UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended February 26, 2000
-----------------
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)
(516) 333-8230
--------------------------------------------------
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 April 7, 2000, there were 4,016,121 shares of the registrant's Class A Common
Stock outstanding and 5,912,548 shares of the registrant's Class B Common Stock
outstanding.
Page 1 of 29
Exhibit Index on Page 20
<PAGE>
E-Z-EM, Inc. and Subsidiaries
INDEX
-----
Part I: Financial Information Page
- ------ --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets - February 26, 2000 and
May 29, 1999 3 - 4
Consolidated Statements of Earnings - thirteen and
thirty-nine weeks ended February 26, 2000 and
February 27, 1999 5
Consolidated Statement of Stockholders' Equity and
Comprehensive Income - thirty-nine weeks ended
February 26, 2000 6
Consolidated Statements of Cash Flows - thirty-nine weeks
ended February 26, 2000 and February 27, 1999 7 - 8
Notes to Consolidated Financial Statements 9 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 18
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 18 - 19
Part II: Other Information
- ------- -----------------
Item 6. Exhibits and Reports on Form 8-K 20
-2-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
February 26, May 29,
ASSETS 2000 1999
------- -------
(unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 4,087 $ 8,073
Debt and equity securities 8,920 5,216
Accounts receivable, principally
trade, net 18,855 21,904
Inventories 28,516 26,974
Other current assets 5,181 4,151
------- -------
Total current assets 65,559 66,318
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 21,325 21,325
COST IN EXCESS OF FAIR VALUE OF NET ASSETS
ACQUIRED, less accumulated amortization 419 424
INTANGIBLE ASSETS, less accumulated
amortization 2,193 2,328
DEBT AND EQUITY SECURITIES 6,637 3,015
OTHER ASSETS 3,089 2,649
------- -------
$99,222 $96,059
======= =======
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
February 26, May 29,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
-------- --------
(unaudited) (audited)
CURRENT LIABILITIES
Notes payable $ 1,829
Current maturities of long-term debt $ 210 197
Accounts payable 5,500 7,320
Accrued liabilities 7,679 7,736
Accrued income taxes 404 806
-------- --------
Total current liabilities 13,793 17,888
LONG-TERM DEBT, less current maturities 1,449 477
OTHER NONCURRENT LIABILITIES 3,184 2,403
-------- --------
Total liabilities 18,426 20,768
-------- --------
COMMITMENTS AND CONTINGENCIES
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 4,016,483 shares
at February 26, 2000 and 4,035,346 shares
at May 29, 1999 (excluding 36,773 shares
held in treasury at February 26, 2000) 402 403
Class B (nonvoting), par value $.10 per
share - authorized, 10,000,000 shares;
issued and outstanding 5,888,895 shares
at February 26, 2000 and 6,058,277 shares
at May 29, 1999 (excluding 308,847 and
12,100 shares held in treasury at February
26, 2000 and May 29, 1999, respectively) 589 606
Additional paid-in capital 20,415 21,917
Retained earnings 58,018 53,887
Accumulated other comprehensive income (loss) 1,372 (1,522)
-------- --------
Total stockholders' equity 80,796 75,291
-------- --------
$ 99,222 $ 96,059
======== ========
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
------------------------------- -------------------------------
February 26, February 27, February 26, February 27,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 25,752 $ 26,618 $ 80,922 $ 78,791
Cost of goods sold 14,647 15,426 44,500 45,392
-------- -------- -------- --------
Gross profit 11,105 11,192 36,422 33,399
-------- -------- -------- --------
Operating expenses
Selling and administrative 8,971 8,214 26,640 24,291
Research and development 1,190 1,335 3,562 3,566
-------- -------- -------- --------
Total operating expenses 10,161 9,549 30,202 27,857
-------- -------- -------- --------
Operating profit 944 1,643 6,220 5,542
Other income (expense)
Interest income 243 128 534 385
Interest expense (61) (66) (180) (189)
Equity in losses of affiliate (62) (200)
Other, net (26) 26 36 408
-------- -------- -------- --------
Earnings before income
taxes 1,100 1,669 6,610 5,946
Income tax provision 584 710 2,479 1,989
-------- -------- -------- --------
NET EARNINGS $ 516 $ 959 $ 4,131 $ 3,957
======== ======== ======== ========
Earnings per common share
Basic $ .05 $ .10 $ .41 $ .39
======== ======== ======== ========
Diluted $ .05 $ .09 $ .40 $ .38
======== ======== ======== ========
Weighted average common shares
Basic 9,988 10,094 10,045 10,085
======== ======== ======== ========
Diluted 10,410 10,321 10,285 10,338
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Thirty-nine weeks ended February 26, 2000
(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 17,910 2 112,090 11 689 702
Income tax benefits on
stock options exercised 79 79
Compensation related to
stock option plans 4 4
Purchase of treasury stock (36,773) (3) (296,747) (30) (2,348) (2,381)
Issuance of stock 15,275 2 74 76
Net earnings 4,131 4,131 $4,131
Unrealized holding gain on debt
and equity securities 2,979 2,979 2,979
Foreign currency translation
adjustments (85) (85) (85)
--------- ----- --------- ----- ------- ------- ------- ------- ------
Comprehensive income $7,025
======
Balance at February 26, 2000 4,016,483 $402 5,888,895 $589 $20,415 $58,018 $1,372 $80,796
========= ===== ========= ===== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
-6-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Thirty-nine weeks ended
--------------------------
February 26, February 27,
2000 1999
-------- --------
Cash flows from operating activities:
Net earnings $ 4,131 $ 3,957
Adjustments to reconcile net earnings
to net cash provided by operating
activities
Depreciation and amortization 2,169 2,175
Provision for doubtful accounts 91 182
Equity in losses of affiliate 200
Deferred income tax provision 37 25
Other non-cash items 74 33
Changes in operating assets and
liabilities
Accounts receivable 2,958 115
Inventories (1,542) (1,094)
Other current assets (1,037) (942)
Other assets (440) (92)
Accounts payable (1,820) 917
Accrued liabilities (57) 487
Accrued income taxes (432) 94
Other noncurrent liabilities 114 111
-------- --------
Net cash provided by operating
activities 4,246 6,168
-------- --------
Cash flows from investing activities:
Additions to property, plant and
equipment, net (2,021) (1,628)
Available-for-sale securities
Purchases (22,339) (18,643)
Proceeds from sale 18,635 16,995
Increase in certificates of deposit (802)
-------- --------
Net cash used in investing activities (5,725) (4,078)
-------- --------
Cash flows from financing activities:
Repayments of debt (1,044) (1,252)
Proceeds from issuance of debt 26
Proceeds from exercise of stock options,
including related income tax benefits 781 278
Purchase of treasury stock (2,381)
Proceeds from issuance of stock in connection
with the stock purchase plan 6 7
-------- --------
Net cash used in financing activities (2,612) (967)
-------- --------
-7-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
(in thousands)
Thirty-nine weeks ended
--------------------------
February 26, February 27,
2000 1999
-------- --------
Effect of exchange rate changes on
cash and cash equivalents $ 105 $ (624)
-------- --------
(DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (3,986) 499
Cash and cash equivalents
Beginning of period 8,073 4,654
-------- ---------
End of period $ 4,087 $ 5,153
======== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 75 $ 117
======== =========
Income taxes (net of refunds of $6 and $4 in
2000 and 1999, respectively) $ 3,044 $ 1,827
======== =========
The accompanying notes are an integral part of these statements.
-8-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 26, 2000 and February 27, 1999
(unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of February 26, 2000, the consolidated
statement of stockholders' equity and comprehensive income for the period
ended February 26, 2000, and the consolidated statements of earnings and
cash flows for the periods ended February 26, 2000 and February 27, 1999,
have been prepared by the Company without audit. The consolidated balance
sheet as of May 29, 1999 was derived from audited consolidated financial
statements. 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 February 26, 2000 (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 February 26, 2000 and February 27, 1999
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:
February 26, May 29,
2000 1999
------------ -------
(in thousands)
Finished goods $13,854 $14,000
Work in process 2,666 1,926
Raw materials 11,996 11,048
------- -------
$28,516 $26,974
======= =======
-9-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
February 26, 2000 and February 27, 1999
(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 diluted
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:
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
------------------------------- -------------------------------
February 26, February 27, February 26, February 27,
2000 1999 2000 1999
------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Basic 9,988 10,094 10,045 10,085
Effect of dilutive
securities (stock
options) 422 227 240 253
------ ------ ------ ------
Diluted 10,410 10,321 10,285 10,338
====== ====== ====== ======
</TABLE>
NOTE D - COMMON STOCK
Under the 1983 and 1984 Stock Option Plans, options for 172,359 shares were
granted at $5.63 per share, options for 130,000 shares were exercised at
prices ranging from $3.66 to $7.54 per share, options for 13,947 shares
were forfeited at prices ranging from $4.22 to $8.58 per share, and options
for 5,970 shares expired at $10.73 per share during the thirty-nine weeks
ended February 26, 2000. Under the 1997 AngioDynamics Stock Option Plan,
options for 6.53 shares were granted at $40,000 per share, options for 1.14
shares were forfeited at $40,000 per share, and no options were exercised
or expired during the thirty-nine weeks ended February 26, 2000.
Under the Employee Stock Purchase Plan, 1,275 shares were purchased at
$4.46 per share during the thirty-nine weeks ended February 26, 2000.
In January 1999, the Board of Directors authorized the repurchase of up to
500,000 shares of the Company's Class B Common Stock at an aggregate
purchase price of up to $2,000,000. In October 1999, the Board modified the
program to include the Company's Class A Common Stock. In February 2000,
the Board further modified the program to increase the aggregate purchase
price of Class A and Class B Common Stock by an additional $2,000,000. As
of February 26, 2000, the Company had repurchased 36,773 shares of Class A
Common Stock and 308,847 shares of Class B Common Stock for approximately
$2,450,000.
-10-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
February 26, 2000 and February 27, 1999
(unaudited)
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 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:
Thirty-nine weeks ended
------------------------------
February 26, February 27,
2000 1999
------- -------
(in thousands)
Net earnings $ 4,131 $ 3,957
Unrealized holding gain on debt
and equity securities 2,979 248
Foreign currency translation
adjustments (85) (1,031)
------- -------
Comprehensive income $ 7,025 $ 3,174
======= =======
The components of accumulated other comprehensive income (loss), net of
related tax, are as follows:
February 26, May 29,
2000 1999
------- -------
(in thousands)
Unrealized holding gain on debt
and equity securities $ 4,173 $ 1,193
Cumulative translation adjustments (2,801) (2,715)
------- -------
Accumulated other comprehensive income
(loss) $ 1,372 $(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
-11-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
February 26, 2000 and February 27, 1999
(unaudited)
NOTE F - OPERATING SEGMENTS (continued)
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
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:
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
--------------------------------- ---------------------------------
February 26, February 27, February 26, February 27,
2000 1999 2000 1999
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Net sales from external
customers
Diagnostic products
Contrast systems $ 14,044 $ 14,911 $ 47,249 $ 44,788
Non-contrast systems 6,806 7,166 19,904 18,859
-------- -------- -------- --------
Total Diagnostic products 20,850 22,077 67,153 63,647
AngioDynamics products 4,902 4,541 13,769 15,144
-------- -------- -------- --------
Total net sales from external
customers $ 25,752 $ 26,618 $ 80,922 $ 78,791
======== ======== ======== ========
Intersegment net sales
Diagnostic products $ -- $ 9 $ 2 $ 35
AngioDynamics products 494 129 819 383
-------- -------- -------- --------
Total intersegment net sales $ 494 $ 138 $ 821 $ 418
======== ======== ======== ========
Net earnings (loss)
Diagnostic products $ 805 $ 1,413 $ 5,442 $ 4,325
AngioDynamics products (296) (454) (1,354) (365)
Eliminations 7 -- 43 (3)
-------- -------- -------- --------
Total net earnings $ 516 $ 959 $ 4,131 $ 3,957
======== ======== ======== ========
<CAPTION>
February 26, February 27,
2000 1999
-------- --------
(in thousands)
<S> <C> <C>
Assets
Diagnostic products $111,547 $107,027
AngioDynamics products 17,710 17,922
Eliminations (30,035) (28,890)
-------- --------
Total assets $ 99,222 $ 96,059
======== ========
</TABLE>
-12-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quarters ended February 26, 2000 and February 27, 1999
- ------------------------------------------------------
The Company's quarters ended February 26, 2000 and February 27, 1999 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)
Quarter ended February 26, 2000
- -------------------------------
<S> <C> <C> <C> <C>
Unaffiliated customer sales $20,850 $ 4,902 -- $25,752
Intersegment sales -- 494 ($ 494) --
Gross profit 8,513 2,585 7 11,105
Operating profit (loss) 959 (22) 7 944
Quarter ended February 27, 1999
- -------------------------------
Unaffiliated customer sales $22,077 $ 4,541 -- $26,618
Intersegment sales 9 129 ($ 138) --
Gross profit (loss) 9,117 2,078 (3) 11,192
Operating profit (loss) 2,059 (416) -- 1,643
</TABLE>
Diagnostic Products
-------------------
Diagnostic segment operating results for the current quarter declined by
$1,100,000 due primarily to decreased sales and increased operating expenses.
Net sales decreased 6%, or $1,227,000, due to lower demand for sales of both
contrast systems and non-contrast systems. The lower sales demand resulted, in
part, from the stocking of higher inventory levels by the Company's distributors
in the second quarter, in anticipation of potential Year 2000 ("Y2K") related
supply issues. Price increases accounted for approximately 5% of net sales in
the current quarter. Gross profit expressed as a percentage of net sales was 41%
during both the current quarter as well as the comparable quarter of the prior
year, as the favorable affect of sales price increases offset the effects of
increased provision for inventory reserves of $346,000. Increased operating
expenses of $496,000 can be attributed to increased selling and administrative
expenses, resulting, in part, from investment in new product introductions and
selling and marketing initiatives.
AngioDynamics Products
----------------------
AngioDynamics segment operating results for the current quarter improved by
$394,000 due primarily to increased sales and improved gross profit. Net sales
increased 8%, or $361,000, due primarily to the introduction of several new
products, namely Abscession(TM) fluid drainage catheters, VistaFlex(TM) platinum
biliary stents, and Workhorse(TM) PTA balloon catheters, in the second quarter
of the current fiscal year. Gross profit expressed as a percentage of net sales
-13-
<PAGE>
improved to 48% during the current quarter versus 45% during the comparable
quarter of the prior year due primarily to decreased provision for inventory
reserves of $243,000.
Consolidated Results of Operations
----------------------------------
For the quarter ended February 26, 2000, the Company reported net earnings
of $516,000, or $.05 per common share on both a basic and diluted basis, as
compared to net earnings of $959,000, or $.10 and $.09 per common share on a
basic and diluted basis, respectively, for the comparable period of last year.
Results for the current quarter were adversely affected by decreased sales and
increased operating expenses in the Diagnostic segment, partially offset by
increased sales and improved gross profit in the AngioDynamics segment.
Net sales for the quarter ended February 26, 2000 decreased 3%, or
$866,000, as compared to the quarter ended February 27, 1999 due to decreased
sales of contrast systems of $867,000 and non-contrast systems of $360,000,
partially offset by increased sales of AngioDynamics products of $361,000. Price
increases accounted for approximately 4% of net sales in the current quarter.
Net sales in international markets, including direct exports from the U.S.,
decreased 8%, or $708,000, in the current quarter versus the comparable period
of last year due to decreased sales of non-contrast systems of $459,000,
including $373,000 relating to custom contracts, contrast systems of $151,000
and AngioDynamics products of $98,000.
Gross profit expressed as a percentage of net sales increased to 43% during
the current quarter versus 42% during the comparable quarter of the prior year
due to improved gross profit in the AngioDynamics segment, resulting from a
decrease in provision for inventory reserves of $243,000.
Selling and administrative ("S&A") expenses were $8,971,000 during the
quarter ended February 26, 2000 versus $8,214,000 during the quarter ended
February 27, 1999. This increase of $757,000, or 9%, in the current quarter was
due primarily to increased Diagnostic S&A expenses, which can be attributed, in
part, to investment in new product introductions and selling and marketing
initiatives.
Research and development ("R&D") expenditures decreased 11% in the current
quarter to $1,190,000, or 5% of net sales, from $1,335,000, or 5% of net sales,
in the comparable quarter of the prior year. This decline was due primarily to
decreased contrast system spending of $65,000 and AngioDynamics project spending
of $45,000. Of the R&D expenditures in the current quarter, approximately 47%
relate to contrast systems, 35% to AngioDynamics projects, 2% 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 $156,000 of income in the
current quarter versus $26,000 of income in the comparable period of last year.
This improvement was due primarily to increased interest income of $115,000,
resulting from the investment of additional funds provided by operations, and
the recording of the Company's approximate 23% share in the losses of ITI
Medical Technologies, Inc. ("ITI") of $62,000 in the comparable period of last
year, partially offset by increased foreign currency exchange losses of $58,000
in the current quarter.
The Company's effective tax rate of 53% during the quarter ended February
26, 2000 differed from the Federal statutory tax rate of 34% due primarily to
the fact that the Company did not provide for the tax benefit on losses in
certain foreign jurisdictions, since it is more likely than not that such
benefits will not be realized. Losses incurred in a foreign jurisdiction subject
to lower tax rates and non-deductible expenses also contributed to the unusually
high effective tax rate, but were partially offset by earnings of the Company's
Puerto
-14-
<PAGE>
Rican subsidiary, which are subject to favorable U.S. tax treatment. For the
quarter ended February 27, 1999, the Company's effective tax rate of 43%
differed from the Federal statutory tax rate of 34% due primarily to the fact
that the Company did not provide for the tax benefit on losses incurred in
certain jurisdictions, since, at that time, it was more likely than not that
such benefits would not be realized, partially offset by earnings of the Puerto
Rican subsidiary, which are subject to favorable U.S. tax treatment.
Thirty-nine weeks ended February 26, 2000 and February 27, 1999
- ---------------------------------------------------------------
Results of Operations
- ---------------------
Segment Overview
----------------
<TABLE>
<CAPTION>
Diagnostic AngioDynamics Eliminations Total
---------- ------------- ------------ -----
(in thousands)
<S> <C> <C> <C> <C>
Thirty-nine weeks ended February 26, 2000
- -----------------------------------------
Unaffiliated customer sales $67,153 $13,769 -- $80,922
Intersegment sales 2 819 ($821) --
Gross profit 29,681 6,700 41 36,422
Operating profit (loss) 7,015 (838) 43 6,220
Thirty-nine weeks ended February 27, 1999
- -----------------------------------------
Unaffiliated customer sales $63,647 $15,144 -- $78,791
Intersegment sales 35 383 ($418) --
Gross profit (loss) 26,127 7,293 (21) 33,399
Operating profit (loss) 5,697 (152) (3) 5,542
</TABLE>
Diagnostic Products
-------------------
Diagnostic segment operating results for the current period improved by
$1,318,000 due to increased sales and improved gross profit, partially offset by
increased operating expenses. Net sales increased 6%, or $3,506,000, due to
price increases and increased demand for sales of both contrast systems and non-
contrast systems. Price increases accounted for approximately 4% of net sales in
the current period. Gross profit expressed as a percentage of net sales improved
to 44% during the current period, versus 41% during the comparable period of the
prior year due primarily to sales price increases and increased production
throughput. Increased operating expenses of $2,236,000 can be attributed to
increased S&A expenses, resulting, in part, from investment in new product
introductions and selling and marketing initiatives.
AngioDynamics Products
----------------------
AngioDynamics segment operating results for the current period declined by
$686,000 due primarily to decreased sales and gross profit. Net sales decreased
9%, or $1,375,000, due primarily to lower than expected sales of Pulse*Spray
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, in large part, from the continued decline in
sales of coronary stents. Abbokinase is the primary drug used in connection with
the Company's Pulse*Spray products. Gross profit expressed as a percentage of
net sales decreased to 46% during the current period versus 47% during the
comparable period of the prior year due primarily to decreased production
throughput at both the Queensbury, New York and Irish facilities, partially
offset by decreased provision for inventory reserves of $329,000.
Consolidated Results of Operations
----------------------------------
For the thirty-nine weeks ended February 26, 2000, the Company reported net
-15-
<PAGE>
earnings of $4,131,000, or $.41 and $.40 per common share on a basic and diluted
basis, respectively, as compared to net earnings of $3,957,000, or $.39 and $.38
per common share on a basic and diluted basis, respectively, for the comparable
period of last year. Results for the current period 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 thirty-nine weeks ended February 26, 2000 increased 3%,
or $2,131,000, as compared to the thirty-nine weeks ended February 27, 1999 due
to increased sales of contrast systems of $2,461,000 and non-contrast systems of
$1,045,000, partially offset by decreased sales of AngioDynamics products of
$1,375,000. Price increases accounted for approximately 3% of net sales in the
current period. Net sales in international markets, including direct exports
from the U.S., increased 3%, or $914,000, in the current period versus the
comparable period of last year due to increased sales of contrast systems of
$1,421,000 and non-contrast systems of $492,000, including $367,000 relating to
custom contracts, partially offset by decreased sales of AngioDynamics products
of $999,000.
Gross profit expressed as a percentage of net sales increased to 45% during
the current period versus 42% during the comparable period of last 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 sales price increases
and increased production throughput. 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, partially offset by
decreased provision for inventory reserves of $329,000.
S&A expenses were $26,640,000 during the thirty-nine weeks ended February
26, 2000 versus $24,291,000 during the thirty-nine weeks ended February 27,
1999. This increase of $2,349,000, or 10%, in the current period was due
primarily to increased Diagnostic S&A expenses, which can be attributed, in
part, to investment in new product introductions and selling and marketing
initiatives.
R&D expenditures in the current period were $3,562,000, or 4% of net sales,
versus $3,566,000, or 5% of net sales, during the comparable prior year period.
There were no materially significant factors affecting the comparison of R&D
expenditures in the current period versus the comparable prior year period. Of
the R&D expenditures in the current period, approximately 47% relate to contrast
systems, 34% to AngioDynamics projects, 3% to immunological projects, 4% to
other projects and 12% to general regulatory costs.
Other income, net of other expenses, totaled $390,000 of income in the
current period versus $404,000 of income in the comparable period of last year.
The decline in foreign currency exchange gains and losses of $365,000, was
offset by the recording of the Company's approximate 23% share in the losses of
ITI of $200,000 in the comparable period of last year, and increased interest
income of $149,000, resulting from the investment of additional funds provided
by operations.
The Company's effective tax rate of 38% during the thirty-nine weeks ended
February 26, 2000 differed from the Federal statutory tax rate of 34% due
primarily to the fact that the Company did not provide for the tax benefit on
losses in certain foreign jurisdictions, since it is more likely than not that
such benefits will not be realized. Earnings of the Company's Puerto Rican
subsidiary, which are subject to favorable U.S. tax treatment, were offset by
losses incurred in a foreign jurisdiction subject to lower tax rates and non-
deductible expenses. For the thirty-nine weeks ended February 27, 1999, the
Company's effective tax rate of 33% differed from the Federal statutory tax rate
of 34% due primarily to the utilization of previously unrecorded tax credit
-16-
<PAGE>
carryforwards and earnings of the Puerto Rican subsidiary, which are subject to
favorable U.S. tax treatment, partially offset by the fact that the Company did
not provide for the tax benefit on losses incurred in certain jurisdictions,
since, at that time, it was more likely than not that such benefits would not be
realized, and non-deductible expenses.
Liquidity and Capital Resources
- -------------------------------
During the thirty-nine weeks ended February 26, 2000, the purchase of
treasury stock, capital expenditures and debt repayments were funded by cash
provided by operations. The Company's policy has been to fund capital
requirements without incurring significant debt. At February 26, 2000, debt
(notes payable, current maturities of long-term debt and long-term debt) was
$1,659,000 as compared to $2,503,000 at May 29, 1999. The Company has available
$5,452,000 under two bank lines of credit of which no amounts were outstanding
at February 26, 2000.
At February 26, 2000, approximately 61% 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 4.75 to 1, with net working
capital of $51,766,000 at February 26, 2000, 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 up to
500,000 shares of the Company's Class B Common Stock at an aggregate purchase
price of up to $2,000,000. In October 1999, the Board modified the program to
include the Company's Class A Common Stock. In February 2000, the Board further
modified the program to increase the aggregate purchase price of Class A and
Class B Common Stock by an additional $2,000,000. As of February 26, 2000, the
Company had repurchased 36,773 shares of Class A Common Stock and 308,847 shares
of Class B Common Stock for approximately $2,450,000.
Year 2000 Compliance
--------------------
Management developed and completed its 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 had 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 was an assessment of traditional information
technology, namely internal software business applications, hardware and desktop
support. All of the Company's software systems, applications and desktop support
have been assessed, modified and tested to be Year 2000 compliant.
The second area of focus was 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 has either been tested to assure Year 2000
compliance or has been certified by vendors to be Year 2000 compliant.
The third area of focus was communications with suppliers and customers to
understand their level of readiness and assure a constant flow of materials to
support business plans. The Company 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
-17-
<PAGE>
interruptions in the flow of materials and products.
Formal contingency plans were not formulated since the Company identified
no specific areas where there was a substantial risk of year 2000 problems
occurring.
The plan was administered by internal staff and management. Costs incurred
in the Company's readiness effort, which approximated $130,000, were expensed as
incurred, except for those costs capitalized as fixed assets. Management
believes that the Company has met its compliance goals and, to date, this
project has not had a material impact on the Company's operations, though no
future 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
February 26, 2000, the Company's assets and liabilities would increase or
decrease by $2,347,000 and $606,000, respectively, and the Company's net sales
and net earnings would increase or decrease by $2,303,000 and $47,000,
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
February 26, 2000, results of operations would be favorably or unfavorably
impacted by approximately $1,006,000 on an annual basis.
-18-
<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 $8,885,000. The
bonds bear interest at a floating rate established weekly. During the thirty-
nine weeks ended February 26, 2000, the interest rate on the bonds approximated
3.7%. Each 100 basis point (1%) fluctuation in interest rates will increase or
decrease interest income on the bonds by approximately $89,000 on an annual
basis.
As the Company's principal amount of fixed interest rate financing
approximates $1,659,000 at February 26, 2000, a change in interest rates would
not materially impact results of operations or financial position. At February
26, 2000, the Company did not maintain any variable interest rate financing.
-19-
<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
--- ----------- ----
3 1983 Stock Option Plan 21
27 Financial data schedule 29
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended February 26,
2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
E-Z-EM, Inc.
----------------------------------
(Registrant)
Date April 11, 2000 /s/ Anthony A. Lombardo
-------------------- ----------------------------------
Anthony A. Lombardo, President and
Chief Executive Officer
Date April 11, 2000 /s/ Dennis J. Curtin
-------------------- ----------------------------------
Dennis J. Curtin, Senior Vice
President - Chief Financial Officer
-20-
E-Z-EM, Inc.
1983 STOCK OPTION PLAN
(As amended through October 19, 1999)
1. PURPOSE OF PLAN
---------------
The purpose of the Plan is to assist the Company in the continued
employment of valued employees by offering them a greater stake in the Company's
success and a closer identity with it, and to aid in gaining the services of
individuals whose employment would be helpful to the Company and would
contribute to its success.
2. DEFINITIONS
-----------
(a) "Board" means the board of directors of the Parent Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means the committee described in Paragraph 5.
(d) "Company" means E-Z-EM, Inc. and each of its Subsidiary Companies.
(e) "Date of Grant" means the date on which an Option is granted.
(f) "Incentive Stock Option" shall mean an option granted under the Plan,
designated by the Committee at the time of such grant as an Incentive Stock
Option and containing the terms specified herein for Incentive Stock Options.
(g) "Non-Qualified Option" shall mean an option granted under the Plan,
designated by the Committee at the time of such grant as a Non-Qualified Option
and containing the terms specified herein for Non-Qualified Options.
(h) "Option" means any stock option granted under the Plan and described
either in Paragraph 3(a) or 3(b).
(i) "Optionee" means a person to whom an Option has been granted under the
Plan, which Option has not been exercised and has not expired or terminated.
(j) "Parent Company" means E-Z-EM, Inc.
(k) "Shares" means shares of common stock of the Parent Company.
(l) "Subsidiary Companies" means all corporations that, at the time in
question, are subsidiary corporations of the Parent Company within the meaning
of Section 425(f) of the Code.
(m) "Ten Percent Shareholder" means a person who on the Date of the Grant
owns, either directly or within the meaning of the attribution rules contained
in Section 425(d) of the Code, stock possessing more than ten percent of the
total combined voting power of all classes of stock of his or her employer
-21-
<PAGE>
corporation or of its parent or subsidiary corporations, as defined respectively
in Sections 425 (e) and (f) of the Code.
(n) "Value" means on any given date, the closing price of the Shares as
reported by NASDAQ, or if listed on a national exchange, the closing price of
the Shares of such exchange on such date.
3. RIGHTS TO BE GRANTED
--------------------
Rights that may be granted under the Plan are:
(a) Incentive Stock Options, that give the Optionee the right for a
specified time period to purchase a specified number of Shares for a price not
less than their Value on the Date of Grant; and
(b) Non-Qualified Options, that give the Optionee the right for a specified
time period to purchase a specified number of Shares for a price not less than
their Value on the Date of the Grant.
Options granted prior to and exercised on or after October 26, 1992 are
exercisable for Shares consisting of half Class A Common Stock and half Class B
Common Stock. Options granted on or after October 26, 1992 are exercisable for
Shares consisting of Class B Common Stock only.
4. STOCK SUBJECT TO PLAN
---------------------
Not more than 2,400,000 Shares in the aggregate may be issued pursuant to
the Plan upon exercise of Options. If an Option terminates without having been
exercised in whole or part, other Options may be granted covering the Shares as
to which the Options was not exercised. Notwithstanding anything contained in
the Plan to the contrary, no recipient of Options may be granted options to
purchase in excess of twenty-five percent (25%) of the maximum number of Shares
authorized to be issued under the Plan.
5. ADMINISTRATION OF PLAN
----------------------
To the extent required by Rule 16b-3 under the Securities Exchange Act of
1934 (or any similar rule of the Securities and Exchange Commission), the Plan
shall be administered by the Compensation Committee, which shall be composed of
two directors of the Parent Company, appointed by the Board.
6. GRANT OF RIGHTS
---------------
The Committee may grant Options to eligible employees of the Company.
-22-
<PAGE>
7. ELIGIBILITY
-----------
(a) Options may be granted only to employees of the Company who are
officers or persons whose principal duties consist of supervising the work of
other employees of the Company, including employees who are also directors.
(b) An Incentive Stock Option shall not be granted to a Ten Percent
Shareholder except on such terms concerning the Option Price and period of
exercise as are provided in Paragraph 8 with respect to such a person.
8. OPTION AGREEMENTS AND TERMS
---------------------------
All options shall be granted within ten years of December 31, 1995 and be
evidenced by option agreements that shall be executed on behalf of the Parent
Company and by the respective Optionees. The terms of each such agreement shall
be determined from time to time by the Committee consistent, however, with the
following:
(a) Option Price. The option price per Share shall be determined by the
-------------
Committee but shall not be less than 100 percent of the Value of the Shares on
the Date of Grant; provided that with respect to any Incentive Stock Options
granted to a Ten Percent Shareholder, the option price per Share shall not be
less than 110 percent of the Value of the Shares on the Date of Grant.
(b) Restriction on Transferability. An Option shall not be transferable
-------------------------------
otherwise than by will or the laws of descent and distribution and, during the
lifetime of the Optionee, shall be exercisable only by him or her. Upon the
death of an Optionee, the person to whom the rights shall have passed by will or
by the laws of descent and distribution may exercise any Options in accordance
with the provisions of Paragraph 8(e).
(c) Payment. Full payment for Shares purchased upon the exercise of an
-------
Option shall be made in cash or, at the election of the Optionee and subject to
the approval of the Committee, by surrendering Shares with an aggregate Value
equal to the aggregate option price or by delivering such combination of Shares
and cash as the Committee may in its discretion approve.
(d) Issuance of Certificates; Payment of Cash. Only whole Shares shall be
-------------------------------------------
issuable upon exercise of Options. Any right to a fractional Share shall be
satisfied in cash. Upon payment of the option price, a certificate for the
number of whole Shares and a check for the Value on the date of exercise of the
fractional share to which the Optionee is entitled shall be delivered to such
Optionee by the Parent Company. If listed on a national exchange, the Parent
Company shall not be obligated to deliver any certificates for Shares until such
-23-
<PAGE>
Shares have been listed (or authorized for listing upon official notice of
issuance) upon each stock exchange upon which outstanding Shares of such class
at the time are listed nor until there has been compliance with such laws or
regulations as the Parent Company may deem applicable. The Parent Company shall
use its best efforts to effect such listing and compliance.
(e) Periods of Exercise of Options. An Option shall be exercisable in whole
------------------------------
or in part at such time as may be determined by the Committee and stated in the
option agreement, provided that an Incentive Stock Option shall not be
exercisable after five years from the Date of Grant in the case of an Option
granted to a Ten Percent Shareholder and any other Option shall not be
exercisable after ten years from the Date of Grant in all other cases, except as
provided below:
(i) Subject to the limitations on the exercise of Incentive Stock Options
contained in Paragraph 9, in the event that an Optionee ceases to be employed by
the Company for any reason other than death, an Option shall not be exercisable
after 3 months from the date the Optionee ceases to be employed by the Company;
provided that if such cessation of employment is due to the disability or the
retirement of the Optionee he or she shall have the right to exercise his or her
Options to the extent determined by the Committee in its discretion and set
forth in the option agreement, even if the date of exercise is within any time
period prescribed by the Plan prior to which such Option shall not be
exercisable, provided, however,
-------------------
that in no event shall an Incentive Stock Option be exercisable after five years
from the Date of Grant in the case of Ten Percent Shareholder and no other
Option shall be exercisable after ten years from the Date of Grant in all other
cases; and
(ii) In the event that an Optionee ceases to be employed by the Company by
reason of his or her death, an Incentive Stock Option shall not be exercisable
after six months from the date of death and a Non-Qualified Option shall not be
exercisable after one year from the date of death; provided that in such event,
the person to whom the rights of the Optionee shall have passed by will or by
the laws of descent and distribution may exercise any of the descendent's
Options to the extent determined by the Committee in its discretion and set
forth in the option agreement, even if the date of exercise is within any time
period prescribed by the Plan prior to which such Option shall not be
exercisable, and provided that an Incentive Stock Option shall not be
exercisable after five years from the Date of Grant in the case of a Ten Percent
Shareholder and any to her Option shall not be exercisable after ten years from
the Date of
-24-
<PAGE>
Grant in all other cases.
(f) Date of Exercise. The date of exercise of an Option shall be the
-----------------
date on which written notice of exercise, addressed to the Parent Company at its
main office to the attention of its Treasurer, is hand delivered, telecopied or
mailed, first class postage prepaid; provided that the Parent Company shall not
be obliged to deliver any certificates for Shares pursuant to the exercise of an
Option until the Optionee shall have made payment in full of the option price
for such Shares. Each such exercise shall be irrevocable when given. Each notice
of exercise must state whether the Optionee is exercising an Incentive Stock
Option or a Non-Qualified Option and must include a statement of preference as
to the manner in which payment to the Parent Company shall be made (Shares or
cash or a combination of Shares and cash).
(g) Termination of Status. For the purposes of the Plan a transfer of an
----------------------
employee between two employers, each of which is a Company, shall not be deemed
a termination of employment.
(h) No Relation Between Incentive Stock Options and Non-Qualified Options.
-----------------------------------------------------------------------
The grant, exercise, termination or expiration of any Incentive Stock Option
granted to an Optionee shall have no effect upon any Non-Qualified Option held
by such Optionee, nor shall the grant, exercise, termination or expiration of
any Non-Qualified Option granted to an Optionee have any effect upon any
Incentive Stock Option held by such Optionee.
(i) Continued Employment. Each Optionee holding an Incentive Stock Option
---------------------
shall agree that the Company shall have the right to require him or her to
continue in the service of the Company for such period, not less than two years
from the date the option was granted, as the Board may determine and as may be
stated in the option agreement.
(j) Conversion of Incentive Stock Options. With the consent of the
-----------------------------------------
Committee, an Optionee holding an Incentive Stock Option may convert such Option
to a Non-Qualified Option in which event, unless otherwise determined by the
Committee and stated in the amended option agreement (i) such Option shall be
exercisable until ten years from the original Date of Grant, (ii) the option
price per Share shall be 100 percent of the Value of the Shares on the original
Date of Grant, and (iii) such Option shall thereupon cease to be an Incentive
Stock Option hereunder and shall be a Non-Qualified Option hereunder.
9. LIMITATION ON EXERCISE OF INCENTIVE STOCK OPTIONS
-------------------------------------------------
The aggregate fair market value (determined as of the time Options are
-25-
<PAGE>
granted) of the shares with respect to which Incentive Stock Options may first
become exercisable by an Optionee in any one calendar year under the Plan and
any other plan of his or her employer corporation and its parent subsidiary
corporations, as defined respectively in Sections 425(e) and (f) of the Code,
shall not exceed $100,000. The foregoing limitation shall apply only to
Incentive Stock Options granted under the Plan, and not to any other Options
granted under the Plan.
10. RIGHTS AS STOCKHOLDERS
----------------------
An Optionee shall have no rights as a stockholder with respect to any
Shares covered by his or her Options until the date of issuance of a stock
certificate to him or her for such Shares.
11. CHANGES IN CAPITALIZATION
-------------------------
In the event of a stock dividend, stock split, recapitalization,
combination, subdivision, issuance of rights to all stockholders, or other
similar corporate change, the Board shall make an appropriate adjustment in the
aggregate number of Shares that may be subject to Options, and the number of
Shares subject to, and the option price of, each then-outstanding Option.
12. MERGERS, DISPOSITIONS AND CERTAIN OTHER TRANSACTIONS
----------------------------------------------------
If during the term of any Option the Parent Company or any of the
Subsidiary Companies shall be merged into or consolidated with or otherwise
combined with or acquired by another person or entity, or there is a divisive
reorganization or a liquidation or partial liquidation of the Parent Company,
the Parent Company may choose to take no action with regard to the Options
outstanding or to take any of the following courses of action:
(a) Subject to the limitations on the exercise of Incentive Stock Options
contained in Paragraph 9, not less than 15 days nor more than 60 days prior to
any such transaction all Optionees shall be notified that their Options shall
expire on the 15th day after the date of such notice, in which event all
Optionees shall have the right to exercise all of their Options prior to such
new expiration date;
(b) The Parent Company shall provide in any agreement with respect to any
such merger, consolidation, combination or acquisition that the surviving, new
or acquiring corporation shall grant options to the Optionees to acquire shares
in such corporation with respect to which the excess of the fair market value of
-26-
<PAGE>
the shares of such corporation immediately after the consummation of such
merger, consolidation, combination or acquisition over the option price, shall
not be greater than the excess of the Value of the Shares over the option price
of Options, immediately prior to the consummation of such merger, consolidation,
combination or acquisition; or
(c) The Parent Company shall take such other action as the Board shall
determine to be reasonable under the circumstances in order to permit Optionees
to realize the value of rights granted to them under the Plan.
13. PLAN NOT TO AFFECT EMPLOYMENT
-----------------------------
Neither the Plan nor any Option shall confer upon any employee of the
Company any right to continue in the employment of the Company.
14. INTERPRETATION
--------------
The Committee shall have the power to interpret the Plan and to make and
amend rules for putting it into effect and administering it. It is intended that
the Incentive Stock Options shall constitute incentive stock options within the
meaning of Section 422A of the Code, that the Non-Qualified Options shall
constitute property subject to federal income tax pursuant to the provisions of
Section 83 of the Code and that the Plan shall qualify for the exemption
available under Rule 16b-3 (or any similar rule) of the Securities and Exchange
Commission. The provisions of the Plan shall be interpreted and applied insofar
as possible to carry out such intent.
15. AMENDMENTS
----------
The Plan may be amended by the Board, but any amendment that increases the
aggregate number of Shares that may be issued pursuant to the Plan upon exercise
of Options (otherwise than pursuant to Paragraph 11), that changes the class of
eligible employees, or that otherwise requires the approval of the shareholders
of the Parent Company in order to maintain the exemption available under Rule
16b-3 (or any similar rule) of the Securities and Exchange Commission shall
require the approval of the holders of such portion of the shares of the capital
stock of the Parent Company present and entitled to vote on such amendment as is
required by applicable state law and the terms of Parent Company's capital stock
to make the amendment effective. No outstanding Option shall be affected by any
such amendment without the written consent of the Optionee or other person then
entitled to exercise such Option.
-27-
<PAGE>
16. SECURITIES LAWS
---------------
The Committee shall have the power to make each grant under the Plan
subject to such conditions as it deems necessary or appropriate to comply with
the then existing requirements of Rule 16b-3 (or any similar rule) of the
Securities and Exchange Commission.
17. EFFECTIVE DATE AND TERM OF PLAN
-------------------------------
The Plan shall become effective on August 9, 1983, the date on which the
Plan was adopted by the Board and shall expire on December 31, 2005 unless
sooner terminated by the Board. The Board shall submit the Plan to the
shareholders of the Parent Company for their approval at the first annual
meeting of shareholders held after August 8, 1983 unless such shareholders'
approval shall have been obtained prior to such meeting. Any Option granted
before the approval of the Plan by the Parent Company's shareholders shall be
expressly conditioned upon, and shall not be exercisable until, such approval.
If such shareholder approval is not received before August 7, 1984 the Board
shall have the right to terminate the Plan, in which case all Options granted
under the Plan shall expire.
-28-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-Q for the quarter ended February 26, 2000 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-03-2000
<PERIOD-END> FEB-26-2000
<CASH> 4,087
<SECURITIES> 8,920
<RECEIVABLES> 19,863
<ALLOWANCES> 1,008
<INVENTORY> 28,516
<CURRENT-ASSETS> 65,559
<PP&E> 49,494
<DEPRECIATION> 28,169
<TOTAL-ASSETS> 99,222
<CURRENT-LIABILITIES> 13,793
<BONDS> 1,449
0
0
<COMMON> 991
<OTHER-SE> 79,805
<TOTAL-LIABILITY-AND-EQUITY> 99,222
<SALES> 80,922
<TOTAL-REVENUES> 80,922
<CGS> 44,500
<TOTAL-COSTS> 44,500
<OTHER-EXPENSES> 30,202
<LOSS-PROVISION> 91
<INTEREST-EXPENSE> 180
<INCOME-PRETAX> 6,610
<INCOME-TAX> 2,479
<INCOME-CONTINUING> 4,131
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,131
<EPS-BASIC> .41
<EPS-DILUTED> .40
</TABLE>
