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
                           ------------                                  -------

                                  E-Z-EM, Inc.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                Delaware                                  11-1999504
     -------------------------------                 ---------------------------------------
     (State or other jurisdiction of                  (I.R.S. Employer
     incorporation or organization)                  Identification No.)

       717 Main Street, Westbury, New York                 11590
     -------------------------------------    ------------------------------------------------------------            ----------
     (Address of principal executive offices)            (Zip Code)

Registrant's telephone number, including area code  (516) 333-8230
                                                    --------------

Securities registered pursuant to Section 12(b) of the Act: Class A Common
   Stock, par value $.10 and Class B Common Stock, par value $.10

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                      Yes   /X/         No   / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /[ X /]

The aggregate market value of the registrant's voting Class A Common Stock held
by non-affiliates on August 5, 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
                                                                          ----
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-