-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GHkohuDR9oK+oPPtQF7ETAkM1B2lg/1wQQoD5ijkAKPIgRv+3knY7XfpaYiq/dQK 6qe6muwR1xNwjr8EpROy2g== 0000891554-99-001914.txt : 19991018 0000891554-99-001914.hdr.sgml : 19991018 ACCESSION NUMBER: 0000891554-99-001914 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990828 FILED AS OF DATE: 19991012 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EZ EM INC CENTRAL INDEX KEY: 0000727008 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 111999504 STATE OF INCORPORATION: DE FISCAL YEAR END: 0529 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11479 FILM NUMBER: 99726745 BUSINESS ADDRESS: STREET 1: 717 MAIN ST CITY: WESTBURY STATE: NY ZIP: 11590 BUSINESS PHONE: 5163338230 10-Q 1 FORM 10-Q 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 ------- 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 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 E-Z-EM, Inc. and Subsidiaries INDEX ----- 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 -2- 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- 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- 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- 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)
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 -------- ------ -------- ------ ------- -------- ------------- ----- ------ 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 ========= === ========= === ====== ====== ===== ======
The accompanying notes are an integral part of this financial statement. -6- 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) -------- -------- -7- 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- 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- 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- 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- 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- 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.
Diagnostic AngioDynamics Eliminations Total ---------- ------------- ------------ ----- (in thousands) 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
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- 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- 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- 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- 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- 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- EX-27 2 ARTICLE 5 FDS FOR 1ST QUARTER 10-Q
5 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. 1,000 3-MOS JUN-03-2000 AUG-28-1999 7,700 8,813 21,157 1,058 26,805 67,393 47,767 26,689 96,703 17,206 497 0 0 1,007 75,567 96,703 27,197 27,197 15,114 15,114 9,538 60 61 2,710 912 1,798 0 0 0 1,798 .18 .18
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