involve risks and uncertainty, including without limitation, the ability of the Company to develop its products, as well as general market conditions, competition and pricing. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. -16- E-Z-EM, Inc. and Subsidiaries Part II: Other Information Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS No. Description Page --- ----------- ---- 27 Financial data schedule 18 (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended November 30, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. E-Z-EM, Inc. -------------------------------------- (Registrant) Date January 13, 1997 /s/ Daniel R. Martin -------------------------------------- Daniel R. Martin, President, Chief Executive Officer and Director Date January 13, 1997 /s/ Dennis J. Curtin -------------------------------------- Dennis J. Curtin, Vice President- Chief Financial Officer -17- EX-27 2 ARTICLE 5 FDS FOR 2ND QUARTER 10-Q
5 This schedule contains summary financial information extracted from the Company's Form 10-Q for the quarter ended November 30, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS MAY-31-1997 NOV-30-1996 3,969 17,927 20,482 586 27,370 71,838 43,965 20,207 102,198 18,341 1,127 0 0 931 79,880 102,198 49,347 49,347 29,231 29,231 19,482 60 141 1,015 259 756 0 0 0 756 .08 .08
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