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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 May 30, 1998 Commission file number 1-11479
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E-Z-EM, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 11-1999504
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
717 Main Street, Westbury, New York 11590
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 333-8230
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Securities registered pursuant to Section 12(b) of the Act: Class A
Common Stock, par value $.10 and Class B Common Stock, par value $.10
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of the registrant's voting Class A Common
Stock held by non-affiliates on August 3, 1998 was $19,871,000.
On August 3, 1998, there were 4,035,346 shares of the registrant's
Class A Common Stock outstanding and 6,012,398 shares of the
registrant's Class B Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for registrants 1998 Annual Meeting of
Stockholders to be held October 20, 1998 are incorporated by reference
in Part III of this Form 10-K Report.
Page 1 of 77
Exhibit Index on Page 35
E-Z-EM, Inc. and Subsidiaries
INDEX
Page
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PART I:
Item l. Business 3
Item 2. Properties 15
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 25
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 32
Item 13. Certain Relationships and Related Transactions 34
PART IV:
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 35
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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 36 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 anatomic 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 peripheral
vascular disease. These products are primarily used by interventional
medicine practitioners during minimally invasive diagnostic and
surgical procedures. Thirty-six percent (36%) of the Company's sales
were to customers outside the U.S. during 1998.
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 examination 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 pharynx, esophagus, stomach, small 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,
net of intersegment eliminations, increased 5% during 1998 as compared
to 1997.
The Company manufactures and markets, through AngioDynamics, three
differentiated product groups for use during interventional procedures:
angiography products, therapeutic products and stent/angioplasty
products. AngioDynamics also manufactures and sells angiographic and
stent/angioplasty products on an O.E.M. basis. Collectively these
products are classified as the AngioDynamics products industry segment.
See "Narrative Description of Business".
During 1998, AngioDynamics product sales, net of intersegment
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eliminations, increased 9%. Domestic sales increased by 27% due to
market share growth, while international sales decreased by 24% due to
a decline in the sale of coronary AngioStent(TM). The AngioDynamics
segment results for 1998 were adversely affected by a non-cash
accounting charge of $4,121,000, relating to an impairment of certain
long-lived assets used in the cardiovascular market. The Company
determined that the revenue potential of this technology, as it relates
to the cardiovascular market, was impaired due to increased competition
and price erosion for coronary stents and angioplasty products and the
Company's strategic decision to commercially exploit this technology in
the interventional radiology market. The Company is seeking a
strategic business partner with an existing cardiovascular sales and
marketing franchise in order to be successful in the cardiovascular
market, although there can be no assurances that such a partner can be
found.
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,
ultrasound and Magnetic Resonance Imaging ("MRI") imaging examinations,
and non-contrast systems, including diagnostic radiology devices,
custom contract pharmaceuticals, gastrointestinal cleansing laxatives,
X-ray protection equipment, and immunoassay tests. AngioDynamics
products include angiography, therapeutic and stent/angioplasty medical
devices 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 O 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.
Contrast Systems
Contrast systems, using barium sulfate formulations as contrast
media together with consumable medical devices, have been E-Z-EM's
principal business since the Company's organization over 36 years ago.
For over 80 years, barium sulfate has been the contrast medium of
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
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absorption coefficient for X-rays. In addition, it is biologically
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
radiologic 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 radiographic image.
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. Sales of contrast systems declined 1% during 1998 as
compared to 1997.
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. Sales of non-
contrast systems increased 20% during 1998 as compared to 1997.
The Company's line of diagnostic radiology devices include
electromechanical injectors and syringes, needles, trays and ancillary
devices used during a variety of diagnostic radiologic and ultrasound
procedures. This product grouping includes the PercuPump Touchscreen(TM)
with EDA injector ("PP with EDA"), which is designed to inject contrast
media into the vascular system for visualization purposes during CT
procedures. The PP with EDA, introduced in 1998, is the first CT
injector designed to aid in the detection of extravasation, an
accidental infiltration of contrast media into surrounding tissue. The
PP with EDA is comprised of an electromechanical injector, a consumable
syringe, and an EDA detector patch. 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,
decongestants, cough medicines and vaporizing ointments. Cosmetic
products include tanning and sunscreen lotions and bath powders.
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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-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. These tests are 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.
The Company's agreement with Abbott Laboratories ("Abbott") for
the international marketing of its physician's office test to detect H.
pylori expires in December 1998. The agreement covers both serum and
whole-blood versions of a simple, highly accurate four-minute test.
The tests, manufactured by SmithKline Diagnostics, Inc. ("SKD"), a
subsidiary of Beckman Coulter, Inc., are privately labeled under the
name FlexPack(TM) HP and sold by 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, also terminating in December 1998,
gave Abbott the marketing rights to most of the remainder of the world
market. The Company is currently evaluating various options with
respect to the future marketing of these products. The Company does
not believe that the discontinuance of these agreements will have a
material adverse effect on the consolidated financial statements. SKD,
with whom EPI co-developed the serum and whole blood tests, also
markets its own version of the product under the name FlexSure(TM) HP in
the U.S. and other selected territories.
As a result of these agreements, EPI receives 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-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% of total net sales during 1998.
ANGIODYNAMICS PRODUCTS
The Company, through its wholly-owned subsidiary, AngioDynamics,
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develops, manufactures and markets a variety of differentiated products
and systems for the worldwide interventional medicine marketplace,
which is the practice of medicine using both traditional and new
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.
Angiography Products
Angiography products include diagnostic catheters, fluid
management products and CO2Ject(TM), a proprietary angiographic system
that uses carbon dioxide ("CO2") instead of standard iodinated contrast
media. These products are used during procedures known as
"angiograms", "venograms", and "cardiac catheterizations", which
provide images of the human vasculature and blood flow.
The Company manufactures three lines of diagnostic catheters,
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. The Company's lines of angiographic catheters
are cleared for sale in the U.S. and internationally.
The proprietary 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 manufactures several lines of products used to
administer fluids and contain the blood and other biological wastes
produced during an interventional procedure. These products are
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designed to meet the increased concern about HIV and hepatitis. The
AngioFill(TM) product line controls airborne blood borne pathogens by
aspirating a catheter and injecting the blood into an appropriate
receptacle. 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 patented Pulse-Vu Needle(TM) and Sos Bloodless Entry
Needle(TM) control airborne blood borne pathogens and the spurting blood
flow normally encountered in a femoral arterial puncture. Both needles
have a thin diaphragm to divert 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. All of the Company's fluid management
products are cleared for sale in the U.S. and internationally.
The CO2Ject is comprised of CO2 contrast, an automated injector, a
CO2 connection set, a diagnostic catheter and an angioplasty balloon
catheter. Since a normal 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 in the near future, and there can be no
assurance that such clearance will be obtained at all.
Therapeutic Products
The Company's therapeutic line principally consists of
thrombolytic products, vascular access products for dialysis and liver
access products.
The Company's proprietary thrombolytic product line is marketed
under the name Pulse*Spray(TM) and is used to dissolve blood clots in
hemodialysis access grafts, arteries and veins. Pulse*Spray Sets
include 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 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 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
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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.
During 1998, the FDA granted AngioDynamics a 510(k) clearance to
market the Pulse*Spray Injector in the U.S. The Company believes that
the Pulse*Spray Injector may provide the first viable treatment for
dissolving deep vein clots (DVT's) in a wide patient population. Early
clinical experience with the Pulse*Spray Injector indicates a
significant reduction in the amount of thrombolytic drugs and time
required to resolve thrombosed deep veins in the legs. Further
clinical evidence is needed to confirm these initial results.
The Company's vascular access products, marketed under the Schon
trade name, are primarily used by patients requiring blood dialysis.
These vascular access catheters are classified as long-term or acute.
A long-term catheter is used in the event the patient is waiting for a
permanent dialysis graft to heal after a surgical placement or repair.
Acute catheters are placed in patients with a temporary interruption of
renal function due to serious injury or trauma. The Company believes
that vascular access procedures in general and dialysis access
procedures specifically, are growing rapidly.
The Company's liver access products include the biliary AngioStent
and a transjugular intrahepatic portosystemic shunt ("TIPS") access
set.
Subsequent to fiscal year end 1998, the Company filed a 510(k)
submission with the FDA to market the AngioStent for biliary stricture
application in the U.S. Biliary stricture, a condition common among
hepatic and pancreatic cancer patients, is a narrowing of the bile duct
as a result of tumor ingrowth. The Company believes the biliary
AngioStent has certain advantages versus the conventional treatment
since it will resist clogging due to its wide diameter and will resist
tumor ingrowth because of its strong radial pressure.
The Company's TIPS access set is designed to probe the liver with
a small 21 gauge needle and utilizes carbon dioxide as a contrast agent
to visualize important liver structures such as the hepatic artery and
bile ducts. Cirrhosis of the liver often causes bleeding of the
esophageal varices. As an alternative to traditional surgical methods,
a TIPS (shunt) is placed between the portal vein and hepatic vein in
the liver to reduce pressure and thus relieve the bleeding.
The Company acted as the U.S. sales agent for Navarre Biomedical,
Ltd, a manufacturer of 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.
Sales of this product line were approximately $1.2 million in 1998.
This distribution agreement was terminated subsequent to fiscal year
end.
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Stent/Angioplasty Products
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, which
reduce procedure time, patient trauma, hospitalization and recovery
time. The Company believes that the coronary AngioStent 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 use of platinum
imparts better hemocompatibility and long-term biocompatibility than
stainless steel stent designs. The AngioStent is available in a
variety of diameters and lengths and is provided pre-mounted on both
the over-the-wire and rapid exchange delivery systems. Both of these
delivery systems offer advanced features, such as a high pressure
balloon and one-step-placement with no necessity for pre-dilation of
the target lesion. The AngioStent has been utilized in a variety of
coronary and peripheral 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 this base of stent technology to develop stents for the
peripheral vascular market.
The AngioStent currently is marketed internationally for
peripheral vascular and coronary applications. The AngioStent for
peripheral vascular and coronary applications has not yet been cleared
for sale in the U.S. The Company intends to submit a premarket
approval ("PMA") application to obtain marketing clearance from the FDA
for peripheral vascular applications, but not for coronary use.
The Company also develops and manufacturers percutaneous
transluminal coronary angioplasty ("PTCA") balloon catheters. A PTCA
balloon catheter is used to inflate a narrowing in the arteries of the
heart, either by expanding a stent or on a stand-alone basis during
balloon angioplasty procedures. The PTCA products include the Racer
Pico, Racer Select, Pico Runner and Pico ST II balloon catheters, each
of which is approved for sale internationally (with the Pico Runner and
Pico ST II cleared for sale in the U.S.). The Company intends to use
the base of balloon catheter technology to develop PTA balloon
catheters for the peripheral vascular market.
O.E.M. Manufacturing
During 1998 the Company announced a decision to focus its
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marketing efforts in the interventional radiology market; also, that it
needs to find a strategic partner, with an existing cardiovascular
sales and marketing franchise, to leverage its stent and angioplasty
technology in the cardiology market. The Company has two ISO 9001
certified facilities with available manufacturing capacity and is
seeking partnerships, joint ventures and O.E.M. arrangements to
manufacture PTCA balloon catheters, stent delivery systems and similar
products. The Company also sells certain angiographic products on a
bulk, non-sterile basis.
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 radiologic
needs. E-Z-EM continues to develop new barium sulfate products,
including products for CT-scanning and 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 230 distributors, supported by 31 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 119 distributors, including wholly-owned subsidiaries in
Canada, the United Kingdom, Japan and Holland. Significant sales are
made in Canada, the United Kingdom, Japan, Holland, Italy, France,
Austria, Sweden and 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 19 direct sales
employees, while the international marketing effort is conducted
through 56 distributors, including 3 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
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.
Radiologic 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
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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. In January 1998, Medicare began reimbursing for
colorectal cancer screening utilizing G.I. examinations, as well as
other procedures.
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 injectors 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 clearance and those
Company products that in the future receive FDA clearance will have to
compete vigorously for market acceptance and market share.
Arterial Vascular Engineering, Inc., Johnson & Johnson
Interventional System, Co., Schneider, Inc. (a part of Pfizer, Inc.),
Boston Scientific Corporation, C.R. Bard, Inc., Cook, Inc., Cordis
Corporation, Guidant Corporation, Medtronic, Inc., Biotronik GmbH,
Progressive Angioplasty Systems, American Biomed, Inc. and Global
Therapeutics, among others, currently compete against the Company in
the development, production and marketing of stents and stent
technology.
The medical indications 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.
Within the contrast media market, the Company's CO2Ject system
competes with a product offered by Daum GmbH. The Company also
competes with companies marketing iodinated contrast agents. These
companies include Nycomed Inc., Bracco s.p.a., Schering AG and
Mallinckrodt, Inc.
In the market for diagnostic angiography catheters, the Company's
major competitors are Boston Scientific Corporation, Cook, Inc. and
Mallinckrodt, Inc.
The competitive situation in the market for thrombolytic
therapeutic products is complex. The first level of competition is the
medical profession, where each physician can decide if an artery or
-12-
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, Micro Therapeutics, Inc. and Cook, 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 Schneider, Inc. (a
part of Pfizer, Inc.), 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 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/Technical Director and 41 employees, the Company has consulting
arrangements with various physicians who assist through their
independent research and product development. Research and development
expenditures totaled $5,662,000, or 6% of net sales, in 1998, as
compared to $6,881,000, or 7% of net sales, in 1997 and $5,323,000, or
6% of net sales, in 1996, 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
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 five years at current usage rates. 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
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
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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, 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.
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.
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 923 persons, 229 of whom are covered by
various collective bargaining agreements. Collective bargaining
agreements covering 123 and 102 employees expire in December 1998 and
December 1999, respectively. The Company considers employee relations
to be satisfactory.
(d) FINANCIAL INFORMATION REGARDING FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES
The Company derived about 36% of its sales from customers outside
the U.S. during 1998. Operating profit margins on export sales are
somewhat lower than domestic sales margins. The Company's domestic
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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 sales to Japanese
customers, which are made by the Company's Japanese subsidiary, are
also billed in local currency.
The Company employs 334 persons involved in the developing,
manufacturing and marketing of products internationally. The Company's
product lines are marketed through approximately 152 foreign
distributors to 88 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 O
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 four
buildings, one of which is owned by the Company, containing an
aggregate of 194,800 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
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
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.
Item 3. LEGAL PROCEEDINGS
Previously, the Company was named as 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 claimed damages based upon alleged injuries resulting
from the use of one of the Company's products. During December 1997,
the Company settled such action for an amount under its insurance limit
and the amount contributed by the Company was not material to its
consolidated financial statements.
During April 1998, the Company settled a lawsuit brought upon by
Olympia Holding Corporation p/k/a P-I-E Nationwide, Inc. for alleged
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undercharges for freight carriage. Such lawsuit was settled for an
amount under the Company's insurance limit and the amount contributed
by the Company was not material to its consolidated financial
statements.
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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
E-Z-EM, Inc. Class A and Class B Common Stock is traded on the
American Stock Exchange ("AMEX") under the symbols "EZM.A" and "EZM.B",
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 the AMEX.
Class A Class B
--------------- ---------------
High Low High Low
------- ------- ------- -------
Fifty-two weeks ended May 30, 1998
----------------------------------
First Quarter................ $9.13 $7.50 $7.88 $6.63
Second Quarter............... 8.63 7.13 7.50 5.88
Third Quarter................ 7.88 6.88 7.38 6.25
Fourth Quarter............... 9.75 6.75 9.00 5.88
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
As of August 3, 1998 there were approximately 237 and 375 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 fiscal years 1996 and 1998 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.
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Item 6. SELECTED FINANCIAL DATA
Fifty-two weeks ended Fifty-three Fifty-two
------------------------- weeks ended weeks ended
May 30, May 31, June 1, June 3, May 28,
1998# 1997 1996 1995* 1994*
------ ------ ------ ------ ------
(in thousands, except per share data)
Income statement data:
Net sales..............$102,884 $97,324 $91,932 $88,526 $85,645
Gross profit........... 37,433 36,570 36,414 36,681 33,617
Operating profit (loss) (5,351) (4,911) 957 2,837 1,200
Earnings (loss) from
continuing operations
before income taxes.. (5,534) (4,530) 1,940 3,559 1,528
Earnings (loss) from
continuing operations (5,967) (3,208) 1,697 2,473 379
Net earnings (loss).... (5,967) (3,208) 21,008 1,630 277
Earnings (loss) from
continuing operations
per common share
Basic and diluted
(1).............. (.60) (.33) .17 .26 .04
Earnings (loss) per
common share
Basic (1).......... (.60) (.33) 2.16 .17 .03
Diluted (1)........ (.60) (.33) 2.04 .17 .03
Weighted average common
shares
Basic (1).......... 9,952 9,871 9,712 9,634 9,633
Diluted (1)........ 9,952 9,871 10,315 9,640 9,633
May 30, May 31, June 1, June 3, May 28,
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(in thousands)
Balance sheet data:
Working capital........ $41,597 $43,115 $53,508 $33,254 $33,088
Cash, certificates of
deposit and short-
term debt and equity
securities........... 8,129 15,475 23,610 4,447 7,336
Total assets........... 90,706 100,720 96,037 76,095 71,531
Long-term debt, less
current maturities... 606 842 680 1,114 586
Stockholders' equity... 71,223 77,244 80,603 57,890 54,269
_______________
# Includes the impairment charge of $4,121,000 described in Note B to the
Consolidated Financial Statements included herein.
* Reclassified to reflect the discontinued operation described in Note C
to the Consolidated Financial Statements included herein.
(1) Retroactively restated to reflect the total shares issued after the 3%
stock dividends described in Note M to the Consolidated Financial
Statements included herein.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's fiscal years ended May 30, 1998, May 31, 1997 and
June 1, 1996 represent fifty-two weeks. The following discussion and
analysis is based on the results of continuing operations of the
Company.
RESULTS OF OPERATIONS
SEGMENT OVERVIEW
The Company operates in two industry segments: Diagnostic
products and AngioDynamics products. The Diagnostic products industry
segment encompasses both contrast systems, consisting of barium sulfate
formulations and related medical devices used in X-ray, CT-scanning,
ultrasound and MRI imaging examinations, and non-contrast systems,
including diagnostic radiology devices, custom contract
pharmaceuticals, gastrointestinal cleansing 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 57% of net sales in 1998, as compared to 61% in
1997 and 68% in 1996. Non-contrast system sales accounted for 24% of
net sales in 1998, as compared to 21% in 1997 and 20% in 1996. The
AngioDynamics products industry segment, which includes angiography
products, therapeutic products and stent/angioplasty products used in
the interventional medicine marketplace, accounted for 19% of net sales
in 1998, as compared to 18% in 1997 and 12% in 1996.
Diagnostic AngioDynamics Eliminations Total
---------- ------------- ------------ -----
(in thousands)
Fifty-two weeks ended May 30, 1998
- ----------------------------------
Unaffiliated customer sales $83,475 $19,409 - $102,884
Intersegment sales 91 483 ($574) -
Gross profit (loss) 30,220 7,263 (50) 37,433
Operating profit (loss) 1,988 (7,317) (22) (5,351)
Fifty-two weeks ended May 31, 1997
- ----------------------------------
Unaffiliated customer sales $79,588 $17,736 - $97,324
Intersegment sales 1,250 926 ($2,176) -
Gross profit (loss) 28,794 7,783 (7) 36,570
Operating loss (1,088) (3,816) (7) (4,911)
Fifty-two weeks ended June 1, 1996
- ----------------------------------
Unaffiliated customer sales $80,936 $10,996 - $91,932
Intersegment sales - 700 ($700) -
Gross profit (loss) 30,872 5,561 (19) 36,414
Operating profit (loss) 2,509 (1,536) (16) 957
DIAGNOSTIC PRODUCTS
Diagnostic segment operating results for 1998 improved by
$3,076,000 due to a 5% sales increase, as well as reduced operating
expenses of $1,650,000. Price increases virtually offset the effect of
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increased discounts to group purchasing organizations. Gross profit
expressed as a percentage of net sales was 36% during both 1998 and
1997, as the effects of increased discounts to group purchasing
organizations were offset by reduced unabsorbed overhead costs
associated with the manufacturing site relocation.
Diagnostic segment operating results for 1997 declined by
$3,597,000 due to 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. Increased regulatory
costs associated with product validations of $857,000 and severance
costs of $365,000 contributed to the increased operating expenses in
1997.
ANGIODYNAMICS PRODUCTS
AngioDynamics segment operating results for 1998, which declined
by $3,501,000, were adversely affected by a non-cash accounting charge
of $4,121,000, relating to an impairment of certain long-lived assets
used in the cardiovascular market. The Company determined that the
revenue potential of this technology, as it relates to the
cardiovascular market, was impaired due to increased competition and
price erosion for coronary stents and angioplasty products and the
Company's strategic decision to commercially exploit this technology in
the interventional radiology market. The Company is seeking a
strategic business partner with an existing cardiovascular sales and
marketing franchise in order to be successful in the cardiovascular
market, although there can be no assurances that such a partner can be
found. The charge had no impact on the Company's cash flow or its
ability to generate cash flow in the future. As a result of the
impairment charge, amortization expense related to these assets will
decrease by approximately $250,000 per year.
Discounting the effect of the impairment charge, AngioDynamics
operating results improved by $620,000 due to reduced operating
expenses, partially offset by lower gross profit. Domestic sales
improved by $3,154,000, or 27%, due to continued market penetration,
while international sales decreased $1,480,000, or 24%, due to a
decline in sales of the coronary AngioStent(TM). Overall, AngioDynamics
sales increased 9% during 1998. Gross profit expressed as a percentage
of net sales declined to 37% during 1998 versus 42% during 1997 due
primarily to price erosion in the coronary stent marketplace,
underutilized capacity at the Irish manufacturing facility, and
increased inventory reserves of $344,000. Operating expenses before
the impairment charge decreased $1,140,000 due, in part, to the
write-off of expenses relating to the proposed initial public offering
of AngioDynamics in 1997.
AngioDynamics segment operating results for 1997, which declined
by $2,280,000, 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 coronary AngioStent 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
-20-
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.
DISCONTINUED SEGMENT
During 1996, the Company discontinued the operation of its
surgical products industry segment when it sold Surgical Dynamics Inc.
("SDI"), its 51%-owned subsidiary, to 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 per common share on a basic EPS 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 operations. The surgical products industry segment
included the Nucleotome(TM) device, the Ray Threaded Fusion Cage(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 O to the Consolidated Financial Statements included herein.
CONSOLIDATED RESULTS OF OPERATIONS
The Company reported a net loss of $5,967,000, or ($.60) per
common share on a basic and diluted basis for 1998, as compared to a
net loss of $3,208,000, or ($.33) per common share on a basic and
diluted basis, for 1997, and net earnings of $21,008,000, or $2.16 and
$2.04 per common share on a basic and diluted basis, respectively, for
1996. Results for 1998 included the AngioDynamics impairment charge,
with no associated tax benefit, of $4,121,000, or $.41 per common
share. The fact that the Company did not record a tax benefit for
financial reporting purposes, associated with the impairment charge,
does not affect its ability to record the deduction for tax purposes at
some future date. Results for 1996 included an after-tax gain on the
sale of SDI of $19,520,000, or $2.01 and $1.89 per common share on a
basic and diluted basis, respectively.
Loss from continuing operations for 1998 was $5,967,000, or ($.60)
per common share on both a basic and diluted basis, as compared to a
loss from continuing operations of $3,208,000, or ($.33) per common
share on both a basic and diluted basis, in 1997 and earnings from
continuing operations of $1,697,000, or $.17 per common share on both a
basic and diluted basis, in 1996.
Results from continuing operations for 1998 were adversely
affected by the AngioDynamics impairment charge of $4,121,000, or $.41
per share, and lower AngioDynamics gross profit. Results were
positively affected by increased sales coupled with reduced operating
expenses, before impairment charge, in both industry segments.
-21-
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 increased
administrative expenses. In the Diagnostic segment, increased
regulatory costs associated with product validations of $857,000 and
severance costs of $365,000 contributed to the increased operating
expenses in 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.
Net sales increased 6%, or $5,560,000, to $102,884,000 in 1998,
and increased 6%, or $5,392,000, to $97,324,000 in 1997. Net sales in
1998 were favorably affected by increased sales of non-contrast systems
of $4,192,000, including $2,648,000 relating to custom contracts, and
AngioDynamics products of $1,673,000. Price increases, net of
discounts to group purchasing organizations, had little effect on net
sales in 1998. Net sales in 1997 were favorably affected by increased
sales of AngioDynamics products of $6,740,000 and non-contrast systems
of $1,923,000. The AngioDynamics sales growth was due to international
market penetration, due primarily to the introduction of the coronary
AngioStent, and domestic market penetration. Net sales in 1997 were
adversely affected by a 6% decline in the Company's sales of barium
contrast systems. Price increases had little effect on net sales in
1997.
Net sales in international markets, including direct exports from
the U.S., decreased 3%, or $975,000, to $36,739,000 in 1998 and
increased 12%, or $3,932,000, to $37,714,000 in 1997. The 1998
decline was due to decreased sales of contrast systems of $1,691,000
and AngioDynamics products of $1,480,000, partially offset by increased
sales of non-contrast systems of $2,196,000. The decline in sales of
AngioDynamics products is due to lower stent sales. The increase in
sales of non-contrast systems is attributable to increased sales of
custom contracts. The 1997 increase was due to increased sales of
AngioDynamics products of $3,679,000 and non-contrast systems of
$1,825,000, partially offset by decreased sales of contrast systems of
$1,572,000.
Gross profit expressed as a percentage of net sales was 36% in
1998, as compared to 38% in 1997 and 40% in 1996. The decline in gross
profit, expressed as a percentage of net sales, in 1998 was due
primarily to reduced AngioDynamics gross profit, resulting from price
erosion in the coronary stent marketplace, underutilized capacity at
the Irish manufacturing facility, and increased inventory reserves of
$344,000. In the Diagnostic segment, the effects of increased
discounts to group purchasing organizations, were offset by reduced
unabsorbed overhead costs associated with the manufacturing site
relocation. 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 sales discounts to group purchasing
organizations.
-22-
Selling and administrative ("S&A") expenses were $33,001,000 in
1998, $34,600,000 in 1997 and $30,134,000 in 1996. The decrease in
1998 versus 1997 of $1,599,000, or 5%, was due to decreased Diagnostic
S&A expenses of $1,053,000 and decreased AngioDynamics S&A expenses of
$546,000, which resulted, in part, from the write-off of expenses
relating to the proposed initial public offering of AngioDynamics in
1997. 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 increased
Diagnostic S&A expenses of $690,000. Increased AngioDynamics S&A
expenses can be attributed to expenses supporting the 61% sales
increase in 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. Increased Diagnostic S&A
expenses resulted, in part, from severance costs of $365,000 in 1997.
Research and development ("R&D") expenditures in 1998 totalled
$5,662,000, or 6% of net sales, as compared to $6,881,000, or 7% of net
sales, in 1997 and $5,323,000, or 6% of net sales, in 1996. The
decline in 1998 versus 1997 of $1,219,000 was due primarily to
decreases in regulatory expenses associated with product validations of
$826,000 and AngioDynamics project spending of $593,000, partially
offset by increased contrast system spending of $415,000. 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
increased spending of $691,000 relating to AngioDynamics projects. Of
the R&D expenditures in 1998, approximately 42% relate to contrast
systems, 32% to AngioDynamics projects, 11% to general regulatory
costs, 3% to immunological projects, and 12% to other projects. 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 expansion of its product lines through R&D.
Other income, net of other expenses, totalled $183,000 of expense
in 1998, $381,000 of income in 1997 and $983,000 of income in 1996.
The change in 1998 versus 1997 was primarily due to increased interest
expense of $177,000 and decreased interest income of $138,000,
resulting from bank financing for the AngioDynamics operations, coupled
with the recording of the Company's approximate 23% share in the losses
of ITI Medical Technologies, Inc. of $219,000. 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
increased foreign currency exchange losses of $161,000.
Note H to the Consolidated Financial Statements included herein
details the major elements affecting income taxes for 1998, 1997 and
1996. In 1998, the Company reported an income tax provision of
$433,000 against losses from continuing operations before income taxes
of $5,534,000 due primarily to the fact that the Company did not
provide for the tax benefit on losses incurred in certain
jurisdictions, since it is more likely than not that such benefits
will not be realized. 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, at
that time, it was more likely than not that such benefits would not be
-23-
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.
LIQUIDITY AND CAPITAL RESOURCES
During 1998, debt repayments, capital expenditures and investment
in affiliate were funded primarily by cash reserves. 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 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 were invested in debt securities. In the past, the Company's
policy has been to fund capital requirements without incurring
significant debt. At May 30, 1998, debt (notes payable, current
maturities of long-term debt and long-term debt) was $3,934,000 as
compared to $8,388,000 at May 31, 1997. The Company has available
$8,858,000 under four bank lines of credit of which $1,961,000 was
outstanding at May 30, 1998.
The Company's current policy is to issue stock dividends. During
the third quarter of fiscal years 1996 and 1998 and the fourth quarter
of fiscal year 1997, the Company issued 3% stock dividends.
Presently, the Company is continuing to look for both new and
complementary lines of business for expansion in order to ensure its
continued growth.
At May 30, 1998, approximately 62% of the Company's assets consist
of inventories, accounts receivable, cash and cash equivalents, and
debt and equity securities. Prior to 1998, inventories have increased
at a greater rate than sales as a result of broadened product lines,
and safety stock during the relocation of a portion of the Company's
contrast systems manufacturing operations. The current ratio is 3.43
to 1, with net working capital of $41,597,000 at May 30, 1998, as
compared to the current ratio of 3.07 to 1, with net working capital of
$43,115,000 at May 31, 1997.
Net capital expenditures, primarily for machinery and equipment,
were $1,897,000 in 1998, as compared to $4,370,000 in 1997 and
$4,231,000 in 1996. Of the 1997 expenditures, approximately $1,900,000
relates to the acquisition, and 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. No material increase in
the aggregate level of capital expenditures is currently contemplated
for 1999.
The Company is evaluating the impact of the Year 2000 issue on its
business and does not expect to incur significant costs associated with
Year 2000 compliance or that Year 2000 issues will have a material
impact on the Company's business, results of operations or financial
-24-
condition. The Year 2000 issue is the result of computer programs
being written using two digits rather than four to define the
applicable year. The Company's domestic software systems and
applications are currently Year 2000 compliant. The Company's
international subsidiaries are currently working toward Year 2000
compliance. The Company has also initiated discussions with its
significant suppliers and customers to ensure that they have
appropriate plans to address Year 2000 issues that may affect the
Company's operations.
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
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.
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 20, 1998, 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)... 67 Chairman of the Board, President, Chief
Executive Officer, Director
Arthur L. Zimmet......... 62 Senior Vice President - Special Projects
Sandra D. Baron.......... 46 Vice President - Human Resources
Craig A. Burk............ 45 Vice President - Manufacturing
Joseph A. Cacchioli...... 42 Vice President - Controller
Dennis J. Curtin......... 51 Vice President - Chief Financial Officer
Agustin V. Gago.......... 39 Vice President - International
Eamonn P. Hobbs.......... 45 Vice President - AngioDynamics Division
Joseph J. Palma.......... 56 Vice President - Sales and Marketing
Archie B. Williams....... 47 Vice President - Imaging Products
Management
Terry S. Zisowitz........ 51 Vice President - Legal and Regulatory
Affairs
Michael A. Davis, M.D.... 57 Medical Director/Technical Director,
Director
Paul S. Echenberg (1).... 54 Chairman of the Board of E-Z-EM Canada,
Director
James L. Katz CPA, JD.... 62 Director
(1)(2)(5)
Donald A. Meyer (3)(4)... 64 Director
David P. Meyers.......... 34 Director
Robert M. Topol (1)(2)... 73 Director
(3)(5)
_______________
(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 the Company and has served as
Chairman of the Board and Director of the Company since its formation
in 1962. Mr. Stern has also served as President and Chief Executive
-26-
Officer of the Company since November 1997. Prior to 1994, Mr. Stern
also served as Chief Executive Officer, and from the formation of the
Company until 1990, he served as President of the Company. Mr. Stern
is also a director of ITI Medical Technologies, Inc. The Company has
an investment in ITI Medical Technologies, Inc.
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 1995, and previously served as Vice President - Finance from 1985
to 1995. Mr. Curtin has been an employee of the Company since 1983.
Mr. Gago has served as Vice President - International since
October 1997, and has been an employee of the Company since 1979.
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
1996, and previously served as Vice President - Sales from 1995 to
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.
Dr. Davis has served as Medical Director/Technical Director and
Director of the Company since 1997, and previously served as Medical
Director and Director of the Company from 1995 to 1996, as Medical
Director from 1994 to 1995, and as Associate Medical Director from 1988
to 1993. He has been Professor of Radiology and Nuclear Medicine and
Director of 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 &
Associates Canada Inc. (investment buy-out advisory services) and
Director of Schroders Ventures Ltd. since 1997. He is also a founder
and has been a general partner and director of Eckvest Equity Inc.
-27-
(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., Colliers MacAuley
Nicholl, Huntington Mills (Canada) Ltd. and ITI Medical Technologies,
Inc. The Company has investments in ISG Technologies, Inc. and ITI
Medical Technologies, Inc.
Mr. Katz has been a director of the Company since 1983. He is a
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 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 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 1995. From 1958 through 1990, he was an
attorney practicing in New Orleans, Louisiana.
Mr. Meyers has been a director of the Company since 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, Chief Executive Officer and Director 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. 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 Redstone Resources Inc.
Item 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the
compensation for services, in all capacities for 1998, 1997 and 1996,
of those persons who were, at the end of 1998, Chief Executive Officer
("CEO") (Howard S. Stern) and each of the four most highly compensated
executive officers of the Company other than the CEO (collectively, the
"Named Executive Officers"):
-28-
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 ---------------- Payouts tion (4)
Position Year ($) ($) ($) ($) # (2) # (3) ($) ($)
--------- ------ ------ ----- --------- ---------- ------- ------- ------- ---------
Howard S. Stern,..... 1998 $250,000 $61,874 None None None None None $19,609
Chairman of the Board, 1997 250,000 11,538 None None None 8.5227 None 7,090
President and Chief 1996 250,000 None None None None None None 7,245
Executive Officer
Eamonn P. Hobbs,..... 1998 $195,000 $21,923 None None None None None $ 7,630
Vice President 1997 176,250 6,058 None None None 45.4545 None 7,902
1996 170,648 None None None None None None 8,021
Arthur L. Zimmet,.... 1998 $155,000 $40,283 None None None None None $ 8,069
Senior Vice President 1997 153,000 7,062 None None None None None 7,380
1996 153,000 None None None None None None 7,760
Dennis J. Curtin,.... 1998 $146,667 $38,861 None None None None None $ 7,637
Vice President 1997 144,000 6,646 None None None 3.4091 None 7,534
1996 144,000 7,500 None None None None None 7,880
Agustin V. Gago,..... 1998 $177,581 None None None None None None $ 7,166
Vice President 1997 184,515 None None None None None None 7,791
1996 130,989 None None None 2,185 None None 6,274
_______________
(1) The Company has concluded that the aggregate amount of perquisites
and other personal benefits paid to each of the Named Executive
Officers for 1998, 1997 and 1996 did not exceed the lesser of 10% of
such officer's total annual salary and bonus for 1998, 1997 or 1996
or $50,000; such amounts are, therefore, not reflected in the table.
(2) Options are exercisable in Class B Common Stock of the Company and
have been retroactively adjusted for the 3% stock dividends
described in Note M 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 1998, 1997 and 1996, includes for each of the Named Executive
Officers the amounts contributed by the Company under the Profit-
Sharing Plan and, as matching contributions, under the companion
401(k) Plan. For 1998, also includes for Howard S. Stern fees of
$12,000 relating to attendance at directors' meetings of
AngioDynamics.
OPTION/SAR GRANTS TABLE
The Company did not grant any stock options or stock appreciation
rights to any of the Named Executive Officers during 1998.
-29-
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth certain information concerning all
exercises of stock options during 1998 by the Named Executive Officers
and the fiscal year-end value of unexercised stock options on an
aggregated basis:
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
May 30, 1998 May 30, 1998
(#) ($) (1)
------------- -------------
Shares Value Exercisable/ Exercisable/
Acquired on Realized Unexercisable Unexercisable
Name Exercise (#) ($) (2) (2)
---- ------------ -------- ------------- -------------
Howard S. Stern... None None 78,786/ $130,365/
None None
Eamonn P. Hobbs... None None 39,595/ $57,373/
None None
Arthur L. Zimmet.. None None 50,884/ $74,695/
None None
Dennis J. Curtin.. None None 50,556/ $80,269/
None None
Agustin V. Gago... None None 11,274/ $11,644/
None None
_______________
(1) Options are "in-the-money" if on May 30, 1998, the market price of
the stock exceeded the exercise price of such options. At May 30,
1998, the closing price of the Company's Class A and Class B Common
Stock was $7.00 and $5.88, 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 May 30, 1998
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-
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.
REPORT ON REPRICING OF OPTIONS
During 1998, the Company's Board of Directors approved the
repricing of all outstanding stock options previously granted under the
AngioDynamics Stock Option Plan. The repricing provided for the
exercise price of 128.41 options to be reduced from $80,000 per share
to $40,000 per share, to reflect current fair value. The repricing did
not affect the term or vesting period of the options. The following
table sets forth certain information concerning the repricing of stock
options previously granted to the Named Executive Officers.
Number of Market Length of
Securities Price of Original
Underlying Stock at Exercise Option Term
Options Time of Price at New Remaining at
Repriced Repricing or Repricing Exercise Date of
or Amended Amendment or Price Repricing or
Name Date (#) (1) ($/Sh) Amendment ($/Sh) Amendment
---- ---- ---------- ------------ --------- -------- ------------
Howard S. Stern... 5/05/98 8.5227 (2) $40,000 $80,000 $40,000 106 Months
Eamonn P. Hobbs... 5/05/98 45.4545 (2) $40,000 $80,000 $40,000 106 Months
Arthur L. Zimmet.. None None None None None None
Dennis J. Curtin.. 5/05/98 3.4091 (2) $40,000 $80,000 $40,000 106 Months
Agustin V. Gago... None None None None None None
_______________
(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 date, 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 Company'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.
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
-31-
"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 3, 1998,
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,
President, Chief Executive
Officer, Director
717 Main Street
Westbury, NY 11590
Betty S. Meyers,................ 820,806 20.3
401 Emerald Street
New Orleans, LA 70124
David P. Meyers,................ 311,551 (1) 7.7
Director
1220 Pasadena Avenue
Atlanta, GA 30306
Jonas I. Meyers,................ 311,551 (1) 7.7
904 Oakland Avenue
Ann Arbor, MI 48104
Stuart J. Meyers,............... 311,551 (1) 7.7
434 Bellaire Drive
New Orleans, LA 70124
Dimensional Fund Advisors, Inc., 233,075 5.8
1299 Ocean Avenue
Santa Monica, CA 90401
Wellington Management Company,.. 219,258 5.4
75 State Street
Boston, MA 02109
_______________
(1) Includes 154,801 shares in which Mr. Meyers has only a remainder
interest. Betty S. Meyers holds a life estate in such shares.
-32-
The following table sets forth information, as of August 3, 1998,
as to the beneficial ownership of the Company's voting Class A and
nonvoting 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 1,307,564 21.5
Chairman of the Board,
President, Chief Executive
Officer, Director
David P. Meyers,........... 311,551 (3) 7.7 587,318 (4) 9.8
Director
Arthur L. Zimmet,.......... 28,750 * 90,784 1.5
Senior Vice President
Robert M. Topol,........... 25,888 * 65,530 1.1
Director
Paul S. Echenberg,......... 2,888 * 75,094 1.2
Chairman of the Board of
E-Z-EM Canada, Director
Donald A. Meyer,........... 20,067 * 44,059 *
Director
James L. Katz,............. 2,913 * 54,360 *
Director
Dennis J. Curtin,.......... 2,052 * 53,382 *
Vice President
Eamonn P. Hobbs,........... 50 * 39,604 *
Vice President
Michael A. Davis, M.D.,.... None * 38,836 *
Medical Director/Technical
Director, Director
Agustin V. Gago,........... None * 11,274 *
Vice President
All directors and executive
officers as a group (17
persons)................. 1,350,571 33.4 2,503,746 (4) 37.9
_______________
* 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 3, 1998 as follows: Robert M. Topol (2,388), Paul S.
-33-
Echenberg (2,388), Donald A. Meyer (2,388), James L. Katz (2,388)
and all directors and executive officers as a group (9,552).
(2) Includes Class B Common Stock shares issuable upon exercise of
options currently exercisable or exercisable within 60 days from
August 3, 1998 as follows: Howard S. Stern (78,786), Arthur L.
Zimmet (50,884), Robert M. Topol (40,638), Paul S. Echenberg
(74,404), Donald A. Meyer (18,466), James L. Katz (52,549), Dennis
J. Curtin (50,556), Eamonn P. Hobbs (39,595), Michael A. Davis,
M.D. (38,836), Agustin V. Gago (11,274) and all directors and
executive officers as a group (591,929).
(3) Includes 154,801 shares in which Mr. Meyers has only a remainder
interest. Betty S. Meyers holds a life estate in such shares.
(4) Includes 175,893 shares in which Mr. Meyers has only a remainder
interest. Betty S. Meyers holds a life estate in such shares.
Also includes 190,035 shares owned by a partnership which Mr.
Meyers has an interest in.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A facility of the Company located in Westbury, New York is owned
27% by Howard S. Stern, 25% by Betty S. Meyers, a principal
shareholder, 2% by other employees of the Company and 46% by unrelated
parties, which includes a 25% owner who manages the property.
Aggregate rentals, including real estate tax payments, approximated
$146,000 during 1998. The lease term expired in June 1996 and is
currently being extended on a month-to-month basis.
During 1998, the Company entered into split dollar life insurance
arrangements with Howard S. Stern (including his spouse) and Betty S.
Meyers (the "insureds"). On an annual basis, the Company makes
interest bearing advances of approximately $100,000 per insured toward
the cost of such life insurance policies. Interest on the advances is
to be paid to the Company annually by the insureds. Under collateral
assignment agreements, the proceeds from the policies will first be
paid to the Company to repay the advances it made. If the policies are
terminated prior to the death of the insured, the Company will be
entitled to the cash surrender value of the policies at that time, and
any shortfall between that amount and the amount of the advances made
by the Company will be repaid to the Company by the insureds.
The Company has an unsecured, two-year interest bearing note
receivable from Eamonn P. Hobbs, an executive officer of the Company,
in the principal amount of $320,000. The outstanding principal and
interest matures on September 30, 1999.
The Company has engaged Michael A. Davis, M.D., a director of the
Company, for consulting services. Fees for such services were
approximately $132,000 during 1998.
The Company has engaged Paul S. Echenberg, 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 1998.
-34-
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
----
(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 38
Consolidated balance sheets - May 30, 1998 and
May 31, 1997 39
Consolidated statements of operations - fifty-two weeks
ended May 30, 1998, May 31, 1997 and June 1, 1996 41
Consolidated statements of stockholders' equity - fifty-
two weeks ended May 30, 1998, May 31, 1997 and
June 1, 1996 42
Consolidated statements of cash flows - fifty-two weeks
ended May 30, 1998, May 31, 1997 and June 1, 1996 43
Notes to consolidated financial statements 45
(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 73
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) Certificate of Incorporation (a)
3(ii) Amended Bylaws (b)
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)
10(b) 1983 Stock Option Plan (d)
10(c) 1984 Directors and Consultants Stock Option Plan (e)
10(d) Income Deferral Program (f)
-35-
Page
----
(a) 3. EXHIBITS (CONTINUED)
13 Annual report to security holders (g)
21 Subsidiaries of the Company 74
22 Proxy statement to security holders (g)
23 Consent of Independent Certified Public Accountants 75
27 Financial Data Schedule 76
99 Report of Independent Certified Public Accountants
Other than Principal Accountants 77
_______________
(a) Incorporated by reference to Exhibit 3(i) of the
Company's annual report filed on Form 10-K for
the fiscal year ended May 31, 1997
(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) Incorporated by reference to Exhibit 10 of the
Company's current report filed on Form 8-K/A
dated November 22, 1995
(d) 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) 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) 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) 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 May 30,
1998.
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.
-36-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
E-Z-EM, Inc.
----------------------------------
(Registrant)
Date August 27, 1998 /s/ Howard S. Stern
----------------- ----------------------------------
Howard S. Stern, Chairman of the
Board, President, Chief Executive
Officer, 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 27, 1998 /s/ Howard S. Stern
----------------- ----------------------------------
Howard S. Stern, Chairman of the
Board, President, Chief Executive
Officer, Director
Date August 26, 1998 /s/ Dennis J. Curtin
----------------- ----------------------------------
Dennis J. Curtin, Vice President-
Chief Financial Officer
Date August 25, 1998 /s/ Michael A. Davis
----------------- ----------------------------------
Michael A. Davis, Director
Date August 21, 1998 /s/ Paul S. Echenberg
----------------- ----------------------------------
Paul S. Echenberg, Director
Date August 25, 1998 /s/ James L. Katz
----------------- ----------------------------------
James L. Katz, Director
Date August 25, 1998 /s/ Donald A. Meyer
----------------- ----------------------------------
Donald A. Meyer, Director
Date August 24, 1998 /s/ David P. Meyers
----------------- ----------------------------------
David P. Meyers, Director
Date August 26, 1998 /s/ Robert M. Topol
----------------- ----------------------------------
Robert M. Topol, Director
-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 30, 1998 and May 31, 1997, and the
related consolidated statements of operations, stockholders' equity and
cash flows for the fifty-two weeks ended May 30, 1998, May 31, 1997 and
June 1, 1996. 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 19% in 1998 and 15% in 1997 and
net sales constituting approximately 12% in 1998, 10% in 1997 and 12%
in 1996 of the related consolidated totals. Those statements were
audited by other auditors, whose report thereon has been furnished to
us, and our opinion, insofar as it relates to the amounts included for
this subsidiary, is based solely upon the report 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 report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report 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 30, 1998 and May 31, 1997, and the
consolidated results of their operations and their consolidated cash
flows for the fifty-two weeks ended May 30, 1998, May 31, 1997 and
June 1, 1996, 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.
GRANT THORNTON LLP
Certified Public Accountants
Melville, New York
July 27, 1998
-38-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
May 30, May 31,
ASSETS 1998 1997
------ ------
CURRENT ASSETS
Cash and cash equivalents $ 4,654 $ 4,484
Debt and equity securities 3,475 10,991
Accounts receivable, principally
trade, net of allowance for
doubtful accounts of $1,148 in
1998 and $930 in 1997 21,348 16,971
Inventories 26,764 27,351
Other current assets 2,499 4,147
------ -------
Total current assets 58,740 63,944
INVESTMENT IN AFFILIATE 1,121
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 21,917 23,418
COST IN EXCESS OF FAIR VALUE OF NET
ASSETS ACQUIRED, less accumulated
amortization of $441 in 1998 and
$447 in 1997 446 489
INTANGIBLE ASSETS, less accumulated
amortization of $652 in 1998 and
$594 in 1997 2,546 7,057
DEBT AND EQUITY SECURITIES 2,057 2,081
OTHER ASSETS 3,879 3,731
------ -------
$90,706 $100,720
====== =======
The accompanying notes are an integral part of these statements.
-39-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
May 30, May 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
------ ------
CURRENT LIABILITIES
Notes payable $ 3,041 $ 7,029
Current maturities of long-term debt 287 517
Accounts payable 6,265 6,168
Accrued liabilities 6,958 6,829
Accrued income taxes 592 286
------ -------
Total current liabilities 17,143 20,829
LONG-TERM DEBT, less current maturities 606 842
OTHER NONCURRENT LIABILITIES 1,734 1,805
COMMITMENTS AND CONTINGENCIES
------ -------
Total liabilities 19,483 23,476
------ -------
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 1998 and 1997 403 403
Class B (nonvoting), par value $.10 per
share - authorized, 10,000,000 shares;
issued and outstanding, 5,999,073
shares in 1998 and 5,600,883 shares
in 1997 600 560
Additional paid-in capital 21,643 19,073
Retained earnings 49,090 57,087
Unrealized holding gain on debt and equity
securities 1,344 1,332
Cumulative translation adjustments (1,857) (1,211)
------ -------
Total stockholders' equity 71,223 77,244
------ -------
$90,706 $100,720
====== =======
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 weeks ended
-------------------------------
May 30, May 31, June 1,
1998 1997 1996
------ ------ ------
Net sales $102,884 $97,324 $91,932
Cost of goods sold 65,451 60,754 55,518
------- ------ ------
Gross profit 37,433 36,570 36,414
------- ------ ------
Operating expenses
Selling and administrative 33,001 34,600 30,134
Research and development 5,662 6,881 5,323
Impairment of long-lived assets 4,121
------ ------ ------
Total operating expenses 42,784 41,481 35,457
------ ------ ------
Operating profit (loss) (5,351) (4,911) 957
Other income (expense)
Interest income 692 830 735
Interest expense (694) (517) (264)
Equity in losses of affiliate (219)
Other, net 38 68 512
----- ----- ------
Earnings (loss) from continuing
operations before income taxes (5,534) (4,530) 1,940
Income tax provision (benefit) 433 (1,322) 243
----- ----- ------
Earnings (loss) from
continuing operations (5,967) (3,208) 1,697
Discontinued operation:
Losses from operations, net of
income tax provision of $10 (209)
Gain on sale, net of income tax
provision of $6,019 19,520
----- ----- ------
NET EARNINGS (LOSS) $(5,967) $(3,208) $21,008
===== ===== ======
Basic earnings (loss) per common share
Continuing operations $ (.60) $ (.33) $ .17
Discontinued operation .00 .00 1.99
Total operations (.60) (.33) 2.16
Diluted earnings (loss) per common share
Continuing operations $ (.60) $ (.33) $ .17
Discontinued operation .00 .00 1.87
Total operations (.60) (.33) 2.04
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 30, 1998, May 31, 1997 and June 1, 1996
(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 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 14 759 773
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 5,600,883 560 19,073 57,087 1,332 (1,211) 77,244
Exercise of stock options 107,417 11 470 481
Income tax benefits on
stock options exercised 88 88
Compensation related to
stock option plans 7 7
Issuance of stock 1,025 6 6
3% common stock dividend 289,748 29 1,999 (2,030) (2)
Net loss (5,967) (5,967)
Unrealized holding gain on
debt and equity securities 12 12
Foreign currency translation
adjustments (646) (646)
--------- --- --------- --- ------ ------ ----- ----- ------
Balance at May 30, 1998 4,035,346 $403 5,999,073 $600 $21,643 $49,090 $1,344 $(1,857) $71,223
========= === ========= === ====== ====== ===== ===== ======
The accompanying notes are an integral part of these statements.
-42-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Fifty-two weeks ended
-------------------------------
May 30, May 31, June 1,
1998 1997 1996
------ ------ ------
Cash flows from operating activities:
Net (loss) earnings $(5,967) $(3,208) $21,008
Adjustments to reconcile net (loss)
earnings to net cash used in
operating activities
Depreciation and amortization 3,315 3,037 2,552
Impairment of long-lived assets 4,121
Provision for doubtful accounts 286 451 176
Equity in losses of affiliate 219
Gain on disposal of business (25,539)
(Gain) loss on sale of assets (11) 2 (193)
Minority share of subsidiary's
operations (200)
Deferred tax (benefit) provision (64) (147) 60
Other non-cash items 7 20
Changes in operating assets
and liabilities, net of
acquisition and disposition
Accounts receivable (4,663) (1,270) (907)
Inventories 587 (3,421) (3,123)
Other current assets 1,565 (1,111) (446)
Other assets (588) (137) (754)
Accounts payable 97 1,073 (312)
Accrued liabilities 127 608 905
Accrued income taxes 310 (54) 22
Other noncurrent liabilities (21) (25) 168
------ ------ ------
Net cash used in operating
activities (680) (4,182) (6,583)*
------ ------ ------
Cash flows from investing activities:
Additions to property, plant and
equipment (1,897) (4,370) (4,231)
Acquisition of business (7,096)
Investment in affiliate (1,340)
Proceeds from disposal of business 510 26,785
Proceeds from sale of assets 50 114 485
Held-to-maturity securities
Purchases (104,253)
Proceeds from maturity 105,846
Available-for-sale securities
Purchases (12,290) (22,735) (39,750)
Proceeds from sale 19,806 31,998 19,995
------ ------ ------
Net cash provided by (used in)
investing activities 4,839 (2,089) 4,877
------ ------ ------
The accompanying notes are an integral part of these statements.
-43-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
Fifty-two weeks ended
-------------------------------
May 30, May 31, June 1,
1998 1997 1996
------ ------ ------
Cash flows from financing activities:
Repayments of debt $(7,704) $(1,023) $ (910)
Proceeds from issuance of debt 3,619 7,592 1,121
Proceeds from issuance of loan
by minority shareholder 238
Proceeds from exercise of stock
options, including related
income tax benefits 569 873 1,019
Proceeds from issuance of stock in
connection with the stock
purchase plan 6 24 5
----- ----- -----
Net cash (used in) provided by
financing activities (3,510) 7,466 1,473
----- ----- -----
Effect of exchange rate changes on
cash and cash equivalents (479) (74) (366)
----- ----- -----
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 170 1,121 (599)
Cash and cash equivalents
Beginning of year 4,484 3,363 3,962
----- ----- -----
End of year $4,654 $4,484 $3,363
===== ===== =====
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $ 650 $ 398 $ 136
===== ===== =====
Income taxes (net of $1,337,
$686 and $508 in refunds
in 1998, 1997 and 1996,
respectively) $ (762) $ 6 $6,319
===== ===== =====
* 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.
-44-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 30, 1998, May 31, 1997 and June 1, 1996
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.
Nature of Business
------------------
The Company is primarily engaged in developing, manufacturing and
marketing diagnostic products used by radiologists and other
physicians during image-assisted procedures to detect anatomic
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 peripheral vascular disease.
Basis of Consolidation
----------------------
The consolidated financial statements include the accounts of E-Z-EM,
Inc. and all 100%-owned subsidiaries (the "Company"). All
significant intercompany balances and transactions have been
eliminated. The Company's approximate 23% interest in an affiliate
is accounted for by the equity method. Pursuant to this method,
such investment is recorded at cost and adjusted by the Company's
share of undistributed earnings (or losses). Surgical Dynamics
Inc. ("SDI"), a former 51%-owned subsidiary, 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 1996 in
the accompanying consolidated statements of 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 operations.
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;
a subsidiary promoting and distributing products located in the
United Kingdom; and a subsidiary manufacturing products located in
Ireland.
-45-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fiscal Year
-----------
The Company reports on a fiscal year which concludes on the Saturday
nearest to May 31. Fiscal years 1998, 1997 and 1996 ended on May
30, 1998, May 31, 1997 and June 1, 1996, respectively, for
reporting periods of fifty-two weeks.
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
deposit and Eurodollar investments of $1,220,000 and $2,443,000 at
May 30, 1998 and May 31, 1997, respectively. The carrying amount
of these financial instruments reasonably approximates fair value
because of their short maturity. Foreign-denominated cash and cash
equivalents aggregated $2,359,000 and $1,141,000 at May 30, 1998
and May 31, 1997, respectively.
Debt and Equity Securities
--------------------------
Debt and equity 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.
Inventories
-----------
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 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 $2,827,000,
$2,721,000 and $2,308,000 in 1998, 1997 and 1996, respectively.
-46-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cost in Excess of Fair Value of Net Assets Acquired
---------------------------------------------------
The cost in excess of fair value of net assets acquired ("goodwill")
is being amortized on a straight-line basis over 40 years.
Amortization from continuing operations was $17,000, $64,000 and
$73,000 in 1998, 1997 and 1996, respectively.
Intangible Assets
-----------------
Intangible assets are being amortized on a straight-line basis over
the estimated useful lives of the respective assets ranging from
three to fifteen and one-half years. Amortization from continuing
operations was $471,000, $252,000 and $47,000 in 1998, 1997 and
1996, respectively.
On an ongoing basis, management reviews the valuation and
amortization of goodwill and intangible assets to determine
possible impairment by considering current operating results and
comparing the carrying values to the anticipated undiscounted
future cash flows of the related assets. See Note B - Asset
Purchase and Impairment Charge.
Income Taxes
------------
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.
Foreign Currency Translation
----------------------------
In accordance with Statement of Financial Accounting Standards No.
52, "Foreign Currency Translation," the Company has determined that
the functional currency for 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.
-47-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings (Loss) Per Common Share
--------------------------------
In 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share," which requires
public companies to present basic earnings per share and, if
applicable, diluted earnings per share. In accordance with SFAS
No. 128, all comparative periods have been restated, if applicable.
Basic earnings per share are based on the weighted average number
of common shares outstanding without consideration of potential
common stock. Diluted earnings per share are based on the weighted
average number of common and potential common shares outstanding.
The calculation takes into account the shares that may be issued
upon exercise of stock options, reduced by the shares that may be
repurchased with the funds received from the exercise, based on the
average price during the period. Potential common shares were
excluded from the diluted calculation for 1998 and 1997, as their
effects were anti-dilutive.
The following table sets forth the reconciliation of the weighted
average number of common shares:
1998 1997 1996
------ ------ ------
Basic 9,952,482 9,870,732 9,711,976
Effect of dilutive
securities (stock options) 602,890
--------- --------- ----------
Diluted 9,952,482 9,870,732 10,314,866
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 M.
Use 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.
-48-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
New Pronouncements Not Yet Adopted
----------------------------------
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, "Reporting Comprehensive Income," which is effective for
the Company's 1999 fiscal year. The statement addresses the
reporting and displaying of comprehensive income and its
components. Earnings per share will only be reported for net
income and not for comprehensive income. Adoption of SFAS No. 130
relates to disclosure within the financial statements and is not
expected to have a material effect on the Company's financial
statements.
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which is effective for the Company's 1999 fiscal
year. The statement redefines how operating segments are
determined and requires disclosure of certain financial and
descriptive information about a company's operating segments. The
Company has not completed its evaluation of the effects that SFAS
No. 131 will have on its financial reporting and disclosures.
NOTE B - ASSET PURCHASE AND IMPAIRMENT CHARGE
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 developed and manufactured 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. Prior to the impairment charge described below, the
fair values of the intangible assets acquired ($6,543,000),
representing technology, trademarks, licenses and know-how, were
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 this consulting agreement
was for a period of two years from the acquisition date of January
8, 1997. As a result of the intangible asset impairment, the
unamortized consideration was written off in 1998.
-49-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE B - ASSET PURCHASE AND IMPAIRMENT CHARGE (continued)
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 as of those dates.
Pro Forma Information (Unaudited)
1997 1996
------ ------
(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:
Basic (.37) .09
Diluted (.37) .08
In accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," the Company recorded an
impairment charge in 1998, with no associated tax benefit, of
$4,121,000, or $.41 per share, relating to certain long-lived
assets pertaining to the Leocor acquisition and used in the
cardiovascular market. The Company determined that the revenue
potential of this technology, as it relates to the cardiovascular
market, was impaired due to increased competition and price erosion
for coronary stents and angioplasty products and the Company's
strategic decision to commercially exploit this technology in the
interventional radiology market. The Company is seeking a
strategic business partner with an existing cardiovascular sales
and marketing franchise in order to be successful in the
cardiovascular market, although there can be no assurances that
such a partner can be found. The charge represents the difference
between the carrying value of intangible assets and the fair market
value of these assets based on estimated future cash flows
discounted at a rate commensurate with the risk involved. The
charge had no impact on the Company's cash flow or its ability to
generate cash flow in the future. As a result of the impairment
charge, amortization expense related to these assets will decrease
by approximately $250,000 per year, with the remaining intangible
assets being amortized on a straight-line basis over the remaining
estimated useful lives of approximately eight years.
-50-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE C - 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 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 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 cash proceeds of $27,073,000
at closing and $510,000 during 1998 for the sale of its interest in
SDI. The $510,000 consideration had been held back, pursuant to
the terms of the Merger Agreement, by USSC as a nonexclusive source
of indemnification for potential breaches of representations and
warranties. 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 basic EPS
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.
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 1996 in the accompanying consolidated
statements of operations. Revenues attributable to the SDI
operations were approximately $3,475,000 for the period June 4,
1995 through November 22, 1995. Changes in operating assets and
liabilities reflected in the consolidated statements of cash flows
include amounts pertaining to the operations of SDI.
-51-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE D - INVESTMENT IN AFFILIATE
In August 1997, the Company acquired approximately 23% of ITI Medical
Technologies, Inc. ("ITI") for $1,340,000, including acquisition
related expenses of $40,000. ITI is a California corporation,
based in Livermore, California, which develops and manufactures MRI
diagnostic and therapeutic medical devices. The Company's
investment in ITI is accounted for by the equity method. The
Company's investment in ITI has been reduced by its proportionate
share of losses in 1998 of approximately $219,000.
NOTE E - DEBT AND EQUITY SECURITIES
Debt and equity securities at May 30, 1998 consist of the following:
Unrealized
Amortized Fair holding
cost value gain
--------- ----- ----------
(in thousands)
Current
-------
Available-for-sale securities
(carried on the balance
sheet at fair value)
Debt securities $3,470 $3,470
Other 5 5
----- -----
$3,475 $3,475
===== =====
Noncurrent
----------
Available-for-sale securities
(carried on the balance
sheet at fair value)
Equity securities $1,626 $2,056 $430
Other 1 1
----- ----- ---
$1,627 $2,057 $430
===== ===== ===
-52-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE E - DEBT AND EQUITY SECURITIES (continued)
Debt and equity securities at May 31, 1997 consist of the following:
Unrealized
Amortized Fair holding
cost value gain
--------- ----- ----------
(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
===== ===== ===
NOTE F - INVENTORIES
Inventories consist of the following:
May 30, May 31,
1998 1997
------ ------
(in thousands)
Finished goods $13,846 $14,170
Work in process 1,474 1,639
Raw materials 11,444 11,542
------ ------
$26,764 $27,351
====== ======
-53-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE G - PROPERTY, PLANT AND EQUIPMENT, AT COST
Property, plant and equipment are summarized as follows:
Estimated
useful May 30, May 31,
lives 1998 1997
--------- ------ ------
(in thousands)
Building and building
improvements 10 to 39 years $13,337 $13,642
Machinery and equipment 2 to 10 years 26,964 25,930
Leasehold improvements Term of lease 1,645 1,610
------ ------
41,946 41,182
Less accumulated depreciation
and amortization 23,506 21,293
------ ------
18,440 19,889
Land 3,477 3,529
------ ------
$21,917 $23,418
====== ======
NOTE H - INCOME TAXES
Income tax expense (benefit) from continuing operations analyzed by
category and by income statement classification is summarized as
follows:
1998 1997 1996
------ ------ ------
(in thousands)
Current
Federal $(159) $ (724) $413
State and local 131 54 31
Foreign 525 (505) (261)
--- ----- ---
Subtotal 497 (1,175) 183
Deferred (64) (147) 60
--- ----- ---
Total $ 433 $(1,322) $243
=== ===== ===
-54-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE H - INCOME TAXES (continued)
Temporary differences which give rise to deferred tax assets and
liabilities are summarized as follows:
May 30, May 31,
1998 1997
------ ------
(in thousands)
Deferred tax assets
Difference between book and tax basis
in investment sold to Canadian
subsidiary $1,137 $1,137
Tax credit carryforwards 642 477
Tax operating loss carryforwards 370 313
Alternative minimum tax ("AMT")
credit carryforward 125
Impairment of long-lived assets 1,507
Expenses incurred not currently deductible 1,435 1,321
Unrealized investment losses 951 962
Deferred compensation costs 548 554
Inventories 591 412
Other 87 132
----- -----
Gross deferred tax asset 7,393 5,308
----- -----
Deferred tax liabilities
Excess tax over book depreciation 1,054 1,096
Unrealized investment gains 37 41
Tax on unremitted profits of Puerto
Rican subsidiary 86 76
Other 20 60
----- -----
Gross deferred tax liability 1,197 1,273
Valuation allowance (5,017) (2,945)
----- -----
Net deferred tax asset $1,179 $1,090
===== =====
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 C.
-55-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE H - INCOME TAXES (continued)
If not utilized, the tax operating loss carryforwards will expire in
various amounts over the years 2001 through 2003. The tax credit
carryforwards will expire in various amounts over the years 1999
through 2013.
Deferred income taxes are provided for the expected Tollgate tax on
the undistributed earnings of the Company's Puerto Rican
subsidiary, which are expected to be distributed at some time in
the future.
At May 30, 1998, undistributed earnings of certain foreign
subsidiaries aggregated $13,581,000 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 $679,000.
Deferred tax assets and liabilities are included in the consolidated
balance sheets as follows:
May 30, May 31,
1998 1997
------ ------
(in thousands)
Current - Accrued income taxes $ (86) $ (103)
Noncurrent - Other assets 1,265 1,193
----- -----
Net deferred tax asset $1,179 $1,090
===== =====
Earnings (loss) from continuing operations before income taxes for
U.S. and international operations consist of the following:
1998 1997 1996
------ ------ ------
(in thousands)
U.S. $(5,225) $(1,977) $2,280
International (309) (2,553) (340)
----- ----- -----
$(5,534) $(4,530) $1,940
===== ===== =====
-56-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE H - 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:
1998 1997 1996
------ ------ ------
(in thousands)
Income tax provision (benefit) $ 433 $(1,322) $243
Effect of:
State income taxes, net of
Federal tax benefit (40) (34) (21)
Research and development credit 41 75 95
Earnings of the Puerto Rican
subsidiary, net of Puerto
Rico Corporate tax and
Tollgate tax 188 214 348
Earnings of the Foreign Sales
Corporation 7 7 16
Tax-exempt portion of
investment income 96 202 137
Change in valuation allowance (1,807) (100) 74
Losses of foreign entities
generating no current tax
benefit (526) (380) (79)
Nondeductible expenses (324) (269) (251)
Utilization of tax operating
and capital loss
carryforwards 61
Other 50 67 56
----- ----- ---
Income tax provision (benefit)
at statutory tax rate of 34%
in 1998 and 1997 and 35% in
1996 $(1,882) $(1,540) $679
===== ===== ===
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 28,
1994 have been closed by the Internal Revenue Service.
-57-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE I - DEBT
Short-term debt consists of the following:
May 30, May 31,
1998 1997
------ ------
(in thousands)
Bank, lines of credit
6.50% (1) $1,961
4.75% (1) $ 546
7.16% to 7.25% 5,000
7.75% 846
Japanese bank
2.13% note (2) 1,080
2.63% note 430
Other financial institutions
5.99% note, unsecured 207
----- -----
$3,041 $7,029
===== =====
Long-term debt consists of the following:
May 30, May 31,
1998 1997
------ ------
(in thousands)
Japanese bank loan, due November 2007,
2.63% (2) $298 $ 754
Japanese bank loan, due November 2004,
1.80% (2) 252
Canadian bank loan, due November 1999,
7.00% (3) 343 605
--- -----
893 1,359
Less current maturities 287 517
--- -----
$606 $ 842
=== =====
(1) The Company's Canadian subsidiary has available $3,432,000
(Canadian $5,000,000) under this line of credit with a bank,
which is collateralized by accounts receivable and inventory and
expires on September 30, 1998.
(2) Guaranteed by the Company and collateralized by property, plant
and equipment having a net carrying value of $1,860,000 at May
30, 1998.
-58-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE I - DEBT (continued)
(3) Collateralized by accounts receivable and $686,000 (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 September 30, 1998. At May
30, 1998, no amounts were outstanding under this line of credit.
AngioDynamics has available $1,000,000 under an unsecured line of
credit with a bank, which is guaranteed by the Company and expires
on September 30, 1998. At May 30, 1998, no amounts were
outstanding under this line of credit.
AngioDynamics' Irish subsidiary has available $426,000 (Irish Punts
300,000) under this unsecured line of credit with a bank, which is
guaranteed by the Company and expires on July 31, 1998. At May 30,
1998, no amounts were outstanding under this line of credit.
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 1998, 1997 and 1996, the weighted average interest rates on
short-term debt were 6.38%, 6.19% and 5.93%, respectively.
NOTE J - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
May 30, May 31,
1998 1997
------ ------
(in thousands)
Payroll and related expenses $3,792 $3,006
Accrued sales rebates 1,421 1,940
Other 1,745 1,883
----- -----
$6,958 $6,829
===== =====
NOTE K - RETIREMENT PLANS
E-Z-EM, Inc. and certain domestic subsidiaries ("E-Z-EM") provide
pension benefits through three Profit-Sharing Plans, under which
E-Z-EM makes discretionary contributions to eligible employees, and
three companion 401(k) Plans, 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
-59-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE K - RETIREMENT PLANS (continued)
otherwise covered by collective bargaining agreements. In 1998,
1997 and 1996, profit-sharing contributions were $534,000, $507,000
and $468,000, respectively, and 401(k) matching contributions were
$341,000, $328,000 and $316,000, respectively.
E-Z-EM also contributed $42,000, $52,000 and $42,000 in 1998, 1997
and 1996, respectively, to a multiemployer pension plan for
employees covered by a collective bargaining agreement. This plan
is not administered by E-Z-EM and contributions are determined in
accordance with provisions of negotiated labor contracts.
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 1998, 1997 and 1996, contributions were
$65,000, $55,000 and $45,000, respectively.
NOTE L - COMMITMENTS AND CONTINGENCIES
During August and December 1997, the Company settled two product
liability actions in which it had been a defendant. Such actions
were settled for amounts under the Company's insurance limit and
the amounts contributed by the Company were not material to its
consolidated financial statements.
During April 1998, the Company settled a lawsuit brought upon by
Olympia Holding Corporation p/k/a P-I-E Nationwide, Inc. for
alleged undercharges for freight carriage. Such lawsuit was
settled for an amount under the Company's insurance limit and the
amount contributed by the Company was not material to its
consolidated financial statements.
-60-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE L - COMMITMENTS AND CONTINGENCIES (continued)
The Company leases several facilities from related parties. During
1998, 1997 and 1996, aggregate rental costs under all operating
leases from continuing operations, which primarily consist of
facility rentals, were approximately $1,325,000, $1,216,000 and
$1,131,000, respectively, of which approximately $196,000, $197,000
and $202,000 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 May 30, 1998, are summarized as follows:
Related
Total party
leases leases
------ -------
(in thousands)
1999 $ 850 $ 75
2000 583 50
2001 448 21
2002 408
2003 393
Thereafter 1,719
----- ---
$4,401 $146
===== ===
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 May 30, 1998, are summarized as
follows:
(in thousands)
1999 $250
2000 250
2001 250
2002 125
---
$875
===
-61-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE M - 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 1,817,974 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 459,490 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.
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. As a result of the 1997 Plan, the
Company's equity interest in AngioDynamics may become diluted by as
much as 12%.
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"
-62-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE M - COMMON STOCK (continued)
method contained in SFAS 123. The Company elected to continue to
account for stock-based compensation under the guidelines of APB
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 $7,000 and $2,000 in 1998 and 1997,
respectively, 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:
1998 1997 1996
------ ------ ------
(in thousands, except per share data)
Net earnings (loss)
As reported $(5,967) $(3,208) $21,008
Pro forma (6,549) (3,672) 20,730
Basic earnings (loss) per
common share
As reported $(.60) $(.33) $2.16
Pro forma (.66) (.37) 2.13
Diluted earnings (loss) per
common share
As reported $(.60) $(.33) $2.04
Pro forma (.66) (.37) 2.01
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 options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted-
average assumptions for 1998, 1997 and 1996, respectively:
dividend yields of zero for all years; expected volatility ranging
from 43.89% to 47.30% in 1998, from 46.90% to 47.61% in 1997 and
from 47.49% to 49.75% in 1996; risk-free interest rates ranging
from 5.61% to 6.35% in 1998, from 5.90% to 7.09% in 1997 and from
5.47% to 6.65% in 1996; and expected terms ranging from 5 to 9 1/2
years in 1998, 5 and 9 1/2 years in 1997 and 5 years in 1996.
-63-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE M - COMMON STOCK (continued)
A summary of the status of the Company's stock option plans as of May
30, 1998, May 31, 1997 and June 1, 1996, and changes for the three
years then ended, is presented below:
1998 1997 1996
---------------- ---------------- ----------------
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 1,115 $4.90 1,225 $ 4.90 1,330 $4.75
Granted 11 $10.13 86 $8.65
Exercised (107) $4.48 (118) $ 5.19 (146) $5.23
Forfeited (5) $7.01 (3) $ 8.77 (27) $4.79
Expired (1) $8.74 (18) $9.23
----- ----- -----
Outstanding at
end of year 1,002 $4.94 1,115 $ 4.90 1,225 $4.90
===== ===== =====
Options exercisable
at year-end 995 $ 4.91 1,100 $4.86 672 $4.85
Weighted-average
fair value of
options granted
during the year $5.13 $4.41
1984 Plan
---------
Outstanding at
beginning of
year 305 $5.60 306 $ 5.65 259 $ 5.27
Granted 6 $5.88 16 $ 9.32 55 $ 8.36
Exercised (2) $ 4.71
Expired (7) $9.53 (17) $10.00 (6) $15.03
--- --- ---
Outstanding at
end of year 304 $5.51 305 $ 5.60 306 $ 5.65
=== === ===
Options exercisable
at year-end 293 $5.47 283 $ 5.24 197 $ 5.53
Weighted-average
fair value of
options granted
during the year $2.72 $ 4.76 $ 4.31
-64-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE M - COMMON STOCK (continued)
1998 1997
---------------- ----------------
Weighted Weighted
-Average -Average
Exercise Exercise
Shares Price Shares Price
------ -------- ------ --------
1997 Plan
---------
Outstanding at
beginning of
year 122.39 $80,000
Granted 140.63 $43,022 122.39 $80,000
Forfeited (133.01) $80,000
------ ------
Outstanding at
end of year 130.00 $40,000 122.39 $80,000
====== ======
Options exercisable
at year-end None None
Weighted-average
fair value of
options granted
during the year $24,877 $36,463
The following information applies to options outstanding and
exercisable at May 30, 1998:
Outstanding Exercisable
------------------------------ ------------------
Weighted-
Number Average Weighted- Number Weighted-
Out- Remaining Average Exer- Average
Range of standing Life in Exercise cisable Exercise
Exercise Prices (000) Years Price (000) Price
--------------- -------- --------- --------- ------- ---------
1983 Plan
---------
$3.66 to $5.39 880 5.92 $4.45 878 $4.45
$7.54 to $10.68 122 5.90 $8.46 117 $8.38
----- ---
1,002 995
===== ===
1984 Plan
---------
$3.66 to $5.49 214 6.44 $4.15 214 $4.15
$5.88 to $8.58 66 6.64 $7.93 55 $8.21
$9.58 to $12.49 24 6.37 $10.93 24 $10.93
--- ---
304 293
=== ===
-65-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE M - COMMON STOCK (continued)
On May 30, 1998, there remained 218,014, 113,259 and 6.36 shares
available for granting of options under the 1983, 1984 and 1997
Plans, 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.
On May 5, 1998, the Company's Board of Directors approved the
repricing of all outstanding stock options previously granted under
the 1997 Plan. The repricing provided for the exercise price of
128.41 options to be reduced from $80,000 per share to $40,000 per
share, to reflect current fair value. The repricing did not affect
the term or vesting period of the options.
In August 1985, the Company adopted an Employee Stock Purchase Plan
(the "Employee Plan"). The Employee Plan provides for the purchase
by employees of the Company's Class B Common 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 Class B Stock
may be purchased under the Employee Plan which terminates on
September 30, 1998. During 1998, employees purchased 1,025 shares,
at prices ranging from $5.95 to $7.01. Total proceeds received by
the Company approximated $6,000.
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. On
January 23, 1998, 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, 1998 to shareholders of record on February 26, 1998.
Earnings (loss) per common share have been retroactively adjusted
to reflect the stock dividends.
-66-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE N - RELATED PARTIES
During 1998, the Company entered into split dollar life insurance
arrangements with a key executive (including his spouse) and a
principal shareholder (the "insureds"). On an annual basis, the
Company makes interest bearing advances of approximately $100,000
per insured toward the cost of such life insurance policies.
Interest on the advances is to be paid to the Company annually by
the insureds. Under collateral assignment agreements, the proceeds
from the policies will first be paid to the Company to repay the
advances it made. If the policies are terminated prior to the
death of the insured, the Company will be entitled to the cash
surrender value of the policies at that time, and any shortfall
between that amount and the amount of the advances made by the
Company will be repaid to the Company by the insureds. At May 30,
1998, advances of $200,000 are recorded in the consolidated balance
sheet under the caption "Other Assets".
The Company has an unsecured, two-year interest bearing note
receivable from an executive officer in the principal amount of
$320,000. The outstanding principal and interest matures on
September 30, 1999.
A director provided consulting services to the Company during 1998,
1997 and 1996. Fees for such services, including fees relating to
attendance at directors' meetings, were approximately $99,000,
$333,000 and $319,000 during 1998, 1997 and 1996, respectively. In
connection with the sale of SDI 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.
Three other directors provided consulting services to the Company
during 1998, 1997 and 1996. Fees for such services, including fees
relating to attendance at directors' meetings, were approximately
$198,000, $192,000 and $227,000 during 1998, 1997 and 1996,
respectively.
-67-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE O - 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, CT-scanning, ultrasound and MRI imaging examinations, and
non-contrast systems, including diagnostic radiology devices,
custom contract pharmaceuticals, gastrointestinal cleansing
laxatives, X-ray protection equipment, and immunoassay tests.
AngioDynamics products include angiography, therapeutic and
stent/angioplasty medical devices 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.
In 1998, 1997 and 1996, there was one customer to whom sales of
Diagnostic products represented 16%, 15% and 16% of total sales,
respectively. Approximately 19% of accounts receivable pertained
to this customer at May 30, 1998 and May 31, 1997, respectively.
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E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE O - INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS (continued)
Industry Segments 1998 1997 1996
----------------- ------ ------ ------
(in thousands)
Net Sales
Diagnostic products $ 83,566 $80,838 $80,936
AngioDynamics products 19,892 18,662 11,696
Eliminations (574) (2,176) (700)
------- ------ ------
Total Net Sales $102,884 $97,324 $91,932
======= ====== ======
Operating Profit (Loss)
Diagnostic products $ 1,988 $(1,088) $2,509
AngioDynamics products (7,317)* (3,816) (1,536)
Eliminations (22) (7) (16)
----- ----- -----
Total Operating Profit (Loss) $(5,351) $(4,911) $ 957
===== ===== =====
Identifiable Assets
Diagnostic products $72,124 $ 76,576 $83,304
AngioDynamics products 19,631 * 25,515 12,945
Eliminations (1,049) (1,371) (212)
------ ------- ------
Total Identifiable Assets $90,706 $100,720 $96,037
====== ======= ======
Depreciation and Amortization
Diagnostic products $2,361 $2,437 $2,111
AngioDynamics products 954 600 317
Discontinued operation 124
----- ----- -----
Total Depreciation and
Amortization $3,315 $3,037 $2,552
===== ===== =====
Capital Expenditures
Diagnostic products $1,745 $1,484 $3,850
AngioDynamics products 152 2,886 370
Discontinued operation 11
----- ----- -----
Total Capital Expenditures $1,897 $4,370 $4,231
===== ===== =====
* Includes an impairment charge of $4,121,000. See Note B - Asset
Purchase and Impairment Charge.
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E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE O - INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS (continued)
Geographic Areas
----------------
The following geographic area data includes net sales, operating
profit (loss) generated by and assets employed in operations
located in each area:
1998 1997 1996
------ ------ ------
(in thousands)
Net Sales
U.S. operations $ 84,459 $80,190 $71,939
International operations:
Canada 20,321 14,369 12,254
Other 11,238 12,555 13,456
Eliminations (13,134) (9,790) (5,717)
------- ------ ------
Total Net Sales $102,884 $97,324 $91,932
======= ====== ======
Operating Profit (Loss)
U.S. operations $(6,454) $(3,439) $1,084
International operations:
Canada 867 (1,518) (410)
Other 208 175 225
Eliminations 28 (129) 58
----- ----- -----
Total Operating Profit (Loss) $(5,351) $(4,911) $ 957
===== ===== =====
Identifiable Assets
U.S. operations $67,705 $ 78,706 $73,604
International operations:
Canada 17,423 15,496 15,543
Other 8,568 7,772 8,067
Eliminations (2,990) (1,254) (1,177)
------ ------- ------
Total Identifiable Assets $90,706 $100,720 $96,037
====== ======= ======
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E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE O - INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS (continued)
The Company's domestic export sales by geographic area are summarized
as follows:
1998 1997 1996
------ ------ ------
(in thousands)
Europe $ 6,974 $ 9,252 $5,655
Other 6,169 6,098 3,783
------ ------ -----
$13,143 $15,350 $9,438
====== ====== =====
NOTE P - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly results of operations during 1998 and 1997 were as follows:
1998
----------------------------------
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
(in thousands, except per share data)
Net sales $25,713 $24,711 $24,385 $28,075
Gross profit 9,735 8,721 8,239 10,738
Net earnings (loss) 128 (1,375) (5,819) 1,099
Earnings (loss) per common
share (1)
Basic and diluted .01 (.14) (.58) .11
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)
Basic and diluted .05 .02 (.11) (.29)
(1) Earnings (loss) per common share have been retroactively restated
to reflect the total shares issued after the 3% stock dividends
described in Note M.
The third quarter of 1998 includes an impairment charge of
$4,121,000. See Note B - Asset Purchase and Impairment Charge.
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E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 30, 1998, May 31, 1997 and June 1, 1996
NOTE P - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (continued)
The fourth quarter of 1997 was adversely affected by certain
adjustments pertaining to the Company'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 the
European market.
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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 June 1, 1996
Allowance for
doubtful accounts.. $465 $176 $114 (a) $527
=== === === ===
Fifty-two weeks
ended May 31, 1997
Allowance for
doubtful accounts.. $527 $451 $ 48 (b) $930
=== === === ===
Fifty-two weeks
ended May 30, 1998
Allowance for
doubtful accounts.. $930 $286 $ 68 (b) $1,148
=== === === =====
(a) Represents amounts written off as uncollectible of $64,000 and an
amount deducted in conjunction with the sale of SDI of $50,000.
(b) Amounts written off as uncollectible.
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