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 August 28, 1999
-----------------
Commission file number 1-11479
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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
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(Address of principal executive offices) (Zip Code)
(516) 333-8230
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Registrant's telephone number, including area code
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 October 8, 1999, there were 4,035,346 shares of the registrant's Class A
Common Stock outstanding and 6,031,130 shares of the registrant's Class B Common
Stock outstanding.
Page 1 of 19
Exhibit Index on Page 18
<PAGE>
E-Z-EM, Inc. and Subsidiaries
INDEX
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Part 1: Financial Information Page
- ------- --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets - August 28, 1999 and
May 29, 1999 3 - 4
Consolidated Statements of Earnings - thirteen weeks
ended August 28, 1999 and August 29, 1998 5
Consolidated Statement of Stockholders' Equity and
Comprehensive Income - thirteen weeks ended
August 28, 1999 6
Consolidated Statements of Cash Flows - thirteen weeks
ended August 28, 1999 and August 29, 1998 7 - 8
Notes to Consolidated Financial Statements 9 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16 - 17
Part II: Other Information
- -------- -----------------
Item 6. Exhibits and Reports on Form 8-K 18
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
August 28, May 29,
ASSETS 1999 1999
------ ------
(unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 7,700 $ 8,073
Debt and equity securities 8,813 5,216
Accounts receivable, principally
trade, net 20,099 21,904
Inventories 26,805 26,974
Other current assets 3,976 4,151
------ ------
Total current assets 67,393 66,318
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 21,078 21,325
COST IN EXCESS OF FAIR VALUE OF NET ASSETS
ACQUIRED, less accumulated amortization 416 424
INTANGIBLE ASSETS, less accumulated
amortization 2,280 2,328
DEBT AND EQUITY SECURITIES 2,805 3,015
OTHER ASSETS 2,731 2,649
------ ------
$96,703 $96,059
====== ======
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
August 28, May 29,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1999
------ ------
(unaudited) (audited)
CURRENT LIABILITIES
Notes payable $ 1,211 $ 1,829
Current maturities of long-term debt 148 197
Accounts payable 6,994 7,320
Accrued liabilities 7,766 7,736
Accrued income taxes 1,087 806
------- -------
Total current liabilities 17,206 17,888
LONG-TERM DEBT, less current maturities 497 477
OTHER NONCURRENT LIABILITIES 2,426 2,403
COMMITMENTS AND CONTINGENCIES
------- -------
Total liabilities 20,129 20,768
------- -------
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 August 28, 1999 and May 29, 1999 403 403
Class B (nonvoting), par value $.10 per
share - authorized, 10,000,000 shares;
issued and outstanding 6,037,344 shares
at August 28, 1999 and 6,058,277 shares
at May 29, 1999 (excluding 44,124 and
12,100 shares held in treasury at August
28, 1999 and May 29, 1999, respectively) 604 606
Additional paid-in capital 21,800 21,917
Retained earnings 55,685 53,887
Accumulated other comprehensive income (loss) (1,918) (1,522)
------- -------
Total stockholders' equity 76,574 75,291
------- -------
$ 96,703 $ 96,059
======= =======
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
(in thousands, except per share data)
Thirteen weeks ended
---------------------------
August 28, August 29,
1999 1998
-------- --------
Net sales $ 27,197 $ 25,665
Cost of goods sold 15,114 14,996
------- -------
Gross profit 12,083 10,669
------- -------
Operating expenses
Selling and administrative 8,337 7,617
Research and development 1,201 1,002
------- -------
Total operating expenses 9,538 8,619
------- -------
Operating profit 2,545 2,050
Other income (expense)
Interest income 145 119
Interest expense (61) (62)
Equity in losses of affiliate (79)
Other, net 81 37
------- -------
Earnings before income taxes 2,710 2,065
Income tax provision 912 595
------- -------
NET EARNINGS $ 1,798 $ 1,470
======= =======
Earnings per common share
Basic $ .18 $ .15
======= =======
Diluted $ .18 $ .14
======= =======
Weighted average common shares
Basic 10,073 10,044
======= =======
Diluted 10,228 10,327
======= =======
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Thirteen weeks ended August 28, 1999
(unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Class A Class B Accumulated
common stock common stock Additional other Compre-
----------------- ----------------- paid-in Retained comprehensive hensive
Shares Amount Shares Amount capital earnings income (loss) Total income
-------- ------ -------- ------ ------- -------- ------------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at May 29, 1999 4,035,346 $403 6,058,277 $606 $21,917 $53,887 $(1,522) $75,291
Exercise of stock options 9,816 1 40 41
Income tax benefits on
stock options exercised 5 5
Compensation related to
stock option plans 1 1
Issuance of stock 1,275 6 6
Purchase of treasury stock (32,024) (3) (169) (172)
Net earnings 1,798 1,798 $1,798
Unrealized holding loss on debt
and equity securities (179) (179) (179)
Foreign currency translation
adjustments (217) (217) (217)
--------- --- --------- --- ------ ------ ----- ------ -----
Comprehensive income $1,402
=====
Balance at August 28, 1999 4,035,346 $403 6,037,344 $604 $21,800 $55,685 $(1,918) $76,574
========= === ========= === ====== ====== ===== ======
</TABLE>
The accompanying notes are an integral part of this financial statement.
-6-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Thirteen weeks ended
-------------------------
August 28, August 29,
1999 1998
-------- --------
Cash flows from operating activities:
Net earnings $ 1,798 $ 1,470
Adjustments to reconcile net earnings
to net cash provided by operating
activities
Depreciation and amortization 724 722
Provision for doubtful accounts 60 60
Equity in losses of affiliate 79
Deferred income tax provision 12 6
Other non-cash items 1 1
Changes in operating assets and
liabilities
Accounts receivable 1,745 1,716
Inventories 169 518
Other current assets 175 (185)
Other assets (82) (90)
Accounts payable (326) (430)
Accrued liabilities 30 (134)
Accrued income taxes 269 323
Other noncurrent liabilities 37 38
-------- --------
Net cash provided by operating
activities 4,612 4,094
-------- --------
Cash flows from investing activities:
Additions to property, plant and
equipment, net (438) (116)
Available-for-sale securities
Purchases (17,557) (70)
Proceeds from sale 13,960 20
-------- --------
Net cash used in investing activities (4,035) (166)
-------- --------
Cash flows from financing activities:
Repayments of debt (792) (1,961)
Proceeds from exercise of stock options,
including related income tax benefits 46 128
Purchase of treasury stock (172)
Proceeds from issuance of stock in connection
with the stock purchase plan 6 2
-------- --------
Net cash used in financing activities (912) (1,831)
-------- --------
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<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
(in thousands)
Thirteen weeks ended
--------------------------
August 28, August 29,
1999 1998
------- -------
Effect of exchange rate changes on
cash and cash equivalents $ (38) $ (655)
------ ------
(DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (373) 1,442
Cash and cash equivalents
Beginning of period 8,073 4,654
------ ------
End of period $ 7,700 $ 6,096
====== ======
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest $ 23 $ 47
====== ======
Income taxes $ 600 $ 304
====== ======
The accompanying notes are an integral part of these financial statements.
-8-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 28, 1999 and August 29, 1998
(unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of August 28, 1999, the consolidated
statement of stockholders' equity and comprehensive income for the period
ended August 28, 1999, and the consolidated statements of earnings and cash
flows for the periods ended August 28, 1999 and August 29, 1998, 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
and comprehensive income, results of operations and cash flows at August
28, 1999 (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 1999 Annual Report on
Form 10-K filed by the Company on August 27, 1999. The results of
operations for the periods ended August 28, 1999 and August 29, 1998 are
not necessarily indicative of the operating results for the respective full
years.
The consolidated financial statements include the accounts of E-Z-EM, Inc.
and all 100%-owned subsidiaries (the "Company"). All significant
intercompany balances and transactions have been eliminated. The Company's
approximate 23% interest in an affiliate in fiscal 1999 was accounted for
by the equity method. Pursuant to this method, such investment was recorded
at cost and adjusted by the Company's share of undistributed earnings (or
losses). In the fourth quarter of the prior fiscal year, the Company
recorded an impairment charge, as it was determined that the fair value of
such investment was zero, with no future cash flows anticipated due to the
affiliate's inability to generate income from operations or raise
additional capital.
NOTE B - INVENTORIES
Inventories consist of the following:
August 28, May 29,
1999 1999
------- -------
(in thousands)
Finished goods $14,040 $14,000
Work in process 1,759 1,926
Raw materials 11,006 11,048
------ ------
$26,805 $26,974
====== ======
-9-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
August 28, 1999 and August 29, 1998
(unaudited)
NOTE C - EARNINGS PER COMMON SHARE
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share," the Company has presented basic and dilutive
earnings per share. Basic earnings per share are based on the weighted
average number of common shares outstanding without consideration of
potential common stock. Diluted earnings per share are based on the
weighted average number of common and potential common shares outstanding.
The calculation takes into account the shares that may be issued upon
exercise of stock options, reduced by the shares that may be repurchased
with the funds received from the exercise, based on the average price
during the period.
The following table sets forth the reconciliation of the weighted average
number of common shares:
Thirteen weeks ended
-------------------------
August 28, August 29,
1999 1998
------ ------
(in thousands)
Basic 10,073 10,044
Effect of dilutive securities
(stock options) 155 283
------ ------
Diluted 10,228 10,327
====== ======
NOTE D - COMMON STOCK
Under the 1983 and 1984 Stock Option Plans, options for 170,759 shares were
granted at $5.63 per share, options for 9,816 shares were exercised at
$4.22 per share, options for 10,299 shares were forfeited at prices ranging
from $4.22 to $5.39 per share, and no options expired during the thirteen
weeks ended August 28, 1999. Under the 1997 AngioDynamics Stock Option
Plan, options for .63 shares were forfeited at $40,000 per share, and no
options were granted, exercised or expired during the thirteen weeks ended
August 28, 1999.
Under the Employee Stock Purchase Plan, 1,275 shares were purchased at $4.46
per share during the thirteen weeks ended August 28, 1999.
In January 1999, the Board of Directors authorized the repurchase of the
Company's Class B Common Stock up to an aggregate purchase price of
$2,000,000. As of August 28, 1999, the Company had repurchased 44,124
shares of Class B Common Stock for approximately $240,000.
NOTE E - COMPREHENSIVE INCOME
During fiscal 1999, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the
adoption of SFAS
-10-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
August 28, 1999 and August 29, 1998
(unaudited)
NOTE E - COMPREHENSIVE INCOME (continued)
No. 130 had no impact on the Company's net earnings or stockholders' equity.
SFAS No. 130 requires unrealized holding gains or losses on debt and equity
securities available-for-sale and cumulative translation adjustments, which
prior to adoption were reported separately in stockholders' equity, to be
included in accumulated other comprehensive income (loss).
The components of comprehensive income, net of related tax, are as follows:
Thirteen weeks ended
--------------------------
August 28, August 29,
1999 1998
------- -------
(in thousands)
Net earnings $ 1,798 $ 1,470
Unrealized holding loss on debt
and equity securities (179) (261)
Foreign currency translation
adjustments (217) (611)
------ ------
Comprehensive income $ 1,402 $ 598
====== ======
The components of accumulated other comprehensive income (loss), net of
related tax, are as follows:
August 28, May 29,
1999 1999
------- -------
(in thousands)
Unrealized holding gain on debt
and equity securities $ 1,014 $ 1,193
Cumulative translation adjustments (2,932) (2,715)
------ ------
Accumulated other comprehensive income
(loss) $(1,918) $(1,522)
====== ======
NOTE F - OPERATING SEGMENTS
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". The statement redefines
how operating segments are determined and requires disclosure of certain
financial and descriptive information about a company's operating segments.
The Company has adopted the new requirements retroactively.
The Company is engaged in the manufacture and distribution of a wide
variety of products which are classified into two operating 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, ultrasound and MRI
imaging examinations, and non-contrast systems, including diagnostic
radiology devices, custom contract pharmaceuticals, gastrointestinal
cleansing
-11-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
August 28, 1999 and August 29, 1998
(unaudited)
NOTE F - OPERATING SEGMENTS (continued)
laxatives, X-ray protection equipment, and immunoassay tests. AngioDynamics
products include angiography, therapeutic and coronary medical devices used
in the interventional medical marketplace.
The Company's chief operating decision maker utilizes operating segment net
earnings (loss) information in assessing performance and making overall
operating decisions and resource allocations. Information about the
Company's segments is as follows:
Thirteen weeks ended
---------------------------
August 28, August 29,
1999 1998
-------- --------
(in thousands)
Net sales from external customers
Diagnostic products
Contrast systems $ 16,027 $ 14,148
Non-contrast systems 6,829 5,842
------- -------
Total Diagnostic products 22,856 19,990
AngioDynamics products 4,341 5,675
------- -------
Total net sales from external
customers $ 27,197 $ 25,665
======= =======
Intersegment net sales
Diagnostic products $ 191 $ 11
AngioDynamics products 158 142
------- -------
Total intersegment net sales $ 349 $ 153
======= =======
Net earnings (loss)
Diagnostic products $ 2,310 $ 1,316
AngioDynamics products (536) 160
Eliminations 24 (6)
------- -------
Total net earnings $ 1,798 $ 1,470
======= =======
August 28, May 29,
1999 1999
--------- ---------
(in thousands)
Assets
Diagnostic products $ 107,819 $ 107,027
AngioDynamics products 18,147 17,922
Eliminations (29,263) (28,890)
-------- --------
Total assets $ 96,703 $ 96,059
======== ========
-12-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quarters ended August 28, 1999 and August 29, 1998
- --------------------------------------------------
The Company's quarters ended August 28, 1999 and August 29, 1998 both
represent thirteen weeks.
Results of Operations
- ---------------------
Segment Overview
----------------
The Company operates in two industry segments: Diagnostic products and
AngioDynamics products. The Diagnostic products operating segment includes both
contrast systems and non-contrast systems. The AngioDynamics products operating
segment includes angiography, therapeutic and coronary medical devices used in
the interventional medical marketplace.
<TABLE>
<CAPTION>
Diagnostic AngioDynamics Eliminations Total
---------- ------------- ------------ -----
(in thousands)
<S> <C> <C> <C> <C>
Quarter ended August 28, 1999
-----------------------------
Unaffiliated customer sales $22,856 $ 4,341 -- $27,197
Intersegment sales 191 158 ($ 349) --
Gross profit 10,045 2,015 23 12,083
Operating profit (loss) 2,929 (408) 24 2,545
Quarter ended August 29, 1998
-----------------------------
Unaffiliated customer sales $19,990 $ 5,675 -- $25,665
Intersegment sales 11 142 ($ 153) --
Gross profit (loss) 7,842 2,841 (14) 10,669
Operating profit (loss) 1,597 459 (6) 2,050
</TABLE>
Diagnostic Products
-------------------
Diagnostic segment operating results for the current quarter improved by
$1,332,000 due primarily to increased sales and improved gross profit, partially
offset by increased operating expenses of $871,000. Net sales increased 14%, or
$2,866,000, due to increased demand for sales of both contrast systems and non-
contrast systems. Price increases accounted for approximately 1 1/2% of net
sales in the current quarter. Gross profit expressed as a percentage of net
sales improved to 44% during the current quarter, versus 39% during the
comparable quarter of the prior year due primarily to increased production
throughput and sales price increases.
AngioDynamics Products
----------------------
AngioDynamics segment operating results for the current quarter declined by
$867,000 due to decreased sales and gross profit. Net sales decreased 24%, or
$1,334,000, due primarily to lower than expected sales of therapeutic products,
resulting from the suspension of the sale of the clot-dissolving drug abbokinase
by Abbott Laboratories in the domestic marketplace, and reduced international
sales, resulting from the continued decline in sales of the coronary
AngioStent(TM). Gross profit expressed as a percentage of net sales decreased to
45% during the current quarter versus 49% during the comparable quarter of the
prior year due primarily to decreased production throughput at both the
Queensbury, New York and Irish facilities.
-13-
<PAGE>
Consolidated Results of Operations
----------------------------------
For the quarter ended August 28, 1999, the Company reported net earnings of
$1,798,000, or $.18 per common share on both a basic and diluted basis, as
compared to net earnings of $1,470,000, or $.15 and $.14 per common share on a
basic and diluted basis, respectively, for the comparable period of last year.
Results for the current quarter were favorably affected by increased sales and
improved gross profit in the Diagnostic segment, partially offset by decreased
sales and gross profit in the AngioDynamics segment, as well as increased
operating expenses in the Diagnostic segment.
Net sales for the quarter ended August 28, 1999 increased 6%, or
$1,532,000, as compared to the quarter ended August 29, 1998. Increased sales of
contrast systems of $1,879,000 and non-contrast systems of $987,000, including
$757,000 relating to custom contract, were partially offset by decreased sales
of AngioDynamics products of $1,334,000. Price increases accounted for
approximately 1 1/2% of net sales in the current quarter. Net sales in
international markets, including direct exports from the U.S., increased 15%, or
$1,267,000, in the current quarter versus the comparable period of last year due
to increased sales of contrast systems of $1,089,000 and non-contrast systems of
$870,000, including $757,000 relating to custom contracts, partially offset by a
decline in sales of AngioDynamics products of $692,000.
Gross profit expressed as a percentage of net sales increased to 44% during
the current quarter versus 42% during the comparable quarter of the prior year
due to improved gross profit in the Diagnostic segment, partially offset by
reduced gross profit in the AngioDynamics segment. The improved Diagnostic gross
profit expressed as a percentage of net sales is due primarily to increased
production throughput and sales price increases. The decreased AngioDynamics
gross profit expressed as a percentage of net sales is due primarily to
decreased production throughput at both the Queensbury and Irish facilities.
Selling and administrative ("S&A") expenses were $8,337,000 during the
quarter ended August 28, 1999 versus $7,617,000 during the quarter ended August
29, 1998. This increase of $720,000, or 9%, in the current quarter was due to
increased Diagnostic S&A expenses, which can be attributed to expenses
supporting the 14% sales increase during the current quarter.
Research and development ("R&D") expenditures increased 20% in the current
quarter to $1,201,000, or 4% of net sales, from $1,002,000, or 4% of net sales,
in the comparable quarter of the prior year due to increased spending relating
to contrast systems of $128,000 and AngioDynamics projects of $91,000. Of the
R&D expenditures in the current quarter, approximately 46% relate to contrast
systems, 35% to AngioDynamics projects, 3% to immunological projects, 4% to
other projects and 12% to general regulatory costs. R&D expenditures are
expected to continue at approximately current levels.
Other income, net of other expenses, totaled $165,000 in the current
quarter versus $15,000 in the comparable period of last year. This improvement
was due primarily to the recording of the Company's approximate 23% share in the
losses of ITI Medical Technologies, Inc. of $79,000 in the comparable period of
last year and improved foreign currency exchange gains and losses of $55,000.
The Company's effective tax rate during the quarter ended August 28, 1999
approximated the Federal statutory tax rate of 34%. Losses incurred in a foreign
jurisdiction subject to lower tax rates were offset by earnings of the Company's
Puerto Rican subsidiary, which are subject to favorable U.S. tax treatment. For
the quarter ended August 29, 1998, the Company's effective tax rate of 29%
differed from the Federal statutory tax rate of 34% due primarily to the
utilization of previously unrecorded tax credit carryforwards and earnings of
the Puerto Rican subsidiary, which are subject to favorable U.S. tax treatment.
-14-
<PAGE>
Liquidity and Capital Resources
- -------------------------------
During the quarter ended August 28, 1999, debt repayments and capital
expenditures were funded by cash provided by operations. The Company's policy
has been to fund capital requirements without incurring significant debt. At
August 28, 1999, debt (notes payable, current maturities of long-term debt and
long-term debt) was $1,856,000 as compared to $2,503,000 at May 29, 1999. The
Company has available $3,343,000 under two bank lines of credit of which no
amounts were outstanding at August 28, 1999.
At August 28, 1999, approximately 66% of the Company's assets consist of
inventories, accounts receivable, short-term debt and equity securities, and
cash and cash equivalents. The current ratio is 3.92 to 1, with net working
capital of $50,187,000 at August 28, 1999, as compared to the current ratio of
3.71 to 1, with net working capital of $48,430,000 at May 29, 1999.
In January 1999, the Board of Directors authorized the repurchase of the
Company's Class B Common Stock up to an aggregate purchase price of $2,000,000.
As of August 28, 1999, the Company had repurchased 44,124 shares of Class B
Common Stock for approximately $240,000.
Year 2000 Compliance
--------------------
Management has developed a plan to modify the Company's information
technology to recognize the Year 2000. The Year 2000 issue is the result of
computer programs being written using two digits rather than four to define the
applicable year. The plan has three distinct areas of focus; namely, traditional
information systems, technology used in support areas, and preparedness of
suppliers and customers.
The first area of focus has been an assessment of traditional information
technology, namely internal software business applications, hardware and desktop
support. All of the Company's domestic and most of its international software
systems, applications and desktop support have been assessed, modified and
tested to be Year 2000 compliant. The remaining system upgrades or
modifications, at two of the Company's international subsidiaries, are scheduled
for completion during the second quarter of fiscal 2000.
The second area of focus has been an assessment of technology used in
support areas, which includes the electronics in manufacturing equipment,
telephone systems, security systems and payroll time clocks. At the present
time, substantially all such equipment, except the Company's Westbury telephone
system, has either been tested to assure Year 2000 compliance or has been
certified by vendors to be Year 2000 compliant. The vendor that handles the
Company's telephone system at its Westbury offices has assured the Company that
the system will be made Year 2000 compliant during the second quarter of fiscal
2000, at no cost to the Company.
The third area of focus is communications with suppliers and customers to
understand their level of readiness and assure a constant flow of materials to
support business plans. The Company has sought compliance statements from each
of its significant suppliers. Communication has shown a high level of awareness
and planning by these parties, most of which have provided positive assurances
to maintain a constant flow of materials. At the present time, no material
problems or concerns are indicated by these responses. However, if a significant
vendor or customer is non-compliant, the Company can give no assurance that such
occurrence will not have an adverse affect on the Company's results. The Company
believes its action plans will minimize these risks and prevent any major
interruptions in the flow of materials and products.
Formal contingency plans will not be formulated unless the Company has
identified specific areas where there is a substantial risk of year 2000
problems
-15-
<PAGE>
occurring. No such areas have been identified to date. If during our remaining
testing the Company finds results that warrant concern, we will dedicate
appropriate staff to procure readiness and to do re-testing.
The plan is being administered by internal staff and management. Costs
incurred in the Company's readiness effort are being expensed as incurred,
except for those costs capitalized as fixed assets. Anticipated costs are
expected to approximate $130,000 and to date an estimated $70,000 has been
spent. Management has no reason to believe that the Company will not meet its
compliance goals and does not anticipate that this project will have a material
impact on the Company's operations, though no assurance can be given in this
regard.
Forward-Looking Statements
--------------------------
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company is exposed to market risk from changes in foreign currency
exchange rates and, to a much lesser extent, interest rates on investments and
financing, which could impact results of operations and financial position. The
Company does not currently engage in hedging or other market risk management
tools. There have been no material changes with respect to market risk
previously disclosed in the fiscal 1999 Annual Report on Form 10-K.
Foreign Currency Exchange Rate Risk
-----------------------------------
The Company's international subsidiaries are denominated in currencies
other than the U.S. dollar. However, since the functional currency of the
Company's international subsidiaries is the local currency, foreign currency
translation adjustments are accumulated as a component of accumulated other
comprehensive income (loss) in stockholders' equity. Assuming a hypothetical
change in the foreign currency versus the U.S. dollar exchange rates of 10% at
August 28, 1999, the Company's assets and liabilities would increase or decrease
by $2,261,000 and $608,000, respectively, and the Company's net sales and net
earnings would increase or decrease by $2,476,000 and $156,000, respectively, on
an annual basis.
The Company also maintains intercompany balances and loans receivable with
subsidiaries with different local currencies. These amounts are at risk of
foreign exchange losses if exchange rates fluctuate. Assuming a hypothetical
change in the foreign currency versus the U.S. dollar exchange rates of 10% at
August 28, 1999, results of operations would be favorably or unfavorably
impacted by approximately $945,000 on an annual basis.
-16-
<PAGE>
Interest Rate Risk
------------------
The Company is exposed to interest rate change market risk with respect to
its investments in tax-free municipal bonds in the amount of $8,725,000. The
bonds bear interest at a floating rate established weekly. During the quarter
ended August 28, 1999, the interest rate on the bonds approximated 3.4%. Each
100 basis point (1%) fluctuation in interest rates will increase or decrease
interest income on the bonds by approximately $87,000 on an annual basis.
As the Company's principal amount of fixed interest rate financing
approximates $1,856,000 at August 28, 1999, a change in interest rates would not
materially impact results of operations or financial position. At August 28,
1999, the Company did not maintain any variable interest rate financing.
-17-
<PAGE>
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 19
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended August 28, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
E-Z-EM, Inc.
------------------------------------
(Registrant)
Date October 11, 1999 /s/ Howard S. Stern
-------------------- -------------------------------------
Howard S. Stern, Chairman of the
Board, President, Chief Executive
Officer and Director
Date October 11, 1999 /s/ Dennis J. Curtin
-------------------- -------------------------------------
Dennis J. Curtin, Vice President-
Chief Financial Officer
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-Q for the quarter ended August 28, 1999 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-03-2000
<PERIOD-END> AUG-28-1999
<CASH> 7,700
<SECURITIES> 8,813
<RECEIVABLES> 21,157
<ALLOWANCES> 1,058
<INVENTORY> 26,805
<CURRENT-ASSETS> 67,393
<PP&E> 47,767
<DEPRECIATION> 26,689
<TOTAL-ASSETS> 96,703
<CURRENT-LIABILITIES> 17,206
<BONDS> 497
0
0
<COMMON> 1,007
<OTHER-SE> 75,567
<TOTAL-LIABILITY-AND-EQUITY> 96,703
<SALES> 27,197
<TOTAL-REVENUES> 27,197
<CGS> 15,114
<TOTAL-COSTS> 15,114
<OTHER-EXPENSES> 9,538
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 61
<INCOME-PRETAX> 2,710
<INCOME-TAX> 912
<INCOME-CONTINUING> 1,798
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<EXTRAORDINARY> 0
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<NET-INCOME> 1,798
<EPS-BASIC> .18
<EPS-DILUTED> .18
</TABLE>
