UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 1, 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 Securities registered pursuant to Section 12(b) of the Act: Class A Common Stock, par value $.10 and Class B Common Stock, par value $.10 Securities registered pursuant to Section 12(g) of the Act: None 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of the registrant's voting Class A Common Stock held by non-affiliates on August 5, 1996 was $21,655,000. On August 5, 1996, there were 4,035,346 shares of the registrant's Class A Common Stock outstanding and 5,209,655 shares of the registrant's Class B Common Stock outstanding. Page 1 of 40 Exhibit Index on Page 2 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Page ---- (a) l. FINANCIAL STATEMENTS The following consolidated financial statements and supplementary data of Registrant and its subsidiaries required by Part II, Item 8, are included in Part IV of this report: Report of Independent Certified Public Accountants 5 Consolidated balance sheets - June 1, 1996 and June 3, 1995 6 Consolidated statements of earnings - fifty-two weeks ended June 1, 1996, fifty-three weeks ended June 3, 1995 and fifty-two weeks ended May 28, 1994 8 Consolidated statements of stockholders' equity - fifty- two weeks ended June 1, 1996, fifty-three weeks ended June 3, 1995 and fifty-two weeks ended May 28, 1994 9 Consolidated statements of cash flows - fifty-two weeks ended June 1, 1996, fifty-three ended June 3, 1995 and fifty-two weeks ended May 28, 1994 10 Notes to consolidated financial statements 12 (a) 2. FINANCIAL STATEMENT SCHEDULES The following consolidated financial statement schedule is included in Part IV of this report: Schedule II - Valuation and qualifying accounts 35 All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. (a) 3. EXHIBITS 3(i) Restated certificate of incorporation, as amended (a) 3(ii) Amended Bylaws (b) 10(a) Agreement and Plan of Merger dated November 7, 1995 among United States Surgical Corporation, USSC Acquisition Corporation, Surgical Dynamics Inc., and E-Z-EM, Inc. and Calmed Laboratories, Inc. and E-Z-SUB, Inc. (c) 10(b) 1983 Stock Option Plan (d) 10(c) 1984 Directors and Consultants Stock Option Plan (e) -2- Page ---- (a) 3. EXHIBITS (CONTINUED) 10(d) Income Deferral Program (f) 13 Annual report to security holders (g) 21 Subsidiaries of the Company 36 22 Proxy statement to security holders (g) 23 Consent of Independent Certified Public Accountants 37 27 Financial Data Schedule 38 99(a) Report of Jacques, Davis, Lefaivre & Associes, Independent Certified Public Accountants other than Principal Accountants 39 99(b) Report of Price Waterhouse LLP, Independent Certified Public Accountants other than Principal Accountants 40 - ------------------- (a) Incorporated by reference to Exhibit 3(i) of the Company's quarterly report filed on Form 10-Q for the quarterly period ended December 2, 1995 (b) Incorporated by reference to Exhibit 3(ii) of the Company's annual report filed on Form 10-K for the fiscal year ended May 28, 1994 (c) Incorporated by reference to Exhibit 10 of the Company's current report filed on Form 8-K/A dated November 22, 1995 (d) Incorporated by reference to Exhibit 10(a) of the Company's quarterly report filed on Form 10-Q for the quarterly period ended December 2, 1995 (e) Incorporated by reference to Exhibit 10(b) of the Company's quarterly report filed on Form 10-Q for the quarterly period ended December 2, 1995 (f) Incorporated by reference to Exhibit 10(c) of the Company's annual report filed on Form 10-K for the fiscal year ended May 29, 1993 (g) To be filed on a subsequent date (b) 1. REPORTS ON FORM 8-K No reports on Form 8-K were filed for the quarter ended June 1, 1996. Schedules other than those shown above are not submitted as the subject matter thereof is either not required or is not present in amounts sufficient to require submission in accordance with the instructions in Regulation S-X or the information required is included in the Notes to Consolidated Financial Statements. -3- SIGNATURE 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 November 20, 1996 /s/ Dennis J. Curtin --------------------------------- Dennis J. Curtin, Vice President- Chief Financial Officer -4- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors E-Z-EM, Inc. We have audited the accompanying consolidated balance sheets of E-Z-EM, Inc. and Subsidiaries as of June 1, 1996 and June 3, 1995, and the related consolidated statements of earnings, stockholders' equity and cash flows for the fifty-two weeks ended June 1, 1996, the fifty-three weeks ended June 3, 1995 and the fifty-two weeks ended May 28, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of a certain subsidiary, which statements reflect total assets constituting approximately 16% in 1996 and 20% in 1995 and net sales constituting approximately 12% in 1996, 13% in 1995 and 15% in 1994 of the related consolidated totals. We also did not audit the financial statements of a certain subsidiary for the fifty-two weeks ended May 28, 1994, for which the results of operations have been classified as a discontinued operation for all periods presented. Those statements were audited by other auditors, whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for these subsidiaries, is based solely upon the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of E-Z-EM, Inc. and Subsidiaries as of June 1, 1996 and June 3, 1995, and the consolidated results of their operations and their consolidated cash flows for the fifty-two weeks ended June 1, 1996, the fifty-three weeks ended June 3, 1995 and the fifty-two weeks ended May 28, 1994, in conformity with generally accepted accounting principles. We have also audited the financial statement schedule listed in the Index at Item 14(a)(2). In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. GRANT THORNTON LLP Certified Public Accountants Melville, New York August 8, 1996 -5- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands) June 1, June 3, ASSETS 1996 1995 ---- ---- CURRENT ASSETS Cash and cash equivalents $ 3,363 $ 3,962 Debt and equity securities 20,247 485 Accounts receivable, principally trade, net of allowance for doubtful accounts of $527 in 1996 and $465 in 1995 16,152 17,354 Inventories 23,708 22,752 Other current assets 2,936 2,602 ------- ------- Total current assets 66,406 47,155 PROPERTY, PLANT AND EQUIPMENT - AT COST, less accumulated depreciation and amortization 21,823 20,864 COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED, less accumulated amortization of $411 in 1996 and $354 in 1995 558 633 INTANGIBLE ASSETS, less accumulated amortization of $345 in 1996 and $492 in 1995 767 463 DEBT AND EQUITY SECURITIES 3,647 4,352 OTHER ASSETS 2,836 2,628 ------- ------- $96,037 $76,095 ======= ======= The accompanying notes are an integral part of these statements. -6- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) June 1, June 3, LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 ---- ---- CURRENT LIABILITIES Notes payable $ 979 $ 1,021 Current maturities of long-term debt 268 208 Accounts payable 5,095 6,713 Accrued liabilities 6,218 5,559 Accrued income taxes 338 400 ------- ------- Total current liabilities 12,898 13,901 LONG-TERM DEBT, less current maturities 680 1,114 OTHER NONCURRENT LIABILITIES 1,856 1,805 MINORITY INTEREST IN SUBSIDIARY 1,385 COMMITMENTS AND CONTINGENCIES ------- ------- Total liabilities 15,434 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, 6,000,000 shares; issued and outstanding, 4,035,346 shares in 1996 and 4,032,532 shares in 1995 403 403 Class B (nonvoting), par value $.10 per share - authorized, 10,000,000 shares; issued and outstanding, 5,199,615 shares in 1996 and 4,785,462 shares in 1995 520 479 Additional paid-in capital 15,165 11,570 Retained earnings 63,347 44,953 Unrealized holding gain on debt and equity securities 2,360 1,786 Cumulative translation adjustments (1,192) (1,301) ------- ------- Total stockholders' equity 80,603 57,890 ------- ------- $96,037 $76,095 ======= ======= The accompanying notes are an integral part of these statements. -7- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share data) Fifty-two Fifty-three Fifty-two weeks ended weeks ended weeks ended June 1, June 3, May 28, 1996 1995* 1994* ------- ------- ------- Net sales $91,932 $88,526 $85,645 Cost of goods sold 55,518 51,845 52,028 ------- ------- ------- Gross profit 36,414 36,681 33,617 ------- ------- ------- Operating expenses Selling and administrative 30,134 27,767 25,520 Research and development 5,323 6,077 6,897 ------- ------- ------- Total operating expenses 35,457 33,844 32,417 ------- ------- ------- Operating profit 957 2,837 1,200 Other income (expense) Interest income 735 551 429 Interest expense (264) (286) (386) Other, net 512 457 285 ------- ------- ------- Earnings from continuing operations before income taxes 1,940 3,559 1,528 Income tax provision 243 1,086 1,149 ------- ------- ------- Earnings from continuing operations 1,697 2,473 379 Discontinued operation: Losses from operations, net of income tax provision (benefit) of $10, $142 and $(261) in 1996, 1995 and 1994, respectively (209) (843) (102) Gain on sale, net of income tax provision of $6,019 19,520 ------- ------- ------- NET EARNINGS $21,008 $ 1,630 $ 277 ======= ======= ======= Primary earnings per common share Continuing operations $ .17 $ .27 $ .04 Discontinued operation 1.99 (.09) (.01) Total operations 2.16 .18 .03 Fully diluted earnings per common share Continuing operations $ .17 $ .27 $ .04 Discontinued operation 1.97 (.09) (.01) Total operations 2.14 .18 .03 * Reclassified to reflect the discontinued operation. The accompanying notes are an integral part of these statements. -8- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Fifty-two weeks ended June 1, 1996, fifty-three weeks ended June 3, 1995 and fifty-two weeks ended May 28, 1994 (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 29, 1993 4,032,533 $403 4,275,175 $428 $ 9,248 $45,399 $ - $ (477) $55,001 Issuance of stock (1) 4,479 22 22 3% common stock dividend 249,026 25 1,235 (1,262) (2) Net earnings 277 277 Foreign currency translation adjustments (1,029) (1,029) --------- ---- --------- ---- ------- ------- ------ ------- ------- Balance at May 28, 1994 4,032,532 403 4,528,680 453 10,505 44,414 - (1,506) 54,269 Unrealized holding gain on debt and equity securities at May 29, 1994 3,531 3,531 Issuance of stock 270 1 1 3% common stock dividend 256,512 26 1,064 (1,091) (1) Net earnings 1,630 1,630 Unrealized holding loss on debt and equity securities (1,745) (1,745) Foreign currency translation adjustments 205 205 --------- ---- --------- ---- ------- ------- ------ ------- ------- 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 2,813 145,369 14 1,005 1,019 Issuance of stock 1 933 5 5 3% common stock dividend 267,851 27 2,585 (2,614) (2) Net earnings 21,008 21,008 Unrealized holding gain on debt and equity securities 574 574 Foreign currency translation adjustments 109 109 --------- ---- --------- ---- ------- ------- ------ ------- ------- Balance at June 1, 1996 4,035,346 $403 5,199,615 $520 $15,165 $63,347 $2,360 $(1,192) $80,603 ========= ==== ========= ==== ======= ======= ====== ======= ======= The accompanying notes are an integral part of these statements. -9- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Fifty-two Fifty-three Fifty-two weeks ended weeks ended weeks ended June 1, June 3, May 28, 1996 1995 1994 ------ ------ ------ Cash flows from operating activities: Net earnings $21,008 $1,630 $ 277 Adjustments to reconcile net earnings to net cash (used in) provided by operating activities Depreciation and amortization 2,552 2,800 2,728 Gain on disposal of business (25,539) Gain on sale of assets (193) Gain on sale of investments (24) Minority share of subsidiary's operations (200) (810) (97) Deferred income taxes 60 282 (61) Changes in operating assets and liabilities, net of disposition Accounts receivable (731) 233 (1,077) Inventories (3,123) (3,833) 1,637 Other current assets (446) (305) 372 Other assets (754) 128 (116) Accounts payable (312) 2,319 616 Accrued liabilities 905 312 (960) Accrued income taxes 22 (107) (309) Other noncurrent liabilities 168 190 36 ------ ------ ------ Net cash (used in) provided by operating activities (6,583)* 2,839 3,022 ------ ------ ------ Cash flows from investing activities: Additions to property, plant and equipment, net (4,231) (4,812) (2,175) Proceeds from disposal of business, net of cash sold 26,785 Proceeds from sale of assets 485 Held-to-maturity securities Purchases (104,253) (1,958) Proceeds from maturity 105,846 1,964 6 Available-for-sale securities Purchases (39,750) (31) (793) Proceeds from sale 19,995 844 ------ ------ ------ Net cash provided by (used in) investing activities 4,877 (4,837) (2,118) ------ ------ ------ * Includes income taxes paid on the disposition of Surgical Dynamics Inc. of approximately $6,019. The accompanying notes are an integral part of these statements. -10- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (in thousands) Fifty-two Fifty-three Fifty-two weeks ended weeks ended weeks ended June 1, June 3, May 28, 1996 1995 1994 ------ ------ ------ Cash flows from financing activities: Proceeds from issuance of debt $ 1,121 $1,686 $ 892 Repayments of debt (910) (3,374) (1,254) Proceeds from issuance of loan by minority shareholder 238 258 Proceeds from exercise of stock options 1,019 Issuance of stock in connection with the stock purchase plan 5 1 22 ------ ------ ------ Net cash provided by (used in) financing activities 1,473 (1,429) (340) ------ ------ ------ Effect of exchange rate changes on cash and cash equivalents (366) 538 (767) ------ ------ ------ DECREASE IN CASH AND CASH EQUIVALENTS (599) (2,889) (203) Cash and cash equivalents Beginning of year 3,962 6,851 7,054 ------ ------ ------ End of year $3,363 $3,962 $6,851 ====== ====== ====== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 136 $ 201 $ 360 ====== ====== ====== Income taxes (net of $508, $449 and $263 in refunds in 1996, 1995 and 1994, respectively) $6,319 $ 674 $1,050 ====== ====== ====== The accompanying notes are an integral part of these statements. -11- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 1, 1996, June 3, 1995 and May 28, 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The summary of significant accounting policies is presented to assist the reader in understanding and evaluating the consolidated financial statements. These policies are in conformity with generally accepted accounting principles and have been applied consistently in all material respects. Basis Of Consolidation ---------------------- 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 all periods presented in the accompanying consolidated statements of earnings. The discontinued operation has not been segregated in the accompanying statements of consolidated cash flows and, therefore, amounts for certain captions will not agree with the respective consolidated statements of earnings. The Company is primarily engaged in developing, manufacturing and marketing diagnostic products used by radiologists and other physicians during image-assisted procedures to detect physical abnormalities and diseases. Operations outside the U.S. are included in the consolidated financial statements and consist of: a subsidiary operating a mining and chemical processing operation in Nova Scotia, Canada and a manufacturing and marketing facility in Montreal, Canada; a subsidiary manufacturing products located in Puerto Rico; a subsidiary manufacturing and marketing products located in Japan; a subsidiary promoting and distributing products located in Holland; and a subsidiary promoting and distributing products located in the United Kingdom. Fiscal Year ----------- The Company reports on a fiscal year which concludes on the Saturday nearest to May 31. Fiscal year 1996 ended on June 1, 1996 for a reporting period of fifty-two weeks, fiscal year 1995 ended on June 3, 1995 for a reporting period of fifty-three weeks and fiscal year 1994 ended on May 28, 1994 for a reporting period of fifty-two weeks. Cash and Cash Equivalents ------------------------- The Company considers all unrestricted highly liquid investments purchased with a maturity of less than three months to be cash equivalents. Included in cash equivalents are certificates of -12- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) deposit and Eurodollar investments of $1,796,000 and $1,133,000 at June 1, 1996 and June 3, 1995, respectively. The carrying amount of these financial instruments reasonably approximates fair value because of their short maturity. Foreign-denominated cash and cash equivalents aggregated $1,101,000 and $1,695,000 at June 1, 1996 and June 3, 1995, respectively. Debt and Equity Securities -------------------------- Effective in fiscal 1995, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). In accordance with the provisions of SFAS 115, this Statement was not applied retroactively to financial statements prior to fiscal 1995. 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, net of the related tax effects. Cost is determined using the specific identification method. Inventories ----------- Inventories are stated at the lower of cost (on the first-in, first- out method) or market. Appropriate consideration is given to deterioration, obsolescence and other factors in evaluating net realizable value. Property, Plant and Equipment ----------------------------- Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed principally using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the terms of the related leases or the useful life of the improvements, whichever is shorter. Expenditures for repairs and maintenance are charged to expense as incurred. Renewals and betterments are capitalized. Depreciation expense from continuing operations was $2,308,000, $2,273,000 and $2,230,000 in 1996, 1995 and 1994, respectively. -13- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Cost in Excess of Fair Value of Net Assets Acquired --------------------------------------------------- The excess cost is being amortized on a straight-line basis over 5 and 40 year periods. On an ongoing basis, management reviews the valuation and amortization of this asset to determine possible impairment by comparing the carrying value to the undiscounted future cash flows of the related asset. Amortization from continuing operations was $73,000, $70,000 and $65,000 in 1996, 1995 and 1994, respectively. Intangible Assets ----------------- Intangible assets are being amortized on a straight-line basis over the estimated useful lives of the respective assets ranging from five to fifteen and one-half years. Amortization from continuing operations was $47,000, $44,000 and $41,000 in 1996, 1995 and 1994, respectively. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 ("SFAS 121") that established accounting standards for the impairment of long- lived assets, certain intangibles and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. SFAS 121 is required to be adopted for fiscal years beginning after December 15, 1995. In accordance with SFAS 121, it is the Company's policy to periodically review and evaluate whether there has been a permanent impairment in the value of intangibles and adjust the carrying value accordingly. Factors considered in the valuation include current operating results, trends and anticipated undiscounted future cash flows. Accordingly, the adoption of SFAS 121 is not expected to have a significant effect on the consolidated financial statements of the Company. Income Taxes ------------ In accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), deferred income taxes are recognized for temporary differences between financial statement and income tax bases of assets and liabilities and loss carryforwards and tax credit carryforwards for which income tax benefits are expected to be realized in future years. A valuation allowance has been established to reduce deferred tax assets as it is more likely than not that all, or some portion, of such deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. -14- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Foreign Currency Translation ---------------------------- In accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation," the Company has determined that the functional currency for each of its foreign subsidiaries is the local currency. This assessment considers that the day-to-day operations are not dependent upon the economic environment of the parent's functional currency, financing is effected through their own operations, and the foreign operations primarily generate and expend foreign currency. Foreign currency translation adjustments are accumulated as a separate component of stockholders' equity. 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 1996, 1995 and 1994. The weighted average number of common shares used was: 1996 1995 1994 ---- ---- ---- Primary 9,723,626 9,087,678 9,081,038 Fully diluted 9,832,676 9,092,403 9,081,084 The weighted average number of common shares and the per share amounts for all periods presented have been retroactively restated to reflect the total shares issued after the 3% stock dividends described in Note K. Stock-Based Compensation ------------------------ Adoption of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") is required for fiscal years beginning after December 15, 1995 and allows for a choice of the method of accounting used for stock-based compensation. Entities may elect the "intrinsic value" method based on APB No. 25 "Accounting for Stock Issued to Employees" or the new "fair value" method contained in SFAS 123. The Company intends to implement SFAS 123 in fiscal 1997 by continuing to account for stock-based compensation under the guidelines of APB No. 25. As required by SFAS 123, the pro forma effects on net earnings and earnings per common share will be determined as if the fair value based method had been applied and disclosed in the notes to the consolidated financial statements. -15- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at year-end and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications ----------------- Certain reclassifications have been made to the prior year amounts to conform to the 1996 presentation. NOTE B - DISCONTINUED OPERATION On November 22, 1995 (the "Closing Date"), E-Z-EM, Inc. completed the sale of all of the capital stock of SDI held by E-Z-EM, Inc. 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 the outstanding capital stock of SDI and CalMed, a company not affiliated with E-Z-EM, Inc., 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 nonexclusive 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, pretax, of approximately $25,539,000, after-tax of approximately $19,520,000, or $2.01 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. -16- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE B - DISCONTINUED OPERATION (continued) SDI is a 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 losses from operations of SDI have been classified as a discontinued operation for all periods presented in the accompanying 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 $9,071,000 and $8,478,000 for the fiscal years ended June 3, 1995 and May 28, 1994. Changes in operating assets and liabilities reflected in the consolidated statements of cash flows include amounts pertaining to the operations of SDI. NOTE C - DEBT AND EQUITY SECURITIES Debt and equity securities at June 1, 1996 consist of the following: Unrealized Amortized Fair holding cost value gain (loss) ------- ------- ------ (in thousands) Current Available-for-sale securities (carried on the balance sheet at fair value) Debt securities $19,787 $19,776 $ (11) Equity securities 398 376 (13) Other 95 95 ------- ------- ------ $20,280 $20,247 $ (24) ======= ======= ====== Noncurrent Available-for-sale securities (carried on the balance sheet at fair value) Equity securities $1,675 $3,646 $1,971 Other 1 1 ------- ------- ------ $1,676 $3,647 $1,971 ======= ======= ====== -17- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE C - DEBT AND EQUITY SECURITIES (continued) Debt and equity securities at June 3, 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 398 357 $ (31) Other 53 53 ------ ------ ------ 451 410 (31) ------ ------ ------ $ 526 $ 485 $ (31) ====== ====== ====== Noncurrent Held-to-maturity securities (carried on the balance sheet at amortized cost) Debt securities with maturities after one year through five years $1,593 $1,605 ------ ------ Available-for-sale securities (carried on the balance sheet at fair value) Equity securities 1,670 2,758 $1,088 Other 1 1 ------ ------ ------ 1,671 2,759 1,088 ------ ------ ------ $3,264 $4,364 $1,088 ====== ====== ====== -18- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE D - INVENTORIES Inventories consist of the following: June 1, June 3, 1996 1995 ---- ---- (in thousands) Finished goods $13,157 $11,856 Work in process 1,159 2,214 Raw materials 9,392 8,682 ------- ------- $23,708 $22,752 ======= ======= NOTE E - PROPERTY, PLANT AND EQUIPMENT, AT COST Property, plant and equipment are summarized as follows: Estimated useful June 1, June 3, lives 1996 1995 ----- ---- ---- (in thousands) Building and building improvements 10 to 39 years $11,661 $11,176 Machinery and equipment 2 to 10 years 24,008 23,897 Leasehold improvements Term of lease 1,568 1,816 ------- ------- 37,237 36,889 Less accumulated depreciation and amortization 18,903 19,709 ------- ------- 18,334 17,180 Land 3,489 3,684 ------- ------- $21,823 $20,864 ======= ======= -19- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE F - INCOME TAXES Income tax expense (benefit) from continuing operations analyzed by category and by income statement classification is summarized as follows: 1996 1995 1994 ------ ------ ------ (in thousands) Current Federal $ 413 $ 1 $ 1 State and local 31 60 59 Foreign (261) 877 1,015 ------ ------ ------ Subtotal 183 938 1,075 Deferred 60 148 74 ------ ------ ------ Total $ 243 $1,086 $1,149 ====== ====== ====== Temporary differences which give rise to deferred tax assets and liabilities are summarized as follows: June 1, June 3, 1996 1995 ----- ----- (in thousands) Deferred tax assets Difference between book and tax basis in investment sold to Canadian subsidiary $1,137 $1,137 Tax credit carryforwards 638 1,295 Tax operating loss carryforwards 372 3,767 Capital loss carryforwards 453 Alternative minimum tax ("AMT") credit carryforward 165 Expenses incurred not currently deductible 1,191 1,455 Unrealized investment losses 722 877 Deferred compensation costs 547 487 Inventories 291 243 Other 89 67 ----- ----- Gross deferred tax asset 4,987 9,946 ----- ----- -20- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE F - INCOME TAXES (continued) June 1, June 3, 1996 1995 ------ ------ (in thousands) Deferred tax liabilities Excess tax over book depreciation $1,074 $ 914 Unrealized investment gains 305 144 Tax on unremitted profits of Puerto Rican subsidiary 67 145 Other 86 109 ------ ------ Gross deferred tax liability 1,532 1,312 Valuation allowance (3,040) (7,861) ------ ------ Net deferred tax asset $ 415 $ 773 ====== ====== In 1994, the Company sold to its Canadian subsidiary warrants to purchase 396,396 shares of stock in ISG Technologies, Inc. This transaction generated a capital gain for tax purposes of approximately $3,344,000, utilizing a portion of the Company's capital loss carryforward and giving rise to a temporary difference pertaining to the difference between the financial statement and tax basis in this asset. During 1996, the Company utilized tax operating and capital losses, tax credit and AMT credit carryforwards of approximately $8,279,000, $596,000 and $121,000, respectively, in connection with the sale of SDI described in Note B. If not utilized, the tax operating loss carryforwards will expire in various amounts over the years 1997 through 2010. The tax credit carryforwards will expire in various amounts over the years 1997 through 2003. Deferred income taxes are provided for the expected Tollgate tax on the undistributed earnings of the Company's Puerto Rican subsidiary, which are expected to be distributed at some time in the future. -21- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE F - INCOME TAXES (continued) At June 1, 1996, undistributed earnings of certain foreign subsidiaries aggregated $13,339,000 which will not be subject to U.S. tax until distributed as dividends. Any taxes paid to foreign governments on these earnings may be used, in whole or in part, as credits against the U.S. tax on any dividends distributed from such earnings. It is not practical to estimate the amount of U.S. tax, if any, that might be payable on the eventual remittance of such earnings. On remittance, certain foreign countries impose withholding taxes that are then available for use as credits against a U.S. tax liability, if any, subject to certain limitations. The amount of withholding tax that would be payable on remittance of the entire amount of undistributed earnings would approximate $667,000. Under the provisions of the Omnibus Budget Reconciliation Act of 1993, undistributed earnings of foreign subsidiaries may be taxable in certain situations for fiscal years beginning after September 30, 1993. Deferred tax assets and liabilities are included in the consolidated balance sheets as follows: June 1, June 3, 1996 1995 ------- ------- (in thousands) Current - Accrued income taxes $(118) $(220) Noncurrent - Other assets 533 993 ----- ----- Net deferred tax asset $ 415 $ 773 ===== ===== Earnings (loss) from continuing operations before income taxes for U.S. and international operations consist of the following: 1996 1995 1994 ------ ------ ------- (in thousands) U.S. $2,280 $ 805 $(1,563) International (340) 2,754 3,091 ------ ------ ------- $1,940 $3,559 $ 1,528 ====== ====== ======= -22- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE F - INCOME TAXES (continued) The Company's consolidated income tax provision has differed from the amount which would be provided by applying the U.S. Federal statutory income tax rate to the Company's earnings from continuing operations before income taxes for the following reasons: 1996 1995 1994 ------ ------ ------ (in thousands) Income tax provision $243 $1,086 $1,149 Effect of: State income taxes, net of Federal tax benefit (21) (22) (19) Research and development credit 95 24 11 Earnings of the Puerto Rican subsidiary, net of Puerto Rico Corporate tax and Tollgate tax 348 373 367 Earnings of the Foreign Sales Corporation 16 Tax-exempt portion of investment income 137 7 13 Nondeductible expenses (251) (138) (53) Losses of entities generating no current tax benefit (79) (83) (1,034) Utilization of tax operating and capital loss carryforwards 61 50 Change in valuation allowance 74 Other 56 (37) 36 ---- ------- ------ Income tax provision at statutory tax rate of 35% in 1996 and 34% in 1995 and 1994 $679 $1,210 $ 520 ==== ====== ====== The Company has an agreement with the Commonwealth of Puerto Rico pursuant to which its operations in Puerto Rico are subject to a partial tax exemption which expires January 23, 2007. Commonwealth taxes are currently being provided on earnings of the subsidiary. The U.S. Federal income tax returns of the Company through May 30, 1992 have been closed by the Internal Revenue Service. -23- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE G - DEBT Short-term debt consists of the following: June 1, June 3, 1996 1995 ------- ------- (in thousands) Japanese bank 2.63% note (1) $462 4.00% note (1) $ 607 Bank, lines of credit 6.5% (2) 287 10.75% 150 Other financial institutions 6.12% note, unsecured 230 6.37% note, unsecured 264 ---- ------ $979 $1,021 ==== ====== Long-term debt consists of the following: June 1, June 3, 1996 1995 ------- ------- (in thousands) Japanese bank loans, due December 1998 through March 2001, 1.45% to 4.10% (1) $948 $1,277 Obligations under capital leases 45 ---- ------ 948 1,322 Less current maturities 268 208 ---- ------ $680 $1,114 ==== ====== (1) Collateralized by property, plant and equipment having a net carrying value of $1,900,000 at June 1, 1996. (2) The Company's Canadian subsidiary has available $730,600 (Canadian $1,000,000) under this line of credit with a bank, which is collateralized by accounts receivable and expires on September 30, 1996. The Company has available $4,000,000 under an unsecured line of credit with a bank, which expires on November 30, 1996. At June 1, 1996, no amounts were outstanding under this line of credit. -24- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE G - DEBT (continued) The Company believes that the carrying amount of its debt approximates the fair value as the variable interest rates approximate current prevailing interest rates. During 1996 and 1995, the weighted average interest rates on short- term debt were 5.93% and 5.48%, respectively. NOTE H - ACCRUED LIABILITIES Accrued liabilities consist of the following: June 1, June 3, 1996 1995 ------ ------ (in thousands) Payroll and related expenses $3,146 $3,341 Accrued sales rebates 1,040 370 Accrued lease settlement (Note J) 510 600 Other 1,522 1,248 ------ ------ $6,218 $5,559 ====== ====== NOTE I - RETIREMENT PLANS E-Z-EM, Inc. and certain domestic subsidiaries ("E-Z-EM") provide pension benefits through a Profit-Sharing Plan, under which E-Z-EM makes discretionary contributions to eligible employees, and a companion 401(k) Plan, under which eligible employees can defer a portion of their annual compensation, part of which is matched by E-Z-EM. These plans cover all E-Z-EM employees not otherwise covered by collective bargaining agreements. In 1996, 1995 and 1994, profit-sharing contributions were $468,000, $464,000 and $457,000, respectively, and 401(k) matching contributions were $316,000, $292,000 and $274,000, respectively. E-Z-EM Canada Inc., a wholly-owned subsidiary of the Company, also provides pension benefits to eligible employees through a Defined Contribution Plan. In 1996, 1995 and 1994, contributions were $45,000, $53,000 and $88,000, respectively. -25- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE J - COMMITMENTS AND 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 was the defendant in a product liability action with respect to an alleged injury resulting from the use of one of its products. The Company was dismissed without prejudice from such action in February 1996. Pursuant to a contractual agreement with Picker International, Inc. ("Picker"), the Company assumed the defense of a lawsuit in which Picker, along with multiple other named defendants, had been sued for injuries alleged to have resulted from the use of protective aprons. The plaintiff has recently abandoned this action. The Company has been sued by Olympia Holding Corporation p/k/a P-I-E Nationwide, Inc. for $443,830. The suit, filed on October 5, 1992, is presently pending in the U.S. Bankruptcy Court for the Middle District of Florida. The Company is being represented in this action by a law firm which is also representing numerous other defendants being sued by the same plaintiff on the same grounds - recovery for alleged undercharges for freight carriage. It is not possible, at this stage, to determine what, if any, liability exists with respect to the Company in this matter. The Company will vigorously defend against this action; it has been informed by legal counsel that there exist numerous valid defenses to this case. During 1993, SDI's lease agreement on the Alameda, California, office and production facilities was prematurely terminated by SDI, a former 51%-owned subsidiary of the Company. In 1993, SDI accrued $600,000 for the estimated settlement of the lease commitment. Pursuant to the terms of the Merger Agreement described in Note B, the $600,000 liability was assumed by USSC (the purchaser of SDI), and the Company and the previous minority shareholder of SDI assumed any liability in excess of $600,000 in connection with the lease termination. The dispute was settled in July 1996 for $1,600,000, of which the Company was liable for $510,000, or 51% of the $1,000,000 excess. Such amount is included in accrued liabilities at June 1, 1996. -26- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE J - COMMITMENTS AND 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 pretax provision in the aggregate amount of $1,546,000 during 1994, with respect to such recalls. During 1995, such recall was completed and the Company reduced this provision by $156,000 based upon the actual results of the recall. Such amounts are reflected in cost of goods sold in the consolidated statements of earnings. These products currently account for less than five percent of the Company's sales volume. The Company leases several facilities from related parties. During 1996, 1995 and 1994, aggregate rental costs under all operating leases from continuing operations, which primarily consist of facility rentals, were approximately $1,131,000, $1,041,000 and $1,288,000, respectively, of which approximately $202,000, $205,000 and $198,000 were paid to related parties. Future annual operating lease payments in the aggregate, which include escalation clauses and real estate taxes, with initial remaining terms of more than one year at June 1, 1996, are summarized as follows: Total Related party leases leases ------ ------------- (in thousands) 1997 $ 759 $ 69 1998 465 25 1999 399 2000 414 2001 429 Thereafter 2,531 ------ ---- $4,997 $ 94 ====== ==== -27- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE J - COMMITMENTS AND CONTINGENCIES (continued) The Company has an employment contract with a key executive that provides for a term of eight years. Future annual commitments with respect to this contract at June 1, 1996, are summarized as follows: (in thousands) 1997 $ 250 1998 250 1999 250 2000 250 2001 250 2002 125 ------ $1,375 ====== NOTE K - COMMON STOCK In August 1983, the Company adopted a Stock Option Plan (the "1983 Plan"). The 1983 Plan provides for the grant to key employees of both nonqualified stock options and incentive stock options. A total of 1,742,694 shares of the Company's Common Stock may be issued under the 1983 Plan pursuant to the exercise of options. All stock options must have an exercise price of not less than the market value of the shares on the date of grant. Options will be exercisable over a period of time to be designated by the administrators of the 1983 Plan (but not more than 10 years from the date of grant) and will be subject to such other terms and conditions as the administrators may determine. The 1983 Plan terminates in December 2005. In August 1984, the Company adopted a second Stock Option Plan (the "1984 Plan"). The 1984 Plan provides for the grant to members of the Board of Directors and consultants of nonqualified stock options. A total of 435,553 shares of the Company's Common Stock may be issued under the 1984 Plan pursuant to the exercise of options. All stock options must have an exercise price of not less than the market value of the shares on the date of grant. Options will be exercisable over a period of time to be designated by the administrators of the 1984 Plan (but not more than 10 years from the date of grant) and will be subject to such other terms and conditions as the administrators may determine. The 1984 Plan terminates in December 2005. -28- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE K - COMMON STOCK (continued) On June 1, 1996, options for 640,180 shares were exercisable at prices ranging from $3.88 to $11.33 per share under the 1983 Plan and 185,954 shares were exercisable at prices ranging from $3.88 to $11.38 per share under the 1984 Plan. On June 1, 1996, there remained 207,088 and 103,636 shares available for granting of options under the 1983 and 1984 Plans, respectively. The following schedules summarize the changes in stock options for the three fiscal years ended June 1, 1996: 1983 Plan 1984 Plan ------------------------- ------------------------- Number of Option price Number of Option price shares per share shares per share --------- ------------ --------- ------------ Outstanding at May 29, 1993 806,867 $5.58 to $12.02 133,437 $5.58 to $15.79 Granted 2,185 4.58 7,957 4.71 Cancelled (111,544) 5.58 to 11.33 ------------------------- ------------------------- Outstanding at May 28, 1994 697,508 4.58 to 12.02 141,394 4.71 to 15.79 Granted 968,882 3.88 to 4.48 178,875 3.88 to 4.48 Cancelled (394,542) 4.48 to 12.02 (74,793) 5.58 to 15.79 ------------------------- ------------------------- Outstanding at June 3, 1995 1,271,848 3.88 to 11.33 245,476 3.88 to 15.03 Granted 81,612 9.10 52,350 5.83 to 13.25 Cancelled (45,111) 4.48 to 9.23 (5,909) 15.03 Exercised (145,682) 4.01 to 11.33 (2,500) 4.71 ------------------------- ------------------------- Outstanding at June 1, 1996 1,162,667 $3.88 to $11.33 289,417 $3.88 to $13.25 ========================== ======================== On June 1, 1996, the weighted average exercise price for outstanding options under the 1983 and 1984 Plans was $5.16 and $5.97 per share, respectively. Options granted prior to the Company's recapitalization on October 26, 1992 are exercisable one-half in Class A Common Stock and one- half in Class B Common Stock. Options granted after the recapitalization are exercisable in Class B Common Stock. In August 1985, the Company adopted an Employee Stock Purchase Plan (the "Employee Plan"). The Employee Plan provides for the purchase by employees of Company stock at a discounted price of 85% of the market value of the shares on the date of purchase. A total of 150,000 shares of the Company's Common Stock may be purchased under the Employee Plan which terminates on September 30, 1998. During 1996, employees purchased 932 shares, at prices ranging from $4.57 to $8.82. Total proceeds received by the Company approximated $5,000. -29- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE K - COMMON STOCK (continued) On January 10, 1994, the Board of Directors declared a 3% stock dividend on shares of Class A and Class B Common Stock. The dividend, payable in nonvoting Class B Stock, was distributed on March 11, 1994 to shareholders of record on February 11, 1994. 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 nonvoting Class B Stock, was distributed on March 16, 1995 to shareholders of record on February 24, 1995. On January 23, 1996, the Board of Directors declared a 3% stock dividend on shares of Class A and Class B Common Stock. The dividend, payable in nonvoting Class B Stock, was distributed on March 15, 1996 to shareholders of record on February 23, 1996. Earnings per common share have been retroactively adjusted to reflect the stock dividends. NOTE L - OTHER RELATED PARTIES A director provided services, both as a consultant and employee, to the Company during 1996, 1995 and 1994. Fees for such services, including fees relating to attendance at directors' meetings, were approximately $319,000, $165,000 and $88,000 during 1996, 1995 and 1994, respectively. In connection with the sale of SDI in November 1995, this director resigned as a director of SDI and received an investment banker's fee of $905,000, a bonus of $191,000 arising from the sale and a payment of $268,000 in connection with the surrender of outstanding stock options in SDI. In connection with the sale of SDI, an executive officer resigned as a director of SDI and received a bonus of $191,000 arising from the sale and a payment of $268,000 in connection with the surrender of outstanding stock options in SDI. Two other directors provided consulting services to the Company during 1996, 1995 and 1994. Fees for such services, including fees relating to attendance at directors' meetings, were approximately $196,000, $196,000 and $195,000 during 1996, 1995 and 1994, respectively. -30- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE M - INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS The Company is engaged in the manufacture and distribution of a wide variety of products which are classified into two industry segments: Diagnostic products and AngioDynamics products. Diagnostic products encompass both contrast systems, consisting of barium sulfate formulations and related medical devices used in X- ray, CT-scanning and other imaging examinations, and non-contrast systems, including diagnostic radiology devices, custom contract pharmaceuticals, gastrointestinal cleansing laxatives, X-ray protection equipment, and immunoassay tests. AngioDynamics products include stent products, angiographic and fluid management products, and thrombolytic products used in the interventional medicine marketplace. The Company's primary business activity is conducted with radiologists and hospitals, located throughout the U.S. and abroad, through numerous distributors. The Company's exposure to credit risk is dependent, to a certain extent, on the healthcare industry. The Company performs ongoing credit evaluations of its customers and does not generally require collateral; however, in certain circumstances, the Company may require letters of credit from its customers. In the tables below, operating profit (loss) from continuing operations includes total net sales less operating expenses. Identifiable assets are those associated with industry segment or geographic area operations, excluding loans to or investments in another industry segment or geographic area operation. Intersegment sales and intergeographic sales are not material. In 1996, 1995 and 1994, there was one customer to whom sales of Diagnostic products represented 16%, 15% and 16% of total sales, respectively. Approximately 21% and 17% of accounts receivable pertained to this customer at June 1, 1996 and June 3, 1995, respectively. -31- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE M - INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS (continued) Industry Segments 1996 1995* 1994* ------- ------- ------- (in thousands) Net Sales Diagnostic products $80,936 $81,525 $80,966 AngioDynamics products 11,696 7,396 5,001 Eliminations (700) (395) (322) ------- ------- ------- Total Net Sales $91,932 $88,526 $85,645 ======= ======= ======= Operating Profit (Loss) Diagnostic products $2,509 $7,452 $4,658 AngioDynamics products (1,536) (4,603) (3,468) Eliminations (16) (12) 10 ------- ------- ------- Total Operating Profit $ 957 $2,837 $1,200 ======= ======= ======= Identifiable Assets Diagnostic products $83,304 $62,585 $59,760 AngioDynamics products 12,945 8,529 6,911 Discontinued operation 5,033 5,162 Eliminations (212) (52) (302) ------- ------- ------- Total Identifiable Assets $96,037 $76,095 $71,531 ======= ======= ======= Depreciation and Amortization Diagnostic products $2,111 $2,109 $1,986 AngioDynamics products 317 278 350 Discontinued operation 124 413 392 ------- ------- ------- Total Depreciation and Amortization $2,552 $2,800 $2,728 ======= ======= ======= Capital Expenditures Diagnostic products $3,850 $4,187 $1,330 AngioDynamics products 370 361 527 Discontinued operation 11 264 318 ------- ------- ------- Total Capital Expenditures $4,231 $4,812 $2,175 ======= ======= ======= * Net sales and operating profit (loss) amounts have been reclassified to reflect the discontinued operation described in Note B. -32- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE M - INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS (continued) Geographic Areas The following geographic area data includes net sales, operating profit (loss) generated by and assets employed in operations located in each area: 1996 1995* 1994* ------- ------- ------- (in thousands) Net Sales U.S. operations $71,939 $65,073 $63,422 International operations: Canada 12,254 14,100 14,301 Other 13,456 13,763 12,196 Eliminations (5,717) (4,410) (4,274) ------- ------- ------- Total Net Sales $91,932 $88,526 $85,645 ======= ======= ======= Operating Profit (Loss) U.S. operations $1,084 $ 118 $(2,086) International operations: Canada (410) 2,350 3,143 Other 225 456 100 Eliminations 58 (87) 43 ------- ------- ------- Total Operating Profit $ 957 $2,837 $ 1,200 ======= ======= ======= Identifiable Assets U.S. operations: Continuing operations $73,604 $47,590 $48,356 Discontinued operation 5,033 5,162 International operations: Canada 15,543 15,816 12,433 Other 8,067 8,857 7,731 Eliminations (1,177) (1,201) (2,151) ------- ------- ------- Total Identifiable Assets $96,037 $76,095 $71,531 ======= ======= ======= * Net sales and operating profit (loss) amounts have been reclassified to reflect the discontinued operation described in Note B. -33- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 1, 1996, June 3, 1995 and May 28, 1994 NOTE M - INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS (continued) The Company's domestic export sales by geographic area are summarized as follows: 1996 1995 1994 ------ ------ ------ (in thousands) Europe $5,655 $2,605 $1,728 Other 3,783 3,421 3,206 ------ ------ ------ $9,438 $6,026 $4,934 ====== ====== ====== NOTE N - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Quarterly results of operations during 1996 and 1995 were as follows: 1996 ---------------------------------- First Second Third Fourth quarter quarter quarter quarter ------- ------- ------- ------- (in thousands, except per share data) Net sales $21,999 $23,005 $21,550 $25,378 Gross profit 9,131 9,623 8,209 9,451 Net earnings 569 20,087 9 343 Earnings per common share (1) Primary (2) .06 2.09 .00 .03 Fully diluted (2) .06 2.07 .00 .03 1995 (3) ---------------------------------- First Second Third Fourth quarter quarter quarter quarter ------- ------- ------- ------- (in thousands, except per share data) Net sales $21,545 $21,377 $19,856 $25,748 Gross profit 9,379 8,834 7,455 11,013 Net earnings (loss) 1,050 455 (1,077) 1,202 Earnings (loss) per common share (1) Primary and fully diluted .12 .05 (.12) .13 (1) Earnings per common share have been retroactively restated to reflect the total shares issued after the 3% stock dividends described in Note K. (2) The sum of the quarters does not equal the fiscal year due to rounding and changes in the calculation of weighted average shares. (3) Reclassified to reflect the discontinued operation described in Note B. -34- E-Z-EM, Inc. and Subsidiaries SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in thousands) Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Additions -------------------- (1) (2) Balance Charged to Balance at Charged to other at end beginning costs and accounts- Deductions- of Description of period expenses describe describe period ----------- --------- -------- -------- -------- ------ Fifty-two weeks ended May 28, 1994 Allowance for doubtful accounts.. $353 $149 $ 96 (a) $406 === === === === Fifty-three weeks ended June 3, 1995 Allowance for doubtful accounts.. $406 $ 91 $ 32 (a) $465 === === === === Fifty-two weeks ended June 1, 1996 Allowance for doubtful accounts.. $465 $176 $114 (b) $527 === === === === (a) Amounts written off as uncollectible. (b) Represents amounts written off as uncollectible of $64,000 and an amount deducted in conjunction with the sale of SDI of $50,000. -35-