UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 1, 1996May 31, 1997 Commission file number 0-130031-11479
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E-Z-EM, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 11-1999504
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
717 Main Street, Westbury, New York 11590
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 333-8230
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Securities registered pursuant to Section 12(b) of the Act: Class A Common
Stock, par value $.10 and Class B Common Stock, par value $.10
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /[ X /]
The aggregate market value of the registrant's voting Class A Common Stock held
by non-affiliates on August 5, 19964, 1997 was $21,655,000.$15,262,000.
On August 5, 1996,4, 1997, there were 4,035,346 shares of the registrant's Class A
Common Stock outstanding and 5,209,6555,602,196 shares of the registrant's Class B Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for registrants 1997 Annual Meeting of
Stockholders to be held October 21, 1997 are incorporated by reference in Part
III of this Form 10-K Report.
Page 1 of 7185
Exhibit Index on Page 3435
E-Z-EM, Inc. and Subsidiaries
INDEX
Page
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PART I: PAGE
Item l. Business 3
Item 2. Properties 14
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security
Holders 16
PART II:
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 17
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
Item 8. Financial Statements and Supplementary Data 2425
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 25
PART III:
Item 10. Directors and Executive Officers of the
Registrant 26
Item 11. Executive Compensation 29
Item 12. Security Ownership of Certain Beneficial
Owners and Management 3132
Item 13. Certain Relationships and Related Transactions 3334
PART IV:
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 3435
-2-
PART I
Item 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
E-Z-EM, Inc. (the "Company" or "E-Z-EM"), organized in Delaware in 1983,
has been in business for over 3435 years, and has its corporate offices located at
717 Main Street, Westbury N.Y. 11590. The Company is primarily engaged in
developing, manufacturing and marketing diagnostic products used by radiologists
and other physicians during image-assisted procedures to detect physical
abnormalities and diseases. The Company also designs, develops, manufactures and
markets, through its wholly-owned subsidiary, AngioDynamics, subsidiary,Inc.
("AngioDynamics"), a variety of differentiatedtherapeutic and diagnostic products, for use
principally in the diagnosis and systemstreatment of cardiovascular disease. These
products are primarily used principally for therapeutic purposes by interventional medicine practitioners. Over one-thirdpractitioners during
minimally invasive diagnostic and surgical procedures. Thirty-nine percent (39%)
of the Company's sales are to customers outside the U.S.
E-Z-EM contrast systems consist of specially developed powdered and liquid
barium sulfate formulations and consumable medical devices, which function
together as a system, for examinations of the various parts of the
gastrointestinal ("G.I.") tract. Contrast systems are used in X-ray, CT-scanning
and other imaging examinations. The G.I. tract is commonly referred to as the
digestive system and consists of the esophagus, stomach, intestine (or small
bowel) and colon. E-Z-EM manufactures a broad spectrum of barium sulfate
products for different uses in G.I. tract examinations. Each E-Z-EM barium
sulfate formulation is tailored to that portion of the G.I. tract to be
examined, and to the procedures employed by radiologists in each examination.
Based upon sales, the Company believes that it is the leading worldwide producer
of barium sulfate contrast systems for use in G.I. tract examinations.
The Company also competes in areas related and complementary to its basic
contrast systems business, categorized as non-contrast systems. Non-contrast
systems include: diagnostic radiology devices, custom contract pharmaceuticals,
gastrointestinal cleansing laxatives, X-ray protection equipment, and
immunoassay tests. See "Narrative Description of Business."
The Company's sales of contrast and non-contrast systems, collectively the
diagnostic ("Diagnostic") products industry segment, were virtually flat, down
less than 1%,declined 2% during 19961997 as
compared to 1995.1996.
The Company manufactures and markets, through AngioDynamics, Inc.
("AngioDynamics"), a wholly-owned subsidiary, originally organized as a division
of the Company in 1992, interventional medical devices and a pharmaceutical
delivery system; these products are used by physicians in diagnostic and
therapeutic procedures, which are typically less invasive than alternative open
surgical procedures. The Company offers three
differentiated product groups for use during interventional procedures:
stentCO2/angiography products, angiographic and fluid
managementtherapeutic products and thrombolyticcoronary products,
collectively the AngioDynamics products industry segment. See "Narrative
Description of Business".
During 1996,1997, AngioDynamics product sales, net of intersegment -3-
eliminations
(see Note MN to the Consolidated Financial Statements included herein), increased
57%61%, due primarily to international and domestic and international market penetration andpenetration. The most significant
growth occurred in the introductionsale
-3-
of the AngioStentTM. The AngioStent,AngioStent(TM), a device used during coronary procedures as a treatment for
atherosclerosis, wasatherosclerosis. The AngioStent, introduced in January 1996, is only marketed
internationally. The Company intends to use the base of stent technology to
develop stents for the radiology market.
In January 1997, AngioDynamics acquired certain assets of Leocor, Inc., a
developer and manufacturer of percutaneous tansluminal cardiac angioplasty
("PTCA") balloon catheters. A PTCA balloon catheter is used to inflate a
narrowing in certain international markets.
In November 1995, the Company discontinuedarteries of the operationheart, either by expanding a stent or on a
stand-alone basis. This acquisition allows AngioDynamics to vertically integrate
the manufacture of its surgical
products industry segment when it sold Surgical Dynamics Inc. ("SDI"), its
51%-owned subsidiary,AngioStent and to United States Surgical Corporation ("USSC"). As a
result of this sale, the Company recognized a gain, pretax of approximately
$25,539,000, after-tax of approximately $19,520,000, or $2.01 per common share
on a primary basis. The surgical products industry segment has been reported as
a discontinued operation and, accordingly, the gain from the sale of SDI and the
Company's proportionate share of losses from operations of SDI have been
classified as a discontinued operationcompete in the consolidated statementsworldwide angioplasty
market. The PTCA products include the Racer Pico(TM), Racer Select(TM), Pico
Runner(TM) and Pico ST II(TM) balloon catheters, each of earnings.which is approved for
sale internationally (with the Pico Runner cleared for sale in the U.S.). The
surgical products industry segment includedCompany intends to use the NucleotomeTM
device,base of balloon catheter technology to develop PTA
balloon catheters for the Ray Threaded Fusion CageTM and other surgical devices and
accessories used in spinal surgery.radiology market.
Unless the context requires otherwise, all references herein to a
particular year are references to the Company's fiscal year.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company is engaged in the manufacture and distribution of a wide
variety of products that are classified into two industry segments: Diagnostic
products and AngioDynamics products. Diagnostic products encompass both contrast
systems, consisting of barium sulfate formulations and related medical devices
used in X-ray, CT-scanning and other imaging examinations, and non-contrast
systems, including diagnostic radiology devices, custom contract
pharmaceuticals, gastrointestinal cleansing laxatives, X-ray protection
equipment, and immunoassay tests. AngioDynamics products include stentCO2/angiography
products, angiographic and fluid managementtherapeutic products and thrombolyticcoronary products used in the interventional
medicine marketplace.
The net sales and operating profit (loss) of each industry segment and the
identifiable assets, depreciation and amortization, and capital expenditures
attributable to each industry segment are set forth in Note MN to the
Consolidated Financial Statements included herein.
(c) NARRATIVE DESCRIPTION OF BUSINESS
DIAGNOSTIC PRODUCTS
Diagnostic products include both contrast systems, consisting of barium
sulfate formulations and related medical devices used in X-ray, CT-scanning and
other imaging examinations, and non-contrast systems, including diagnostic
radiology devices, custom contract pharmaceuticals, gastrointestinal cleansing
laxatives, X-ray protection equipment, and immunoassay tests. Diagnostic
products accounted for 88%82% of net sales in 1996,1997, as compared to 88% in 1996 and
92% in 1995 and 95%
in 1994.1995.
Contrast Systems
Contrast systems, using barium sulfate formulations as contrast
-4-
media
together with consumable medical devices, have been E-Z-EM's principal business
since the Company's organization over 3435 years ago. For over 7580 years, barium
sulfate has been the contrast medium of
-4-
choice for virtually all G.I. tract X-ray examinations. It has the longest
history of use among all contrast media. Barium sulfate is preferred among G.I.
tract contrast media because it has a high absorption coefficient of X-rays. In
addition, it is inert, insoluble in water and chemically stable. Barium sulfate
for suspension is listed in the U.S. Pharmacopeia. The use of properly
formulated barium sulfate suspensions permits the visualization of the entire
G.I. tract.
The Company's contrast systems are designed for a variety of radiological
procedures. In single contrast procedures, a portion of the G.I. tract is filled
with barium sulfate to produce a diagnostic image of the tract's contours. In
double contrast procedures, gas or air is used to distend the G.I. tract after
coating with a high density barium sulfate suspension. This produces a
significantly clearer diagnostic image of the tract's surface than that
obtainable through the use of single contrast procedures. In computed tomography
procedures, known as "CT-scanning", a specially formulated low density barium
sulfate product is used to visualize the G.I. tract and thus significantly
enhance the radiological procedure.
Contrast systems provide radiologists with a range of effective and
convenient powdered and liquid product formulations tailored to single contrast,
double contrast or CT-scanning procedures. Many of the Company's products are
functionally packaged in consumable dispensing containers. The Company believes
that it currently has the broadest barium sulfate product line of any worldwide
manufacturer and is continuing to develop additional formulations for modern
X-ray techniques. E-Z-EM also sells accessory medical devices for use in
contrast system procedures, including empty enema administration kits and
components. Contrast systems accounted for 61% of net sales in 1997, as compared
to 68% of net sales in 1996 as compared toand 72% of net sales in 1995 and 75% of sales in 1994.1995.
Non-Contrast Systems
The Company also competes in areas related and complementary to its basic
contrast systems business, categorized as non-contrast systems. Non-contrast
systems include: diagnostic radiology devices, custom contract pharmaceuticals,
gastrointestinal cleansing laxatives, X-ray protection equipment, and
immunoassay tests. Non-contrast systems accounted for 21% of net sales in 1997,
as compared to 20% of net sales in both 1996 1995
and 1994.1995.
The Company's line of diagnostic radiology devices include
electromechanical pumps and syringes; needles, trays and ancillary devices used
during a variety of diagnostic radiological and ultrasound procedures. This
product grouping includes the PercuPumpTMPercuPump(TM) injection system, which is designed
to inject contrast media into the vascular system for visualization purposes
during CT procedures. The PercuPump system is comprised of an electromechanical
pump and a consumable syringe. Other diagnostic radiology devices include entry
needles, biopsy needles, trays and ancillary products used during mammography,
amniocentesis and other specialty procedures.
Custom contract pharmaceutical and cosmetic products are manufactured on a
contract basis by the Company's Canadian subsidiary. Pharmaceutical products
include liquid vitamins and antacids, -5-
decongestants, cough medicines and
vaporizing ointments. Cosmetic
-5-
products include tanning lotions and bath powders.
The Company offers laxative products specially formulated to cleanse the
G.I. tract prior to X-ray and colonoscopic examinations. These products are sold
through the same distribution network as the Company's contrast systems.
The Company markets a line of X-ray protection equipment featuring
Adjust-A-WeightTM,Adjust-A-Weight(TM), a patented design concept which allows the wearer to adjust
the weight distribution of the protective apron to relieve fatigue. This product
line is sold through the same distribution network as the Company's contrast
systems.
The Company, through its wholly-owned subsidiary, Enteric Products, Inc.
("EPI"), markets immunoassay tests for use in the detection of Helicobacter
pylori ("H. pylori"). The tests analyze a patient's serum or whole blood sample
using a patented antigen licensed from Baylor College of Medicine and are
currently available for both laboratory use and for use in a physician's office.
H. pylori infection has been identified as the leading cause of duodenal
and gastric ulcers and has also been linked to gastritis and gastric cancer. The
World Health Organization has categorized H. pylori as a Class 1 carcinogen, a
definite cancer causing agent in humans. Gastric cancer is a leading cause of
death in Asia, Africa and Eastern Europe.
In May 1996, the Company entered into an agreement with Abbott Laboratories
for the international marketing of its physician's office test to detect H.
pylori. The agreement covers both serum and whole- bloodwhole-blood versions of a simple,
highly accurate four-minute test. The tests, manufactured by SmithKline
Diagnostics, Inc. ("SKD"), a subsidiary of Beckman Instruments, Inc., will beare
privately labelled under the name FlexPackTMFlexPack(TM) HP and sold by Abbott
Laboratories ("Abbott") in China, India, other parts of Asia, Eastern Europe and
parts of the Middle East and Africa. A prior agreement, between SKD and Abbott,
gave Abbott the marketing rights to most of the remainder of the world market.
SKD, with whom EPI co-developed the serum and whole blood tests, also markets
its own version of the product under the name FlexSureTMFlexSure(TM) HP in the U.S. and
other selected territories.
As a result of these agreements, EPI will receive revenue (1) on the sale
of products directly to Abbott, (2) from royalties on the sale of products to
Abbott by SKD, (3) from royalties on the sale of product by SKD to its
distributors and end-users, and (4) from the sale of EPI's patented antigen to
SKD for use in both tests. In addition, EPI derives revenue from the sale of
HM-CAPTM,HM-CAP(TM), the laboratory version of the blood serum test. The Company markets
the HM-CAP test through distributors in the U.S. and abroad.
Sales to Picker International, Inc., which is a distributor of the
Company's Diagnostic products, were 16%15%, 15%16% and 16%15% of total net sales during
1997, 1996 1995 and 1994,1995, respectively.
ANGIODYNAMICS PRODUCTS
The Company, through its wholly-owned subsidiary, AngioDynamics, -6-
Inc., develops,
manufactures and markets a variety of differentiated products
-6-
and systems for the worldwide interventional medicine marketplace, which is the
practice of medicine using what were traditionallytraditional diagnostic procedures for therapeutic
purposes.
The Company believes that the interventional medicine market is growing
dramatically. This is due, in large part, to the less invasive aspects of
interventional procedures, as compared to open surgical procedures, which result
in a reduction in the overall cost of medical care while providing important
patient benefits. Interventional procedures are often performed on an
out-patient basis, thereby requiring fewer hospital support services. These
procedures, even when performed on an in-patient basis, generally require a
shorter hospital stay than do surgical procedures. Interventional procedures
also typically have reduced risk and trauma, are less complex, have fewer and
less serious complications, can often be performed earlier in the stage of a
disease and frequently result in less costly and more definitive therapy than do
surgical procedures. The Company expects the number of interventional procedures
performed to increase as these procedures gain wider acceptance, as more
physicians become trained in less invasive medical specialties, and as these
procedures become more widely performed in community hospitals as well as in
major medical centers. Improvements in technology should further expand the
application of interventional procedures.
AngioDynamics products accounted for 18% of net sales in 1997, as compared
to 12% of net sales in 1996 as compared toand 8% of net sales in 1995 and 5% of sales in 1994.1995.
The Company has focused its efforts in three distinct interventional
categories: stentCO2/angiography products, therapeutic products and coronary
products.
CO2/Angiography Products
The Company's CO2/angiography products include CO2Ject(TM), a proprietary
angiographic system that uses carbon dioxide ("CO2") instead of standard
iodinated contrast media, diagnostic catheters and fluid management products.
These products are used during studies known as "angiograms", "venograms", and
thrombolytic products.
Stent"cardiac catheterizations", which provide images of the human vasculature and
blood flow.
The CO2Ject is comprised of CO2 contrast, an automated injector, a CO2
connection set, a diagnostic catheter and an angioplasty balloon catheter. Since
the function of the human vasculature and blood flow system is the transfer and
expulsion of CO2 through the respiratory system, the Company believes that CO2
provides a higher degree of safety than iodinated contrast media, which can
cause severe allergic reactions in certain patients. The Company also believes
that CO2 is more cost effective and provides better images than iodinated
contrast media. Currently, the CO2Ject is being sold in Europe, South America,
Australia and Asia. To date, there is no automated CO2 system that has received
U.S. Food and Drug Administration ("FDA") clearance for sale in the U.S. The
Company does not anticipate receiving FDA clearance for the CO2Ject prior to
January 1999, at the earliest, and there can be no assurance that such clearance
will be obtained at all.
The Company's diagnostic catheters can be used with traditional
angiographic systems using traditional contrast media or CO2. All of the
Company's diagnostic catheters are cleared for sale in the U.S. and
-7-
internationally. The Company's angiographic fluid management products are used
to control, administer and contain fluids, such as blood, saline solutions and
contrast media, in order to reduce the healthcare worker's contact with them.
These products are intended to reduce the potential exposure of the healthcare
worker to disease, including HIV and hepatitis. All of the Company's fluid
management products are cleared for sale in the U.S. and internationally.
The Company manufactures four lines of diagnostic catheters, Memory
Tip(TM), Memory-Vu(TM), ANGIOPTIC(TM), and Soft-Vu(TM), suitable for diagnosing
the complete human vascular system. These catheters are made in 3, 4, 5, and 6
French sizes, with wire braided and non-braided nylon shafts, and are available
in over 500 tip configurations and lengths, either as standard catalogue items
or made to order through the Company's customization program. All of the
Company's angiographic catheters are cleared for sale in the U.S. and
internationally.
The Soft-Vu/Memory-Vu catheter technology incorporates a soft, atraumatic
tip that is attached to a more rigid shaft. In addition to being soft, the
catheter tips are also easily visualized under fluoroscopy. The Company believes
this soft tipped catheter technology offers the physician a safe diagnostic
catheter with less propensity to perforate or lacerate an artery or vein.
The Company has developed a unique catheter line called ANGIOPTIC. The
distinguishing characteristic of this product is that the entire catheter is
highly visible under fluoroscopy. The catheter is constructed of a proprietary
triple-layer extrusion technology.
The Company has developed two patented needles to address the problem of
spurting blood: the Sos Bloodless Entry Needle(TM) and the Pulse-Vu Needle(TM).
Both needles have a thin diaphragm within the needle hub. This diaphragm diverts
the pressurized column of blood into a clear, flexible side arm tube thus
preventing the blood from entering the clinical environment. The special
diaphragm has a slit that allows easy passage of a guidewire through the needle
hub and needle lumen and into the lumen of the artery. The Company believes its
diaphragm technology is proprietary.
The AngioFill(TM) and AngioFill II Fluid Management Systems(TM) are used to
collect and isolate blood and other body fluids. They replace open bowls and
garbage disposals which allow blood to splatter in the procedure room. The
AngioFill systems also have fluid lines that connect to saline and contrast
media bottles. In use, the physicians will aspirate the catheter with a syringe
and release the contents in the AngioFill bag. While the syringe is still
connected to the AngioFill, the physician will draw fresh saline or contrast
media to flush the catheter.
Therapeutic Products
The Company's stenttherapeutic line of products is used to dissolve arterial and
venous blood clots and is marketed under the name Pulse*Spray(TM). A Pulse*Spray
Set includes the PRO(TM) Infusion Catheters, occluding wires, check valves, and
bifurcated connecting lines. The Pulse*Spray Set optimizes the delivery of lytic
agent (the drug that actually dissolves the clot) by providing a controlled,
forceful, uniform dispersion. This improvement has been clinically
-8-
shown to reduce the amount of lytic agent and the time necessary for the
procedure by a factor of three. This represents significant cost savings for the
hospital, the patient, and the healthcare system, while reducing the
complications associated with the use of larger volumes of the lytic agent. The
Pulse*Spray Set is cleared for sale in the U.S. and internationally.
The Pulse*Spray Injector is designed to be used in conjunction with
AngioDynamics' other therapeutic products. This automated injector replaces hand
pressure as an injection mechanism and improves the consistency and efficiency
of the delivery of lytic agents through various Pulse*Spray Sets and PRO
Infusion Catheters. The Pulse*Spray Injector will only accept the Company's
manufactured single use components and catheters. It allows the user to deliver
a wide range of infusion volumes and times and utilizes state-of-the-art
computer technology with a touch screen program to store up to 20
customer-specified programs. Subsequent to year end, the FDA granted
AngioDynamics a 510(k) clearance to market the Pulse*Spray Injector in the U.S.
The Pulse*Spray Injector is also cleared for sale outside the U.S.
The Company also acts as the U.S. sales agent for Navarre Biomedical, Ltd.
("Navarre Biomedical"). Navarre Biomedical manufactures percutaneous abscess
drainage catheters. Percutaneous abscess drainage involves resolution of pus
pockets, pleural effusions and other fluids by inserting the catheter directly
into the fluid pocket under fluoroscopic, CT or ultrasound guidance. The
percutaneous approach to resolve an abscess avoids the mortality and morbidity
associated with a surgical resolution. All Navarre Biomedical drainage products
are cleared for sale in the U.S.
Coronary Products
The Company's principal coronary product is called the AngioStent. Stents
are used to hold open passageways in the body that may have closed or become
obstructed as a result of aging, disease, or trauma. Stents are increasingly
being used as an alternative to or adjunct to surgical and minimally invasive
procedures and drug therapies because they reduce procedure time, patient
trauma, hospitalization and recovery time. The Company believes that the
coronary AngioStent, introduced in January 1996, in certain international markets, provides a competitive
advantage over competing stent products and alternative therapies.
The Company believes AngioStent incorporates a number of unique and
proprietary design features that allow the effective treatment of a variety of
lesion and vessel types. The AngioStent is constructed from a single strand of
platinum alloy wire that is precision formed into a spiraling sinusoidal
configuration. This configuration has the wire turn back on itself and attach
back at its beginning, thereby forming a longitudinal wire that imparts added
strength and stability. The Company believes that its patented stent design
provides more consistent vessel support and radial force than other stent
designs, as well as more visibility, flexibility, and easier delivery than
competitive stents. The Company believes that its proprietary use of platinum imparts better
hemocompatibility and long termlong-term biocompatibility than stainless steel stent
designs. The AngioStent is available in a variety of diameters and lengths and
is provided pre-
-7-
mountedpre-mounted on both the over-the-wire and rapid exchange delivery
systems. Both of these
-9-
delivery systems offer advanced features, such as a high pressure balloon and
one-step-placement with no necessity for pre- dilationpre-dilation of the target lesion. The
AngioStent has been utilized in a variety of coronary applications, including
vessels in which other stent procedures have failed, as well as in the treatment
of difficult lesions in curved or tortuous vessels. The Company believes the
technical features of its proprietary AngioStent systems provide the Company
with a number of competitive advantages. The Company intends to use the base of
stent technology to develop stents for the radiology market.
The AngioStent has not yet been approvedcleared by the FDA for sale in the U.S.
and the Company does not anticipate receiving FDA approvalclearance to sell the coronary
AngioStent prior to June 2000, if at all.
The AngioStent sales in EuropeIn January 1997, AngioDynamics acquired certain assets of Leocor, Inc., a
developer and South America approximated $863,000 in 1996.
Angiographic and Fluid Management Products
The Company's primary angiographic products are diagnostic cathetersmanufacturer of percutaneous tansluminal cardiac angioplasty
("PTCA") balloon catheters. A PTCA balloon catheter is used to inject contrast agents, such as iodine or carbon dioxide ("CO2"), intoinflate a
narrowing in the various arteries and veins and the interior of the heart, either by expanding a stent or on a
stand-alone basis. This acquisition allows AngioDynamics to vertically integrate
the manufacture of its AngioStent and to compete in order to permit
X-ray studies to be made. These studies are called "angiograms", "venograms",the worldwide angioplasty
market. The PTCA products include the Racer Pico, Racer Select, Pico Runner and
"cardiac catheterizations". The Company believes itsPico ST II balloon catheters, are
differentiated from competitive products with respect toeach of which is approved for sale internationally
(with the types of materials
usedPico Runner and the numerous configurations in which they are available.
The Company manufactures three lines of diagnostic catheters, Memory TipTM,
Memory-VuTM, and Soft-VuTM, suitable for diagnosing the complete human vascular
system. These catheters are made in 3, 4, 5, and 6 French sizes, with wire
braided and non-braided nylon shafts, and are available in over 500 tip
configurations and lengths, either as standard catalogue items or made to order
through the Company's customization program. All of the Company's angiographic
catheters are approvedPico ST II cleared for sale in the U.S. and internationally.). The Soft-Vu/Memory-VuCompany
intends to use the base of balloon catheter technology incorporates a soft, atraumatic
tip that is attached to a more rigid shaft. In addition to being soft, the
catheter tips are also easily visualized under fluoroscopy. The Company believes
this soft tipped catheter technology offers the physician a safe diagnostic
catheter with less propensity to perforate or lacerate an artery or vein.
The Company has recently developed a new and unique catheter line called
ANGIOPTICTM. The distinguishing characteristic of this product is that the
entire catheter is highly visible under fluoroscopy. The catheter is constructed
of a proprietary triple-layer extrusion technology.
Additionally, the Company has developed a new CO2 Angiography System
("CO2JECTTM") that uses CO2 as a contrast agent. The Company believes CO2 offers
many advantages over traditional iodinated contrast agents.
CO2 is currently used via manual injection for patients who are allergic to
iodine, who have compromised kidney function, or for whom the use of iodinated
contrast agents would otherwise present a health
-8-
risk. The Company believes that CO2 is safer and less expensive than industry
standard iodinated contrast agents. The Company's CO2JECT system allows CO2 gas
to be used routinely as a replacementdevelop PTA balloon
catheters for the more dangerous and more expensive
iodinated contrast media in angiographic procedures. Iodinated compounds are
known to cause allergic reactions and nephrotoxicity, and are responsible for
significant morbidity and mortality. The CO2JECT is comprised of CO2 contrast,
an injector, a CO2 connection set, a diagnostic catheter and an angioplasty
balloon catheter.
The CO2JECT has not yet been approved by the FDA for sale in the U.S. and
the Company does not anticipate receiving FDA approval for the CO2JECT prior to
January 1999, at the earliest, and there can be no assurance that such approval
will be obtained at all. The initial overseas commercial sale of CO2JECT
occurred in the second quarter of 1996 and sales for the fiscal year totalled
approximately $402,000.
The Company has developed two patented needles to address the problem of
spurting blood: the Sos Bloodless Entry NeedleTM and the Pulse-Vu NeedleTM. Both
needles have a thin diaphragm within the needle hub. This diaphragm diverts the
pressurized column of blood into a clear, flexible side arm tube thus preventing
the blood from entering the clinical environment. The special diaphragm has a
slit that allows easy passage of a guidewire through the needle hub and needle
lumen and into the lumen of the artery. The Company believes its diaphragm
technology is proprietary.
The AngioFillTM and AngioFill II Fluid Management SystemsTM are used to
collect and isolate blood and other body fluids. They replace open bowls and
garbage disposals which allow blood to splatter in the procedure room. The
AngioFill systems also have fluid lines that connect to saline and contrast
media bottles. In use, the physicians will aspirate the catheter with a syringe
and release the contents in the AngioFill bag. While the syringe is still
connected to the AngioFill, the physician will draw fresh saline or contrast
media to flush the catheter.
The Company also acts as a non-exclusive U.S. sales agent for Navarre
Biomedical, Ltd. ("Navarre Biomedical"). Navarre Biomedical manufactures
percutaneous abscess drainage catheters. Percutaneous abscess drainage involves
resolution of pus pockets, pleural effusions and other fluids by inserting the
catheter directly into the fluid pocket under fluoroscopic, CT or ultrasound
guidance. The percutaneous approach to resolve an abscess avoids the mortality
and morbidity associated with a surgical resolution. All Navarre Biomedical
drainage products are approved for sale in the U.S.
Thrombolytic Products
The Company's thrombolytic line of products is used to dissolve arterial
and venous blood clots and is marketed under the name Pulse*SprayTM. A
Pulse*Spray Set includes the PROTM Infusion Catheters, occluding wires, check
valves, and bifurcated connecting lines. The Pulse*Spray Set optimizes the
delivery of lytic agent (the drug that actually dissolves the clot) by providing
a controlled, forceful, uniform dispersion. This improvement has been clinically
shown to reduce the amount of lytic agent and the time necessary for the
procedure by a factor of three. This represents significant cost
-9-
savings for the hospital, the patient, and the health care system, while
reducing the complications associated with the use of larger volumes of the
lytic agent. The Pulse*Spray Set is approved for sale in the U.S. and
internationally.
The Pulse*Spray Injector is designed to replace hand pressure as an
injection mechanism. This is a compact portable injector using a proprietary ram
to deliver lytic agents through various Pulse*Spray Sets and PRO Infusion
Catheters. The Pulse*Spray Injector will only accept the Company's manufactured
single use components and catheters. It allows the user to deliver a wide range
of infusion volumes and times and utilizes state-of-the-art computer technology
with a touch screen program to store up to 20 customer-specified programs. The
Pulse*Spray Injector is currently available as a pulse-only product. A provision
is available to add a slow infusion IV pump into the existing injector housing.
In this configuration, the user can program various combinations of pulse and
slow infusion programs. A 510(k) to permit the sale of the Pulse*Spray Injector
in the U.S. is pending before the FDA. The Pulse*Spray Injector is approved for
sale outside the U.S.radiology market.
MARKETING
The Company believes that the success of its barium sulfate products is
primarily due to its ability to create contrast systems with specific,
sophisticated barium formulations for varying radiological needs. E-Z-EM
continues to develop new barium sulfate products, including products for
CT-scanning and Magnetic Resonance Imaging ("MRI") procedures.
E-Z-EM's contrast systems, laxatives, syringes, X-ray protection equipment
and diagnostic radiology devices, such as biopsy needles and trays, are marketed
to radiologists and hospitals in the U.S. through about 280275 distributors,
supported by 3536 E-Z-EM sales people, many of whom have had technical training as
X-ray technicians. The Company also advertises in medical journals and displays
at most national and international radiology conventions.
Outside the U.S., the Company's contrast systems are also marketed through
125127 distributors, including wholly-owned subsidiaries in Canada, Japan, the United
Kingdom, Japan and Holland. Significant sales are made in Canada, Japan, the United
Kingdom, Japan, Holland, Italy, Austria, Sweden Austria and Australia.Belgium. Foreign
distributors are generally granted exclusive distribution rights and hold
governmental product registrations in their names, although new registrations
are currently being filed in the Company's name.
The Company's AngioDynamics products are marketed to interventional
radiologists, cardiologists, vascular surgeons and nephrologists. Domestic sales
are supported by 1419 direct sales employees, while the international marketing
effort is conducted
-10-
through 4654 distributors, including 43 wholly-owned subsidiaries. Foreign
distributors are generally granted exclusive distribution rights on a
country-by-country basis.
COMPETITION
Based upon sales, E-Z-EM contrast systems are the most widely used
diagnostic imaging products of their kind in the U.S., Canada and
-10-
certain
European countries. The Company faces competition domestically from Lafayette
Pharmaceuticals, Incorporated, as well as from small U.S. competitors, and it
also faces competition outside of the U.S. The Company competes primarily on the
basis of product quality, customer service, the availability of a full line of
barium sulfate formulations tailored to user needs, and price.
Radiological procedures for which the Company supplies products complement,
as well as compete with, endoscopic procedures such as colonoscopy and
endoscopy. Such examinations involve visual inspection of the G.I. tract through
the use of a flexible fiber optic instrument inserted into the patient by a
gastroenterologist. The use of gastroenterology procedures has been growing in
both upper and lower G.I. examinations as patients have been increasingly
referred to gastroenterologists rather than radiologists. Also, the availability
of drugs which successfully treat ulcers and other gastrointestinal disorders
has tended to reduce the need for upper G.I. tract examinations.
The major non-contrast systems market that the Company competes in is the
medical device radiology market, which is highly competitive. No single company,
domestic or foreign, competes with the Company across all of its non-contrast
system product lines. In electromechanical pumps and syringes, the Company's
main competitors are Schering AG and Mallinckrodt, Inc. In needles and trays,
the Company competes with C.R. Bard, Inc., Baxter Healthcare Corporation,
Sherwood Medical Co. and various other competitors. The Company also encounters
competition in the marketing of its other non-contrast systems products.
The Company competes in the AngioDynamics products segment on the basis of
product quality, product innovation, sales, marketing and service effectiveness,
and price. There are many large companies, with significantly greater financial,
manufacturing, marketing, distribution and technical resources than the Company,
focusing on these markets. Those Company products that already have FDA
approvalclearance and those Company products that in the future receive FDA approvalclearance
will have to compete vigorously for market acceptance and market share.
Johnson & Johnson Interventional System, Co. ("JJIS"), Schneider, Inc. (a
part of Pfizer, Inc.), C.R. Bard, Inc., Cook, Inc., Cordis Corporation, Guidant
Corporation, InStent, Inc., Medtronic, Inc., Biotronik GmbH, Progressive Angioplasty Systems,
American Biomed, Inc., Global Therapeutics, Arterial Vascular Engineering, Inc.,
and Boston Scientific Corporation, among others, currently compete against the
Company in the development, production and marketing of stents and stent
technology.
The Company believes that the coronary stent marketed by JJIS has captured
in excess of 75% of the U.S. market. The medical indications
-11-
that can be treated by stents can also be treated by surgery, drugs, or other
medical devices, many of which are widely accepted in the medical community.
The ability to use patents and other proprietary rights to prevent sales by
competitors is an important tool in the medical devices industry. JJIS believes
that its patent rights enable it to prevent any balloon-expandable stents from
being marketed and it has
commenced
-11-
litigation against Cook, Inc. and Medtronic, concerning their balloon- expandableInc. claiming that these
companies' products infringe JJIS' patents covering balloon-expandable stents.
During 1997, the JJIS/Cook litigation was settled, with the licensing of Cook by
JJIS for undisclosed consideration. The Company has received an opinion from its intellectual property
counsel statingbelieves that the AngioStent,
which is a balloon-expandable stent, does not infringe upon the JJIS patents,
although there can be no assurance that the AngioStent will not be determined to
infringe upon the JJIS patents or other patents.
The Company's CO2JECT angiography system isWithin the only system using
CO2 as a contrast agent. Therefore,media market, the Company's competition is fromCO2Ject system competes
with a product offered by Daum GmbH. The Company also competes with companies
marketing iodinated contrast agents. These companies include Liebel-Flarsheim Co.Nycomed Inc.,
Inc. (a subsidiary of Mallinckrodt)Bracco s.p.a., Schering AG and Medrad,Mallinckrodt, Inc. (a subsidiary of Schering AG).
In the market for diagnostic angiography catheters, the Company's
major competitors are Boston Scientific Corporation, Cook, Inc. and
Mallinckrodt, and Cook.Inc.
The competitive situation in the market for thrombolytictherapeutic products is
complex. The first level of competition is the medical profession, where each
physician can decide if an artery or graft will be cleared surgically or by
thrombolysis. If thrombolysis is used, the second level of competition is for
the specific type of catheter or wire that will be used. The primary competitors
in this market are MediTech and Cook, and Mallinckrodt.Inc.
The Company believes that it is perceived as a market leader in the market
for blood containment products, where its primary competition comes from Arrow
International and Becton-Dickinson. The market for fluid management systems is
extremely competitive, with the Company's products being similar to products
from NAMIC, Merit, Burron Medical, DeRoyal, Biocore, Advanced Medical Design,
Medex and Argon. These products are non-patient contact and, therefore, the
barriers to entry, such as regulatory approval,clearance, potential liability, and the
need for technical sophistication, are not significant.
RESEARCH AND DEVELOPMENT
In addition to its technical staff, consisting of a Medical Director and 4651
employees, the Company has consulting arrangements with various physicians who
assist E-Z-EM through their independent research and product development.
Research and development expenditures totalled $6,881,000, or 7% of net sales,
in 1997, as compared to $5,323,000, or 6% of net sales, in 1996 as compared toand $6,077,000,
or 7% of net sales, in 1995, and $6,897,000, or 8%
of sales, in 1994, reflecting the Company's commitment to expansion of
its product lines through research and development.
RAW MATERIALS AND SUPPLIES
Most of the barium sulfate for contrast systems is supplied by a number of
European and U.S. manufacturers, with a minor portion being
-12-
supplied by the Company's wholly-owned Canadian subsidiary, E-Z-EM Canada Inc.
("E-Z-EM Canada"), which operates a barium sulfate mine and processing facility
in Nova Scotia and whose reserves are anticipated to last a minimum of three
years. The Company believes that these sources should be adequate for its
foreseeable needs.
The Company has generally been able to obtain adequate supplies of all
components for its AngioDynamics business in a timely manner from existing
sources. However, the inability to develop alternative
-12-
sources, if required, or
a reduction or interruption in supply, or a significant increase in the price of
components, could adversely affect operations.
PATENTS AND TRADEMARKS
Although several products and processes are patented and the Company
considers its trademarks to be a valuable marketing tool, the Company does not
consider any single patent, group of patents, or trademarks to be materially
important to its Diagnostic business segment. E-Z-EM and AngioDynamics are
examples of the Company's registered trademarks in the U.S.
The Company believes that success in the AngioDynamics products segment is
dependent, to a large extent, on patent protection and the proprietary nature of
its technology. The Company intends to file and prosecute patent applications
for technology for which it believes patent protection is effective and
advisable. The Company believes that issued patents covering Pulse*Spray and
AngioStent are significant to its AngioDynamics business.
Because patent applications are secret until patents are issued in the U.S.
or corresponding applications are published in foreign countries, and because
publication of discoveries in the scientific or patent literature often lags
behind actual discoveries, the Company cannot be certain that it was the first
to make the inventions covered by each of its pending patent applications, or
that it was the first to file patent applications for such inventions. The
Company also relies on trade secret protection and confidentiality agreements
for certain unpatented aspects of its proprietary technology.
REGULATION
The Company's products are registered with the FDA and with similar
regulatory agencies in foreign countries where they are sold. The Company
believes it is in compliance in all material respects with applicable
regulations of these agencies.
Certain of the Company's products are subject to FDA regulation as medical
devices and certain other products, such as various contrast systems products
and CO2JECT,CO2Ject, are regulated as pharmaceuticals. Outside of the U.S., the
regulatory process and categorization of products vary on a country-by-country
basis.
The Company's products are covered by Medicare, Medicaid and private
healthcare insurers, subject to patient eligibility. Changes in the
reimbursement policies and procedures of such insurers may affect the frequency
with which such procedures are performed.
-13-
The Company operates several facilities within a broad industrial area
located in Nassau County, New York, which has been designated by New York State
as a Superfund site. This industrial area has been listed as an inactive
hazardous waste site, due to ground water investigations conducted on Long
Island during the 1980's. Due to the broad area of the designated site, the
potential number of responsible parties, and the lack of information concerning
the degree of contamination and potential clean-up costs, it is not possible to
estimate what, if any, liability exists with respect to the Company. -13-
Further, it
has not been alleged that the Company contributed to the contamination, and it
is the Company's belief that it has not done so.
EMPLOYEES
The Company employs 897958 persons, 230221 of whom are covered by various
collective bargaining agreements. Collective bargaining agreements covering 166139
and 6478 employees expire in February 1997December 1999 and December 1998, respectively. The
Company considers employee relations to be satisfactory.
(d) FINANCIAL INFORMATION REGARDING FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES
The Company currently derives about 37%39% of its sales from customers outside
the U.S. Operating profit margins on export sales are somewhat lower than
domestic sales margins. The Company's domestic operations bill third party
export sales in U.S. dollars and, therefore, do not incur foreign currency
transaction gains or losses. Third party sales to Canadian customers, which are
made by E-Z-EM Canada, are billed in local currency. Third party export sales
from Canada are billed in Canadian dollars. Third party sales to
Japanese customers, which are made by the Company's Japanese subsidiary, are
also billed in local currency.
The Company employs 233293 persons involved in the developing, manufacturing
and marketing of products internationally. The Company's product lines are
marketed through approximately 148159 foreign distributors to 8187 countries outside
of the U.S.
The net sales and operating profit (loss) of each geographic area and the
identifiable assets attributable to each geographic area as well as export sales
from domestic operations are set forth in Note MN to the Consolidated Financial
Statements included herein.
Item 2. PROPERTIES
The Company's principal manufacturing facilities and executive offices are
located in Westbury, New York. They consist of five buildings, one of which is
owned by the Company, containing an aggregate of 209,800 square feet used for
manufacturing, warehousing and administration. One of the Westbury facilities is
leased to the Company by various lessors, including certain related parties.
Such facility is currently being leased on a month-to-month basis. See "Certain
Relationships and Related Transactions". AngioDynamics occupies manufacturing
and warehousing facilities located in Glens Falls,Queensbury, New York consisting of two
buildings, one of which is owned by the Company, containing an aggregate of
29,312 square feet. AngioDynamics Ltd. owns a 20,000 square-foot manufacturing
and
-14-
warehousing facility located in Enniscorthy, Ireland. E-Z-EM Caribe owns a
38,600 square-foot plant in San Lorenzo, Puerto Rico which fabricates enema tips
and heat-sealed products. E-Z-EM Canada leases a 29,120 square-foot building in
Debert, Nova Scotia and both owns and leases land encompassing its barium
sulfate mining operation. E-Z-EM Canada also owns a 64,050 square-foot
manufacturing and warehousing facility located in Montreal, Canada.
-14-
Item 3. LEGAL PROCEEDINGS
The Company is presently a defendant in the following product liability
action:
PATRICIA M. HELLER AND WAYNE HELLER, PLAINTIFFS VS. E-Z-EM, INC.,
A CORPORATION, DEFENDANT, pending in the Court of Common Pleas,
Montgomery County, Pennsylvania, filed on February 25, 1997.
This suit claims damages based upon alleged injuries resulting from the use
of one of the Company's products. The action is in its early stages and while
the Company is actively defending against the claim, it is unable to predict its
outcome. The Company does not believe that the ultimate outcome in this action
will have a material adverse effect on the consolidated financial statements.
Previously, the Company was named as a defendant in the following product
liability action:
MARGARET J. LEMLEY AND JAMES LEMLEY, PLAINTIFFS VS. INLAND VALLEY REGIONAL
MEDICAL CENTER, INC., NORTH COAST IMAGING RADIOLOGY MEDICAL GROUP, INC.,
E-Z-EM, INC., MALLINCKRODT MEDICAL, INC., THOMAS MCGREEVY, M.D., BARBARA
LARSON, CAROLYN HOHENBERGER, DEFENDANTS, pending in the Superior Court of
the State of California, County of Riverside, filed on January 30, 1995.
This suit claims damages based upon alleged injuries resulting from the use
of one of the Company's products. The action is in its early stages and while
the Company is actively defending against the claim, it is unable to predict its
outcome. It should be noted that in this action the Company is one among several
defendants and, as such, the Company's liability, if any, is not quantifiable at
this time. The Company does not believe that the ultimate outcome in this action
will have a material adverse effect on the consolidated financial statements.
Previously, the Company had been named as a defendant in the following
product liability action:
EILEEN GUINN AND WILBERN GUINN, PLAINTIFFS VS. ST. JOSEPH'S
HOSPITAL SISTERS OF THE THIRD ORDER OF ST. FRANCIS; BERLAND
RADIOLOGY ASSOCIATES, LTD.; GERALD CLAYCOMB, M.D.; DAWN
STILLWAGON, R.N.; AND E-Z-EM, INC., A CORPORATION, DEFENDANTS,
pending in the Circuit Court, Third Judicial Circuit, Madison
County, Illinois, filed on August 22, 1995.
This suit claimed damages based upon alleged injuries resulting from the
use of one of the Company's products. During February 1996,August 1997, the Company settled
such action for an amount under its insurance limit and the amount contributed
by the Company was dismissed without prejudice from such action.
Pursuantnot material to a contractual agreement with Picker International, Inc.
("Picker"), the Company assumed the defense of a lawsuit in which Picker, along
with multiple other named defendants, had been sued for injuries alleged to have
resulted from the use of protective aprons. The plaintiff has recently abandoned
this action.its consolidated financial statements.
The Company has been sued by Olympia Holding Corporation p/k/a P-I-E
Nationwide, Inc. for $443,830. The suit, filed on October 5, 1992, is presently
pending in the U.S. Bankruptcy Court for the Middle District of Florida. The
Company is being represented in this action by a law firm which is also
representing numerous other defendants being sued by the same plaintiff on the
same grounds - recovery for alleged undercharges for freight carriage. It is not
possible, at this stage, to determine what, if any, liability exists with
respect to the Company in this matter. The Company will vigorously defend
against this action; it has been informed by legal counsel that there exist
numerous valid defenses to this case.
During 1993, SDI's lease agreement on the Alameda, California office and
production facilities was prematurely terminated by SDI, a former 51%-owned
subsidiary of the Company. In 1993, SDI accrued $600,000 for the estimated
settlement of the lease commitment.
-15-
Pursuant to the terms of the Merger Agreement described in Note B to the
Consolidated Financial Statements included herein, the $600,000 liability was
assumed by USSC (the purchaser of SDI), and the Company and the previous
minority shareholder of SDI assumed any liability in excess of $600,000 in
connection with the lease termination. The dispute was settled in July 1996 for
$1,600,000, of which the Company was liable for $510,000, or 51% of the
$1,000,000 excess. Such amount was included in accrued liabilities at June 1,
1996.
The Company is presently involved in various other claims, legal actions
and complaints arising in the ordinary course of business. The Company believes
such matters are without merit, or involve such amounts that unfavorable
disposition would not have a material adverse effect on the Company's financial
position.
-15-
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
-16-
PART II
-------
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Effective July 24, 1995, E-Z-EM, Inc. Class A and Class B Common Stock
began trading on the American Stock Exchange ("AMEX") under the symbols "EZM.A"
and "EZM.B", respectively. Previously, the Company's Class A and Class B Common
Stock was traded in the over-the-counter market and was quoted on the Nasdaq
National Market ("Nasdaq") under the symbols "EZEMA" and "EZEMB", respectively.
The following table sets forth, for the periods indicated, the high and low sale
prices for the Class A and Class B Common Stock as reported by Nasdaq (through
July 23, 1995) and the AMEX (from July 24, 1995 through June 1, 1996)May 31, 1997).
Class A Class B
------- ---------------------- ---------------
High Low High Low
---- --- ---- ---------- ------- ------- -------
Fifty-two weeks ended May 31, 1997
----------------------------------
First Quarter................ $14.13 $10.38 $13.25 $ 9.75
Second Quarter............... 15.00 10.50 15.25 10.63
Third Quarter................ 13.00 11.00 12.75 11.00
Fourth Quarter............... 12.13 8.19 11.50 7.63
Fifty-two weeks ended June 1, 1996
----------------------------------
First Quarter................ $ 8.25 $ 5.25 $ 8.19 $4.25
Second Quarter............... 13.13 7.13 12.63 6.75
Third Quarter................ 11.13 9.50 10.25 9.19
Fourth Quarter............... 16.50 10.00 15.38 9.63
Fifty-three weeks ended June 3, 1995
------------------------------------
First Quarter................ $6.00 $4.50 $6.25 $4.00
Second Quarter............... 5.75 4.25 5.50 3.88
Third Quarter................ 4.75 4.00 5.00 3.75
Fourth Quarter............... 5.00 3.25 4.88 3.63
As of August 5, 19964, 1997 there were approximately 292263 and 347344 record holders of
the Company's Class A and Class B Common Stock, respectively.
The Company's current policy has been to issue stock dividends. During the
third quarter of fiscals 1994,fiscal years 1995 and 1996 and the fourth quarter of fiscal
year 1997, the Company issued 3% stock dividends. Future dividends are subject
to the Board of Directors' review of operations and financial and other
conditions then prevailing.
-17-
Item 6. SELECTED FINANCIAL DATA
Fifty-two Fifty-three Fifty-two weeks ended
weeks ended weeks ended ------------------------------
June 1, June 3, May 28, May 29, May 30,
1996 1995* 1994* 1993* 1992*
---- ----- ----- ----- -----
(in thousands, except per share data)
Income statement data:
Net sales (2)...........$91,932 $88,526 $85,645 $84,507 $78,711
Gross profit............ 36,414 36,681 33,617 35,547 33,071
Operating profit (3).... 957 2,837 1,200 2,558 4,113
Earnings from continuing
operations before
income taxes.......... 1,940 3,559 1,528 3,888 5,186
Earnings from continuing
operations............ 1,697 2,473 379 2,451 4,512
Net earnings............ 21,008 1,630 277 1,679 4,610
Earnings from continuing
operations per common
share
Primary and fully
diluted........... .17 .27 .04 .27 .49
Earnings per common
share
Primary (1)......... 2.16 .18 .03 .18 .50
Fully diluted (1)... 2.14 .18 .03 .18 .50
Cash dividends declared
per common share......$ .00 $ .00 $ .00 $ .10 $ .20
Weighted average common
shares
Primary (1)......... 9,724 9,088 9,081 9,105 9,147
Fully diluted.(1)... 9,833 9,092 9,081 9,107 9,160
June 1, June 3, May 28, May 29, May 30,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands)
Balance sheet data:
Working capital.........$53,508 $33,254 $33,088 $36,283 $35,328
Cash, certificates of
deposit and short-
term debt and equity
securities............ 23,610 4,447 7,336 8,359 12,132
Total assets............ 96,037 76,095 71,531 73,252 74,417
Long-term debt, less
current maturities.... 680 1,114 586 2,900 654
Stockholders' equity....
Fifty-two Fifty-two
weeks ended Fifty-three weeks ended
-------------------- weeks ended ------------------
May 31, June 1, June 3, May 28, May 29,
1997 1996 1995* 1994* 1993*
-------- -------- -------- -------- --------
(in thousands, except per share data)
Income statement data:
Net sales .............. $ 97,324 $ 91,932 $ 88,526 $ 85,645 $ 84,507
Gross profit ........... 36,570 36,414 36,681 33,617 35,547
Operating profit (loss) (4,911) 957 2,837 1,200 2,558
Earnings (loss) from
continuing operations
before income taxes .. (4,530) 1,940 3,559 1,528 3,888
Earnings (loss) from
continuing operations (3,208) 1,697 2,473 379 2,451
Net earnings (loss) .... (3,208) 21,008 1,630 277 1,679
Earnings (loss) from
continuing operations
per common share
Primary and fully
diluted (1) ...... (.33) .17 .26 .04 .26
Earnings (loss) per
common share
Primary (1) ........ (.33) 2.10 .17 .03 .18
Fully diluted (1) .. (.33) 2.07 .17 .03 .18
Cash dividends declared
per common share ..... $ .00 $ .00 $ .00 $ .00 $ .10
Weighted average common
shares
Primary (1) ........ 9,584 10,015 9,360 9,353 9,380
Fully diluted.(1) .. 9,584 10,127 9,365 9,353 9,383
May 31, June 1, June 3, May 28, May 29,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(in thousands)
Balance sheet data:
Working capital ...... $ 43,115 $ 53,508 $ 33,254 $ 33,088 $ 36,283
Cash, certificates of
deposit and short-
term debt and equity
securities ......... 15,475 23,610 4,447 7,336 8,359
Total assets ......... 100,720 96,037 76,095 71,531 73,252
Long-term debt, less
current maturities . 842 680 1,114 586 2,900
Stockholders' equity . 77,244 80,603 57,890 54,269 55,001
54,900
- ------------------------------------
* Reclassified to reflect the discontinued operation described in Note BC to
the Consolidated Financial Statements included herein.
(1) Retroactively restated to reflect the total shares issued after the 3%
stock dividends described in Note KL to the Consolidated Financial
Statements included herein.
(footnotes continued on next page)
-18-
(footnotes continued from preceding page)
(2) Sales of Lafayette products for the period June 2, 1991 through November 27,
1991 of approximately $3,505,000 have been excluded from net sales and
reclassified to disposal of assets, which is included in operating profit in
the consolidated statements of earnings.
(3) On November 27, 1991, the Company divested the assets of its Lafayette
division to Lafayette Pharmaceuticals, Incorporated pursuant to an Asset
Purchase Agreement dated June 27, 1991 (the "Agreement"). The aggregate
sales price was approximately $5,413,000. The Lafayette division was
purchased by the Company in December 1988 from Lafayette Pharmacal, Inc. The
Agreement was approved by the Federal Trade Commission ("FTC") on November
14, 1991, pursuant to the FTC's order of June 12, 1990 which required the
Company to divest the assets it had purchased from Lafayette Pharmacal, Inc.
At June 2, 1990, the Company had established a reserve, before tax, of
$8,627,000 which approximated the anticipated loss on divestiture and
related expenses. The Company recorded a pretax gain of $953,000 during
1992 representing the difference between the actual sales price and expenses
pertaining to the divestiture compared with the amounts previously
estimated. Such gain is included in operating profit in the consolidated
statement of earnings for 1992.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis is based on the results of continuing
operations of the Company.
The Company's fiscal yearyears ended May 31, 1997 and June 1, 1996 representsrepresent
fifty-two weeks and the fiscal year ended June 3, 1995 represents fifty-three weeks and the fiscal
year ended May 28, 1994 represents fifty-two
weeks.
RESULTS OF OPERATIONS
SEGMENT OVERVIEW
The Company operates in two industry segments: Diagnostic products and
AngioDynamics products.
The Diagnostic products industry segment accounted for 88%82% of sales, net of
intersegment eliminations (see Note N to the Consolidated Financial Statements
included herein) in 1996,1997, as compared to 88% in 1996 and 92% in 1995 and 95% in 1994.1995. This
segment encompasses both contrast systems, consisting of barium sulfate
formulations and related medical devices used in X-ray, CT-scanning and other
imaging examinations, and non-contrast systems, including diagnostic radiology
devices, custom contract pharmaceuticals, gastrointestinal cleansing laxatives,
X-ray protection equipment, and immunoassay tests. Contrast systems, which
constitute the Company's core business and the majority of the Diagnostic
products segment, accounted for 68%61% of net sales in 1996,1997, as compared to 68% in
1996 and 72% in 1995 and 75% in 1994.1995. Non-contrast system sales accounted for 20%21% of net sales
in 1997, as compared to 20% in both 1996 1995 and 1994.1995.
Diagnostic segment results for 1997 were adversely affected by lower gross
profit and increased operating expenses of $1,523,000. The lower gross profit
resulted from increased inventory reserves of $676,000, approximately $558,000
of increased unabsorbed overhead costs associated with the relocation of a
portion of the Company's contrast systems manufacturing operations, and sales
discounts to group purchasing organizations. The effects of the manufacturing
site relocation will continue to be felt through the first half of next fiscal
year resulting in lower than normal Canadian gross profit. Increased regulatory
costs associated with product validations of $857,000 and severance costs of
$365,000 contributed to the increased operating expenses in 1997.
Diagnostic segment results for 1996 were adversely affected by unabsorbed
overhead costs associated with the relocation of a portion
-19-
of the Company's core manufacturing operations,site relocation, as well as by
increased selling and marketing expenses in the Company's corecontrast systems
business. The unabsorbed overhead
costs resulted during the planned construction at the Company's Canadian
manufacturing facility. The effects of the relocation will continue to be felt
through the first half of 1997, resulting in lower than normal Canadian gross
profits. Investment in new marketing initiatives and product introductions
contributed to the increased selling and marketing expenses.
Diagnostic segment results for 1995 were positively impacted by improved
gross margins, partially offset by increased domestic and international selling
and administrative expenses.
Diagnostic segment results for 1994 were adversely impacted by the cost of
product recalls, which the Company began in March 1994, due to packaging and
formulation problems with its effervescent granules and colon cleansing
products. The Company recorded pretax charges in the aggregate amount of
$1,546,000 during 1994, with respect to such recalls.
Diagnostic segment results for 1994 were also adversely impacted by a
decline in sales of contrast systems in the domestic market. The Company
attributes the sales decline in 1994 to the turmoil in the healthcare industry
from proposed reform, which resulted in reduced patient procedures, consequent
purchasing cutbacks on the part of hospitals, and a generalized slowdown in our
customer's orders.
The AngioDynamics products industry segment accounted for 12%18% of sales, net
of intersegment eliminations (see Note MN to the Consolidated
-19-
Financial Statements included herein) in 1996,1997, as compared to 12% in 1996 and 8%
in 1995 and 5% in 1994.1995. This segment includes stentCO2/angiography products, angiographic and fluid managementtherapeutic products
and thrombolyticcoronary products used in the interventional medicine marketplace.
AngioDynamics segment results for 1997 were adversely affected by increased
operating expenses of $4,502,000, partially offset by sales growth of 61%, as
compared to 1996. The sales growth was due to continued international and
domestic market penetration. The AngioStent(TM), a device used during coronary
procedures, was introduced internationally by the Company in the third quarter
of 1996 and was the major contributor to the international sales growth in 1997.
Increased operating expenses can be attributed to expenses supporting the 61%
sales increase in 1997 and increased administrative expenses. Gross profit
expressed as a percentage of net sales declined to 42% in 1997, as compared to
48% in 1996, due primarily to start-up costs relating to AngioDynamics' entry
into the coronary stent marketplace and increased inventory reserves of
$180,000. AngioDynamics incurred operating losses of $3,816,000 in 1997, as
compared to operating losses of $1,536,000 in 1996.
AngioDynamics segment results for 1996 were positively affected by sales
growth of 57%, as compared to 1995, coupled with improved manufacturing
efficiencies. The AngioDynamics sales growth was due to domestic and international market
penetration and the introduction of the AngioStentTM.penetration. The AngioStent a device used during coronary procedures as a treatment for
atherosclerosis, was introducedthe major contributor to the international sales
growth in the third quarter of 1996 in certain
international markets. AngioDynamics gross1996. Gross profit expressed as a percentage of net sales improved to
48% in 1996, as compared to 32% in 1995, and 41%due, in 1994.large part, to the improved
manufacturing efficiencies. AngioDynamics incurred operating losses of
$1,536,000 in 1996, as compared to operating losses of $4,603,000 in 1995 and $3,468,000 in 1994. Included in these
operating losses were losses of $1,189,000 in 1996, $1,972,000 in 1995 and
$877,000 in 1994 relating to AngioDynamics' CO2 Angiographic operations, which
resulted primarily from its continued research and development. The initial
overseas commercial sale of the Company's CO2JECTTM system, which delivers
carbon dioxide gas as a replacement for more expensive iodinated contrast media,
occurred in the second quarter of 1996.1995.
During 1996, the Company discontinued the operation of its surgical
products industry segment when it sold SDI,Surgical Dynamics Inc. ("SDI"), its
51%-owned subsidiary, to USSC.United States Surgical Corporation. As a result of this
sale, the Company recognized a gain, pretax of approximately $25,539,000,
after-tax of approximately $19,520,000, or $2.01$1.95 per common share on a primary
-20-
basis. The surgical products industry segment has been reported as a
discontinued operation and, accordingly, the gain from the sale of SDI and the
Company's proportionate share of losses from operations of SDI have been
classified as a discontinued operation in the consolidated statements of
earnings.operations. The surgical products industry segment included the NucleotomeTMNucleotome(TM)
device, the Ray Threaded Fusion CageTMCage(TM) and other surgical devices and
accessories used in spinal surgery.
The net sales and operating profit (loss) of each industry segment and the
identifiable assets, depreciation and amortization, and capital expenditures
attributable to each industry segment are set forth in Note MN to the
Consolidated Financial Statements included herein.
CONSOLIDATED RESULTS OF OPERATIONS
The Company reported a net earningsloss of $21,008,000,$3,208,000, or $2.16 and $2.14($.33) per common share
on a primary and fully diluted basis for 1996,1997, as compared to net earnings of
$1,630,000,$21,008,000, or $.18$2.10 and $2.07 per common share respectively, on a primary and fully
-20-
diluted basis, respectively, for 1995,1996, and net earnings of $277,000,$1,630,000, or $.03$.17
per common share on a primary and fully diluted basis, for 1994.1995. Results for
1996 were
positively impacted by theincluded an after-tax gain on the sale of SDI of $19,520,000, or $2.01$1.95 and
$1.99$1.93 per common share on a primary and fully diluted basis, respectively.
EarningsLoss from continuing operations for 1996 were1997 was $3,208,000, or ($.33) per
common share on both a primary and fully diluted basis, as compared to earnings
from continuing operations of $1,697,000, or $.17 per common share on both a
primary and fully diluted basis, respectively, as
compared toin 1996 and $2,473,000, or $.27$.26 per common
share on both a primary and fully diluted basis, in 19951995.
Results from continuing operations for 1997 were adversely impacted by
increased operating expenses in both industry segments, as well as reduced gross
profit in the Diagnostic segment. In the AngioDynamics segment, increased
operating expenses can be attributed to expenses supporting the 61% sales
increase in 1997 and $379,000, or $.04 per common share on both a primaryincreased administrative expenses. In the Diagnostic
segment, increased regulatory costs associated with product validations of
$857,000 and fully diluted basis,severance costs of $365,000 contributed to the increased operating
expenses in 1994.1997. The lower Diagnostic gross profit resulted from increased
inventory reserves of $676,000, increased unabsorbed overhead costs associated
with the manufacturing site relocation of approximately $558,000, and sales
discounts to group purchasing organizations.
Results from continuing operations for 1996 were adversely impacted by
unabsorbed overhead costs during construction atassociated with the Company's Canadian facility,manufacturing site relocation, as
well as by increased selling and marketing expenses in the Company's corecontrast
systems business, and were positively affected by AngioDynamics sales growth and
improved AngioDynamics manufacturing efficiencies.
Results from continuing operations for 1995 were positively impacted by
increased sales demand in the AngioDynamics segment, coupled with improved gross
marginsprofit in the Diagnostic segment, partially offset by increased domestic and
international selling and administrative expenses in both industry segments.
Results from continuing operations for 1994 were adversely impacted by the
reserve for product recalls of $1,546,000Net sales increased 6%, or $5,392,000, to $97,324,000 in 1997, and severance benefits to terminated
employees of $638,000. The reserve for product recalls is included in cost of
goods sold and selling and administrative expenses in the consolidated
statements of earnings. Results from continuing operations for 1994 were also
adversely impacted by reduced manufacturing activity in the Diagnostic segment,
partially offset by reduced operating expenses due to cost containment programs
instituted in 1993. The reduced level of manufacturing activity resulted from
both high opening inventory levels and lower than expected demand for contrast
systems products due to uncertainty surrounding the numerous healthcare reform
proposals.
Sales
increased 4%, or $3,406,000, to $91,932,000 in 1996, as compared1996. Net sales in 1997 were
favorably affected by increased sales of AngioDynamics products of $6,740,000
and increased non-contrast systems sales of $1,923,000. The AngioDynamics sales
growth was due to 3%, or
$2,881,000,international market penetration, due primarily to the
introduction of the AngioStent, and domestic market penetration. Net sales in
1995. Sales1997 were adversely affected by a 6% decline in the Company's sales of barium
contrast systems. Price increases had no effect on net sales in 1997. Net sales
in 1996 were favorably affected by increased AngioDynamics sales of $3,995,000
and increased non-contrast systems sales of $1,148,000 and price$1,148,000. Price increases which
accounted for -21-
approximately .5% of net sales in 1996. The AngioDynamics sales
growth was due to domestic and international market penetration andpenetration. The AngioStent
was the introduction ofmajor contributor to the AngioStent. Salesinternational sales growth in 1996. Net sales
in 1996 were adversely affected by a decline in the Company's sales of barium
contrast systems.
Sales in 1995 were favorably affected by
increasedNet sales of AngioDynamics products of $2,323,000 and price increases,
which accounted for approximately 1% of sales in 1995. Sales in 1995 were
adversely affected by a domestic decline in the Company's sales of barium
contrast systems.
Sales in international markets, including direct exports from the U.S.,
increased 12%, or $3,932,000, to $37,714,000 in 1997 and
-21-
increased 5%, or $1,744,000, to $33,782,000 in 19961996. The 1997 increase was due
to increased sales of AngioDynamics products of $3,679,000 and 9%, or $2,625,000, in 1995.non-contrast
systems of $1,825,000, partially offset by decreased sales of contrast systems
of $1,572,000. The 1996 increase was due to increased sales of AngioDynamics
products of $1,888,000.
The
1995 increase was due to increased sales of contrast systems of $1,582,000,
non-contrast systems of $741,000 and AngioDynamics products of $302,000.
Gross profit expressed as a percentage of net sales was 38% in 1997, as
compared to 40% in 1996 as
compared toand 41% in 19951995. Gross profit in 1997 was negatively
impacted by approximately $3,037,000 of unabsorbed overhead costs associated
with the manufacturing site relocation, increased inventory reserves of
$856,000, start-up costs relating to AngioDynamics' entry into the coronary
stent marketplace, and 39% in 1994.sales discounts to group purchasing organizations. Gross
profit in 1996 was negatively impacted by approximately $2,479,000 of unabsorbed
overhead costs during
construction atassociated with the Company's Canadian facility,manufacturing site relocation, and was
positively affected by improved AngioDynamics manufacturing efficiencies. Gross
profit in 1995 was adversely affected by increased provisions for inventory
adjustments, partially offset by sales price increases.
The lower gross profit percentage in 1994 was
due primarily to the reserve for product recalls of $1,420,000, reduced
manufacturing activity in the Diagnostic segment, and severance benefits to
terminated employees of $262,000.
Selling and administrative ("S&A") expenses were $34,600,000 in 1997,
$30,134,000 in 1996 and $27,767,000 in 19951995. The increase in 1997 versus 1996 of
$4,466,000, or 15%, was due to increased AngioDynamics S&A expenses of
$3,776,000 and $25,520,000increased Diagnostic S&A expenses of $690,000. Increased
AngioDynamics S&A expenses can be attributed to expenses supporting the 61%
sales increase in 1994.1997 and increased administrative expenses, partially
resulting from the write-off of expenses relating to the proposed initial public
offering of AngioDynamics, the start-up of a facility in Ireland and the
acquisition of Leocor, Inc. ("Leocor"). Increased Diagnostic S&A expenses
resulted, in part, from severance costs of $365,000 in 1997. The increase in
1996 versus 1995 of $2,367,000, or 9%, was due primarily to expanded domestic
selling and marketing efforts in the Company's corecontrast systems business
approximating $1,361,000 and expanded AngioDynamics selling and marketing
efforts in both the domesticdomestically and international marketplaceinternationally approximating $1,063,000.
Investment in new product introductions and selling and marketing initiatives and product introductions
contributed to the increased selling and marketing expenses in both industry
segments.
The increase in 1995 versus 1994
of $2,247,000, or 9%, was due primarily to expanded Diagnostic and AngioDynamics
S&A efforts in both the domestic and international marketplace of $1,438,000 and
$608,000, respectively, and a reversal of product liability claim reserves of
$201,000 in 1994.
Research and development ("R&D") expenditures in 19961997 totalled $6,881,000,
or 7% of net sales, as compared to $5,323,000, or 6% of net sales, as compared toin 1996 and
$6,077,000, or 7% of net sales, in 19951995. The increase in 1997 versus 1996 of
$1,558,000 was due primarily to increased regulatory costs associated with
product validations of $857,000 and $6,897,000, or 8%increased spending of sales, in 1994.$691,000 relating to
AngioDynamics projects. The decline in 1996 versus 1995 of $754,000 was due
primarily to reduced spending of $898,000 relating to the overseas
commercialization of AngioDynamics' CO2
Angiographic operations andCO2Ject system; reduced spending of $347,000
relating to the commercialization of H. pylori test-related products,products; partially offset by
increased contrast systemsystems spending of $361,000 relating to the development of
several new products. The reduced AngioDynamics CO2 Angiographic spending
resulted from the overseas commercialization of the CO2JECT system, which
delivers carbon dioxide gas as a replacement for more expensive iodinated
contrast media in the second quarter of 1996. The decline in 1995 versus 1994 of
$820,000 was due primarily to reduced spending of $1,123,000 relating to the
commercialization of H. pylori test-related products, and reduced contrast
system spending of $504,000, primarily
-22-
due to staff reductions, partially offset by increased spending of $873,000
relating to AngioDynamics projects. Of the R&D expenditures in 1996,1997, approximately 37%34% relate
to AngioDynamics projects, 29% to contrast systems, 31% to AngioDynamics projects, 6%4% to immunological
projects, 16%12% to other projects and 10%21% to general regulatory costs. R&D
expenditures are expected to continue at approximately current levels. In
addition to its in-house technical staff, the Company is presently sponsoring
various independent R&D projects and is committed to continued
-22-
expansion of its product lines through R&D.
Other income, net of other expenses, totalled $381,000 in 1997, $983,000 in
1996 and $722,000 in 19951995. The decline in other income in 1997 versus 1996 was
primarily due to increased interest expense of $253,000, resulting from
AngioDynamics bank financing, and $328,000 in 1994.increased foreign currency exchange losses of
$161,000. The improvement in other income in 1996 versus 1995 was primarily due
to increased licensing income of $240,000 and increased interest income of
$184,000, partially offset by increased currency exchange losses incurred by
foreign subsidiaries of $211,000. The increased interest income of $184,000
resulted from the investment of SDI sale proceeds, partially offset by the
income recorded in 1995 of $180,000 as a result of the prepayment of an
interest-free loan.
The improvement in other income in 1995 versus 1994
was primarily due to the income recorded in 1995 of $180,000 as a result of the
prepayment of an interest-free loan. Improvements in currency exchange gains and
losses incurred by foreign subsidiaries totalling $132,000 and increased
licensing income of $55,000 also contributed to the increase in other income in
1995.
Note FG to the Consolidated Financial Statements included herein details the
major elements affecting income taxes for 1997, 1996 1995 and 1994.1995. In 1997, the
Company's effective tax benefit rate of 29% differed from the Federal statutory
tax rate of 34% due primarily to losses incurred in a foreign jurisdiction
subject to lower tax rates and to the fact that the Company did not provide for
the tax benefit on losses incurred in certain foreign jurisdictions, since it is
more likely than not that such benefits will not be realized, partially offset
by earnings of the Puerto Rican subsidiary, which are subject to favorable U.S.
tax treatment. In 1996, the Company's low effective tax rate of 13% differed
from the Federal statutory tax rate of 35% due primarily to earnings of the
Puerto Rican subsidiary, which are subject to favorable U.S. tax treatment and
tax-exempt interest income. In 1995, the Company's effective tax rate of 31%
differed from the Federal statutory tax rate of 34% due primarily to earnings of
the Puerto Rican subsidiary, which are subject to favorable U.S. tax treatment,
and were 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.
In 1994, the Company's high effective tax
rate of 75% 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, and were partially offset by earnings of
the Puerto Rican subsidiary, which are subject to favorable U.S. tax treatment.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, the purchase of Leocor, capital expenditures and increased
inventory levels were funded primarily by cash reserves and proceeds from the
issuance of bank debt. During 1996, capital expenditures and increased inventory
levels (on
continuing operations) were funded primarily by cash reserves. As a result of the sale of SDI in
November 1995, the Company increased its cash reserves by approximately
$21,000,000. The proceeds from the sale of SDI have currently beenwere invested in debt securities.
During 1995, capital expenditures, primarily related to the acquisition of the
previously leased Canadian facility, increased inventory levels and repayments
of debt were funded primarily by cash provided by operations and cash reserves.
During 1994, operating and capital requirements
were funded by cash provided by operations. TheIn the past, the Company's policy has been to fund capital requirements without
incurring significant debt. -23-
At May 31, 1997, debt (notes payable, current
maturities of long-term debt and long-term debt) was $8,388,000 as compared to
$1,927,000 at June 1, 1996, debt declined to $1,927,000 from $2,343,000 at June 3, 1995 and
from a previously reported high of $6,219,000 at February 27, 1993.1996. The Company has available $4,731,000$11,965,000 under twofour
bank lines of credit of which $287,000$6,392,000 was outstanding at June 1, 1996.May 31, 1997.
The Company's current policy is to issue stock dividends. During the third
quarter of fiscals 1994,fiscal years 1995 and 1996 and the fourth quarter of fiscal year
1997, the Company issued 3% stock dividends.
-23-
Presently, the Company is continuing to look for both new and complementary
lines of business for expansion in order to ensure its continued growth.
On January 8, 1997, the Company purchased certain assets of Leocor and
certain other assets directly from a principal shareholder of Leocor for
approximately $7,096,000, including acquisition costs. Leocor is a Texas
corporation, based in Houston, Texas, which develops and manufactures
angioplasty catheters.
The purchase of Leocor is a strategic acquisition for the AngioDynamics
business segment. Angioplasty catheters are used as a delivery system for the
AngioStent and the acquisition enables AngioDynamics to vertically integrate its
stent manufacturing capability, as well as to compete in the worldwide
angioplasty market.
At June 1, 1996,May 31, 1997, approximately 66%59% of the Company's assets consist of
inventories, accounts receivable, debt and equity securities, accounts receivable, and cash and cash
equivalents. Inventories (on continuing operations) have increased at a greater rate than sales as a result
of broadened product lines.lines, and safety stock during the relocation of a portion
of the Company's contrast systems manufacturing operations. The current ratio is
3.07 to 1, with net working capital of $43,115,000 at May 31, 1997, as compared
to the current ratio of 5.15 to 1, with net working capital of $53,508,000 at
June 1, 1996, as compared
to the current ratio of 3.39 to 1, with net working capital of $33,254,000 at
June 3, 1995.1996. The improvementdecline in both the current ratio and net working capital is a
direct result of the cash proceeds received from the salepurchase of SDI.Leocor.
Net capital expenditures, primarily for a facility acquisition and
machinery and equipment, and
facility improvements, were $4,370,000 in 1997, as compared to $4,231,000 in
1996 as compared toand $4,812,000 in 19951995. Of the 1997 expenditures, approximately $1,900,000
relates to the acquisition, and $2,175,000 in 1994.related improvements, of a manufacturing
facility by AngioDynamics' Irish subsidiary. Of the 1996 expenditures,
approximately $2,223,000 relates to the purchase of machinery and equipment and
facility improvements in connection with the Company's manufacturing site
relocation. Of the 1995 expenditures, approximately $2,817,000 relates to the
purchase of the land and building housing the manufacturing facilities of the
Company's Canadian subsidiary. No material increase in the aggregate level of
capital expenditures is currently contemplated for 1998.
In August 1997, the Company acquired approximately 25% of ITI Medical
Technologies, Inc. ("ITI") for $1,300,000, to be paid in three installments over
a six month period commencing in August 1997. ITI is a California corporation,
based in Livermore, California, which develops and manufactures MRI diagnostic
and therapeutic medical devices.
This Form 10-K 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
-24-
assurance that the forward-looking statements included in this Form 10-K 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data required by Part II, Item 8 are
included in Part IV of this form as indexed at Item 14 (a) 1.
-24-
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
-25-
PART III
Certain information required by Part III is omitted from this Annual Report
on Form 10-K because the Company will file a definitive proxy statement within
120 days after the end of its fiscal year pursuant to Regulation 14A (the "Proxy
Statement") for its Annual Meeting of Stockholders, currently scheduled for
October 21, 1997, and the information included in the Proxy Statement is
incorporated herein by reference.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
Company's officers and directors.
NAME AGE POSITIONS
Howard S. Stern (1)(4)... 6566 Chairman of the Board, Director
Daniel R. Martin (1)..... 5960 President, Chief Executive Officer,
Director
George P. Carden......... 67 Senior Vice President and General Manager
- Imaging Products Division
Arthur L. Zimmet......... 6061 Senior Vice President - Special Projects
Sandra D. Baron.......... 4445 Vice President - Human Resources
Craig A. Burk............ 4344 Vice President - Manufacturing
Joseph A. Cacchioli...... 4041 Vice President - Controller
Dennis J. Curtin (5)..... 49Curtin......... 50 Vice President - Chief Financial Officer
Judith E. Hatch.......... 55 Vice President - National Accounts
Kay N. Hatch............. 64 Vice President - Protection Products
Eamonn P. Hobbs.......... 4344 Vice President - AngioDynamics Division
Joseph J. Palma.......... 5455 Vice President - Sales and Marketing
Archie B. Williams....... 4546 Vice President - Imaging Products
Management
Terry S. Zisowitz........ 4950 Vice President - Legal and Regulatory
Affairs
Andrew A. Zwarun, PhD.... 5354 Vice President - MRI
Michael A. Davis, M.D.... 5556 Medical Director, Technical Director,
Director
Paul S. Echenberg (1).... 5253 Chairman of the Board of E-Z-EM Canada,
Director
James L. Katz CPA, JD.... 6061 Director
(1)(2)(5)
Donald A. Meyer (3)(4)... 6263 Director
Irwin H. Nadel (2)(5).... 76David P. Meyers.......... 33 Director
Robert M. Topol (1)(2)... 7172 Director
(3)(5)
W. Philip Van Kirk....... 76Peter J. Graham.......... 31 Secretary
- ---------------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Nominating Committee
(4) Member of Compensation Committee
(5) Member of Finance Committee
Directors are elected for a three year term and each holds office until his
successor is elected and qualified. Officers are elected annually and serve at
the pleasure of the Board of Directors.
Mr. Stern is a co-founder of E-Z-EM,the Company and has served as
-26-
Chairman of the Board and Director of the Company since its formation in 1962.
Prior to 1994, Mr. Stern also served as Chief Executive Officer, and prior tofrom the
formation of the Company until 1990, he served as President of the Company since its formation.Company.
Mr. Martin has served as President, Chief Executive Officer and Director
since 1994, and previously served as President, Chief -26-
Operating Officer and
Director from 1990 to 1993.
Mr. Carden has served as Senior Vice President and General Manager -
Imaging Products Division since 1994, and previously served as Senior Vice
President - International Operations from 1983 to 1993. Mr. Carden has been an
employee of the Company since 1970.
Mr. Zimmet has served as Senior Vice President - Special Projects since
1988, and has been an employee of the Company since 1982.
Ms. Baron has served as Vice President - Human Resources since 1995, and
has been an employee of the Company since 1985.
Mr. Burk has served as Vice President - Manufacturing since 1987.
Mr. Cacchioli has served as Vice President - Controller since 1988, and has
been an employee of the Company since 1984.
Mr. Curtin has served as Vice President - Chief Financial Officer since
August 1995, and previously served as Vice President - Finance from 1985 to August 1995. Mr.
Curtin has been an employee of the Company since 1983.
Ms. Hatch has served as Vice President - National Accounts since 1993, and
has been an employee of the Company since 1986.
Mr. Hatch has served as Vice President - Protection Products since 1995,
and previously served as Vice President - Protection and CT Products from 1994
to 1995 and Vice President - Marketing from 1989 to 1993.
Mr. Hobbs has served as Vice President - AngioDynamics Division since 1991,
and has been an employee of the Company since 1988.
Mr. Palma has served as Vice President - Sales and Marketing since April
1996,
and previously served as Vice President - Sales from 1995 to April 1996. Mr. Palma has
been an employee of the Company since 1994. Prior to joining the Company, Mr.
Palma served as Director of Sales for the Imaging Division of Berlex
Laboratories (pharmaceutical products) since 1989.
Mr. Williams has served as Vice President - Imaging Products Management
since 1993, and has been an employee of the Company since 1980.
Ms. Zisowitz has served as Vice President - Legal and Regulatory Affairs
since 1995, and previously served as Vice President - Legal Affairs from 1990 to
1995. Ms. Zisowitz has been an employee of the Company since 1989.
Mr. Zwarun has served as Vice President - MRI since 1992, and previouslyhas been an
employee of the Company since 1987.
Dr. Davis has served as Vice President - Quality Assurance from 1987 to 1992.
Dr. Davis hasMedical Director/Technical Director and Director of
the Company since January 1997, and previously served as Medical Director and
Director of the Company since
Julyfrom 1995 and previously servedto 1996, as Medical Director from 1994 to July
1995, and as Associate Medical Director from 1988 to 1993. He has been Professor
of Radiology and Nuclear Medicine and Director of -27-
the Division of Radiologic
Research, University of Massachusetts Medical Center since 1980. He is also a
director of MacroChem Corp.
Mr. Echenberg has been a director of the Company since 1987 and has served
as Chairman of the Board of E-Z-EM Canada since 1994. He is the President, Chief
Executive Officer and Director of Schroders &
-27-
Associates Canada Inc. (investment buy-out advisory services) since January 1997
and Director of Schroders Ventures Ltd. since June 1997. He is also a founder
and has been a general partner and director of Eckvest Equity Inc. (personal
investment and consulting services) since 1989. He was also a founder and had
been a senior partner of BDE Capital Partners (investment banking partnership)
from 1992 to 1994. He is also a director of Lallemand Inc., ISG Technologies,
Inc., LDI Research Co., Inc., LDI Marketing Co., Inc., Benvest Capital Inc. and,
Colliers MacAuley Nicholl.Nicholl and Huntington Mills (Canada) Ltd. The Company has an
investment in ISG Technologies, Inc.
Mr. Katz has been a director of the Company since 1983. He is thea founder and
has been a principal of Chapman Partners LLC (investment banking) since its
organization in 1995. Previously, he had been the co-owner and President of Ever
Ready Thermometer Co., Inc. from its acquisition in 1985 until its sale in November 1994.
From 1971 until 1980 and from 1983 until 1985, he held various executive
positions with Baxter International and subsidiaries of Baxter International,
including that of Chief Financial Officer of Baxter.Baxter International. He is also a
director of Intec, Inc. and Binax.
Mr. Meyer has been a director of the Company since 1968. He is currently an
independent consultant in legal matters to arts and business organizations,
specializing in technical assistance. He had been the Executive Director of the
Western States Arts Federation, Santa Fe, New Mexico, which provides and
develops regional arts programs, from 1990 to October 1995. From 1958 through 1990, he
was an attorney practicing in New Orleans, Louisiana.
Mr. NadelMeyers has been a director of the Company since 1972.November 1996. He is
the founder of MedTest Express, Inc., an Atlanta, Georgia provider of contracted
laboratory services for home health agencies, and has served as its President
and Chief Executive Officer since 1994. For the five years prior to that, Mr.
Meyers was the Vice President of Operations at Radiation Care, Inc., an Atlanta,
Georgia operator of radiation therapy and diagnostic imaging centers. Mr. Meyers
is the son of Dr. Phillip H. Meyers, a Certified
Public Accountantformer director, officer and memberholder of
bothover 23% of the New York Bar and the Connecticut Bar.
He provides management consulting services tooutstanding securities of the Company, as Trustee of its
401(k) Plan.who died during the past
year.
Mr. Topol has been a director of the Company since 1982. Prior to his
retirement in 1994, he served as an Executive Vice President of Smith Barney,
Inc. (financial services) for more than five years. He is also a director of
First American Health Concepts, Fund for the Aging, City Meals on Wheels,
American Health Foundation, State University of New York - Purchase and Group
One Ltd.Redstone
Resources Inc.
Mr. Van KirkGraham has served as Secretary of the Company since 1985. He isMay 1997, and has
served as associate general counsel infor the Company since February 1997.
Previously, he was employed as an attorney by Segal & Lax, P.C., a New York City
law firm specializing in commercial and civil litigation, from 1996 through
February 1997. From 1992 through 1995, Mr. Graham was a full time law student at
the Benjamin N. Cardoza School of Meighan & Necarsulmer, Mamaroneck, New York, which
has provided legal services to the Company.Law.
-28-
Item 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation for
services, in all capacities for 1997, 1996 1995 and 1994,1995, of those persons who were,
at the end of 1996,1997, Chief Executive Officer ("CEO") (Daniel R. Martin) and each
of the four most highly compensated executive officers of the Company other than
the CEO (collectively, the "Named Executive Officers"):
Annual Compensation Long Term Compensation
------------------- ------------------------------------------------- -------------------------------------
Awards Payouts
---------------------------------- -------
Other
Annual Restricted All Other
Name and Compensa- Stock Options LTIP Compensa-
Principal Fiscal Salary Bonus tion (1) Awards Options---------------- Payouts tion (3)(4)
Position Year ($) ($) ($) ($) # (2) # (3) ($) ($)
-------- ---- --- --- --- ------------ ------ ------ ----- --- ------------ ---------- ------- ------- ------- ---------
Howard S. Stern,..... 1997 $250,000 $11,538 None None None 8.5227 None $ 7,090
Chairman of the Board 1996 $250,000250,000 None None None None None None 7,245
1995 250,000 None None None 76,491 None None 11,712
Daniel R. Martin,.... 1997 $230,000 $ 7,962 None None None None None $ 7,245
Chairman of the Board 1995 250,000 None None None 74,263 None 11,712
1994 250,0007,270
President and Chief 1996 220,000 None None None None None 9,627
Daniel R. Martin,None 9,261
Executive Officer 1995 200,000 None None None 120,200 None None 8,453
Arthur L. Zimmet,.... 1996 $220,0001997 $153,000 $ 7,062 None None None None None $ 9,261
President and Chief 1995 200,000 None None None 116,699 None 8,453
Executive Officer 1994 200,000 None None None None None 9,150
George P. Carden,.... 1996 $186,300 None None None None None $ 7,2577,380
Senior Vice President 1995 186,300 $25,000 None None 30,766 None 7,330
1994 172,125 None None None None None 7,853
Arthur L. Zimmet,.... 1996 $153,000 None None None None None $ 7,760
Senior Vice President 1995 153,000 $10,000 None None 40,314 None 7,466
1994 153,000 None None None None None 8,094None 7,760
1995 153,000 10,000 None None 41,524 None None 7,466
Eamonn P. Hobbs,..... 1997 $176,250 $ 6,058 None None None 45.4545 None $ 7,902
Vice President 1996 $170,648170,648 None None None None None None 8,021
1995 120,000 15,000 None None 31,689 None None 5,856
Dennis J. Curtin,.... 1997 $144,000 $ 8,0216,646 None None None 3.4091 None $ 7,534
Vice President 1995 120,000 $15,000 None None 30,766 None 5,856
1994 120,0001996 144,000 7,500 None None None None None 6,0207,880
1995 144,000 25,000 None None 41,205 None None 7,027
- ---------------
(1) The Company has concluded that the aggregate amount of perquisites and
other personal benefits paid to each of the Named Executive Officers for
1997, 1996 1995 and 19941995 did not exceed the lesser of 10% of such officer's
total annual salary and bonus for 1997, 1996 1995 or 19941995 or $50,000; such
amounts are, therefore, not reflected in the table.
(2) RetroactivelyOptions are exercisable in Class B Common Stock of the Company and have
been retroactively adjusted for the 3% stock dividends described in Note KL
to the Consolidated Financial Statements.
(3) Options are exercisable in Class B Common Stock of AngioDynamics, Inc., a
wholly-owned subsidiary of the Company.
(4) For 1997, 1996 1995 and 1994,1995, represents for each of the Named Executive
Officers the amounts contributed by the Company under the Profit- SharingProfit-Sharing
Plan and, as matching contributions, under the companion 401(k) Plan.
-29-
OPTION GRANTS TABLE
The following table sets forth certain information concerning stock option
grants made during 1997 to the Named Executive Officers. These grants are also
reflected in the Summary Compensation Table. All of the options granted during
1997 have an exercise price equal to the fair market value of the Class B Common
Stock of AngioDynamics, Inc., a wholly-owned subsidiary of the Company, on the
date of grant, and expire in ten years. In accordance with SEC disclosure rules,
the hypothetical gains or "option spreads" for each option grant are shown based
on compound annual rates of stock price appreciation of 5% and 10% from the
grant date to the expiration date. The assumed rates of growth are prescribed by
the SEC and are for illustrative purposes only; they are not intended to predict
future stock prices, which will depend upon market conditions and the Company's
future performance. The Company did not grant any stock options or stock appreciation rights
during 1997.
Potential Realizable Value at
Assumed Annual Rates of Stock
Individual Grants Price Appreciation for Option Term
- --------------------------------------------------------------------- -------------------------------------------------
Number of % of Total
Securities Options 5% 10%
Underlying Granted to Exercise ---------------------- ----------------------
Options Employees or Base Stock Potential Stock Potential
Granted Fiscal Year Price Expiration Price Value Price Value
Name (#) (1) 1997 (3) ($/Sh) Date ($/Sh) $ ($/Sh) $
---- ----------- ----------- -------- ---------- -------- ---------- -------- ----------
Howard S. Stern... 8.5227 (2) 8.7% $80,000 3/03/07 $130,312 $428,794 $207,499 $1,086,636
Daniel R. Martin.. None
Arthur L. Zimmet.. None
Eamonn P. Hobbs... 45.4545 (2) 46.4% $80,000 3/03/07 $130,312 $2,286,907 $207,499 $5,795,403
Dennis J. Curtin.. 3.4091 (2) 3.5% $80,000 3/03/07 $130,312 $171,519 $207,499 $434,657
- ---------------
(1) Options are exercisable in Class B Common Stock of AngioDynamics, Inc., a
wholly-owned subsidiary of the Company.
(2) Options are exercisable 20% per year over five years from the date of
grant, provided a threshold event occurs or 100% on the ninth anniversary
of the grant, if no threshold event occurs. A threshold event is the
earlier of (i) fourteen months after either an initial public offering
("IPO") or the spin off of all AngioDynamics stock to the Named Executive OfficersCompany's
shareholders, or (ii) two months after the occurrence of both an IPO and
the spin off of all AngioDynamics stock to the Company's shareholders.
(3) Represents the percentage of total options granted to employees during 1996.
-29-1997
and exercisable in Class B Common Stock of AngioDynamics, Inc.
-30-
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth certain information concerning all exercises
of stock options during 19961997 by the Named Executive Officers and the fiscal
year-end value of unexercised stock options on an aggregated basis:
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
June 1, 1996 June 1, 1996
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
May 31, 1997 May 31, 1997
(#) ($) (1)
------------- -------------
Shares Value Exercisable/ Exercisable/
Acquired on Realized Unexercisable Unexercisable
Name Exercise (#) ($) (2) (2)
---- ------------ -----------
Shares Value Exercisable/ Exercisable/
Acquired on Realized Unexercisable Unexercisable
Name Exercise (#) ($) (2) (2)
---- ----------- -------- ------------- -------------
Howard S. Stern... None None 76,491/ $250,743/
None None
Daniel R. Martin.. None None 188,743/ $472,445/
None None
Arthur L. Zimmet.. None None 49,402/ $152,442/
None None
Eamonn P. Hobbs... None None 38,442/ $117,871/
None None
Dennis J. Curtin.. None None 49,084/ $157,515/
None None
74,263/ $651,485/
None None
Daniel R. Martin.. None None 183,246/ $1,462,783/
None None
George P. Carden.. None None 37,322/ $319,273/
None None
Arthur L. Zimmet.. None None 47,963/ $411,263/
None None
Eamonn P. Hobbs... None None 37,322/ $319,273/
None None
- ---------------
(1) Options are "in-the-money" if on June 1, 1996,May 31, 1997, the market price of the
stock exceeded the exercise price of such options. At June 1, 1996,May 31, 1997, the
closing price of the Company's Class A and Class B Common Stock was $14.13$8.25
and $13.25,$7.63, respectively. The value of such options is calculated by
determining the difference between the aggregate market price of the stock
covered by the options on June 1, 1996May 31, 1997 and the aggregate exercise price of
such options.
(2) Options granted prior to the Company's recapitalization on October 26, 1992
are exercisable one-half in Class A Common Stock and one-half in Class B
Common Stock. Options granted after the recapitalization are exercisable in
Class B Common Stock.
COMPENSATION OF DIRECTORS
Directors, who are not employees of the Company, are entitled to directors
fees of $15,000 annually. Directors, who serve on committees of the Company and
who are not employees or consultants of the Company, are entitled to a fee of
$500 for each committee meeting attended, except that the chairman of the
committee is entitled to a fee of $1,000 for each committee meeting attended.
-30--31-
EMPLOYMENT CONTRACT
During 1994, the Company entered into an employment contract with Howard S.
Stern. This employment contract is for a term of eight years at an annual
compensation of $250,000.
SEVERANCE ARRANGEMENTS
The information required by this caption is incorporated by reference to
the Company's Proxy Statement under the heading "Severance Arrangements."
COMPENSATION AND STOCK OPTION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The information required by this caption is incorporated by reference to
the Company's Proxy Statement under the heading "Compensation and Stock Option
Committee Report on Executive Compensation."
COMMON STOCK PERFORMANCE
The information required by this caption is incorporated by reference to
the Company's Proxy Statement under the heading "Common Stock Performance."
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of August 5, 1996,4, 1997, as to the
beneficial ownership of the Company's voting Class A Common Stock by each person
known by the Company to own beneficially more than 5% of the Company's voting
Class A Common Stock:
Name and Address of Shares Percent of
Beneficial Owner Beneficially Owned Class
---------------- ------------------ -----
Howard S. Stern,................ 956,412 23.7
Chairman of the Board,
Director
717 Main Street
Westbury, NY 11590
Betty S. Meyers and estate...... 928,806 23.0820,806 20.3
of Phillip H. Meyers, M.D.,
former officer and director
401 Emerald Street
New Orleans, LA 70124
Wellington Management Company,.. 219,258 5.4
75 State Street
Boston, MA 02109
Dimensional Fund Advisors, Inc., 215,575 5.3
1299 Ocean Avenue
Santa Monica, CA 90401
-32-
The following table sets forth information, as of August 5, 1996,4, 1997, as to the
beneficial ownership of the Company's voting Class A and non-votingnonvoting Class B
Common Stock, by (i) each of the Company's directors, (ii) each of the Company's
Named Executive Officers, and (iii) all directors and executive officers of the
Company as a group:
Class A Class B
------------------------------------------- ---------------------
Shares Percent Shares Percent
Name of Beneficially of Beneficially of
Beneficial Owner Owned (1) Class Owned (2) Class
---------------- --------- ----- --------- ----------------- ------- ------------ -------
Howard S. Stern,........... 956,412 23.7 1,228,213 23.21,271,968 22.4
Chairman of the Board,
Director
David P. Meyers,........... 192,750 4.8 257,842 4.6
Director
Daniel R. Martin,.......... 23,88224,389 * 175,119 3.3180,581 3.1
President, Chief Executive
Officer, Director
Arthur L. Zimmet,.......... 28,750 * 83,925 1.687,304 1.5
Senior Vice President
Robert M. Topol,........... 26,31326,398 * 59,32162,833 1.1
Director
-31-
Class A Class B
---------------------- ---------------------
Shares Percent Shares Percent
Name of Beneficially of Beneficially of
Beneficial Owner Owned (1) Class Owned (2) Class
---------------- --------- ----- --------- -----
Paul S. Echenberg,......... 3,3133,398 * 69,34872,472 1.3
Chairman of the Board of
E-Z-EM Canada, Director
Irwin H. Nadel,............ 27,313 * 36,647 *
Director
James L. Katz,............. 3,3383,423 * 49,80652,343 *
Director
George P. Carden,Dennis J. Curtin,.......... 6,7252,052 * 45,59651,770 *
Senior
Vice President and
General Manager
Donald A. Meyer,........... 20,49220,577 * 29,42031,542 *
Director
Eamonn P. Hobbs,........... 50 * 37,38038,450 *
Vice President
Michael A. Davis, M.D.,.... None * 35,63236,705 *
Medical Director/
Technical Director,
Director
All directors and executive
officers as a group (21(18
persons)................. 2,028,1781,258,199 (3) 27.0 3,246,48731.0 2,330,181 (4) 34.736.5
- ---------------
* Does not exceed 1%.
(1) Includes Class A Common Stock shares issuable upon exercise of options
currently exercisable or exercisable within 60 days from August 5, 19964, 1997 as
follows: Daniel R. Martin (16,882)(17,389), Robert M.
-33-
Topol (2,813)(2,898), Paul S. Echenberg (2,813), Irwin H. Nadel (2,813)(2,898), James L. Katz (2,813)(2,898) and Donald
A. Meyer (2,813)(2,898).
(2) Includes Class B Common Stock shares issuable upon exercise of options
currently exercisable or exercisable within 60 days from August 5, 19964, 1997 as
follows: Howard S. Stern (74,263)(76,491), Daniel R. Martin (166,364)(171,354), Arthur L.
Zimmet (47,963)(49,402), Robert M. Topol (36,898)(39,035), Paul S. Echenberg (68,725), Irwin
H. Nadel (5,998)(71,816),
James L. Katz (48,125)(50,598), George P. Carden (37,322)Dennis J. Curtin (49,084), Donald A. Meyer (5,998)(7,208),
Eamonn P. Hobbs (37,322)(38,442) and Michael A. Davis, M.D. (34,632)(36,705).
(3) Includes Class A Common Stock shares issuable upon exercise of options
currently exercisable or exercisable within 60 days from August 5, 19964, 1997
totalling 30,94728,981 shares.
(4) Includes Class B Common Stock shares issuable upon exercise of options
currently exercisable or exercisable within 60 days from August 5, 19964, 1997
totalling 789,074776,506 shares.
-32-
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A major facility of the Company located in Westbury, New York is owned 27% by
Howard S. Stern, 25% by Betty S. Meyers, a principal shareholder, 4%2% by other
employees of the Company and 44%46% by unrelated parties, which includes a 25%
owner who manages the property. Aggregate rentals, including real estate tax
payments, were $142,537approximated $145,000 during 1996.1997. The lease term expired in June 1996
and is currently being extended on a month-to-month basis.
The Company has engaged Paul S. Echenberg, a director of the Company, both
as a consultant and employee. Fees for such services, including fees relating to
attendance at directors' meetings, were approximately $319,000$333,000 during 1996. In
connection with the sale of SDI in November 1995, Mr. Echenberg resigned as a
director of SDI and received an investment banker's fee of $905,000, a bonus of
$191,000 arising from the sale and a payment of $268,000 in connection with the
surrender of outstanding stock options in SDI. The Company has an investment in
an entity in which Mr. Echenberg serves as a director.
In connection with the sale of SDI, Arthur L. Zimmet resigned as a director
of SDI and received a bonus of $191,000 arising from the sale and a payment of
$268,000 in connection with the surrender of outstanding stock options in SDI.
The Company has engaged James L. Katz, a director of the Company, for
consulting services. Fees for such services, including fees relating to
attendance at directors' meetings, were approximately $99,000 during 1996.1997.
The Company has engaged Michael A. Davis, M.D., a director of the Company,
for consulting services. Fees for such services were approximately $97,000$107,000
during 1996.
-33-1997.
-34-
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGEPage
----
(a) l. FINANCIAL STATEMENTS
The following consolidated financial statements and
supplementary data of Registrant and its subsidiaries required by
Part II, Item 8, are included in Part IV of this report:
Report of Independent Certified Public Accountants 3738
Consolidated balance sheets - May 31, 1997 and June 1, 1996 and
June 3, 1995 3839
Consolidated statements of earningsoperations - fifty-two weeks
ended May 31, 1997 and June 1, 1996 and fifty-three weeks
ended June 3, 1995 and fifty-two weeks ended May 28,
1994 4041
Consolidated statements of stockholders' equity - fifty-two
weeks ended May 31, 1997 and June 1, 1996 and fifty-three
weeks ended June 3, 1995 and fifty-two weeks
ended May 28, 1994 4142
Consolidated statements of cash flows - fifty-two weeks
ended May 31, 1997 and June 1, 1996 and fifty-three
ended June 3, 1995 and fifty-two weeks ended May 28, 1994 4243
Notes to consolidated financial statements 4445
(a) 2. FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedule is
included in Part IV of this report:
Schedule II - Valuation and qualifying accounts 6771
All other schedules are omitted because they are not
applicable, or not required, or because the required information
is included in the consolidated financial statements or notes thereto.
(a) 3. EXHIBITS
3(i) Restated certificateCertificate of incorporation, as amended (a)Incorporation 72
3(ii) Amended Bylaws (b)(a)
10(a) Agreement and Plan of Merger dated November 7, 1995
among United States Surgical Corporation, USSC
Acquisition Corporation, Surgical Dynamics Inc.,
and E-Z-EM, Inc. and Calmed Laboratories, Inc.
and E-Z-SUB, Inc. (c)(b)
10(b) 1983 Stock Option Plan (d)(c)
10(c) 1984 Directors and Consultants Stock Option Plan (e)
-34-(d)
-35-
PAGEPage
----
(a) 3. EXHIBITS (CONTINUED)
10(d) Income Deferral Program (f)(e)
13 Annual report to security holders (g)(f)
21 Subsidiaries of the Company 6882
22 Proxy statement to security holders (g)(f)
23 Consent of Independent Certified Public Accountants 6983
27 Financial Data Schedule 7084
99 Report of Independent Certified Public Accountants
Other than Principal Accountants 7185
- ---------------
(a) Incorporated by reference to Exhibit 3(i) of the Company's
quarterly report filed on Form 10-Q for the quarterly period ended
December 2, 1995
(b) Incorporated by reference to Exhibit 3(ii) of the
Company's annual report filed on Form 10-K for the
fiscal year ended May 28, 1994
(c)(b) Incorporated by reference to Exhibit 10 of the
Company's current report filed on Form 8-K/A dated
November 22, 1995
(d)(c) Incorporated by reference to Exhibit 10(a) of the
Company's quarterly report filed on Form 10-Q for
the quarterly period ended December 2, 1995
(e)(d) Incorporated by reference to Exhibit 10(b) of the
Company's quarterly report filed on Form 10-Q for
the quarterly period ended December 2, 1995
(f)(e) Incorporated by reference to Exhibit 10(c) of the
Company's annual report filed on Form 10-K for the
fiscal year ended May 29, 1993
(g)(f) To be filed on a subsequent date
(b) 1. REPORTS ON FORM 8-K
No reports on Form 8-K were filed for the quarter ended June 1, 1996.May 31, 1997.
Schedules other than those shown above are not submitted as the subject
matter thereof is either not required or is not present in amounts sufficient to
require submission in accordance with the instructions in Regulation S-X or the
information required is included in the Notes to Consolidated Financial
Statements.
-35--36-
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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 August 28, 199629, 1997 /s/ Howard S. Stern
------------------------------------------------- ----------------------------------
Howard S. Stern, Chairman of the
Board, Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date August 28, 199629, 1997 /s/ Howard S. Stern
------------------------------------------------- ----------------------------------
Howard S. Stern, Chairman of the
Board, Director
Date August 28, 199629, 1997 /s/ Daniel R. Martin
------------------------------------------------- ----------------------------------
Daniel R. Martin, President,
Chief Executive Officer, Director
Date August 28, 199629, 1997 /s/ Dennis J. Curtin
------------------------------------------------- ----------------------------------
Dennis J. Curtin, Vice President-
Chief Financial Officer
Date August 27, 199629, 1997 /s/ Michael A. Davis
------------------------------------------------- ----------------------------------
Michael A. Davis, Director
Date August 27, 199629, 1997 /s/ Paul S. Echenberg
----------------- ----------------------------------
Paul S. Echenberg, Director
Date August 25, 1997 /s/ James L. Katz
------------------------------------------------- ----------------------------------
James L. Katz, Director
Date August 24, 199625, 1997 /s/ Donald A. Meyer
------------------------------------------------- ----------------------------------
Donald A. Meyer, Director
Date August 24, 1996 /s/ Irwin H. Nadel
--------------------------------
Irwin H. Nadel, Director
Date August 27, 199626, 1997 /s/ Robert M. Topol
------------------------------------------------- ----------------------------------
Robert M. Topol, Director
-36--37-
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
E-Z-EM, Inc.
We have audited the accompanying consolidated balance sheets of E-Z-EM, Inc. and
Subsidiaries as of May 31, 1997 and June 1, 1996, and June 3, 1995, and the related consolidated
statements of earnings,operations, stockholders' equity and cash flows for the fifty-two
weeks ended May 31, 1997 and June 1, 1996 and the fifty-three weeks ended June
3, 1995 and the
fifty-two weeks ended May 28, 1994.1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of a
certain subsidiary, which statements reflect total assets constituting
approximately 15% in 1997 and 16% in 1996 and 20% in 1995 and net sales constituting
approximately 10% in 1997, 12% in 1996 and 13% in 1995 and 15% in 1994 of the related
consolidated totals. We also did not audit the financial statements of a
certain subsidiary for the fifty-two weeks ended May 28, 1994, for which the
results of operations have been classified as a discontinued operation for all
periods presented. Those statements were audited by other auditors, whose
reportsreport thereon havehas been furnished to us, and our opinion, insofar as it relates
to the amounts included for these subsidiaries,this subsidiary, is based solely upon the reportsreport of
the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reportsreport of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reportsreport of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of E-Z-EM, Inc. and Subsidiaries as of May
31, 1997 and June 1, 1996, and June 3, 1995, and the consolidated results of their operations and
their consolidated cash flows for the fifty-two weeks ended May 31, 1997 and
June 1, 1996 and the fifty-three weeks ended June 3, 1995, and the fifty-two weeks ended May 28, 1994, in conformity with
generally accepted accounting principles.
We have also audited the financial statement schedule listed in the Index at
Item 14(a)(2). In our opinion, this schedule presents fairly, in all material
respects, the information required to be set forth therein.
/s/ GRANT THORNTON LLP
----------------------
GRANT THORNTON LLP
Certified Public Accountants
Melville, New York
August 8, 1996
-37-5, 1997
-38-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
May 31, June 1,
June 3,
ASSETS 1997 1996
1995
------- -------------- ------
CURRENT ASSETS
Cash and cash equivalents $ 3,3634,484 $ 3,9623,363
Debt and equity securities 10,991 20,247 485
Accounts receivable, principally
trade, net of allowance for
doubtful accounts of $930 in
1997 and $527 in 1996 and $465 in 199516,971 16,152
17,354
Inventories 27,351 23,708 22,752
Other current assets 4,147 2,936
2,602
----- ------------ ------
Total current assets 63,944 66,406 47,155
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 23,418 21,823 20,864
COST IN EXCESS OF FAIR VALUE OF NET
ASSETS ACQUIRED, less accumulated
amortization of $447 in 1997 and
$411 in 1996 and
$354 in 1995489 558 633
INTANGIBLE ASSETS, less accumulated
amortization of $594 in 1997 and
$345 in 1996 and
$492 in 19957,057 767 463
DEBT AND EQUITY SECURITIES 2,081 3,647 4,352
OTHER ASSETS 3,731 2,836
2,628
------- -------------
$100,720 $96,037
$76,095
============= ======
The accompanying notes are an integral part of these statements.
-38--39-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
May 31, June 1, June 3,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
1995
------ -------------
CURRENT LIABILITIES
Notes payable $ 9797,029 $ 1,021979
Current maturities of long-term debt 517 268 208
Accounts payable 6,168 5,095 6,713
Accrued liabilities 6,829 6,218 5,559
Accrued income taxes 286 338
400
------------- ------
Total current liabilities 20,829 12,898 13,901
LONG-TERM DEBT, less current maturities 842 680 1,114
OTHER NONCURRENT LIABILITIES 1,856 1,805 MINORITY INTEREST IN SUBSIDIARY 1,3851,856
COMMITMENTS AND CONTINGENCIES
------------- ------
Total liabilities 23,476 15,434
18,205
------------- ------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.10 per
share - authorized, 1,000,000 shares; issued, none - -
Common stock
Class A (voting), par value $.10 per
share - authorized, 6,000,000 shares;
issued and outstanding, 4,035,346
shares in 19961997 and 4,032,532 shares in 19951996 403 403
Class B (nonvoting), par value $.10 per
share - authorized, 10,000,000 shares;
issued and outstanding, 5,600,883
shares in 1997 and 5,199,615 shares
in 1996 and 4,785,462 shares
in 1995560 520 479
Additional paid-in capital 19,073 15,165 11,570
Retained earnings 57,087 63,347 44,953
Unrealized holding gain on debt and equity
securities 1,332 2,360 1,786
Cumulative translation adjustments (1,211) (1,192)
(1,301)
------- --------------
Total stockholders' equity 77,244 80,603 57,890
------- -------
$96,037 $76,095
====== ======
The accompanying notes are an integral part of these statements.
-39-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
Fifty-two Fifty-three Fifty-two
weeks ended weeks ended weeks ended
June 1, June 3, May 28,
1996 1995* 1994*
------- ------- --------
Net sales $91,932 $88,526 $85,645
Cost of goods sold 55,518 51,845 52,028
------ ------ ------
Gross profit 36,414 36,681 33,617
------ ------ ------
Operating expenses
Selling and administrative 30,134 27,767 25,520
Research and development 5,323 6,077 6,897
----- ----- -----
Total operating expenses 35,457 33,844 32,417
------ ------ ------
Operating profit 957 2,837 1,200
Other income (expense)
Interest income 735 551 429
Interest expense (264) (286) (386)
Other, net 512 457 285
-------
------- ------
Earnings from continuing
operations before income taxes 1,940 3,559 1,528
Income tax provision 243 1,086 1,149
------ ----- -----
Earnings from continuing
operations 1,697 2,473 379
Discontinued operation:
Losses from operations, net of
income tax provision (benefit)
of $10, $142 and $(261) in 1996,
1995 and 1994, respectively (209) (843) (102)
Gain on sale, net of income tax
provision of $6,019 19,520
----- ------ -----
NET EARNINGS $21,008 $ 1,630 $ 277$100,720 $96,037
======= ====== ===== =====
Earnings from continuing operations
per common share
Primary and fully diluted $ .17 $ .27 $ .04
===== ===== =====
Earnings per common share
Primary $ 2.16 $ .18 $ .03
===== ===== =====
Fully diluted $ 2.14 $ .18 $ .03
===== ===== =====
* Reclassified to reflect the discontinued operation.
The accompanying notes are an integral part of these statements.
-40-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Fifty-two Fifty-two Fifty-three
weeks ended weeks ended weeks ended
May 31, June 1, June 3,
1997 1996 1995*
-------- -------- ---------
Net sales $97,324 $91,932 $88,526
Cost of goods sold 60,754 55,518 51,845
------ ------ ------
Gross profit 36,570 36,414 36,681
------ ------ ------
Operating expenses
Selling and administrative 34,600 30,134 27,767
Research and development 6,881 5,323 6,077
------ ------ ------
Total operating expenses 41,481 35,457 33,844
------ ------ ------
Operating profit (loss) (4,911) 957 2,837
Other income (expense)
Interest income 830 735 551
Interest expense (517) (264) (286)
Other, net 68 512 457
----- ----- -----
Earnings (loss) from continuing
operations before income taxes (4,530) 1,940 3,559
Income tax provision (benefit) (1,322) 243 1,086
----- ----- -----
Earnings (loss) from
continuing operations (3,208) 1,697 2,473
Discontinued operation:
Losses from operations, net of
income tax provision of $10 and
$142 in 1996 and 1995, respectively (209) (843)
Gain on sale, net of income tax
provision of $6,019 19,520
----- ------ -----
NET EARNINGS (LOSS) $(3,208) $21,008 $1,630
===== ====== =====
Primary earnings (loss) per common share
Continuing operations $(.33) $.17 $.26
Discontinued operation .00 1.93 (.09)
Total operations (.33) 2.10 .17
Fully diluted earnings (loss) per common share
Continuing operations $(.33) $.17 $.26
Discontinued operation .00 1.90 (.09)
Total operations (.33) 2.07 .17
* Reclassified to reflect the discontinued operation.
The accompanying notes are an integral part of these statements.
-41-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Fifty-two weeks ended May 31, 1997 and June 1, 1996
and fifty-three weeks ended June 3, 1995 and fifty-two weeks ended May 28, 1994
(in thousands, except share data)
Unrealized
Class A Class B holding gain
common stock common stock Additional on debt Cumulative
--------------- -------------------------------- ------------------- paid-in Retained and equity translation
Shares Amount Shares Amount capital earnings securities adjustments Total
--------- ------ ------ ---------------- ------ ---------- -------- ---------- ----------- -------------
Balance at May 29, 1993 4,032,533 $403 4,275,175 $428 $ 9,248 $45,399 $ - $ (477) $55,001
Issuance of stock (1) 4,479 22 22
3% common stock dividend 249,026 25 1,235 (1,262) (2)
Net earnings 277 277
Foreign currency translation
adjustments (1,029) (1,029)
--------- --- --------- --- ------ ------ ------ ------- -------
Balance at May 28, 1994 4,032,532 403$403 4,528,680 453 10,505 44,414$453 $10,505 $44,414 $ - (1,506) 54,269$(1,506) $54,269
Unrealized holding gain on
debt and equity securities
at May 29, 1994 3,531 3,531
Issuance of stock 270 1 1
3% common stock dividend 256,512 26 1,064 (1,091) (1)
Net earnings 1,630 1,630
Unrealized holding loss on
debt and equity securities (1,745) (1,745)
Foreign currency translation
adjustments 205 205
--------- --- --------- --- ------ ------ ----- ----- ------ ------- -------
Balance at June 3, 1995 4,032,532 403 4,785,462 479 11,570 44,953 1,786 (1,301) 57,890
Exercise of stock options 2,813 145,369 14 1,005 1,019759 773
Income tax benefits on
stock options exercised 246 246
Issuance of stock 1 933 5 5
3% common stock dividend 267,851 27 2,585 (2,614) (2)
Net earnings 21,008 21,008
Unrealized holding gain on
debt and equity securities 574 574
Foreign currency translation
adjustments 109 109
--------- --- --------- --- ------ ------ ----- ----- ------ ------- -------
Balance at June 1, 1996 4,035,346 403 5,199,615 520 15,165 63,347 2,360 (1,192) 80,603
Exercise of stock options 117,919 12 600 612
Income tax benefits on
stock options exercised 261 261
Compensation related to
stock option plans 2 2
Issuance of stock 3,022 24 24
3% common stock dividend 280,327 28 3,021 (3,052) (3)
Net loss (3,208) (3,208)
Unrealized holding loss on
debt and equity securities (1,028) (1,028)
Foreign currency translation
adjustments (19) (19)
--------- --- --------- --- ------ ------ ----- ----- ------
Balance at May 31, 1997 4,035,346 $403 5,199,615 $520 $15,165 $63,347 $2,360 $(1,192) $80,6035,600,883 $560 $19,073 $57,087 $1,332 $(1,211) $77,244
========= === ========= === ====== ====== ===== ===== ======
The accompanying notes are an integral part of these statements.
-41--42-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Fifty-two Fifty-three Fifty-two
weeks ended weeks ended weeks ended
June 1, June 3, May 28,
1996 1995 1994
------- ------- -------
Cash flows from operating activities:
Net earnings $21,008 $1,630 $ 277
Adjustments to reconcile net
earnings to net cash (used in)
provided by operating activities
Depreciation and amortization 2,552 2,800 2,728
Gain on disposal of business (25,539)
Gain on sale of assets (193)
Gain on sale of investments (24)
Minority share of subsidiary's
operations (200) (810) (97)
Deferred income taxes 60 282 (61)
Changes in operating assets
and liabilities, net of
disposition
Accounts receivable (731) 233 (1,077)
Inventories (3,123) (3,833) 1,637
Other current assets (446) (305) 372
Other assets (754) 128 (116)
Accounts payable (312) 2,319 616
Accrued liabilities 905 312 (960)
Accrued income taxes 22 (107) (309)
Other noncurrent liabilities 168 190 36
Fifty-two Fifty-two Fifty-three
weeks ended weeks ended weeks ended
May 31, June 1, June 3,
1997 1996 1995
-------- -------- --------
Cash flows from operating activities:
Net (loss) earnings $(3,208) $21,008 $1,630
Adjustments to reconcile net (loss)
earnings to net cash (used in)
provided by operating activities
Depreciation and amortization 3,037 2,552 2,800
Provision for doubtful accounts 451 176 91
Gain on disposal of business (25,539)
Loss (gain) on sale of assets 2 (193)
Minority share of subsidiary's
operations (200) (810)
Deferred tax (benefit) provision (147) 60 282
Other non-cash items 20
Changes in operating assets
and liabilities, net of
acquisition and disposition
Accounts receivable (1,270) (907) 142
Inventories (3,421) (3,123) (3,833)
Other current assets (1,111) (446) (305)
Other assets (137) (754) 128
Accounts payable 1,073 (312) 2,319
Accrued liabilities 608 905 312
Accrued income taxes (54) 22 (107)
Other noncurrent liabilities (25) 168 190
------ ------ -----
Net cash (used in) provided
by operating activities (4,182) (6,583)* 2,839
------ ------ -----
Cash flows from investing activities:
Additions to property, plant and
equipment (4,370) (4,231) (4,812)
Acquisition of business (7,096)
Proceeds from disposal of business 26,785
Proceeds from sale of assets 114 485
Held-to-maturity securities
Purchases (104,253) (1,958)
Proceeds from maturity 105,846 1,964
Available-for-sale securities
Purchases (22,735) (39,750) (31)
Proceeds from sale 31,998 19,995
------ ------ -----
Net cash (used in) provided by
investing activities (2,089) 4,877 (4,837)
------ ------ ------
Net cash (used in) provided
by operating activities (6,583)* 2,839 3,022
-------- ----- -----
Cash flows from investing activities:
Additions to property, plant and
equipment, net (4,231) (4,812) (2,175)
Proceeds from disposal of business,
net of cash sold 26,785
Proceeds from sale of assets 485
(Increase) decrease in debt and
equity securities (18,162) (25) 57
-------- ------ -----
Net cash provided by (used in)
investing activities 4,877 (4,837) (2,118)
------ ------- -------
* Includes
*Includes income taxes paid on the disposition of Surgical Dynamics Inc. of
approximately $6,019.
The accompanying notes are an integral part of these statements.
-42--43-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
Fifty-two Fifty-three Fifty-two
weeks ended weeks ended weeks ended
June 1, June 3, May 28,
1996 1995 1994
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of debt $ 1,121 $1,686 $ 892
Repayments of debt (910) (3,374) (1,254)
Proceeds from issuance of loan
by minority shareholder 238 258
Proceeds from exercise of stock
options 1,019
Issuance of stock in connection with
the stock purchase plan 5 1 22
----- ----- -----
Net cash provided by (used in)
financing activities 1,473 (1,429) (340)
----- ------- ------
Effect of exchange rate changes on
cash and cash equivalents (366) 538 (767)
------ ----- ------
DECREASE IN CASH AND CASH
EQUIVALENTS (599) (2,889) (203)
Cash and cash equivalents
Beginning of year 3,962 6,851 7,054
----- ----- -----
End of year $3,363 $3,962 $6,851
Fifty-two Fifty-two Fifty-three
weeks ended weeks ended weeks ended
May 31, June 1, June 3,
1997 1996 1995
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of debt $7,592 $1,121 $1,686
Repayments of debt (1,023) (910) (3,374)
Proceeds from issuance of loan
by minority shareholder 238 258
Proceeds from exercise of stock
options, including related
income tax benefits 873 1,019
Proceeds from issuance of stock in
connection with the stock
purchase plan 24 5 1
----- ----- -----
Net cash provided by (used in)
financing activities 7,466 1,473 (1,429)
----- ----- -----
Effect of exchange rate changes on
cash and cash equivalents (74) (366) 538
----- ----- -----
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,121 (599) (2,889)
Cash and cash equivalents
Beginning of year 3,363 3,962 6,851
----- ----- -----
End of year $4,484 $3,363 $3,962
===== ===== =====
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 398 $ 136 $ 201
===== ===== =====
Income taxes (net of $686,
$508 and $449 in refunds
in 1997, 1996 and 1995,
respectively) $ 6 $6,319 $ 674
===== ===== =====
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 136 $ 201 $ 360
===== ===== =====
Income taxes (net of $508,
$449 and $263 in refunds
in 1996, 1995 and 1994,
respectively) $6,319 $ 674 $1,050
===== ===== =====
The accompanying notes are an integral part of these statements.
-43--44-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1997, June 1, 1996 and June 3, 1995 and May 28, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies is presented to assist the
reader in understanding and evaluating the consolidated financial
statements. These policies are in conformity with generally accepted
accounting principles and have been applied consistently in all material
respects.
BASIS OF CONSOLIDATIONBasis of Consolidation
----------------------
The consolidated financial statements include the accounts of E-Z-EM, Inc. and
all 100%-owned subsidiaries as well as the accounts of(the "Company"). Surgical Dynamics Inc.
("SDI"), a former 51%-owned subsidiary, prior to its sale in November 1995 (the
"Company"). SDI has been reported as a discontinued
operation and, accordingly, the gain from the sale of SDI and the Company's
proportionate share of losses from operations of SDI have been classified
as a discontinued operation for all periods presented1996 and 1995 in the accompanying
consolidated statements of earnings.operations. The discontinued operation has not
been segregated in the accompanying statements of consolidated cash flows
and, therefore, amounts for certain captions will not agree with the
respective consolidated statements of earnings.operations. The Company is primarily
engaged in developing, manufacturing and marketing diagnostic products used
by radiologists and other physicians during image-assisted procedures to
detect physical abnormalities and diseases. The Company also designs,
develops, manufactures and markets, through its wholly-owned subsidiary,
AngioDynamics, Inc. ("AngioDynamics"), a variety of therapeutic and
diagnostic products, for use principally in the diagnosis and treatment of
cardiovascular disease.
Operations outside the U.S. are included in the consolidated financial
statements and consist of: a subsidiary operating a mining and chemical
processing operation in Nova Scotia, Canada and a manufacturing and
marketing facility in Montreal, Canada; a subsidiary manufacturing products
located in Puerto Rico; a subsidiary manufacturing and marketing products
located in Japan; a subsidiary promoting and distributing products located
in Holland; and a subsidiary promoting and distributing products located in the
United Kingdom.
FISCAL YEARKingdom; and a subsidiary manufacturing products located in Ireland.
Fiscal Year
-----------
The Company reports on a fiscal year which concludes on the Saturday nearest
to May 31. Fiscal yearyears 1997 and 1996 ended on May 31, 1997 and June 1,
1996, respectively, for a reporting periodperiods of fifty-two weeks and fiscal year
1995 ended on June 3, 1995 for a reporting period of fifty-three weeksweeks.
-45-
E-Z-EM, Inc. and fiscal year 1994 ended onSubsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 28, 1994 for a
reporting period of fifty-two weeks.
CASH AND CASH EQUIVALENTS31, 1997, June 1, 1996 and June 3, 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents
-------------------------
The Company considers all unrestricted highly liquid investments purchased
with a maturity of less than three months to be cash equivalents. Included
in cash equivalents are certificates of -44-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
deposit and Eurodollar investments
of $2,443,000 and $1,796,000 at May 31, 1997 and $1,133,000 at June 1, 1996, and June 3, 1995, respectively.
The carrying amount of these financial instruments reasonably approximates
fair value because of their short maturity. Foreign-denominated cash and
cash equivalents aggregated $1,141,000 and $1,101,000 at May 31, 1997 and $1,695,000 at
June 1, 1996, and June 3, 1995, respectively.
DEBT AND EQUITY SECURITIES
Effective in fiscal 1995, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"). In accordance with the provisions of
SFAS 115, this Statement was not applied retroactively to financial
statements prior to fiscal 1995.
Pursuant to SFAS 115, debtSecurities
--------------------------
Debt and equity securities are to be classified in three
categories and accounted for as follows: debt securities that the Company
has the positive intent and ability to hold to maturity are classified as
"held-to-maturity securities" and reported at amortized cost; debt and
equity securities that are bought and held principally for the purpose of
selling them in the near term are classified as "trading securities" and
reported at fair value, with unrealized gains and losses included in
operations; and debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified as "available-for-sale securities"
and reported at fair value, with unrealized gains and losses excluded from
operations and reported as a separate component of stockholders' equity, net
of the related tax effects. Cost is determined using the specific
identification method.
INVENTORIESInventories
-----------
Inventories are stated at the lower of cost (on the first-in, first-out
method) or market. Appropriate consideration is given to deterioration,
obsolescence and other factors in evaluating net realizable value.
PROPERTY, PLANT AND EQUIPMENTProperty, Plant and Equipment
-----------------------------
Property, plant and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed principally using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements
are amortized over the terms of the related leases or the useful life of the
improvements, whichever is shorter. Expenditures for repairs and maintenance
are charged to expense as incurred. Renewals and betterments are
capitalized. Depreciation expense from continuing operations was $2,721,000,
$2,308,000 and $2,273,000 in 1997, 1996 and $2,230,0001995, respectively.
Cost in 1996, 1995 and 1994, respectively.
-45-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIREDExcess of Fair Value of Net Assets Acquired
---------------------------------------------------
The cost in excess costof fair value of net assets acquired ("goodwill") is being
amortized on a straight-line basis over 5 and 40 year periods. On an ongoing basis, management reviews the valuation and
amortization of this asset to determine possible impairment by comparing the
carrying value to the undiscounted future cash flows of the related asset.
Amortization
from continuing operations was $64,000, $73,000 and $70,000 in 1997, 1996
and $65,000 in1995, respectively.
-46-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
and 1994, respectively.
INTANGIBLE ASSETSNOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangible Assets
-----------------
Intangible assets are being amortized on a straight-line basis over the
estimated useful lives of the respective assets ranging from five to fifteen
and one-half years. Amortization from continuing operations was $252,000,
$47,000 and $44,000 in 1997, 1996 and $41,000 in 1996, 1995, respectively.
On an ongoing basis, management reviews the valuation and 1994, respectively.
In March 1995, the Financial Accounting Standards Board issued Statementamortization of
Financial Accounting Standards No. 121 ("SFAS 121") that established
accounting standards for the impairment of long-lived assets, certain
intangiblesgoodwill and goodwill related to thoseintangible assets to be held and used, and
for long-lived assets and certain identifiable intangibles to be disposed
of. SFAS 121 is required to be adopted for fiscal years beginning after
December 15, 1995. In accordance with SFAS 121, it is the Company's policy
to periodically review and evaluate whether there has been a permanentdetermine possible impairment in the value of intangibles and adjust the carrying value
accordingly. Factors considered in the valuation includeby
considering current operating results trends and comparing the carrying values to
the anticipated undiscounted future cash flows. Accordingly,
the adoption of SFAS 121 is not expected to have a significant effect on the
consolidated financial statementsflows of the Company.
INCOME TAXES
Inaccordance with Statement of Financial Accounting Standards No. 109,
"Accounting forrelated assets.
Income Taxes" ("SFAS 109"), deferredTaxes
------------
Deferred income taxes are recognized for temporary differences between
financial statement and income tax bases of assets and liabilities and loss
carryforwards and tax credit carryforwards for which income tax benefits are
expected to be realized in future years. A valuation allowance has been
established to reduce deferred tax assets as it is more likely than not that
all, or some portion, of such deferred tax assets will not be realized. The
effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.
-46-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
FOREIGN CURRENCY TRANSLATIONForeign Currency Translation
----------------------------
In accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation," the Company has determined that the
functional currency for each of its foreign subsidiaries is the local
currency. This assessment considers that the day-to-day operations are not
dependent upon the economic environment of the parent's functional currency,
financing is effected through their own operations, and the foreign
operations primarily generate and expend foreign currency. Foreign currency
translation adjustments are accumulated as a separate component of
stockholders' equity.
EARNINGS PER COMMON SHARE-47-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings (Loss) Per Common Share
--------------------------------
Primary and fully diluted earnings (loss) per common share are computed on the
basis of the weighted average number of common shares outstanding plus the
common stock equivalents which would arise from the exercise of stock
options, if the latter causes dilution in earnings per common share in
excess of 3%. Common stock equivalents are excluded from both the primary
and fully diluted calculations for 1997, since their inclusion would be
antidilutive, and included in both the primary and fully diluted
calculations for 1996 1995 and 1994.1995.
The weighted average number of common shares used was:
1997 1996 1995
1994
---- ---- ---------- ------ ------
Primary 9,723,626 9,087,678 9,081,0389,583,810 10,015,034 9,360,202
Fully diluted 9,832,676 9,092,403 9,081,0849,583,810 10,127,352 9,365,214
The weighted average number of common shares and the per share amounts for all
periods presented have been retroactively restated to reflect the total
shares issued after the 3% stock dividends described in Note K.
STOCK-BASED COMPENSATION
Adoption ofL.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting128, "Earnings Per Share," which is
effective for Stock-Based Compensation" ("SFAS 123") is requiredfinancial statements for fiscal years
beginningboth interim and annual periods
ending after December 15, 1995 and allows for a choice1997. Early adoption of the method of
accounting used for stock-based compensation. Entities may elect the
"intrinsic value" method based on APB No. 25 "Accounting for Stock Issued to
Employees" or the new "fair value" method contained in SFAS 123.standard is not
permitted. The Company
intends to implement SFAS 123 in fiscal 1997 by continuing to account for
stock-based compensation under the guidelines of APB No. 25. As required by
SFAS 123, the pro forma effects on net earningsstandard eliminates primary and fully diluted earnings per
common
share will be determined as ifand requires presentation of basic and diluted earnings per share
together with disclosure of how the fair value based method had been applied
and disclosedper share amounts were computed. The
adoption of this new standard is not expected to have a material impact on
the disclosure of earnings per share in the notes to the consolidated financial
statements.
-47-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
USE OF ESTIMATESUse of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at year-end and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications-48-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
NOTE B - ASSET PURCHASE
On January 8, 1997, the Company purchased certain assets of Leocor, Inc.
("Leocor") and certain other assets directly from a principal shareholder of
Leocor for approximately $7,096,000, including acquisition costs. Leocor is
a Texas corporation, based in Houston, Texas, which develops and
manufactures angioplasty catheters. No liabilities were assumed in
connection with this acquisition. The acquisition was accounted for under
the purchase method with the results of operations being included in the
Company's consolidated statement of operations from the date of acquisition.
The fair values of the intangible assets acquired ($6,543,000), representing
technology, trademarks, licenses and know-how, are being amortized on a
straight-line basis over fifteen years.
In connection with this acquisition, the Company also entered into a
consulting agreement with the principal shareholder of Leocor for
consideration of $200,000. The term of such consulting agreement is for a
period of two years from the acquisition date of January 8, 1997.
The following unaudited pro forma information has been prepared assuming
Leocor had been acquired as of the beginning of the periods presented, after
giving effect to certain adjustments, including amortization of intangible
assets, interest expense on the acquisition debt and related income tax
effects. The pro forma information is presented for informational purposes
only and is not necessarily indicative of what would have occurred if the
acquisition had been made to the prior year amounts to conform
to theas of those dates.
Pro Forma Information (Unaudited)
1997 1996
presentation.------ ------
(in thousands,
except per share data)
Net sales $97,882 $92,905
Earnings (loss) from continuing
operations (3,651) 826
Earnings (loss) per common share
from continuing operations:
Primary and fully diluted (.38) .08
-49-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
NOTE BC - DISCONTINUED OPERATION
On November 22, 1995 (the "Closing Date"), E-Z-EM, Inc. completed the sale of
all of the capital stock of SDI held by E-Z-EM, Inc. through its subsidiary,
E-Z-SUB, Inc., (collectively, the "Company") to United States Surgical
Corporation ("USSC") pursuant to the terms of an Agreement and Plan of
Merger Agreement dated November 7, 1995 (the "Merger Agreement") by and
among USSC, USSC Acquisition Corporation, SDI, CalMed Laboratories, Inc.
("CalMed") and the Company. As of the Closing Date, the Company owned 51%
(approximately 47% on a fully diluted basis after taking into account
outstanding options) of the outstanding capital stock of SDI and CalMed, a
company not affiliated with E-Z-EM, Inc., owned 49% (approximately 45% on a
fully diluted basis after taking into account outstanding options) of the
outstanding capital stock of SDI. The aggregate consideration paid for SDI
was $59,900,000 in cash, which amount included repayment by USSC of $200,000
of loans owed by SDI to its shareholders. After closing costs and payments
made to option holders, the Company received, at closing, cash proceeds of
$27,073,000 for the sale of its interest in SDI. In addition, $510,000 of
the consideration payable to the Company is being held back by USSC as a
nonexclusive source of indemnification for breaches of representations and
warranties, and to the extent not drawn upon, will be repaid to the Company
two years after the Closing Date. As a result of this sale, the Company
recognized a gain, pretax, of approximately $25,539,000, after-tax of
approximately $19,520,000, or $2.01$1.95 per common share on a primary basis. The
effective tax rate of 24% on the gain on the sale of SDI differs from the
Federal statutory tax rate of 35% due primarily to the utilization of
previously unrecorded tax loss and tax credit carryforwards.
-48-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE B - DISCONTINUED OPERATION (continued)
SDI is a manufacturer of minimally invasive surgical devices for the spine,
including the NucleotomeTMNucleotome(TM) for use in percutaneous diskectomy and the Ray
Threaded Fusion CageTMCage(TM) spine implants for use in interbody fusions.
SDI has been reported as a discontinued operation and, accordingly, the gain
from the sale of SDI and the Company's proportionate share of losses from
operations of SDI have been classified as a discontinued operation for all
periods presented1996
and 1995 in the accompanying consolidated statements of earnings.operations. Revenues
attributable to the SDI operations were approximately $3,475,000 for the
period June 4, 1995 through November 22, 1995 and $9,071,000 and
$8,478,000 for the fiscal
yearsyear ended June 3, 1995 and May 28, 1994.1995. Changes in operating assets and liabilities
reflected in the consolidated statements of cash flows include amounts
pertaining to the operations of SDI.
-50-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
NOTE CD - DEBT AND EQUITY SECURITIES
Debt and equity securities at May 31, 1997 consist of the following:
Unrealized
Amortized Fair holding
cost value gain (loss)
--------- ----- -----------
(in thousands)
Current
-------
Available-for-sale securities
(carried on the balance
sheet at fair value)
Debt securities $10,660 $10,660
Equity securities 250 250
Other 81 81
------ ------
$10,991 $10,991
====== ======
Noncurrent
----------
Available-for-sale securities
(carried on the balance
sheet at fair value)
Equity securities $1,669 $2,080 $411
Other 1 1
----- ----- ---
$1,670 $2,081 $411
===== ===== ===
-51-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
NOTE D - DEBT AND EQUITY SECURITIES (continued)
Debt and equity securities at June 1, 1996 consist of the following:
Unrealized
Amortized Fair holding
cost value gain (loss)
--------- ----------- -----------
(in thousands)
CURRENTCurrent
-------
Available-for-sale securities
(carried on the balance
sheet at fair value)
Debt securities $19,787 $19,776 $ (11)
Equity securities 398 376 (13)
Other 95 95
------ ------- ------------- -----
$20,280 $20,247 $ (24)
====== ====== ======
NONCURRENT=====
Noncurrent
----------
Available-for-sale securities
(carried on the balance
sheet at fair value)
Equity securities $1,675 $3,646 $1,971
Other 1 1
------ ------ ----------- ----- -----
$1,676 $3,647 $1,971
===== ===== =====
-49-NOTE E - INVENTORIES
Inventories consist of the following:
May 31, June 1,
1997 1996
------- -------
(in thousands)
Finished goods $14,170 $13,157
Work in process 1,639 1,159
Raw materials 11,542 9,392
------ ------
$27,351 $23,708
====== ======
-52-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
and May 28, 1994
NOTE C - DEBT AND EQUITY SECURITIES (continued)
Debt and equity securities at June 3, 1995 consist of the following:
Unrealized
Amortized Fair holding
cost value gain (loss)
--------- ----- -----------
(in thousands)
CURRENT
Held-to-maturity securities
(carried on the balance
sheet at amortized cost)
Debt securities $ 75 $ 75
----- -----
Available-for-sale securities
(carried on the balance
sheet at fair value)
Equity securities 398 357 $ (31)
Other 53 53
----- ----- ------
451 410 (31)
----- ----- ------
$ 526 $ 485 $ (31)
===== ===== =====
NONCURRENT
Held-to-maturity securities
(carried on the balance
sheet at amortized cost)
Debt securities with
maturities after one
year through five years $1,593 $1,605
------ -------
Available-for-sale securities
(carried on the balance
sheet at fair value)
Equity securities 1,670 2,758 $1,088
Other 1 1
----- ----- -----
1,671 2,759 1,088
----- ----- -----
$3,264 $4,364 $1,088
===== ===== =====
-50-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE D - INVENTORIES
Inventories consist of the following:
June 1, June 3,
1996 1995
------- -------
(in thousands)
Finished goods $13,157 $11,856
Work in process 1,159 2,214
Raw materials 9,392 8,682
------ -------
$23,708 $22,752
====== ======
NOTE EF - PROPERTY, PLANT AND EQUIPMENT, AT COST
Property, plant and equipment are summarized as follows:
Estimated
useful May 31, June 1,
June 3,
lives 1997 1996 1995
--------- ------- -------
(in thousands)
Building and building
improvements 10 to 39 years $13,642 $11,661 $11,176
Machinery and equipment 2 to 10 years 25,930 24,008 23,897
Leasehold improvements Term of lease 1,610 1,568 1,816
------ ------
41,182 37,237 36,889
Less accumulated depreciation
and amortization 21,293 18,903 19,709
------ ------
19,889 18,334
17,180
Land 3,529 3,489 3,684
------ ------
$23,418 $21,823 $20,864
====== ======
-51-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE FG - INCOME TAXES
Income tax expense (benefit) from continuing operations analyzed by category
and by income statement classification is summarized as follows:
1997 1996 1995 1994
------ ------ ------
(in thousands)
Current
Federal $ 413 $ 1(724) $413 $ 1
State and local 54 31 60
59
Foreign (505) (261) 877
1,015
------ ----- --------- -----
Subtotal (1,175) 183 938
1,075
Deferred (147) 60 148
74
----- -------- -----
Total $ 243$(1,322) $243 $1,086
$1,149
===== === =====
=====-53-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
NOTE G - INCOME TAXES (continued)
Temporary differences which give rise to deferred tax assets and liabilities
are summarized as follows:
May 31, June 1,
June 3,1997 1996 1995
------- -------
(in thousands)
Deferred tax assets
Difference between book and tax basis
in investment sold to Canadian
subsidiary $1,137 $1,137
Tax credit carryforwards 477 638 1,295
Tax operating loss carryforwards 313 372 3,767
Capital loss carryforwards 453
Alternative minimum tax ("AMT")
credit carryforward 165
Expenses incurred not currently
deductible 1,321 1,191 1,455
Unrealized investment losses 962 722 877
Deferred compensation costs 554 547
487
Inventories 412 291
243
Other 132 89 67
----- -----
Gross deferred tax asset 5,308 4,987 9,946
----- -----
-52-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE F - INCOME TAXES (continued)
June 1, June 3,
1996 1995
------- -------
(in thousands)
Deferred tax liabilities
Excess tax over book depreciation $1,074 $ 9141,096 1,074
Unrealized investment gains 41 305 144
Tax on unremitted profits of Puerto
Rican subsidiary 76 67
145
Other 60 86 109
----- -----
Gross deferred tax liability 1,273 1,532 1,312
Valuation allowance (2,945) (3,040)
(7,861)
------- ------------ -----
Net deferred tax asset $1,090 $ 415 $ 773
===== =====
In 1994, the Company sold to its Canadian subsidiary warrants to purchase
396,396 shares of stock in ISG Technologies, Inc. This transaction generated
a capital gain for tax purposes of approximately $3,344,000, utilizing a
portion of the Company's capital loss carryforward and giving rise to a
temporary difference pertaining to the difference between the financial
statement and tax basis in this asset.
During 1996, the Company utilized tax operating and capital losses, tax credit
and AMT credit carryforwards of approximately $8,279,000, $596,000 and
$121,000, respectively, in connection with the sale of SDI described in Note
B.C.
-54-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
NOTE G - INCOME TAXES (continued)
If not utilized, the tax operating loss carryforwards will expire in various
amounts over the years 19971998 through 2010. The tax credit carryforwards will
expire in various amounts over the years 19971998 through 2003.
Deferred income taxes are provided for the expected Tollgate tax on the
undistributed earnings of the Company's Puerto RicoRican subsidiary, which are
expected to be distributed at some time in the future.
-53-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 andAt May 28, 1994
NOTE F - INCOME TAXES (continued)
At June 1, 1996,31, 1997, undistributed earnings of certain foreign subsidiaries
aggregated $13,339,000$12,529,000 which will not be subject to U.S. tax until
distributed as dividends. Any taxes paid to foreign governments on these
earnings may be used, in whole or in part, as credits against the U.S. tax
on any dividends distributed from such earnings. It is not practical to
estimate the amount of U.S. tax, if any, that might be payable on the
eventual remittance of such earnings. On remittance, certain foreign
countries impose withholding taxes that are then available for use as
credits against a U.S. tax liability, if any, subject to certain
limitations. The amount of withholding tax that would be payable on
remittance of the entire amount of undistributed earnings would approximate
$667,000. Under the provisions of the Omnibus Budget Reconciliation Act of
1993, undistributed earnings of foreign subsidiaries may be taxable in
certain situations for fiscal years beginning after September 30, 1993.$626,000.
Deferred tax assets and liabilities are included in the consolidated balance
sheets as follows:
May 31, June 1,
June 3,1997 1996 1995
------- -------
(in thousands)
Current - Accrued income taxes $ (103) $(118) $(220)
Noncurrent - Other assets 1,193 533
993
--- -------- ----
Net deferred tax asset $1,090 $ 415
$ 773
=== ======== ====
Earnings (loss) from continuing operations before income taxes for
U.S. and international operations consist of the following:
1997 1996 1995 1994
------ ------ ------
(in thousands)
U.S. $(1,977) $2,280 $ 805
$(1,563)
International (2,553) (340) 2,754
3,091
----- ------ ------------ -----
$(4,530) $1,940 $3,559 $ 1,528
===== ===== =====
-54--55-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
and May 28, 1994
NOTE FG - INCOME TAXES (continued)
The Company's consolidated income tax provision (benefit) has differed from
the amount which would be provided by applying the U.S. Federal statutory
income tax rate to the Company's earnings (loss) from continuing operations
before income taxes for the following reasons:
1997 1996 1995 1994
------ ------ ------
(in thousands)
Income tax provision (benefit) $(1,322) $243 $1,086 $1,149
Effect of:
State income taxes, net of
Federal tax benefit (34) (21) (22) (19)
Research and development credit 75 95 24 11
Earnings of the Puerto RicoRican
subsidiary, net of Puerto
Rico Corporate tax and
Tollgate tax 214 348 373 367
Earnings of the Foreign Sales
Corporation 7 16
Tax-exempt portion of
investment income 202 137 7
13
Nondeductible expenses (269) (251) (138) (53)
Losses of entities generating
no current tax benefit (380) (79) (83) (1,034)
Utilization of tax operating
and capital loss
carryforwards 61
50
Change in valuation allowance (100) 74
Other 67 56 (37)
36----- --- ----- -----
Income tax provision (benefit)
at statutory tax rate of 34%
in 1997, 35% in 1996 and 34%
in 1995 and 1994$(1,540) $679 $1,210
$ 520===== === ===== =====
The Company has an agreement with the Commonwealth of Puerto Rico pursuant to
which its operations in Puerto Rico are subject to a partial tax exemption
which expires January 23, 2007. Commonwealth taxes are currently being
provided on earnings of the subsidiary.
The U.S. Federal income tax returns of the Company through May 30, 199229, 1993 have
been closed by the Internal Revenue Service.
-55--56-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
and May 28, 1994
NOTE GH - DEBT
Short-term debt consists of the following:
May 31, June 1,
June 3,1997 1996 1995
------- -------
(in thousands)
Bank, lines of credit
7.16% to 7.25% (1) $5,000
7.75% (2) 846
4.75% (3) 546
6.50% (3) $287
Japanese bank
2.63% note (1) $462
4.00% note (1) $ 607
Bank, lines of credit
6.5% (2) 287
10.75% 150(4) 430 462
Other financial institutions
5.99% note, unsecured 207
6.12% note, unsecured 230
6.37% note, unsecured 264
---- ----------- ---
$7,029 $979
$1,021===== === =====
Long-term debt consists of the following:
May 31, June 1,
June 3,1997 1996 1995
------- -------
(in thousands)
Japanese bank loans, due December 1998
through March 2001,August 2003, 1.45% to 4.10% (1)(4) $ 754 $948
$1,277
Obligations under capital leases 45Canadian bank loan, due November 1999,
5.25% (5) 605
----- ---
-----1,359 948 1,322
Less current maturities 517 268
208----- ---
-----$ 842 $680
$1,114===== ===
=====
(1) CollateralizedAngioDynamics has available $5,000,000 under this unsecured line of credit
with a bank, which is guaranteed by property, plantthe Company and equipment havingexpires on
November 30, 1997.
(2) AngioDynamics' Irish subsidiary has available $1,514,200 (Irish Punts
1,000,000) under this unsecured line of credit with a net carrying
value of $1,900,000 at June 1, 1996.
(2)bank, which is
guaranteed by the Company and expires on November 17, 1997.
(3) The Company's Canadian subsidiary has available $730,600$1,451,000 (Canadian
$1,000,000)$2,000,000) under this line of credit with a bank, which is collateralized
by accounts receivable and expires on
-57-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
NOTE H - DEBT (continued)
September 30, 1996.1997.
(4) Collateralized by property, plant and equipment having a net carrying
value of $1,900,000 at May 31, 1997.
(5) Collateralized by accounts receivable and $726,000 (Canadian $1,000,000)
in machinery and equipment.
The Company also has available $4,000,000 under an unsecured line of credit
with a bank, which expires on November 30, 1996.1997. At June 1, 1996,May 31, 1997, no amounts
were outstanding under this line of credit.
-56-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE G - DEBT (continued)
The Company believes that the carrying amount of its debt approximates the
fair value as the variable interest rates approximate current prevailing
interest rates.
During 19961997 and 1995,1996, the weighted average interest rates on short-term debt
were 5.93%6.19% and 5.48%5.93%, respectively.
NOTE HI - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
May 31, June 1,
June 3,1997 1996 1995
------- -------
(in thousands)
Payroll and related expenses $3,006 $3,146 $3,341
Accrued sales rebates 1,940 1,040
370
Accrued lease settlement (Note J) 510 600
Other 1,522 1,248
------ -------1,883 2,032
----- -----
$6,829 $6,218
$5,559
====== =========== =====
NOTE IJ - RETIREMENT PLANS
E-Z-EM, Inc. and certain domestic subsidiaries ("E-Z-EM") provide pension
benefits through a Profit-Sharing Plan, under which E-Z-EM makes
discretionary contributions to eligible employees, and a companion 401(k)
Plan, under which eligible employees can defer a portion of their annual
compensation, part of which is matched by E-Z-EM. These plans cover all
E-Z-EM employees not otherwise covered by collective bargaining agreements.
In 1997, 1996 1995 and 1994,1995, profit-sharing contributions were $507,000, $468,000
$464,000
and $457,000,$464,000, respectively, and 401(k) matching contributions were
$328,000, $316,000 and $292,000, respectively.
-58-
E-Z-EM, Inc. and $274,000, respectively.Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
NOTE J - RETIREMENT PLANS (continued)
E-Z-EM Canada Inc., a wholly-owned subsidiary of the Company, also provides
pension benefits to eligible employees through a Defined Contribution Plan.
In 1997, 1996 1995 and 1994,1995, contributions were $55,000, $45,000 and $53,000,
and $88,000,
respectively.
-57-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE JK - COMMITMENTS AND CONTINGENCIES
The Company is presently a defendant in a product liability action. This suit
claims damages based upon alleged injuries resulting from the use of one of
the Company's products. The action is in its early stages and while the
Company is actively defending against the claim, it is unable to predict its
outcome. It should be noted that in this action the Company is one among
several defendants and, as such, the Company's liability, if any, is not
quantifiable at this time. The Company does not believe that the ultimate outcome in this
action will have a material adverse effect on the consolidated financial
statements.
TheDuring August 1997, the Company was the defendant insettled a product liability action with respect toin which it
had been a defendant. Such action was settled for an alleged injury resulting fromamount under the
use of one of its products. TheCompany's insurance limit and the amount contributed by the Company was dismissed without prejudice from such action in February 1996.
Pursuantnot
material to a contractual agreement with Picker International, Inc.
("Picker"), the Company assumed the defense of a lawsuit in which Picker,
along with multiple other named defendants, had been sued for injuries
alleged to have resulted from the use of protective aprons. The plaintiff
has recently abandoned this action.its consolidated financial statements.
The Company has been sued by Olympia Holding Corporation p/k/a P-I-E
Nationwide, Inc. for $443,830. The suit, filed on October 5, 1992, is
presently pending in the U.S. Bankruptcy Court for the Middle District of
Florida. The Company is being represented in this action by a law firm
which is also representing numerous other defendants being sued by the same
plaintiff on the same grounds-recoverygrounds recovery - for alleged undercharges for
freight carriage. It is not possible, at this stage, to determine what, if
any, liability exists with respect to the Company in this matter. The
Company will vigorously defend against this action; it has been informed by
legal counsel that there exist numerous valid defenses to this case.
During 1993, SDI's lease agreement on the Alameda, California, office and
production facilities was prematurely terminated by SDI, a former 51%-owned
subsidiary of the Company. In 1993, SDI accrued $600,000 for the estimated
settlement of the lease commitment. Pursuant to the terms of the Merger
Agreement described in Note B, the $600,000 liability was assumed by USSC
(the purchaser of SDI), and the Company and the previous minority
shareholder of SDI assumed any liability in excess of $600,000 in connection
with the lease termination. The dispute was settled in July 1996 for
$1,600,000, of which the Company was liable for $510,000, or 51% of the
$1,000,000 excess. Such amount is included in accrued liabilities at June 1,
1996.
-58--59-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
and May 28, 1994
NOTE JK - COMMITMENTS AND CONTINGENCIES (continued)
During March 1994, the Company began recalling its effervescent granules and
colon cleansing products due to packaging and formulation problems, which
might have resulted in inconsistent product performance over time. The
recalls were initiated by the Company's desire to ensure complete product
efficacy, as patient safety issues were not involved. The Company recorded a
pretax provision in the aggregate amount of $1,546,000 during 1994, with
respect to such recalls. During 1995, such recall was completed and the
Company reduced this provision by $156,000 based upon the actual results of
the recall. Such amounts are reflected in cost of goods sold in the
consolidated statements of earnings. These products currently account for
less than five percent of the Company's sales volume.
The Company leases several facilities from related parties. During 1997, 1996
1995
and 1994,1995, aggregate rental costs under all operating leases from continuing
operations, which primarily consist of facility rentals, were approximately
$1,216,000, $1,131,000 $1,041,000 and $1,288,000,$1,041,000, respectively, of which approximately
$197,000, $202,000 $205,000 and $198,000$205,000 were paid to related parties. Future annual
operating lease payments in the aggregate, which include escalation clauses
and real estate taxes, with initial remaining terms of more than one year at
June 1, 1996,May 31, 1997, are summarized as follows:
Related
Total Related party
leases leases
------ --------------------
(in thousands)
19971998 $ 759889 $ 69
1998 46584
1999 559 25
1999 399
2000 414444
2001 429
2002 409
Thereafter 2,5312,113
----- ---
$4,997 $ 94$4,843 $109
===== ===
-59-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE J - COMMITMENTS AND CONTINGENCIES (continued)
The Company has an employment contract with a key executive that provides for
a term of eight years. Future annual commitments with respect to this
contract at June 1, 1996,May 31, 1997, are summarized as follows:
(in thousands)
19971998 $ 250
1998 250
1999 250
2000 250
2001 250
2002 125
-----
$1,375$1,125
=====
In August 1997, the Company acquired approximately 25% of ITI Medical
Technologies, Inc. ("ITI") for $1,300,000, to be paid in three installments
over a six month period commencing in August 1997. ITI is a California
corporation, based in Livermore, California, which develops and manufactures
MRI diagnostic and therapeutic medical devices.
-60-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
NOTE KL - COMMON STOCK
In August 1983, the Company adopted a Stock Option Plan (the "1983 Plan"). The
1983 Plan provides for the grant to key employees of both nonqualified stock
options and incentive stock options. A total of 1,742,6941,780,249 shares of the
Company's Common Stock may be issued under the 1983 Plan pursuant to the
exercise of options. All stock options must have an exercise price of not
less than the market value of the shares on the date of grant. Options will
be exercisable over a period of time to be designated by the administrators
of the 1983 Plan (but not more than 10 years from the date of grant) and
will be subject to such other terms and conditions as the administrators may
determine. The 1983 Plan terminates in December 2005.
In August 1984, the Company adopted a second Stock Option Plan (the "1984
Plan"). The 1984 Plan provides for the grant to members of the Board of
Directors and consultants of nonqualified stock options. A total of 435,553447,344
shares of the Company's Common Stock may be issued under the 1984 Plan
pursuant to the exercise of options. All stock options must have an exercise
price of not less than the market value of the shares on the date of grant.
Options will be exercisable over a period of time to be designated by the
administrators of the 1984 Plan (but not more than 10 years from the date of
grant) and will be subject to such other terms and conditions as the
administrators may determine. The 1984 Plan terminates in December 2005.
-60-In March 1997, the Company's AngioDynamics subsidiary adopted a Stock Option
Plan (the "1997 Plan"). The 1997 Plan provides for the grant to key
employees of both nonqualified stock options and incentive stock options and
to members of the Board of Directors and consultants of nonqualified stock
options. A total of 136.36 shares of AngioDynamics' Class B Common Stock may
be issued under the 1997 Plan pursuant to the exercise of options. All stock
options must have an exercise price of not less than the market value of the
shares on the date of grant. Options will be exercisable over a period of
time to be designated by the administrators of the 1997 Plan (but not more
than 10 years from the date of grant) and will be subject to such other
terms and conditions as the administrators may determine. The 1997 Plan
terminates in March 2007.
Effective in 1997, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
SFAS 123 allows for a choice of the method of accounting used for
stock-based compensation. Entities may elect the "intrinsic value" method
based on APB Opinion No.25, "Accounting for Stock Issued to Employees" or
the new "fair value" method contained in SFAS 123. The Company has elected
to continue to account for stock-based compensation under the guidelines of
APB
-61-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
NOTE L - COMMON STOCK (continued)
Opinion No. 25. Accordingly, no compensation expense has been recognized
under these plans concerning options granted to key employees and to members
of the Board of Directors, as such options were granted to Board members in
their capacity as Directors. Compensation expense of $2,000 in 1997 was
recognized under these plans for options granted to consultants. The Company
has adopted the disclosure provisions of SFAS 123.
If the Company had elected to recognize compensation expense based upon the
fair value at the grant date for options granted under these plans to key
employees and to members of the Board of Directors, consistent with the
methodology prescribed by SFAS 123, the Company's pro forma net earnings
(loss) and earnings (loss) per common share would be as follows:
1997 1996
------ ------
(in thousands,
except per share data)
Net earnings (loss)
As reported $(3,208) $21,008
Pro forma (3,672) 20,730
Primary earnings (loss) per common share
As reported $(.33) $2.10
Pro forma (.38) 2.07
Fully diluted earnings (loss) per
common share
As reported $(.33) $2.07
Pro forma (.38) 2.05
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related
to grants made before 1996. The fair value of these options was estimated at
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions for 1997 and 1996, respectively:
dividend yields of 3% for both years, expected volatility ranging from
46.90% to 47.61% in 1997 and from 47.49% to 49.75% in 1996; risk-free
interest rates ranging from 5.90% to 7.09% in 1997 and from 5.47% to 6.65%
in 1996; and expected terms of 5 and 9 1/2 years in 1997 and 5 years in
1996.
-62-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
NOTE L - COMMON STOCK (continued)
A summary of the status of the Company's stock option plans as of May 31,
1997, June 1, 1996 and June 3, 1995, and changes for the three years then
ended, is presented below:
1997 1996 1995
---------------- ---------------- ----------------
Weighted Weighted Weighted
-Average -Average -Average
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
------ -------- ------ -------- ------ --------
1983 Plan
---------
Outstanding at
beginning of
year 1,194 $ 5.02 1,301 $4.85 704 $7.79
Granted 10 $10.44 84 $8.87 991 $4.39
Exercised (118) $ 5.19 (146) $5.23
Forfeited (3) $ 8.77 (27) $4.79 (362) $9.22
Expired (18) $9.23 (32) $5.58
----- ----- -----
Outstanding at
end of year 1,083 $ 5.05 1,194 $5.02 1,301 $4.85
===== ===== =====
Options exercisable
at year-end 1,069 $ 5.00 654 $4.98 342 $6.18
Weighted-average
fair value of
options granted
during the year $ 5.13 $4.41
1984 Plan
---------
Outstanding at
beginning of
year 298 $ 5.81 252 $ 5.42 143 $8.58
Granted 15 $ 9.60 54 $ 8.61 184 $4.14
Exercised (2) $ 4.71
Forfeited (73) $8.37
Expired (17) $10.00 (6) $15.03 (2) $5.58
--- --- ---
Outstanding at
end of year 296 $ 5.77 298 $ 5.81 252 $5.42
=== === ===
Options exercisable
at year-end 275 $ 5.39 191 $ 5.68 65 $9.06
Weighted-average
fair value of
options granted
during the year $ 4.76 $ 4.31
-63-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 28, 199431, 1997, June 1, 1996 and June 3, 1995
NOTE KL - COMMON STOCK (continued)
On June 1, 1996, options for 640,180 shares were1997
----------------
Weighted
-Average
Exercise
Shares Price
------ --------
1997 Plan
---------
Outstanding at
beginning of
year
Granted 122.39 $80,000
------
Outstanding at
end of year 122.39 $80,000
======
Options exercisable
at prices ranging
from $3.88year-end None
Weighted-average
fair value of
options granted
during the year $36,463
The following information applies to $11.33 per share under theoptions outstanding at May 31, 1997:
1983 Plan and 185,954 shares were
exercisable at1984 Plan 1997 Plan
--------- --------- ---------
Number outstanding 1,083,301 296,015 122.39
Range of exercise prices ranging from $3.88$3.77 to $11.38 per share under the 1984
Plan.$11.00 $3.77 to $12.86 $80,000
Weighted-average exercise
price $5.05 $5.77 $80,000
Weighted-average remaining
contractual life (years) 6.91 7.26 9.77
On June 1, 1996,May 31, 1997, there remained 207,088206,088, 108,830 and 103,63613.97 shares available
for granting of options under the 1983, 1984 and 19841997 Plans, respectively.
The following schedules summarize the changes in stock options for the three
fiscal years ended June 1, 1996:
1983 Plan 1984 Plan
------------------------- -------------------------
Number of Option price Number of Option price
shares per share shares per share
--------- ------------ --------- ------------
Outstanding at
May 29, 1993 806,867 $5.58 to $12.02 133,437 $5.58 to $15.79
Granted 2,185 4.58 7,957 4.71
Cancelled (111,544) 5.58 to 11.33
-------------------------- ------------------------
Outstanding at
May 28, 1994 697,508 4.58 to 12.02 141,394 4.71 to 15.79
Granted 968,882 3.88 to 4.48 178,875 3.88 to 4.48
Cancelled (394,542) 4.48 to 12.02 (74,793) 5.58 to 15.79
-------------------------- ------------------------
Outstanding at
June 3, 1995 1,271,848 3.88 to 11.33 245,476 3.88 to 15.03
Granted 81,612 9.10 52,350 5.83 to 13.25
Cancelled (45,111) 4.48 to 9.23 (5,909) 15.03
Exercised (145,682) 4.01 to 11.33 (2,500) 4.71
-------------------------- ------------------------
Outstanding at
June 1, 1996 1,162,667 $3.88 to $11.33 289,417 $3.88 to $13.25
========================== ========================
On June 1, 1996, the weighted average exercise price for outstanding options
under the 1983 and 1984 Plans was $5.16 and $5.97 per share, respectively.
Options granted prior to the Company's recapitalization on October 26, 1992
are exercisable one-half in Class A Common Stock and one-half in Class B
Common Stock. Options granted after the recapitalization are exercisable in
Class B Common Stock.
-64-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
NOTE L - COMMON STOCK (continued)
In August 1985, the Company adopted an Employee Stock Purchase Plan (the
"Employee Plan"). The Employee Plan provides for the purchase by employees
of Company stock at a discounted price of 85% of the market value of the
shares on the date of purchase. A total of 150,000 shares of the Company's
Common Stock may be purchased under the Employee Plan which terminates on
September 30, 1998. During 1996,1997, employees purchased 9323,022 shares, at prices
ranging from $4.57$7.23 to $8.82.$9.99. Total proceeds received by the Company
approximated $5,000.
-61-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE K - COMMON STOCK (continued)
On January 10, 1994, the Board of Directors declared a 3% stock dividend on
shares of Class A and Class B Common Stock. The dividend, payable in
nonvoting Class B Stock, was distributed on March 11, 1994 to shareholders
of record on February 11, 1994.$24,000.
On January 24, 1995, the Board of Directors declared a 3% stock dividend on
shares of Class A and Class B Common Stock. The dividend, payable in
nonvoting Class B Stock, was distributed on March 16, 1995 to shareholders
of record on February 24, 1995. On January 23, 1996, the Board of Directors
declared a 3% stock dividend on shares of Class A and Class B Common Stock.
The dividend, payable in nonvoting Class B Stock, was distributed on March
15, 1996 to shareholders of record on February 23, 1996. On March 4, 1997,
the Board of Directors declared a 3% stock dividend on shares of Class A and
Class B Common Stock. The dividend, payable in nonvoting Class B Stock, was
distributed on April 21, 1997 to shareholders of record on March 31, 1997.
Earnings (loss) per common share have been retroactively adjusted to reflect
the stock dividends.
NOTE LM - OTHER RELATED PARTIES
A director provided services, both as a consultant and employee, to the
Company during 1997, 1996 1995 and 1994.1995. Fees for such services, including fees
relating to attendance at directors' meetings, were approximately $333,000,
$319,000 and $165,000 during 1997, 1996 and $88,000 during 1996, 1995, and 1994, respectively. In
connection with the sale of SDI in November 1995,during 1996, this director resigned as a
director of SDI and received an investment banker's fee of $905,000, a bonus
of $191,000 arising from the sale and a payment of $268,000 in connection
with the surrender of outstanding stock options in SDI.
In connection with the sale of SDI during 1996, an executive officer resigned
as a director of SDI and received a bonus of $191,000 arising from the sale
and a payment of $268,000 in connection with the surrender of outstanding
stock options in SDI.
Two other directors provided consulting services to the Company during 1997,
1996 1995 and 1994.1995. Fees for such services, including fees relating to attendance
at directors' meetings, were approximately $196,000,$152,000, $196,000 and $195,000$196,000
during 1997, 1996 and 1995, and 1994, respectively.
-62--65-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
and May 28, 1994
NOTE MN - INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS
The Company is engaged in the manufacture and distribution of a wide variety
of products which are classified into two industry segments: Diagnostic
products and AngioDynamics products. Diagnostic products encompass both
contrast systems, consisting of barium sulfate formulations and related
medical devices used in X- ray,X-ray, CT-scanning and other imaging examinations,
and non-contrast systems, including diagnostic radiology devices, custom
contract pharmaceuticals, gastrointestinal cleansing laxatives, X-ray
protection equipment, and immunoassay tests. AngioDynamics products include
stentCO2/angiography products, angiographic and fluid managementtherapeutic products and thrombolyticcoronary products used
in the interventional medicine marketplace. The Company's primary business
activity is conducted with radiologists and hospitals, located throughout
the U.S. and abroad, through numerous distributors. The Company's exposure
to credit risk is dependent, to a certain extent, on the healthcare
industry. The Company performs ongoing credit evaluations of its customers
and does not generally require collateral; however, in certain
circumstances, the Company may require letters of credit from its
customers.
In the tables below, operating profit (loss) from continuing operations
includes total net sales less operating expenses. Identifiable assets are
those associated with industry segment or geographic area operations,
excluding loans to or investments in another industry segment or geographic
area operation.
Intersegment salesIn 1997, 1996 and intergeographic sales are not
material.
In 1996, 1995, and 1994, there was one customer to whom sales of Diagnostic
products represented 16%15%, 15%16% and 16%15% of total sales, respectively.
Approximately 21%19% and 17%21% of accounts receivable pertained to this customer
at May 31, 1997 and June 1, 1996, and June 3, 1995, respectively.
-63--66-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
and May 28, 1994
NOTE MN - INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS (continued)
Industry Segments 1997 1996 1995* 1994*
----------------- ------ ------ -------------
(in thousands)
Net Sales
Diagnostic products $80,838 $80,936 $81,525
$80,966
AngioDynamics products 18,662 11,696 7,396
5,001
Eliminations (2,176) (700) (395)
(322)
------- ------- ------------- ------ ------
Total Net Sales $97,324 $91,932 $88,526 $85,645
====== ====== ======
Operating Profit (Loss)
Diagnostic products $(1,088) $2,509 $7,452
$4,658
AngioDynamics products (3,816) (1,536) (4,603)
(3,468)
Eliminations (7) (16) (12)
10
------- ------- ------------- ----- -----
Total Operating Profit (Loss) $(4,911) $ 957 $2,837
$1,200
=========== ===== =====
Identifiable Assets
Diagnostic products $ 76,576 $83,304 $62,585
$59,760
AngioDynamics products 25,515 12,945 8,529 6,911
Discontinued operation 5,033
5,162
Eliminations (1,371) (212) (52)
(302)
------- ------- ------------- ------
Total Identifiable Assets $100,720 $96,037 $76,095
$71,531
============= ====== ======
Depreciation and Amortization
Diagnostic products $2,112 $2,110 $1,976$2,437 $2,111 $2,109
AngioDynamics products 316 277 360600 317 278
Discontinued operation 124 413
392
------- ------- ------------ ----- -----
Total Depreciation and
Amortization $3,037 $2,552 $2,800 $2,728
===== ===== =====
Capital Expenditures
Diagnostic products $1,484 $3,850 $4,187
$1,330
AngioDynamics products 2,886 370 361 527
Discontinued operation 11 264
318
------- ------- ------------ ----- -----
Total Capital Expenditures $4,370 $4,231 $4,812 $2,175
===== ===== =====
* Net sales and operating profit (loss) amounts have been reclassified to
reflect the discontinued operation described in Note B.
-64-C.
-67-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
and May 28, 1994
NOTE MN - INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS (continued)
GEOGRAPHIC AREASGeographic Areas
----------------
The following geographic area data includes net sales, operating profit
(loss) generated by and assets employed in operations located in each
area:
1997 1996 1995*
1994*
------ ------ -------------
(in thousands)
Net Sales
U.S. operations $80,190 $71,939 $65,073 $63,422
International operations:
Canada 14,369 12,254 14,100
14,301
Other 12,555 13,456 13,763
12,196
Eliminations (9,790) (5,717) (4,410)
(4,274)
------- ------- ------------- ------ ------
Total Net Sales $97,324 $91,932 $88,526 $85,645
====== ====== ======
Operating Profit (Loss)
U.S. operations $(3,439) $1,084 $ 118
$(2,086)
International operations:
Canada (1,518) (410) 2,350
3,143
Other 175 225 456
100
Eliminations (129) 58 (87)
43
----- ------ ----------- -----
Total Operating Profit (Loss) $(4,911) $ 957 $2,837 $ 1,200
===== ===== =====
Identifiable Assets
U.S. operations:
Continuing operations $ 78,706 $73,604 $47,590 $48,356
Discontinued operation 5,033
5,162
International operations:
Canada 15,496 15,543 15,816
12,433
Other 7,772 8,067 8,857
7,731
Eliminations (1,254) (1,177) (1,201)
(2,151)
------- ------- ------------- ------
Total Identifiable Assets $100,720 $96,037 $76,095
$71,531
============= ====== ======
* Net sales and operating profit (loss) amounts have been reclassified to
reflect the discontinued operation described in Note B.
-65-C.
-68-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
and May 28, 1994
NOTE MN - INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS (continued)
The Company's domestic export sales by geographic area are summarized as
follows:
1997 1996 1995 1994
------ ------ ------
(in thousands)
Europe $ 9,252 $5,655 $2,605
$1,728
Other 6,098 3,783 3,421
3,206------ ----- -----
-----$15,350 $9,438 $6,026
$4,934
=========== ===== =====
NOTE NO - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly results of operations during 19961997 and 19951996 were as follows:
1997
----------------------------------
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
(in thousands, except per share data)
Net sales $23,355 $25,992 $23,576 $24,401
Gross profit 9,865 10,251 8,622 7,832
Net earnings (loss) 513 243 (1,046) (2,918)
Earnings (loss) per common
share (1)
Primary and fully
diluted (2) .05 .02 (.11) (.30)
1996
----------------------------------
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
(in thousands, except per share data)
Net sales $21,999 $23,005 $21,550 $25,378
Gross profit 9,131 9,623 8,209 9,451
Net earnings 569 20,087 9 343
Earnings per common share (1)
Primary (2) .06 2.092.02 .00 .03
Fully diluted (2) .06 2.072.00 .00 .03
1995 (3)
----------------------------------
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
(in thousands, except per share data)
Net sales $21,545 $21,377 $19,856 $25,748
Gross profit 9,379 8,834 7,455 11,013
Net earnings (loss) 1,050 455 (1,077) 1,202(1) Earnings (loss) per common
share (1)
Primary and fully diluted .12 .05 (.12) .13
(1) Earnings per common share have been retroactively restated to
reflect the total shares issued after the 3% stock dividends described in
Note K.L.
(2) The sum of the quarters does not equal the fiscal year due to rounding and
changes in the calculation of weighted average shares.
(3) Reclassified-69-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 31, 1997, June 1, 1996 and June 3, 1995
NOTE O - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (continued)
The fourth quarter of 1997 was adversely affected by certain
adjustments pertaining to reflect the discontinued operation describedCompany's AngioDynamics segment. The
significant adjustments included the write-off of expenses relating to the
proposed initial public offering of AngioDynamics and the effects of the
sales price erosion of coronary stents in Note B.
-66-the European market.
-70-
E-Z-EM, Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
---------------------
(1) (2)
Balance Charged to Balance
at Charged to other at end
beginning costs and accounts- Deductions- of
Description of period expenses describe describe period
----------- --------- -------- -------- -------- ------
Fifty-two weeks
ended May 28, 1994
Allowance for
doubtful accounts.. $353 $149 $ 96 (a) $406
=== === === ===
Fifty-three weeks
ended June 3, 1995
Allowance for
doubtful accounts.. $406 $ 91 $ 32 (a) $465
=== === === ===
Fifty-two weeks
ended June 1, 1996
Allowance for
doubtful accounts..
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
----------------------
(1) (2)
Balance Charged to Balance
at Charged to other at end
beginning costs and accounts- Deductions- of
Description of period expenses describe describe period
----------- --------- ---------- ---------- ----------- -------
Fifty-three weeks
ended June 3, 1995
Allowance for
doubtful accounts $406 $ 91 $ 32 (a) $465
=== === === ===
Fifty-two weeks
ended June 1, 1996
Allowance for
doubtful accounts $465 $176 $114 (b) $527
=== === === ===
Fifty-two weeks
ended May 31, 1997
Allowance for
doubtful accounts $527 $451 $ 48 (a) $930
=== === === ===
(a) Amounts written off as uncollectible.
(b) Represents amounts written off as uncollectible of $64,000 and an amount
deducted in conjunction with the sale of SDI of $50,000.
-67--71-