Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 1, 1996 Commission file number 0-13003
------------ -------
E-Z-EM, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-1999504
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
717 Main Street, Westbury, New York 11590
------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 333-8230
--------------
Securities registered pursuant to Section 12(b) of the Act: Class A Common
Stock, par value $.10 and Class B Common Stock, par value $.10
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
The aggregate market value of the registrant's voting Class A Common Stock held
by non-affiliates on August 5, 1996 was $21,655,000.
On August 5, 1996, there were 4,035,346 shares of the registrant's Class A
Common Stock outstanding and 5,209,655 shares of the registrant's Class B Common
Stock outstanding.
Page 1 of 71
Exhibit Index on Page 34
E-Z-EM, Inc. and Subsidiaries
INDEX
PART I: PAGE
Item l. Business 3
Item 2. Properties 14
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security
Holders 16
PART II:
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 17
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
Item 8. Financial Statements and Supplementary Data 24
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 31
Item 13. Certain Relationships and Related Transactions 33
PART IV:
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 34
-2-
PART I
Item 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
E-Z-EM, Inc. (the "Company" or "E-Z-EM"), organized in Delaware in 1983,
has been in business for over 34 years, and has its corporate offices located at
717 Main Street, Westbury N.Y. 11590. The Company is primarily engaged in
developing, manufacturing and marketing diagnostic products used by radiologists
and other physicians during image-assisted procedures to detect physical
abnormalities and diseases. The Company also designs, develops, manufactures and
markets, through its AngioDynamics subsidiary, a variety of differentiated
products and systems used principally for therapeutic purposes by interventional
medicine practitioners. Over one-third of the Company's sales are to customers
outside the U.S.
E-Z-EM contrast systems consist of specially developed powdered and liquid
barium sulfate formulations and consumable medical devices, which function
together as a system, for examinations of the various parts of the
gastrointestinal ("G.I.") tract. Contrast systems are used in X-ray, CT-scanning
and other imaging examinations. The G.I. tract is commonly referred to as the
digestive system and consists of the esophagus, stomach, intestine (or small
bowel) and colon. E-Z-EM manufactures a broad spectrum of barium sulfate
products for different uses in G.I. tract examinations. Each E-Z-EM barium
sulfate formulation is tailored to that portion of the G.I. tract to be
examined, and to the procedures employed by radiologists in each examination.
Based upon sales, the Company believes that it is the leading worldwide producer
of barium sulfate contrast systems for use in G.I. tract examinations.
The Company also competes in areas related and complementary to its basic
contrast systems business, categorized as non-contrast systems. Non-contrast
systems include: diagnostic radiology devices, custom contract pharmaceuticals,
gastrointestinal cleansing laxatives, X-ray protection equipment, and
immunoassay tests. See "Narrative Description of Business."
The Company's sales of contrast and non-contrast systems, collectively the
diagnostic ("Diagnostic") products industry segment, were virtually flat, down
less than 1%, during 1996 as compared to 1995.
The Company manufactures and markets, through AngioDynamics, Inc.
("AngioDynamics"), a wholly-owned subsidiary, originally organized as a division
of the Company in 1992, interventional medical devices and a pharmaceutical
delivery system; these products are used by physicians in diagnostic and
therapeutic procedures, which are typically less invasive than alternative open
surgical procedures. The Company offers three differentiated product groups for
use during interventional procedures: stent products, angiographic and fluid
management products, and thrombolytic products, collectively the AngioDynamics
products industry segment. See "Narrative Description of Business".
During 1996, AngioDynamics product sales, net of intersegment
-3-
eliminations (see Note M to the Consolidated Financial Statements included
herein), increased 57%, due primarily to domestic and international market
penetration and the introduction of the AngioStentTM. The AngioStent, a device
used during coronary procedures as a treatment for atherosclerosis, was
introduced in January 1996 in certain international markets.
In November 1995, 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 ("USSC"). As a
result of this sale, the Company recognized a gain, pretax of approximately
$25,539,000, after-tax of approximately $19,520,000, or $2.01 per common share
on a primary basis. The surgical products industry segment has been reported as
a discontinued operation and, accordingly, the gain from the sale of SDI and the
Company's proportionate share of losses from operations of SDI have been
classified as a discontinued operation in the consolidated statements of
earnings. The surgical products industry segment included the NucleotomeTM
device, the Ray Threaded Fusion CageTM and other surgical devices and
accessories used in spinal surgery.
Unless the context requires otherwise, all references herein to a
particular year are references to the Company's fiscal year.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company is engaged in the manufacture and distribution of a wide
variety of products that are classified into two industry segments: Diagnostic
products and AngioDynamics products. Diagnostic products encompass both contrast
systems, consisting of barium sulfate formulations and related medical devices
used in X-ray, CT-scanning and other imaging examinations, and non-contrast
systems, including diagnostic radiology devices, custom contract
pharmaceuticals, gastrointestinal cleansing laxatives, X-ray protection
equipment, and immunoassay tests. AngioDynamics products include stent products,
angiographic and fluid management products, and thrombolytic products used in
the interventional medicine marketplace.
The 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 M to the
Consolidated Financial Statements included herein.
(c) NARRATIVE DESCRIPTION OF BUSINESS
DIAGNOSTIC PRODUCTS
Diagnostic products include both contrast systems, consisting of barium
sulfate formulations and related medical devices used in X-ray, CT-scanning and
other imaging examinations, and non-contrast systems, including diagnostic
radiology devices, custom contract pharmaceuticals, gastrointestinal cleansing
laxatives, X-ray protection equipment, and immunoassay tests. Diagnostic
products accounted for 88% of sales in 1996, as compared to 92% in 1995 and 95%
in 1994.
Contrast Systems
Contrast systems, using barium sulfate formulations as contrast
-4-
media together with consumable medical devices, have been E-Z-EM's principal
business since the Company's organization over 34 years ago. For over 75 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 absorption coefficient of X-rays. In addition, it is inert, insoluble
in water and chemically stable. Barium sulfate for suspension is listed in the
U.S. Pharmacopeia. The use of properly formulated barium sulfate suspensions
permits the visualization of the entire G.I. tract.
The Company's contrast systems are designed for a variety of radiological
procedures. In single contrast procedures, a portion of the G.I. tract is filled
with barium sulfate to produce a diagnostic image of the tract's contours. In
double contrast procedures, gas or air is used to distend the G.I. tract after
coating with a high density barium sulfate suspension. This produces a
significantly clearer diagnostic image of the tract's surface than that
obtainable through the use of single contrast procedures. In computed tomography
procedures, known as "CT-scanning", a specially formulated low density barium
sulfate product is used to visualize the G.I. tract and thus significantly
enhance the radiological procedure.
Contrast systems provide radiologists with a range of effective and
convenient powdered and liquid product formulations tailored to single contrast,
double contrast or CT-scanning procedures. Many of the Company's products are
functionally packaged in consumable dispensing containers. The Company believes
that it currently has the broadest barium sulfate product line of any worldwide
manufacturer and is continuing to develop additional formulations for modern
X-ray techniques. E-Z-EM also sells accessory medical devices for use in
contrast system procedures, including empty enema administration kits and
components. Contrast systems accounted for 68% of sales in 1996, as compared to
72% of sales in 1995 and 75% of sales in 1994.
Non-Contrast Systems
The Company also competes in areas related and complementary to its basic
contrast systems business, categorized as non-contrast systems. Non-contrast
systems include: diagnostic radiology devices, custom contract pharmaceuticals,
gastrointestinal cleansing laxatives, X-ray protection equipment, and
immunoassay tests. Non-contrast systems accounted for 20% of sales in 1996, 1995
and 1994.
The Company's line of diagnostic radiology devices include
electromechanical pumps and syringes; needles, trays and ancillary devices used
during a variety of diagnostic radiological and ultrasound procedures. This
product grouping includes the PercuPumpTM injection system, which is designed to
inject contrast media into the vascular system for visualization purposes during
CT procedures. The PercuPump system is comprised of an electromechanical pump
and a consumable syringe. Other diagnostic radiology devices include entry
needles, biopsy needles, trays and ancillary products used during mammography,
amniocentesis and other specialty procedures.
Custom contract pharmaceutical and cosmetic products are manufactured on a
contract basis by the Company's Canadian subsidiary. Pharmaceutical products
include liquid vitamins and antacids,
-5-
decongestants, cough medicines and vaporizing ointments. Cosmetic products
include tanning lotions and bath powders.
The Company offers laxative products specially formulated to cleanse the
G.I. tract prior to X-ray and colonoscopic examinations. These products are sold
through the same distribution network as the Company's contrast systems.
The Company markets a line of X-ray protection equipment featuring
Adjust-A-WeightTM, a patented design concept which allows the wearer to adjust
the weight distribution of the protective apron to relieve fatigue. This product
line is sold through the same distribution network as the Company's contrast
systems.
The Company, through its wholly-owned subsidiary, Enteric Products, Inc.
("EPI"), markets immunoassay tests for use in the detection of Helicobacter
pylori ("H. pylori"). The tests analyze a patient's serum or whole blood sample
using a patented antigen licensed from Baylor College of Medicine and are
currently available for both laboratory use and for use in a physician's office.
H. pylori infection has been identified as the leading cause of
duodenal and gastric ulcers and has also been linked to gastritis and
gastric cancer. The World Health Organization has categorized H.
pylori as a Class 1 carcinogen, a definite cancer causing agent in
humans. Gastric cancer is a leading cause of death in Asia, Africa and
Eastern Europe.
In May 1996, the Company entered into an agreement with Abbott Laboratories
for the international marketing of its physician's office test to detect H.
pylori. The agreement covers both serum and whole- blood versions of a simple,
highly accurate four-minute test. The tests, manufactured by SmithKline
Diagnostics, Inc. ("SKD"), a subsidiary of Beckman Instruments, Inc., will be
privately labelled under the name FlexPackTM HP and sold by Abbott Laboratories
("Abbott") in China, India, other parts of Asia, Eastern Europe and parts of the
Middle East and Africa. A prior agreement, between SKD and Abbott, gave Abbott
the marketing rights to most of the remainder of the world market. SKD, with
whom EPI co-developed the serum and whole blood tests, also markets its own
version of the product under the name FlexSureTM HP in the U.S. and other
selected territories.
As a result of these agreements, EPI will receive revenue (1) on the sale
of products directly to Abbott, (2) from royalties on the sale of products to
Abbott by SKD, (3) from royalties on the sale of product by SKD to its
distributors and end-users, and (4) from the sale of EPI's patented antigen to
SKD for use in both tests. In addition, EPI derives revenue from the sale of
HM-CAPTM, the laboratory version of the blood serum test. The Company markets
the HM-CAP test through distributors in the U.S. and abroad.
Sales to Picker International, Inc., which is a distributor of the
Company's Diagnostic products, were 16%, 15% and 16% of total sales during 1996,
1995 and 1994, respectively.
ANGIODYNAMICS PRODUCTS
The Company, through its wholly-owned subsidiary, AngioDynamics,
-6-
Inc., develops, manufactures and markets a variety of differentiated products
and systems for the worldwide interventional medicine marketplace, which is the
practice of medicine using what were traditionally diagnostic procedures for
therapeutic purposes.
The Company believes that the interventional medicine market is growing
dramatically. This is due, in large part, to the less invasive aspects of
interventional procedures, as compared to open surgical procedures, which result
in a reduction in the overall cost of medical care while providing important
patient benefits. Interventional procedures are often performed on an
out-patient basis, thereby requiring fewer hospital support services. These
procedures, even when performed on an in-patient basis, generally require a
shorter hospital stay than do surgical procedures. Interventional procedures
also typically have reduced risk and trauma, are less complex, have fewer and
less serious complications, can often be performed earlier in the stage of a
disease and frequently result in less costly and more definitive therapy than do
surgical procedures. The Company expects the number of interventional procedures
performed to increase as these procedures gain wider acceptance, as more
physicians become trained in less invasive medical specialties, and as these
procedures become more widely performed in community hospitals as well as in
major medical centers. Improvements in technology should further expand the
application of interventional procedures.
AngioDynamics products accounted for 12% of sales in 1996, as compared to
8% of sales in 1995 and 5% of sales in 1994.
The Company has focused its efforts in three distinct interventional
categories: stent products, angiographic and fluid management products, and
thrombolytic products.
Stent Products
The Company's stent product is called the AngioStent. Stents are used to
hold open passageways in the body that may have closed or become obstructed as a
result of aging, disease, or trauma. Stents are increasingly being used as an
alternative to or adjunct to surgical and minimally invasive procedures and drug
therapies because they reduce procedure time, patient trauma, hospitalization
and recovery time. The Company believes that the coronary AngioStent, introduced
in January 1996 in certain international markets, provides a competitive
advantage over competing stent products and alternative therapies.
The Company believes AngioStent incorporates a number of unique and
proprietary design features that allow the effective treatment of a variety of
lesion and vessel types. The AngioStent is constructed from a single strand of
platinum alloy wire that is precision formed into a spiraling sinusoidal
configuration. This configuration has the wire turn back on itself and attach
back at its beginning, thereby forming a longitudinal wire that imparts added
strength and stability. The Company believes that its patented stent design
provides more consistent vessel support and radial force than other stent
designs, as well as more visibility, flexibility, and easier delivery than
competitive stents. The Company believes that its proprietary use of platinum
imparts better hemocompatibility and long term biocompatibility than stainless
steel stent designs. The AngioStent is available in a variety of diameters and
lengths and is provided pre-
-7-
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 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 AngioStent has not yet been approved by the FDA for sale in the U.S.
and the Company does not anticipate receiving FDA approval to sell the coronary
AngioStent prior to June 2000, if at all. The AngioStent sales in Europe and
South America approximated $863,000 in 1996.
Angiographic and Fluid Management Products
The Company's primary angiographic products are diagnostic catheters used
to inject contrast agents, such as iodine or carbon dioxide ("CO2"), into the
various arteries and veins and the interior of the heart in order to permit
X-ray studies to be made. These studies are called "angiograms", "venograms",
and "cardiac catheterizations". The Company believes its catheters are
differentiated from competitive products with respect to the types of materials
used and the numerous configurations in which they are available.
The Company manufactures three lines of diagnostic catheters, Memory TipTM,
Memory-VuTM, and Soft-VuTM, suitable for diagnosing the complete human vascular
system. These catheters are made in 3, 4, 5, and 6 French sizes, with wire
braided and non-braided nylon shafts, and are available in over 500 tip
configurations and lengths, either as standard catalogue items or made to order
through the Company's customization program. All of the Company's angiographic
catheters are approved for sale in the U.S. and internationally.
The Soft-Vu/Memory-Vu catheter technology incorporates a soft, atraumatic
tip that is attached to a more rigid shaft. In addition to being soft, the
catheter tips are also easily visualized under fluoroscopy. The Company believes
this soft tipped catheter technology offers the physician a safe diagnostic
catheter with less propensity to perforate or lacerate an artery or vein.
The Company has recently developed a new and unique catheter line called
ANGIOPTICTM. The distinguishing characteristic of this product is that the
entire catheter is highly visible under fluoroscopy. The catheter is constructed
of a proprietary triple-layer extrusion technology.
Additionally, the Company has developed a new CO2 Angiography System
("CO2JECTTM") that uses CO2 as a contrast agent. The Company believes CO2 offers
many advantages over traditional iodinated contrast agents.
CO2 is currently used via manual injection for patients who are allergic to
iodine, who have compromised kidney function, or for whom the use of iodinated
contrast agents would otherwise present a health
-8-
risk. The Company believes that CO2 is safer and less expensive than industry
standard iodinated contrast agents. The Company's CO2JECT system allows CO2 gas
to be used routinely as a replacement for the more dangerous and more expensive
iodinated contrast media in angiographic procedures. Iodinated compounds are
known to cause allergic reactions and nephrotoxicity, and are responsible for
significant morbidity and mortality. The CO2JECT is comprised of CO2 contrast,
an injector, a CO2 connection set, a diagnostic catheter and an angioplasty
balloon catheter.
The CO2JECT has not yet been approved by the FDA for sale in the U.S. and
the Company does not anticipate receiving FDA approval for the CO2JECT prior to
January 1999, at the earliest, and there can be no assurance that such approval
will be obtained at all. The initial overseas commercial sale of CO2JECT
occurred in the second quarter of 1996 and sales for the fiscal year totalled
approximately $402,000.
The Company has developed two patented needles to address the problem of
spurting blood: the Sos Bloodless Entry NeedleTM and the Pulse-Vu NeedleTM. Both
needles have a thin diaphragm within the needle hub. This diaphragm diverts the
pressurized column of blood into a clear, flexible side arm tube thus preventing
the blood from entering the clinical environment. The special diaphragm has a
slit that allows easy passage of a guidewire through the needle hub and needle
lumen and into the lumen of the artery. The Company believes its diaphragm
technology is proprietary.
The AngioFillTM and AngioFill II Fluid Management SystemsTM are used to
collect and isolate blood and other body fluids. They replace open bowls and
garbage disposals which allow blood to splatter in the procedure room. The
AngioFill systems also have fluid lines that connect to saline and contrast
media bottles. In use, the physicians will aspirate the catheter with a syringe
and release the contents in the AngioFill bag. While the syringe is still
connected to the AngioFill, the physician will draw fresh saline or contrast
media to flush the catheter.
The Company also acts as a non-exclusive U.S. sales agent for Navarre
Biomedical, Ltd. ("Navarre Biomedical"). Navarre Biomedical manufactures
percutaneous abscess drainage catheters. Percutaneous abscess drainage involves
resolution of pus pockets, pleural effusions and other fluids by inserting the
catheter directly into the fluid pocket under fluoroscopic, CT or ultrasound
guidance. The percutaneous approach to resolve an abscess avoids the mortality
and morbidity associated with a surgical resolution. All Navarre Biomedical
drainage products are approved for sale in the U.S.
Thrombolytic Products
The Company's thrombolytic line of products is used to dissolve arterial
and venous blood clots and is marketed under the name Pulse*SprayTM. A
Pulse*Spray Set includes the PROTM Infusion Catheters, occluding wires, check
valves, and bifurcated connecting lines. The Pulse*Spray Set optimizes the
delivery of lytic agent (the drug that actually dissolves the clot) by providing
a controlled, forceful, uniform dispersion. This improvement has been clinically
shown to reduce the amount of lytic agent and the time necessary for the
procedure by a factor of three. This represents significant cost
-9-
savings for the hospital, the patient, and the health care system, while
reducing the complications associated with the use of larger volumes of the
lytic agent. The Pulse*Spray Set is approved for sale in the U.S. and
internationally.
The Pulse*Spray Injector is designed to replace hand pressure as an
injection mechanism. This is a compact portable injector using a proprietary ram
to deliver lytic agents through various Pulse*Spray Sets and PRO Infusion
Catheters. The Pulse*Spray Injector will only accept the Company's manufactured
single use components and catheters. It allows the user to deliver a wide range
of infusion volumes and times and utilizes state-of-the-art computer technology
with a touch screen program to store up to 20 customer-specified programs. The
Pulse*Spray Injector is currently available as a pulse-only product. A provision
is available to add a slow infusion IV pump into the existing injector housing.
In this configuration, the user can program various combinations of pulse and
slow infusion programs. A 510(k) to permit the sale of the Pulse*Spray Injector
in the U.S. is pending before the FDA. The Pulse*Spray Injector is approved for
sale outside the U.S.
MARKETING
The Company believes that the success of its barium sulfate products is
primarily due to its ability to create contrast systems with specific,
sophisticated barium formulations for varying radiological needs. E-Z-EM
continues to develop new barium sulfate products, including products for
CT-scanning and Magnetic Resonance Imaging ("MRI") procedures.
E-Z-EM's contrast systems, laxatives, syringes, X-ray protection equipment
and diagnostic radiology devices, such as biopsy needles and trays, are marketed
to radiologists and hospitals in the U.S. through about 280 distributors,
supported by 35 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
125 distributors, including wholly-owned subsidiaries in Canada, Japan, the
United Kingdom and Holland. Significant sales are made in Canada, Japan, the
United Kingdom, Holland, Italy, Sweden, Austria and Australia. 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 14 direct sales employees, while the international marketing
effort is conducted through 46 distributors, including 4 wholly-owned
subsidiaries. Foreign distributors are generally granted exclusive distribution
rights on a country-by-country basis.
COMPETITION
Based upon sales, E-Z-EM contrast systems are the most widely used
diagnostic imaging products of their kind in the U.S., Canada and
-10-
certain European countries. The Company faces competition domestically from
Lafayette Pharmaceuticals, Incorporated, as well as from small U.S. competitors,
and it also faces competition outside of the U.S. The Company competes primarily
on the basis of product quality, customer service, the availability of a full
line of barium sulfate formulations tailored to user needs, and price.
Radiological procedures for which the Company supplies products complement,
as well as compete with, endoscopic procedures such as colonoscopy and
endoscopy. Such examinations involve visual inspection of the G.I. tract through
the use of a flexible fiber optic instrument inserted into the patient by a
gastroenterologist. The use of gastroenterology procedures has been growing in
both upper and lower G.I. examinations as patients have been increasingly
referred to gastroenterologists rather than radiologists. Also, the availability
of drugs which successfully treat ulcers and other gastrointestinal disorders
has tended to reduce the need for upper G.I. tract examinations.
The major non-contrast systems market that the Company competes in is the
medical device radiology market, which is highly competitive. No single company,
domestic or foreign, competes with the Company across all of its non-contrast
system product lines. In electromechanical pumps and syringes, the Company's
main competitors are Schering AG and Mallinckrodt, Inc. In needles and trays,
the Company competes with C.R. Bard, Inc., Baxter Healthcare Corporation,
Sherwood Medical Co. and various other competitors. The Company also encounters
competition in the marketing of its other non-contrast systems products.
The Company competes in the AngioDynamics products segment on the basis of
product quality, product innovation, sales, marketing and service effectiveness,
and price. There are many large companies, with significantly greater financial,
manufacturing, marketing, distribution and technical resources than the Company,
focusing on these markets. Those Company products that already have FDA approval
and those Company products that in the future receive FDA approval will have to
compete vigorously for market acceptance and market share.
Johnson & Johnson Interventional System, Co. ("JJIS"), Schneider, Inc. (a
part of Pfizer, Inc.), C.R. Bard, Inc., Cook, Inc., Cordis Corporation, Guidant
Corporation, InStent, Inc., Medtronic, Inc., Biotronik GmbH, Progressive
Angioplasty Systems, American Biomed, Inc., Global Therapeutics, Arterial
Vascular Engineering, Inc., and Boston Scientific Corporation, among others,
currently compete against the Company in the development, production and
marketing of stents and stent technology.
The Company believes that the coronary stent marketed by JJIS has captured
in excess of 75% of the market. 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. JJIS believes
that its patent rights enable it to prevent any balloon-expandable stents from
being marketed and it has commenced
-11-
litigation against Cook and Medtronic concerning their balloon- expandable
stents. The Company has received an opinion from its intellectual property
counsel stating that the AngioStent, which is a balloon-expandable stent, does
not infringe upon the JJIS patents, although there can be no assurance that the
AngioStent will not be determined to infringe upon the JJIS patents or other
patents.
The Company's CO2JECT angiography system is the only system using
CO2 as a contrast agent. Therefore, the Company's competition is from
companies marketing iodinated contrast agents. These companies include
Liebel-Flarsheim Co., Inc. (a subsidiary of Mallinckrodt) and Medrad,
Inc. (a subsidiary of Schering AG).
In the market for diagnostic angiography catheters, the Company's major
competitors are Mallinckrodt and Cook.
The competitive situation in the market for thrombolytic products is
complex. The first level of competition is the medical profession, where each
physician can decide if an artery or graft will be cleared surgically or by
thrombolysis. If thrombolysis is used, the second level of competition is for
the specific type of catheter or wire that will be used. The primary competitors
in this market are MediTech, Cook and Mallinckrodt.
The Company believes that it is perceived as a market leader in the market
for blood containment products, where its primary competition comes from Arrow
International and Becton-Dickinson. The market for fluid management systems is
extremely competitive, with the Company's products being similar to products
from NAMIC, Merit, Burron Medical, DeRoyal, Biocore, Advanced Medical Design,
Medex and Argon. These products are non-patient contact and, therefore, the
barriers to entry, such as regulatory approval, potential liability, and the
need for technical sophistication, are not significant.
RESEARCH AND DEVELOPMENT
In addition to its technical staff, consisting of a Medical Director and 46
employees, the Company has consulting arrangements with various physicians who
assist E-Z-EM through their independent research and product development.
Research and development expenditures totalled $5,323,000, or 6% of sales, in
1996, as compared to $6,077,000, or 7% of sales, in 1995 and $6,897,000, or 8%
of sales, in 1994, reflecting the Company's commitment to expansion of its
product lines through research and development.
RAW MATERIALS AND SUPPLIES
Most of the barium sulfate for contrast systems is supplied by a number of
European and U.S. manufacturers, with a minor portion being supplied by the
Company's wholly-owned Canadian subsidiary, E-Z-EM Canada Inc. ("E-Z-EM
Canada"), which operates a barium sulfate mine and processing facility in Nova
Scotia and whose reserves are anticipated to last a minimum of three years. The
Company believes that these sources should be adequate for its foreseeable
needs.
The Company has generally been able to obtain adequate supplies of all
components for its AngioDynamics business in a timely manner from existing
sources. However, the inability to develop alternative
-12-
sources, if required, or a reduction or interruption in supply, or a significant
increase in the price of components, could adversely affect operations.
PATENTS AND TRADEMARKS
Although several products and processes are patented and the Company
considers its trademarks to be a valuable marketing tool, the Company does not
consider any single patent, group of patents, or trademarks to be materially
important to its Diagnostic business segment. E-Z-EM and AngioDynamics are
examples of the Company's registered trademarks in the U.S.
The Company believes that success in the AngioDynamics products segment is
dependent, to a large extent, on patent protection and the proprietary nature of
its technology. The Company intends to file and prosecute patent applications
for technology for which it believes patent protection is effective and
advisable. The Company believes that issued patents covering Pulse*Spray and
AngioStent are significant to its AngioDynamics business.
Because patent applications are secret until patents are issued in the U.S.
or corresponding applications are published in foreign countries, and because
publication of discoveries in the scientific or patent literature often lags
behind actual discoveries, the Company cannot be certain that it was the first
to make the inventions covered by each of its pending patent applications, or
that it was the first to file patent applications for such inventions. The
Company also relies on trade secret protection and confidentiality agreements
for certain unpatented aspects of its proprietary technology.
REGULATION
The Company's products are registered with the FDA and with similar
regulatory agencies in foreign countries where they are sold. The Company
believes it is in compliance in all material respects with applicable
regulations of these agencies.
Certain of the Company's products are subject to FDA regulation as medical
devices and certain other products, such as various contrast systems products
and CO2JECT, 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.
-13-
Further, it has not been alleged that the Company contributed to the
contamination, and it is the Company's belief that it has not done so.
EMPLOYEES
The Company employs 897 persons, 230 of whom are covered by various
collective bargaining agreements. Collective bargaining agreements covering 166
and 64 employees expire in February 1997 and December 1998, respectively. The
Company considers employee relations to be satisfactory.
(d) FINANCIAL INFORMATION REGARDING FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES
The Company currently derives about 37% of its sales from customers outside
the U.S. Operating profit margins on export sales are somewhat lower than
domestic sales margins. The Company's domestic operations bill third party
export sales in U.S. dollars and, therefore, do not incur foreign currency
transaction gains or losses. Third party sales to Canadian customers, which are
made by E-Z-EM Canada, are billed in local currency. Third party export sales
from Canada are billed in Canadian dollars. Third party sales to Japanese
customers, which are made by the Company's Japanese subsidiary, are also billed
in local currency.
The Company employs 233 persons involved in the developing, manufacturing
and marketing of products internationally. The Company's product lines are
marketed through approximately 148 foreign distributors to 81 countries outside
of the U.S.
The 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 M to the Consolidated Financial
Statements included herein.
Item 2. PROPERTIES
The Company's principal manufacturing facilities and executive offices are
located in Westbury, New York. They consist of five buildings, one of which is
owned by the Company, containing an aggregate of 209,800 square feet used for
manufacturing, warehousing and administration. One of the Westbury facilities is
leased to the Company by various lessors, including certain related parties.
Such facility is currently being leased on a month-to-month basis. See "Certain
Relationships and Related Transactions". AngioDynamics occupies manufacturing
and warehousing facilities located in Glens Falls, New York consisting of two
buildings, one of which is owned by the Company, containing an aggregate of
29,312 square feet. E-Z-EM Caribe owns a 38,600 square-foot plant in San
Lorenzo, Puerto Rico which fabricates enema tips and heat-sealed products.
E-Z-EM Canada leases a 29,120 square-foot building in Debert, Nova Scotia and
both owns and leases land encompassing its barium sulfate mining operation.
E-Z-EM Canada also owns a 64,050 square-foot manufacturing and warehousing
facility located in Montreal, Canada.
-14-
Item 3. LEGAL PROCEEDINGS
The Company is presently a defendant in the following product liability
action:
MARGARET J. LEMLEY AND JAMES LEMLEY, PLAINTIFFS VS. INLAND VALLEY REGIONAL
MEDICAL CENTER, INC., NORTH COAST IMAGING RADIOLOGY MEDICAL GROUP, INC.,
E-Z-EM, INC., MALLINCKRODT MEDICAL, INC., THOMAS MCGREEVY, M.D., BARBARA
LARSON, CAROLYN HOHENBERGER, DEFENDANTS, pending in the Superior Court of
the State of California, County of Riverside, filed on January 30, 1995.
This suit claims damages based upon alleged injuries resulting from the use
of one of the Company's products. The action is in its early stages and while
the Company is actively defending against the claim, it is unable to predict its
outcome. It should be noted that in this action the Company is one among several
defendants and, as such, the Company's liability, if any, is not quantifiable at
this time. The Company does not believe that the ultimate outcome in this action
will have a material adverse effect on the consolidated financial statements.
Previously, the Company had been named as a defendant in the following
product liability action:
EILEEN GUINN AND WILBERN GUINN, PLAINTIFFS VS. ST. JOSEPH'S
HOSPITAL SISTERS OF THE THIRD ORDER OF ST. FRANCIS; BERLAND
RADIOLOGY ASSOCIATES, LTD.; GERALD CLAYCOMB, M.D.; DAWN
STILLWAGON, R.N.; AND E-Z-EM, INC., A CORPORATION, DEFENDANTS,
pending in the Circuit Court, Third Judicial Circuit, Madison
County, Illinois, filed on August 22, 1995.
This suit claimed damages based upon alleged injuries resulting from the
use of one of the Company's products. During February 1996, the Company was
dismissed without prejudice from such action.
Pursuant to a contractual agreement with Picker International, Inc.
("Picker"), the Company assumed the defense of a lawsuit in which Picker, along
with multiple other named defendants, had been sued for injuries alleged to have
resulted from the use of protective aprons. The plaintiff has recently abandoned
this action.
The Company has been sued by Olympia Holding Corporation p/k/a P-I-E
Nationwide, Inc. for $443,830. The suit, filed on October 5, 1992, is presently
pending in the U.S. Bankruptcy Court for the Middle District of Florida. The
Company is being represented in this action by a law firm which is also
representing numerous other defendants being sued by the same plaintiff on the
same grounds - recovery for alleged undercharges for freight carriage. It is not
possible, at this stage, to determine what, if any, liability exists with
respect to the Company in this matter. The Company will vigorously defend
against this action; it has been informed by legal counsel that there exist
numerous valid defenses to this case.
During 1993, SDI's lease agreement on the Alameda, California office and
production facilities was prematurely terminated by SDI, a former 51%-owned
subsidiary of the Company. In 1993, SDI accrued $600,000 for the estimated
settlement of the lease commitment.
-15-
Pursuant to the terms of the Merger Agreement described in Note B to the
Consolidated Financial Statements included herein, the $600,000 liability was
assumed by USSC (the purchaser of SDI), and the Company and the previous
minority shareholder of SDI assumed any liability in excess of $600,000 in
connection with the lease termination. The dispute was settled in July 1996 for
$1,600,000, of which the Company was liable for $510,000, or 51% of the
$1,000,000 excess. Such amount was included in accrued liabilities at June 1,
1996.
The Company is presently involved in various other claims, legal actions
and complaints arising in the ordinary course of business. The Company believes
such matters are without merit, or involve such amounts that unfavorable
disposition would not have a material adverse effect on the Company's financial
position.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
-16-
PART II
-------
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Effective July 24, 1995, E-Z-EM, Inc. Class A and Class B Common Stock
began trading on the American Stock Exchange ("AMEX") under the symbols "EZM.A"
and "EZM.B", respectively. Previously, the Company's Class A and Class B Common
Stock was traded in the over-the-counter market and was quoted on the Nasdaq
National Market ("Nasdaq") under the symbols "EZEMA" and "EZEMB", respectively.
The following table sets forth, for the periods indicated, the high and low sale
prices for the Class A and Class B Common Stock as reported by Nasdaq (through
July 23, 1995) and the AMEX (from July 24, 1995 through June 1, 1996).
Class A Class B
------- -------
High Low High Low
---- --- ---- ---
Fifty-two weeks ended June 1, 1996
----------------------------------
First Quarter................ $ 8.25 $ 5.25 $ 8.19 $4.25
Second Quarter............... 13.13 7.13 12.63 6.75
Third Quarter................ 11.13 9.50 10.25 9.19
Fourth Quarter............... 16.50 10.00 15.38 9.63
Fifty-three weeks ended June 3, 1995
------------------------------------
First Quarter................ $6.00 $4.50 $6.25 $4.00
Second Quarter............... 5.75 4.25 5.50 3.88
Third Quarter................ 4.75 4.00 5.00 3.75
Fourth Quarter............... 5.00 3.25 4.88 3.63
As of August 5, 1996 there were approximately 292 and 347 record holders of
the Company's Class A and Class B Common Stock, respectively.
The Company's current policy has been to issue stock dividends. During the
third quarter of fiscals 1994, 1995 and 1996, the Company issued 3% stock
dividends. Future dividends are subject to the Board of Directors' review of
operations and financial and other conditions then prevailing.
-17-
Item 6. SELECTED FINANCIAL DATA
Fifty-two Fifty-three Fifty-two weeks ended
weeks ended weeks ended ------------------------------
June 1, June 3, May 28, May 29, May 30,
1996 1995* 1994* 1993* 1992*
---- ----- ----- ----- -----
(in thousands, except per share data)
Income statement data:
Net sales (2)...........$91,932 $88,526 $85,645 $84,507 $78,711
Gross profit............ 36,414 36,681 33,617 35,547 33,071
Operating profit (3).... 957 2,837 1,200 2,558 4,113
Earnings from continuing
operations before
income taxes.......... 1,940 3,559 1,528 3,888 5,186
Earnings from continuing
operations............ 1,697 2,473 379 2,451 4,512
Net earnings............ 21,008 1,630 277 1,679 4,610
Earnings from continuing
operations per common
share
Primary and fully
diluted........... .17 .27 .04 .27 .49
Earnings per common
share
Primary (1)......... 2.16 .18 .03 .18 .50
Fully diluted (1)... 2.14 .18 .03 .18 .50
Cash dividends declared
per common share......$ .00 $ .00 $ .00 $ .10 $ .20
Weighted average common
shares
Primary (1)......... 9,724 9,088 9,081 9,105 9,147
Fully diluted.(1)... 9,833 9,092 9,081 9,107 9,160
June 1, June 3, May 28, May 29, May 30,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands)
Balance sheet data:
Working capital.........$53,508 $33,254 $33,088 $36,283 $35,328
Cash, certificates of
deposit and short-
term debt and equity
securities............ 23,610 4,447 7,336 8,359 12,132
Total assets............ 96,037 76,095 71,531 73,252 74,417
Long-term debt, less
current maturities.... 680 1,114 586 2,900 654
Stockholders' equity.... 80,603 57,890 54,269 55,001 54,900
- ---------------------
* Reclassified to reflect the discontinued operation described in Note B to
the Consolidated Financial Statements included herein.
(1) Retroactively restated to reflect the total shares issued after the 3% stock
dividends described in Note K to the Consolidated Financial Statements
included herein.
(footnotes continued on next page)
-18-
(footnotes continued from preceding page)
(2) Sales of Lafayette products for the period June 2, 1991 through November 27,
1991 of approximately $3,505,000 have been excluded from net sales and
reclassified to disposal of assets, which is included in operating profit in
the consolidated statements of earnings.
(3) On November 27, 1991, the Company divested the assets of its Lafayette
division to Lafayette Pharmaceuticals, Incorporated pursuant to an Asset
Purchase Agreement dated June 27, 1991 (the "Agreement"). The aggregate
sales price was approximately $5,413,000. The Lafayette division was
purchased by the Company in December 1988 from Lafayette Pharmacal, Inc. The
Agreement was approved by the Federal Trade Commission ("FTC") on November
14, 1991, pursuant to the FTC's order of June 12, 1990 which required the
Company to divest the assets it had purchased from Lafayette Pharmacal, Inc.
At June 2, 1990, the Company had established a reserve, before tax, of
$8,627,000 which approximated the anticipated loss on divestiture and
related expenses. The Company recorded a pretax gain of $953,000 during
1992 representing the difference between the actual sales price and expenses
pertaining to the divestiture compared with the amounts previously
estimated. Such gain is included in operating profit in the consolidated
statement of earnings for 1992.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis is based on the results of continuing
operations of the Company.
The Company's fiscal year ended June 1, 1996 represents fifty-two weeks,
the fiscal year ended June 3, 1995 represents fifty-three weeks and the fiscal
year ended May 28, 1994 represents fifty-two weeks.
RESULTS OF OPERATIONS
SEGMENT OVERVIEW
The Company operates in two industry segments: Diagnostic products and
AngioDynamics products.
The Diagnostic products industry segment accounted for 88% of sales in
1996, as compared to 92% in 1995 and 95% in 1994. This segment encompasses both
contrast systems, consisting of barium sulfate formulations and related medical
devices used in X-ray, CT-scanning and other imaging examinations, and
non-contrast systems, including diagnostic radiology devices, custom contract
pharmaceuticals, gastrointestinal cleansing laxatives, X-ray protection
equipment, and immunoassay tests. Contrast systems, which constitute the
Company's core business and the majority of the Diagnostic products segment,
accounted for 68% of sales in 1996, as compared to 72% in 1995 and 75% in 1994.
Non-contrast system sales accounted for 20% of sales in 1996, 1995 and 1994.
Diagnostic segment results for 1996 were adversely affected by unabsorbed
overhead costs associated with the relocation of a portion
-19-
of the Company's core manufacturing operations, as well as by increased selling
and marketing expenses in the Company's core business. The unabsorbed overhead
costs resulted during the planned construction at the Company's Canadian
manufacturing facility. The effects of the relocation will continue to be felt
through the first half of 1997, resulting in lower than normal Canadian gross
profits. Investment in new marketing initiatives and product introductions
contributed to the increased selling and marketing expenses.
Diagnostic segment results for 1995 were positively impacted by improved
gross margins, partially offset by increased domestic and international selling
and administrative expenses.
Diagnostic segment results for 1994 were adversely impacted by the cost of
product recalls, which the Company began in March 1994, due to packaging and
formulation problems with its effervescent granules and colon cleansing
products. The Company recorded pretax charges in the aggregate amount of
$1,546,000 during 1994, with respect to such recalls.
Diagnostic segment results for 1994 were also adversely impacted by a
decline in sales of contrast systems in the domestic market. The Company
attributes the sales decline in 1994 to the turmoil in the healthcare industry
from proposed reform, which resulted in reduced patient procedures, consequent
purchasing cutbacks on the part of hospitals, and a generalized slowdown in our
customer's orders.
The AngioDynamics products industry segment accounted for 12% of sales, net
of intersegment eliminations (see Note M to the Consolidated Financial
Statements included herein) in 1996, as compared to 8% in 1995 and 5% in 1994.
This segment includes stent products, angiographic and fluid management
products, and thrombolytic products used in the interventional medicine
marketplace.
AngioDynamics segment results for 1996 were positively affected by sales
growth of 57%, as compared to 1995, coupled with improved manufacturing
efficiencies. The AngioDynamics sales growth was due to domestic and
international market penetration and the introduction of the AngioStentTM. The
AngioStent, a device used during coronary procedures as a treatment for
atherosclerosis, was introduced in the third quarter of 1996 in certain
international markets. AngioDynamics gross profit expressed as a percentage of
sales improved to 48% in 1996, as compared to 32% in 1995 and 41% in 1994.
AngioDynamics incurred operating losses of $1,536,000 in 1996, as compared to
operating losses of $4,603,000 in 1995 and $3,468,000 in 1994. Included in these
operating losses were losses of $1,189,000 in 1996, $1,972,000 in 1995 and
$877,000 in 1994 relating to AngioDynamics' CO2 Angiographic operations, which
resulted primarily from its continued research and development. The initial
overseas commercial sale of the Company's CO2JECTTM system, which delivers
carbon dioxide gas as a replacement for more expensive iodinated contrast media,
occurred in the second quarter of 1996.
During 1996, the Company discontinued the operation of its surgical
products industry segment when it sold SDI, its 51%-owned subsidiary, to USSC.
As a result of this sale, the Company recognized a gain, pretax of
approximately $25,539,000, after-tax of approximately $19,520,000, or $2.01 per
common share on a primary
-20-
basis. The surgical products industry segment has been reported as a
discontinued operation and, accordingly, the gain from the sale of SDI and the
Company's proportionate share of losses from operations of SDI have been
classified as a discontinued operation in the consolidated statements of
earnings. The surgical products industry segment included the NucleotomeTM
device, the Ray Threaded Fusion CageTM and other surgical devices and
accessories used in spinal surgery.
The 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 M to the
Consolidated Financial Statements included herein.
CONSOLIDATED RESULTS OF OPERATIONS
The Company reported net earnings of $21,008,000, or $2.16 and $2.14 per
common share on a primary and fully diluted basis, for 1996, as compared to net
earnings of $1,630,000, or $.18 per common share respectively, on a primary and
fully diluted basis, for 1995, and net earnings of $277,000, or $.03 per common
share on a primary and fully diluted basis, for 1994. Results for 1996 were
positively impacted by the after-tax gain on the sale of SDI of $19,520,000, or
$2.01 and $1.99 per common share on a primary and fully diluted basis,
respectively.
Earnings from continuing operations for 1996 were $1,697,000, or $.17 per
common share on both a primary and fully diluted basis, respectively, as
compared to $2,473,000, or $.27 per common share on both a primary and fully
diluted basis, in 1995 and $379,000, or $.04 per common share on both a primary
and fully diluted basis, in 1994. Results from continuing operations for 1996
were adversely impacted by unabsorbed overhead costs during construction at the
Company's Canadian facility, as well as by increased selling and marketing
expenses in the Company's core business, and were positively affected by
AngioDynamics sales growth and improved AngioDynamics manufacturing
efficiencies.
Results from continuing operations for 1995 were positively impacted by
increased sales demand in the AngioDynamics segment, coupled with improved gross
margins in the Diagnostic segment, partially offset by increased domestic and
international selling and administrative expenses in both industry segments.
Results from continuing operations for 1994 were adversely impacted by the
reserve for product recalls of $1,546,000 and severance benefits to terminated
employees of $638,000. The reserve for product recalls is included in cost of
goods sold and selling and administrative expenses in the consolidated
statements of earnings. Results from continuing operations for 1994 were also
adversely impacted by reduced manufacturing activity in the Diagnostic segment,
partially offset by reduced operating expenses due to cost containment programs
instituted in 1993. The reduced level of manufacturing activity resulted from
both high opening inventory levels and lower than expected demand for contrast
systems products due to uncertainty surrounding the numerous healthcare reform
proposals.
Sales increased 4%, or $3,406,000, in 1996, as compared to 3%, or
$2,881,000, in 1995. Sales in 1996 were favorably affected by increased
AngioDynamics sales of $3,995,000, increased non-contrast systems sales of
$1,148,000 and price increases, which accounted for
-21-
approximately .5% of sales in 1996. The AngioDynamics sales growth was due to
domestic and international market penetration and the introduction of the
AngioStent. Sales in 1996 were adversely affected by a decline in the Company's
sales of barium contrast systems. Sales in 1995 were favorably affected by
increased sales of AngioDynamics products of $2,323,000 and price increases,
which accounted for approximately 1% of sales in 1995. Sales in 1995 were
adversely affected by a domestic decline in the Company's sales of barium
contrast systems.
Sales in international markets, including direct exports from the U.S.,
increased 5%, or $1,744,000, in 1996 and 9%, or $2,625,000, in 1995. The 1996
increase was due to increased sales of AngioDynamics products of $1,888,000. The
1995 increase was due to increased sales of contrast systems of $1,582,000,
non-contrast systems of $741,000 and AngioDynamics products of $302,000.
Gross profit expressed as a percentage of sales was 40% in 1996, as
compared to 41% in 1995 and 39% in 1994. Gross profit in 1996 was negatively
impacted by approximately $2,479,000 of unabsorbed overhead costs during
construction at the Company's Canadian facility, and was positively affected by
improved AngioDynamics manufacturing efficiencies. Gross profit in 1995 was
adversely affected by increased provisions for inventory adjustments, partially
offset by sales price increases. The lower gross profit percentage in 1994 was
due primarily to the reserve for product recalls of $1,420,000, reduced
manufacturing activity in the Diagnostic segment, and severance benefits to
terminated employees of $262,000.
Selling and administrative ("S&A") expenses were $30,134,000 in 1996,
$27,767,000 in 1995 and $25,520,000 in 1994. The increase in 1996 versus 1995 of
$2,367,000, or 9%, was due primarily to expanded domestic selling and marketing
efforts in the Company's core business approximating $1,361,000 and expanded
AngioDynamics selling and marketing efforts in both the domestic and
international marketplace approximating $1,063,000. Investment in new marketing
initiatives and product introductions contributed to the increased selling and
marketing expenses in both industry segments. The increase in 1995 versus 1994
of $2,247,000, or 9%, was due primarily to expanded Diagnostic and AngioDynamics
S&A efforts in both the domestic and international marketplace of $1,438,000 and
$608,000, respectively, and a reversal of product liability claim reserves of
$201,000 in 1994.
Research and development ("R&D") expenditures in 1996 totalled $5,323,000,
or 6% of sales, as compared to $6,077,000, or 7% of sales, in 1995 and
$6,897,000, or 8% of sales, in 1994. The decline in 1996 versus 1995 of $754,000
was due primarily to reduced spending of $898,000 relating to AngioDynamics' CO2
Angiographic operations and reduced spending of $347,000 relating to the
commercialization of H. pylori test-related products, partially offset by
increased contrast system spending of $361,000 relating to the development of
several new products. The reduced AngioDynamics CO2 Angiographic spending
resulted from the overseas commercialization of the CO2JECT system, which
delivers carbon dioxide gas as a replacement for more expensive iodinated
contrast media in the second quarter of 1996. The decline in 1995 versus 1994 of
$820,000 was due primarily to reduced spending of $1,123,000 relating to the
commercialization of H. pylori test-related products, and reduced contrast
system spending of $504,000, primarily
-22-
due to staff reductions, partially offset by increased spending of $873,000
relating to AngioDynamics projects. Of the R&D expenditures in 1996,
approximately 37% relate to contrast systems, 31% to AngioDynamics projects, 6%
to immunological projects, 16% to other projects and 10% to general regulatory
costs. R&D expenditures are expected to continue at approximately current
levels. In addition to its in-house technical staff, the Company is presently
sponsoring various independent R&D projects and is committed to continued
expansion of its product lines through R&D.
Other income, net of other expenses, totalled $983,000 in 1996, $722,000 in
1995 and $328,000 in 1994. The improvement in other income in 1996 versus 1995
was primarily due to increased licensing income of $240,000 and increased
interest income of $184,000, partially offset by increased currency exchange
losses incurred by foreign subsidiaries of $211,000. The increased interest
income of $184,000 resulted from the investment of SDI sale proceeds, partially
offset by the income recorded in 1995 of $180,000 as a result of the prepayment
of an interest-free loan. The improvement in other income in 1995 versus 1994
was primarily due to the income recorded in 1995 of $180,000 as a result of the
prepayment of an interest-free loan. Improvements in currency exchange gains and
losses incurred by foreign subsidiaries totalling $132,000 and increased
licensing income of $55,000 also contributed to the increase in other income in
1995.
Note F to the Consolidated Financial Statements included herein details the
major elements affecting income taxes for 1996, 1995 and 1994. In 1996, the
Company's low effective tax rate of 13% differed from the Federal statutory tax
rate of 35% due primarily to earnings of the Puerto Rican subsidiary, which are
subject to favorable U.S. tax treatment and tax-exempt interest income. In 1995,
the Company's effective tax rate of 31% differed from the Federal statutory tax
rate of 34% due primarily to earnings of the Puerto Rican subsidiary, which are
subject to favorable U.S. tax treatment, and were partially offset by the fact
that the Company did not provide for the tax benefit on losses incurred in
certain jurisdictions, since, at that time, it was more likely than not that
such benefits would not be realized. In 1994, the Company's high effective tax
rate of 75% differed from the Federal statutory tax rate of 34% due primarily to
the fact that the Company did not provide for the tax benefit on losses incurred
in certain jurisdictions, since, at that time, it was more likely than not that
such benefits would not be realized, and were partially offset by earnings of
the Puerto Rican subsidiary, which are subject to favorable U.S. tax treatment.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, capital expenditures and increased inventory levels (on
continuing operations) were funded primarily by cash reserves. As a result of
the sale of SDI in November 1995, the Company increased its cash reserves by
approximately $21,000,000. The proceeds from the sale of SDI have currently been
invested in debt securities. During 1995, capital expenditures, primarily
related to the acquisition of the previously leased Canadian facility, increased
inventory levels and repayments of debt were funded primarily by cash provided
by operations and cash reserves. During 1994, operating and capital requirements
were funded by cash provided by operations. The Company's policy has been to
fund capital requirements without incurring significant debt.
-23-
At June 1, 1996, debt declined to $1,927,000 from $2,343,000 at June 3, 1995 and
from a previously reported high of $6,219,000 at February 27, 1993. The Company
has available $4,731,000 under two bank lines of credit of which $287,000 was
outstanding at June 1, 1996.
The Company's current policy is to issue stock dividends. During the third
quarter of fiscals 1994, 1995 and 1996, 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 June 1, 1996, approximately 66% of the Company's assets consist of
inventories, debt and equity securities, accounts receivable, and cash and cash
equivalents. Inventories (on continuing operations) have increased at a greater
rate than sales as a result of broadened product lines. The current ratio is
5.15 to 1, with net working capital of $53,508,000 at June 1, 1996, as compared
to the current ratio of 3.39 to 1, with net working capital of $33,254,000 at
June 3, 1995. The improvement in both the current ratio and net working capital
is a direct result of the cash proceeds received from the sale of SDI.
Net capital expenditures, primarily for machinery and equipment and
facility improvements, were $4,231,000 in 1996, as compared to $4,812,000 in
1995 and $2,175,000 in 1994. Of the 1996 expenditures, approximately $2,223,000
relates to the purchase of machinery and equipment and facility improvements in
connection with the Company's manufacturing site relocation. Of the 1995
expenditures, approximately $2,817,000 relates to the purchase of the land and
building housing the manufacturing facilities of the Company's Canadian
subsidiary. No material increase in the aggregate level of capital expenditures
is currently contemplated for 1997.
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.
-24-
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
-25-
PART III
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)... 65 Chairman of the Board, Director
Daniel R. Martin (1)..... 59 President, Chief Executive Officer,
Director
George P. Carden......... 67 Senior Vice President and General Manager
- Imaging Products Division
Arthur L. Zimmet......... 60 Senior Vice President - Special Projects
Sandra D. Baron.......... 44 Vice President - Human Resources
Craig A. Burk............ 43 Vice President - Manufacturing
Joseph A. Cacchioli...... 40 Vice President - Controller
Dennis J. Curtin (5)..... 49 Vice President - Chief Financial Officer
Judith E. Hatch.......... 55 Vice President - National Accounts
Kay N. Hatch............. 64 Vice President - Protection Products
Eamonn P. Hobbs.......... 43 Vice President - AngioDynamics Division
Joseph J. Palma.......... 54 Vice President - Sales and Marketing
Archie B. Williams....... 45 Vice President - Imaging Products
Management
Terry S. Zisowitz........ 49 Vice President - Legal and Regulatory
Affairs
Andrew A. Zwarun, PhD.... 53 Vice President - MRI
Michael A. Davis, M.D.... 55 Medical Director, Director
Paul S. Echenberg (1).... 52 Chairman of the Board of E-Z-EM Canada,
Director
James L. Katz CPA, JD.... 60 Director
(1)(2)(5)
Donald A. Meyer (3)(4)... 62 Director
Irwin H. Nadel (2)(5).... 76 Director
Robert M. Topol (1)(2)... 71 Director
(3)(5)
W. Philip Van Kirk....... 76 Secretary
- ---------------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Nominating Committee
(4) Member of Compensation Committee
(5) Member of Finance Committee
Directors are elected for a three year term and each holds office until his
successor is elected and qualified. Officers are elected annually and serve at
the pleasure of the Board of Directors.
Mr. Stern, co-founder of E-Z-EM, has served as Chairman of the Board and
Director of the Company since its formation in 1962. Prior to 1994, Mr. Stern
also served as Chief Executive Officer, and prior to 1990, he served as
President of the Company since its formation.
Mr. Martin has served as President, Chief Executive Officer and Director
since 1994, and previously served as President, Chief
-26-
Operating Officer and Director from 1990 to 1993.
Mr. Carden has served as Senior Vice President and General Manager -
Imaging Products Division since 1994, and previously served as Senior Vice
President - International Operations from 1983 to 1993. Mr. Carden has been an
employee of the Company since 1970.
Mr. Zimmet has served as Senior Vice President - Special Projects since
1988, and has been an employee of the Company since 1982.
Ms. Baron has served as Vice President - Human Resources since 1995, and
has been an employee of the Company since 1985.
Mr. Burk has served as Vice President - Manufacturing since 1987.
Mr. Cacchioli has served as Vice President - Controller since 1988, and has
been an employee of the Company since 1984.
Mr. Curtin has served as Vice President - Chief Financial Officer since
August 1995, and previously served as Vice President - Finance from 1985 to
August 1995. Mr. Curtin has been an employee of the Company since 1983.
Ms. Hatch has served as Vice President - National Accounts since 1993, and
has been an employee of the Company since 1986.
Mr. Hatch has served as Vice President - Protection Products since 1995,
and previously served as Vice President - Protection and CT Products from 1994
to 1995 and Vice President - Marketing from 1989 to 1993.
Mr. Hobbs has served as Vice President - AngioDynamics Division since 1991,
and has been an employee of the Company since 1988.
Mr. Palma has served as Vice President - Sales and Marketing since April
1996, and previously served as Vice President - Sales from 1995 to April 1996.
Mr. Palma has been an employee of the Company since 1994. Prior to joining the
Company, Mr. Palma served as Director of Sales for the Imaging Division of
Berlex Laboratories (pharmaceutical products) since 1989.
Mr. Williams has served as Vice President - Imaging Products Management
since 1993, and has been an employee of the Company since 1980.
Ms. Zisowitz has served as Vice President - Legal and Regulatory Affairs
since 1995, and previously served as Vice President - Legal Affairs from 1990 to
1995. Ms. Zisowitz has been an employee of the Company since 1989.
Mr. Zwarun has served as Vice President - MRI since 1992, and previously
served as Vice President - Quality Assurance from 1987 to 1992.
Dr. Davis has served as Medical Director and Director of the Company since
July 1995, and previously served as Medical Director from 1994 to July 1995 and
as Associate Medical Director from 1988 to 1993. He has been Professor of
Radiology and Nuclear Medicine and Director of
-27-
the Division of Radiologic Research, University of Massachusetts Medical Center
since 1980.
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 a founder and has
been a general partner and director of Eckvest Equity Inc. (personal investment
and consulting services) since 1989. He was also a founder and had been a senior
partner of BDE Capital Partners (investment banking partnership) from 1992 to
1994. He is also a director of Lallemand Inc., ISG Technologies, Inc., LDI
Research Co., Inc., LDI Marketing Co., Inc., Benvest Capital Inc. and Colliers
MacAuley Nicholl. The Company has an investment in ISG Technologies, Inc.
Mr. Katz has been a director of the Company since 1983. He is the founder
and has been a principal of Chapman Partners LLC (investment banking) since its
organization in 1995. Previously, he had been the co-owner and President of Ever
Ready Thermometer Co., Inc. from its acquisition in 1985 until its sale in
November 1994. From 1971 until 1980 and from 1983 until 1985, he held various
executive positions with Baxter International and subsidiaries of Baxter
International, including that of Chief Financial Officer of Baxter. He is also a
director of Intec, Inc. and Binax.
Mr. Meyer has been a director of the Company since 1968. He had been the
Executive Director of the Western States Arts Federation, Santa Fe, New Mexico,
which provides and develops regional arts programs, from 1990 to October 1995.
Mr. Nadel has been a director of the Company since 1972. He is a Certified
Public Accountant and member of both the New York Bar and the Connecticut Bar.
He provides management consulting services to the Company as Trustee of its
401(k) Plan.
Mr. Topol has been a director of the Company since 1982. Prior to his
retirement in 1994, he served as an Executive Vice President of Smith Barney,
Inc. (financial services) for more than five years. He is also a director of
First American Health Concepts, Fund for the Aging, City Meals on Wheels,
American Health Foundation, State University of New York - Purchase and Group
One Ltd.
Mr. Van Kirk has served as Secretary of the Company since 1985. He is
counsel in the law firm of Meighan & Necarsulmer, Mamaroneck, New York, which
has provided legal services to the Company.
-28-
Item 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation for
services, in all capacities for 1996, 1995 and 1994, of those persons who were,
at the end of 1996, Chief Executive Officer ("CEO") (Daniel R. Martin) and each
of the four most highly compensated executive officers of the Company other than
the CEO (collectively, the "Named Executive Officers"):
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Other
Annual Restricted All Other
Name and Compensa- Stock LTIP Compensa-
Principal Fiscal Salary Bonus tion (1) Awards Options Payouts tion (3)
Position Year ($) ($) ($) ($) # (2) ($) ($)
-------- ---- --- --- --- --- ----- --- ---
Howard S. Stern,..... 1996 $250,000 None None None None None $ 7,245
Chairman of the Board 1995 250,000 None None None 74,263 None 11,712
1994 250,000 None None None None None 9,627
Daniel R. Martin,.... 1996 $220,000 None None None None None $ 9,261
President and Chief 1995 200,000 None None None 116,699 None 8,453
Executive Officer 1994 200,000 None None None None None 9,150
George P. Carden,.... 1996 $186,300 None None None None None $ 7,257
Senior Vice President 1995 186,300 $25,000 None None 30,766 None 7,330
1994 172,125 None None None None None 7,853
Arthur L. Zimmet,.... 1996 $153,000 None None None None None $ 7,760
Senior Vice President 1995 153,000 $10,000 None None 40,314 None 7,466
1994 153,000 None None None None None 8,094
Eamonn P. Hobbs,..... 1996 $170,648 None None None None None $ 8,021
Vice President 1995 120,000 $15,000 None None 30,766 None 5,856
1994 120,000 None None None None None 6,020
- ---------------
(1) The Company has concluded that the aggregate amount of perquisites and other
personal benefits paid to each of the Named Executive Officers for 1996,
1995 and 1994 did not exceed the lesser of 10% of such officer's total
annual salary and bonus for 1996, 1995 or 1994 or $50,000; such amounts are,
therefore, not reflected in the table.
(2) Retroactively adjusted for the 3% stock dividends described in Note K to the
Consolidated Financial Statements.
(3) For 1996, 1995 and 1994, represents for each of the Named Executive Officers
the amounts contributed by the Company under the Profit- Sharing Plan and,
as matching contributions, under the companion 401(k) Plan.
OPTION GRANTS TABLE
The Company did not grant any stock options or stock appreciation
rights to the Named Executive Officers during 1996.
-29-
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth certain information concerning all exercises
of stock options during 1996 by the Named Executive Officers and the fiscal
year-end value of unexercised stock options on an aggregated basis:
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
June 1, 1996 June 1, 1996
(#) ($) (1)
------------ -----------
Shares Value Exercisable/ Exercisable/
Acquired on Realized Unexercisable Unexercisable
Name Exercise (#) ($) (2) (2)
---- ----------- -------- ------------- -------------
Howard S. Stern... None None 74,263/ $651,485/
None None
Daniel R. Martin.. None None 183,246/ $1,462,783/
None None
George P. Carden.. None None 37,322/ $319,273/
None None
Arthur L. Zimmet.. None None 47,963/ $411,263/
None None
Eamonn P. Hobbs... None None 37,322/ $319,273/
None None
- ---------------
(1) Options are "in-the-money" if on June 1, 1996, the market price of the stock
exceeded the exercise price of such options. At June 1, 1996, the closing
price of the Company's Class A and Class B Common Stock was $14.13 and
$13.25, respectively. The value of such options is calculated by determining
the difference between the aggregate market price of the stock covered by
the options on June 1, 1996 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.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information, as of August 5, 1996, as to the
beneficial ownership of the Company's voting Class A Common Stock by each person
known by the Company to own beneficially more than 5% of the Company's voting
Class A Common Stock:
Name and Address of Shares Percent of
Beneficial Owner Beneficially Owned Class
---------------- ------------------ -----
Howard S. Stern,................ 956,412 23.7
Chairman of the Board,
Director
717 Main Street
Westbury, NY 11590
Betty S. Meyers and estate...... 928,806 23.0
of Phillip H. Meyers, M.D.,
former officer and director
401 Emerald Street
New Orleans, LA 70124
Wellington Management Company,.. 219,258 5.4
75 State Street
Boston, MA 02109
The following table sets forth information, as of August 5, 1996, as to the
beneficial ownership of the Company's voting Class A and non-voting Class B
Common Stock, by (i) each of the Company's directors, (ii) each of the Company's
Named Executive Officers, and (iii) all directors and executive officers of the
Company as a group:
Class A Class B
---------------------- ---------------------
Shares Percent Shares Percent
Name of Beneficially of Beneficially of
Beneficial Owner Owned (1) Class Owned (2) Class
---------------- --------- ----- --------- -----
Howard S. Stern,........... 956,412 23.7 1,228,213 23.2
Chairman of the Board,
Director
Daniel R. Martin,.......... 23,882 * 175,119 3.3
President, Chief Executive
Officer, Director
Arthur L. Zimmet,.......... 28,750 * 83,925 1.6
Senior Vice President
Robert M. Topol,........... 26,313 * 59,321 1.1
Director
-31-
Class A Class B
---------------------- ---------------------
Shares Percent Shares Percent
Name of Beneficially of Beneficially of
Beneficial Owner Owned (1) Class Owned (2) Class
---------------- --------- ----- --------- -----
Paul S. Echenberg,......... 3,313 * 69,348 1.3
Chairman of the Board of
E-Z-EM Canada, Director
Irwin H. Nadel,............ 27,313 * 36,647 *
Director
James L. Katz,............. 3,338 * 49,806 *
Director
George P. Carden,.......... 6,725 * 45,596 *
Senior Vice President and
General Manager
Donald A. Meyer,........... 20,492 * 29,420 *
Director
Eamonn P. Hobbs,........... 50 * 37,380 *
Vice President
Michael A. Davis, M.D.,.... None * 35,632 *
Medical Director, Director
All directors and executive
officers as a group (21
persons)................. 2,028,178 (3) 27.0 3,246,487 (4) 34.7
- ---------------
* Does not exceed 1%.
(1) Includes Class A Common Stock shares issuable upon exercise of options
currently exercisable or exercisable within 60 days from August 5, 1996 as
follows: Daniel R. Martin (16,882), Robert M. Topol (2,813), Paul S.
Echenberg (2,813), Irwin H. Nadel (2,813), James L. Katz (2,813) and Donald
A. Meyer (2,813).
(2) Includes Class B Common Stock shares issuable upon exercise of options
currently exercisable or exercisable within 60 days from August 5, 1996 as
follows: Howard S. Stern (74,263), Daniel R. Martin (166,364), Arthur L.
Zimmet (47,963), Robert M. Topol (36,898), Paul S. Echenberg (68,725), Irwin
H. Nadel (5,998), James L. Katz (48,125), George P. Carden (37,322), Donald
A. Meyer (5,998), Eamonn P. Hobbs (37,322) and Michael A. Davis, M.D.
(34,632).
(3) Includes Class A Common Stock shares issuable upon exercise of options
currently exercisable or exercisable within 60 days from August 5, 1996
totalling 30,947 shares.
(4) Includes Class B Common Stock shares issuable upon exercise of options
currently exercisable or exercisable within 60 days from August 5, 1996
totalling 789,074 shares.
-32-
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A major facility of the Company located in Westbury, New York is owned 27%
by Howard S. Stern, 25% by Betty S. Meyers, a principal shareholder, 4% by other
employees of the Company and 44% by unrelated parties, which includes a 25%
owner who manages the property. Aggregate rentals, including real estate tax
payments, were $142,537 during 1996. The lease term expired in June 1996 and is
currently being extended on a month-to-month basis.
The Company has engaged Paul S. Echenberg, a director of the Company, both
as a consultant and employee. Fees for such services, including fees relating to
attendance at directors' meetings, were approximately $319,000 during 1996. In
connection with the sale of SDI in November 1995, Mr. Echenberg resigned as a
director of SDI and received an investment banker's fee of $905,000, a bonus of
$191,000 arising from the sale and a payment of $268,000 in connection with the
surrender of outstanding stock options in SDI. The Company has an investment in
an entity in which Mr. Echenberg serves as a director.
In connection with the sale of SDI, Arthur L. Zimmet resigned as a director
of SDI and received a bonus of $191,000 arising from the sale and a payment of
$268,000 in connection with the surrender of outstanding stock options in SDI.
The Company has engaged James L. Katz, a director of the Company, for
consulting services. Fees for such services, including fees relating to
attendance at directors' meetings, were approximately $99,000 during 1996.
The Company has engaged Michael A. Davis, M.D., a director of the Company,
for consulting services. Fees for such services were approximately $97,000
during 1996.
-33-
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 37
Consolidated balance sheets - June 1, 1996 and
June 3, 1995 38
Consolidated statements of earnings - fifty-two weeks ended June 1, 1996,
fifty-three weeks ended June 3, 1995 and fifty-two weeks ended May 28,
1994 40
Consolidated statements of stockholders' equity - fifty-two weeks ended
June 1, 1996, fifty-three weeks ended June 3, 1995 and fifty-two weeks
ended May 28, 1994 41
Consolidated statements of cash flows - fifty-two weeks ended June 1, 1996,
fifty-three ended June 3, 1995
and fifty-two weeks ended May 28, 1994 42
Notes to consolidated financial statements 44
(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 67
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
(a) 3. EXHIBITS
3(i) Restated certificate of incorporation, as amended (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)
-34-
PAGE
(a) 3. EXHIBITS (CONTINUED)
10(d) Income Deferral Program (f)
13 Annual report to security holders (g)
21 Subsidiaries of the Company 68
22 Proxy statement to security holders (g)
23 Consent of Independent Certified Public Accountants 69
27 Financial Data Schedule 70
99 Report of Independent Certified Public Accountants
Other than Principal Accountants 71
- ---------------
(a) Incorporated by reference to Exhibit 3(i) of the Company's
quarterly report filed on Form 10-Q for the quarterly period ended
December 2, 1995
(b) Incorporated by reference to Exhibit 3(ii) of the Company's annual
report filed on Form 10-K for the fiscal year ended May 28, 1994
(c) 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 June 1, 1996.
Schedules other than those shown above are not submitted as the subject
matter thereof is either not required or is not present in amounts sufficient to
require submission in accordance with the instructions in Regulation S-X or the
information required is included in the Notes to Consolidated Financial
Statements.
-35-
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
E-Z-EM, Inc.
---------------------------------
(Registrant)
Date August 28, 1996 /s/ Howard S. Stern
--------------------------------
Howard S. Stern, Chairman of the
Board, Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date August 28, 1996 /s/ Howard S. Stern
--------------------------------
Howard S. Stern, Chairman of the
Board, Director
Date August 28, 1996 /s/ Daniel R. Martin
--------------------------------
Daniel R. Martin, President,
Chief Executive Officer, Director
Date August 28, 1996 /s/ Dennis J. Curtin
--------------------------------
Dennis J. Curtin, Vice President-
Chief Financial Officer
Date August 27, 1996 /s/ Michael A. Davis
--------------------------------
Michael A. Davis, Director
Date August 27, 1996 /s/ James L. Katz
--------------------------------
James L. Katz, Director
Date August 24, 1996 /s/ Donald A. Meyer
--------------------------------
Donald A. Meyer, Director
Date August 24, 1996 /s/ Irwin H. Nadel
--------------------------------
Irwin H. Nadel, Director
Date August 27, 1996 /s/ Robert M. Topol
--------------------------------
Robert M. Topol, Director
-36-
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 June 1, 1996 and June 3, 1995, and the related consolidated
statements of earnings, stockholders' equity and cash flows for the fifty-two
weeks ended June 1, 1996, the fifty-three weeks ended June 3, 1995 and the
fifty-two weeks ended May 28, 1994. 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 16% in 1996 and 20% in 1995 and net sales
constituting approximately 12% in 1996, 13% in 1995 and 15% in 1994 of the
related consolidated totals. We also did not audit the financial statements of a
certain subsidiary for the fifty-two weeks ended May 28, 1994, for which the
results of operations have been classified as a discontinued operation for all
periods presented. Those statements were audited by other auditors, whose
reports thereon have been furnished to us, and our opinion, insofar as it
relates to the amounts included for these subsidiaries, is based solely upon the
reports 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 reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports 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 June
1, 1996 and June 3, 1995, and the consolidated results of their operations and
their consolidated cash flows for the fifty-two weeks ended June 1, 1996, the
fifty-three weeks ended June 3, 1995 and the fifty-two weeks ended May 28, 1994,
in conformity with generally accepted accounting principles.
We have also audited the financial statement schedule listed in the Index at
Item 14(a)(2). In our opinion, this schedule presents fairly, in all material
respects, the information required to be set forth therein.
/s/ GRANT THORNTON LLP
----------------------
GRANT THORNTON LLP
Certified Public Accountants
Melville, New York
August 8, 1996
-37-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 1, June 3,
ASSETS 1996 1995
------- --------
CURRENT ASSETS
Cash and cash equivalents $ 3,363 $ 3,962
Debt and equity securities 20,247 485
Accounts receivable, principally
trade, net of allowance for
doubtful accounts of $527 in
1996 and $465 in 1995 16,152 17,354
Inventories 23,708 22,752
Other current assets 2,936 2,602
----- -----
Total current assets 66,406 47,155
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 21,823 20,864
COST IN EXCESS OF FAIR VALUE OF NET
ASSETS ACQUIRED, less accumulated
amortization of $411 in 1996 and
$354 in 1995 558 633
INTANGIBLE ASSETS, less accumulated
amortization of $345 in 1996 and
$492 in 1995 767 463
DEBT AND EQUITY SECURITIES 3,647 4,352
OTHER ASSETS 2,836 2,628
------- -------
$96,037 $76,095
====== ======
The accompanying notes are an integral part of these statements.
-38-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
June 1, June 3,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------ -------
CURRENT LIABILITIES
Notes payable $ 979 $ 1,021
Current maturities of long-term debt 268 208
Accounts payable 5,095 6,713
Accrued liabilities 6,218 5,559
Accrued income taxes 338 400
------ ------
Total current liabilities 12,898 13,901
LONG-TERM DEBT, less current maturities 680 1,114
OTHER NONCURRENT LIABILITIES 1,856 1,805
MINORITY INTEREST IN SUBSIDIARY 1,385
COMMITMENTS AND CONTINGENCIES ------ ------
Total liabilities 15,434 18,205
------ ------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.10 per share -
authorized, 1,000,000 shares; issued, none - -
Common stock
Class A (voting), par value $.10 per
share - authorized, 6,000,000 shares;
issued and outstanding, 4,035,346 shares
in 1996 and 4,032,532 shares in 1995 403 403
Class B (nonvoting), par value $.10 per
share - authorized, 10,000,000 shares;
issued and outstanding, 5,199,615
shares in 1996 and 4,785,462 shares
in 1995 520 479
Additional paid-in capital 15,165 11,570
Retained earnings 63,347 44,953
Unrealized holding gain on debt and equity
securities 2,360 1,786
Cumulative translation adjustments (1,192) (1,301)
------- --------
Total stockholders' equity 80,603 57,890
------- -------
$96,037 $76,095
====== ======
The accompanying notes are an integral part of these statements.
-39-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
Fifty-two Fifty-three Fifty-two
weeks ended weeks ended weeks ended
June 1, June 3, May 28,
1996 1995* 1994*
------- ------- --------
Net sales $91,932 $88,526 $85,645
Cost of goods sold 55,518 51,845 52,028
------ ------ ------
Gross profit 36,414 36,681 33,617
------ ------ ------
Operating expenses
Selling and administrative 30,134 27,767 25,520
Research and development 5,323 6,077 6,897
----- ----- -----
Total operating expenses 35,457 33,844 32,417
------ ------ ------
Operating profit 957 2,837 1,200
Other income (expense)
Interest income 735 551 429
Interest expense (264) (286) (386)
Other, net 512 457 285
------- ------- ------
Earnings from continuing
operations before income taxes 1,940 3,559 1,528
Income tax provision 243 1,086 1,149
------ ----- -----
Earnings from continuing
operations 1,697 2,473 379
Discontinued operation:
Losses from operations, net of
income tax provision (benefit)
of $10, $142 and $(261) in 1996,
1995 and 1994, respectively (209) (843) (102)
Gain on sale, net of income tax
provision of $6,019 19,520
----- ------ -----
NET EARNINGS $21,008 $ 1,630 $ 277
====== ===== =====
Earnings from continuing operations
per common share
Primary and fully diluted $ .17 $ .27 $ .04
===== ===== =====
Earnings per common share
Primary $ 2.16 $ .18 $ .03
===== ===== =====
Fully diluted $ 2.14 $ .18 $ .03
===== ===== =====
* Reclassified to reflect the discontinued operation.
The accompanying notes are an integral part of these statements.
-40-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Fifty-two weeks ended June 1, 1996, fifty-three weeks ended
June 3, 1995 and fifty-two weeks ended May 28, 1994
(in thousands, except share data)
Unrealized
Class A Class B holding gain
common stock common stock Additional on debt Cumulative
--------------- --------------- paid-in Retained and equity translation
Shares Amount Shares Amount capital earnings securities adjustments Total
------ ------ ------- ------ ---------- -------- ---------- ----------- ------
Balance at May 29, 1993 4,032,533 $403 4,275,175 $428 $ 9,248 $45,399 $ - $ (477) $55,001
Issuance of stock (1) 4,479 22 22
3% common stock dividend 249,026 25 1,235 (1,262) (2)
Net earnings 277 277
Foreign currency translation
adjustments (1,029) (1,029)
--------- --- --------- --- ------ ------ ------ ------- -------
Balance at May 28, 1994 4,032,532 403 4,528,680 453 10,505 44,414 - (1,506) 54,269
Unrealized holding gain on
debt and equity securities
at May 29, 1994 3,531 3,531
Issuance of stock 270 1 1
3% common stock dividend 256,512 26 1,064 (1,091) (1)
Net earnings 1,630 1,630
Unrealized holding loss on
debt and equity securities (1,745) (1,745)
Foreign currency translation
adjustments 205 205
--------- --- --------- --- ------ ------ ------ ------- -------
Balance at June 3, 1995 4,032,532 403 4,785,462 479 11,570 44,953 1,786 (1,301) 57,890
Exercise of stock options 2,813 145,369 14 1,005 1,019
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
========= === ========= === ====== ====== ===== ===== ======
The accompanying notes are an integral part of these statements.
-41-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Fifty-two Fifty-three Fifty-two
weeks ended weeks ended weeks ended
June 1, June 3, May 28,
1996 1995 1994
------- ------- -------
Cash flows from operating activities:
Net earnings $21,008 $1,630 $ 277
Adjustments to reconcile net
earnings to net cash (used in)
provided by operating activities
Depreciation and amortization 2,552 2,800 2,728
Gain on disposal of business (25,539)
Gain on sale of assets (193)
Gain on sale of investments (24)
Minority share of subsidiary's
operations (200) (810) (97)
Deferred income taxes 60 282 (61)
Changes in operating assets
and liabilities, net of
disposition
Accounts receivable (731) 233 (1,077)
Inventories (3,123) (3,833) 1,637
Other current assets (446) (305) 372
Other assets (754) 128 (116)
Accounts payable (312) 2,319 616
Accrued liabilities 905 312 (960)
Accrued income taxes 22 (107) (309)
Other noncurrent liabilities 168 190 36
------ ------ ------
Net cash (used in) provided
by operating activities (6,583)* 2,839 3,022
-------- ----- -----
Cash flows from investing activities:
Additions to property, plant and
equipment, net (4,231) (4,812) (2,175)
Proceeds from disposal of business,
net of cash sold 26,785
Proceeds from sale of assets 485
(Increase) decrease in debt and
equity securities (18,162) (25) 57
-------- ------ -----
Net cash provided by (used in)
investing activities 4,877 (4,837) (2,118)
------ ------- -------
* Includes income taxes paid on the disposition of Surgical Dynamics
Inc. of approximately $6,019.
The accompanying notes are an integral part of these statements.
-42-
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
Fifty-two Fifty-three Fifty-two
weeks ended weeks ended weeks ended
June 1, June 3, May 28,
1996 1995 1994
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of debt $ 1,121 $1,686 $ 892
Repayments of debt (910) (3,374) (1,254)
Proceeds from issuance of loan
by minority shareholder 238 258
Proceeds from exercise of stock
options 1,019
Issuance of stock in connection with
the stock purchase plan 5 1 22
----- ----- -----
Net cash provided by (used in)
financing activities 1,473 (1,429) (340)
----- ------- ------
Effect of exchange rate changes on
cash and cash equivalents (366) 538 (767)
------ ----- ------
DECREASE IN CASH AND CASH
EQUIVALENTS (599) (2,889) (203)
Cash and cash equivalents
Beginning of year 3,962 6,851 7,054
----- ----- -----
End of year $3,363 $3,962 $6,851
===== ===== =====
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 136 $ 201 $ 360
===== ===== =====
Income taxes (net of $508,
$449 and $263 in refunds
in 1996, 1995 and 1994,
respectively) $6,319 $ 674 $1,050
===== ===== =====
The accompanying notes are an integral part of these statements.
-43-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies is presented to assist the
reader in understanding and evaluating the consolidated financial
statements. These policies are in conformity with generally accepted
accounting principles and have been applied consistently in all material
respects.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of E-Z-EM, Inc. and
all 100%-owned subsidiaries, as well as the accounts of Surgical Dynamics
Inc. ("SDI"), a 51%-owned subsidiary prior to its sale in November 1995 (the
"Company"). SDI has been reported as a discontinued operation and,
accordingly, the gain from the sale of SDI and the Company's proportionate
share of losses from operations of SDI have been classified as a
discontinued operation for all periods presented in the accompanying
consolidated statements of earnings. The discontinued operation has not been
segregated in the accompanying statements of consolidated cash flows and,
therefore, amounts for certain captions will not agree with the respective
consolidated statements of earnings. The Company is primarily engaged in
developing, manufacturing and marketing diagnostic products used by
radiologists and other physicians during image-assisted procedures to detect
physical abnormalities and diseases.
Operations outside the U.S. are included in the consolidated financial
statements and consist of: a subsidiary operating a mining and chemical
processing operation in Nova Scotia, Canada and a manufacturing and
marketing facility in Montreal, Canada; a subsidiary manufacturing products
located in Puerto Rico; a subsidiary manufacturing and marketing products
located in Japan; a subsidiary promoting and distributing products located
in Holland; and a subsidiary promoting and distributing products located in
the United Kingdom.
FISCAL YEAR
The Company reports on a fiscal year which concludes on the Saturday nearest
to May 31. Fiscal year 1996 ended on June 1, 1996 for a reporting period of
fifty-two weeks, fiscal year 1995 ended on June 3, 1995 for a reporting
period of fifty-three weeks and fiscal year 1994 ended on May 28, 1994 for a
reporting period 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
-44-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
deposit and Eurodollar investments of $1,796,000 and $1,133,000 at June 1,
1996 and June 3, 1995, respectively. The carrying amount of these financial
instruments reasonably approximates fair value because of their short
maturity. Foreign-denominated cash and cash equivalents aggregated
$1,101,000 and $1,695,000 at June 1, 1996 and June 3, 1995, respectively.
DEBT AND EQUITY SECURITIES
Effective in fiscal 1995, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" ("SFAS 115"). In accordance with the provisions of
SFAS 115, this Statement was not applied retroactively to financial
statements prior to fiscal 1995.
Pursuant to SFAS 115, debt and equity securities are to be classified in three
categories and accounted for as follows: debt securities that the Company
has the positive intent and ability to hold to maturity are classified as
"held-to-maturity securities" and reported at amortized cost; debt and
equity securities that are bought and held principally for the purpose of
selling them in the near term are classified as "trading securities" and
reported at fair value, with unrealized gains and losses included in
operations; and debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified as
"available-for-sale securities" and reported at fair value, with unrealized
gains and losses excluded from operations and reported as a separate
component of stockholders' equity, net of the related tax effects. Cost is
determined using the specific identification method.
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 $2,308,000,
$2,273,000 and $2,230,000 in 1996, 1995 and 1994, respectively.
-45-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED
The excess cost is being amortized on a straight-line basis over 5 and 40 year
periods. On an ongoing basis, management reviews the valuation and
amortization of this asset to determine possible impairment by comparing the
carrying value to the undiscounted future cash flows of the related asset.
Amortization from continuing operations was $73,000, $70,000 and $65,000 in
1996, 1995 and 1994, respectively.
INTANGIBLE ASSETS
Intangible assets are being amortized on a straight-line basis over the
estimated useful lives of the respective assets ranging from five to fifteen
and one-half years. Amortization from continuing operations was $47,000,
$44,000 and $41,000 in 1996, 1995 and 1994, respectively.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121") that established
accounting standards for the impairment of long-lived assets, certain
intangibles and goodwill related to those assets to be held and used, and
for long-lived assets and certain identifiable intangibles to be disposed
of. SFAS 121 is required to be adopted for fiscal years beginning after
December 15, 1995. In accordance with SFAS 121, it is the Company's policy
to periodically review and evaluate whether there has been a permanent
impairment in the value of intangibles and adjust the carrying value
accordingly. Factors considered in the valuation include current operating
results, trends and anticipated undiscounted future cash flows. Accordingly,
the adoption of SFAS 121 is not expected to have a significant effect on the
consolidated financial statements of the Company.
INCOME TAXES
Inaccordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"), deferred income taxes are
recognized for temporary differences between financial statement and income
tax bases of assets and liabilities and loss carryforwards and tax credit
carryforwards for which income tax benefits are expected to be realized in
future years. A valuation allowance has been established to reduce deferred
tax assets as it is more likely than not that all, or some portion, of such
deferred tax assets will not be realized. The effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date.
-46-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
FOREIGN CURRENCY TRANSLATION
In accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation," the Company has determined that the
functional currency for each of its foreign subsidiaries is the local
currency. This assessment considers that the day-to-day operations are not
dependent upon the economic environment of the parent's functional currency,
financing is effected through their own operations, and the foreign
operations primarily generate and expend foreign currency. Foreign currency
translation adjustments are accumulated as a separate component of
stockholders' equity.
EARNINGS PER COMMON SHARE
Primary and fully diluted earnings per common share are computed on the basis
of the weighted average number of common shares outstanding plus the common
stock equivalents which would arise from the exercise of stock options, if
the latter causes dilution in earnings per common share in excess of 3%.
Common stock equivalents are included in both the primary and fully diluted
calculations for 1996, 1995 and 1994.
The weighted average number of common shares used was:
1996 1995 1994
---- ---- ----
Primary 9,723,626 9,087,678 9,081,038
Fully diluted 9,832,676 9,092,403 9,081,084
The weighted average number of common shares and the per share amounts for all
periods presented have been retroactively restated to reflect the total
shares issued after the 3% stock dividends described in Note K.
STOCK-BASED COMPENSATION
Adoption of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123") is required for fiscal years
beginning after December 15, 1995 and allows for a choice of the method of
accounting used for stock-based compensation. Entities may elect the
"intrinsic value" method based on APB No. 25 "Accounting for Stock Issued to
Employees" or the new "fair value" method contained in SFAS 123. The Company
intends to implement SFAS 123 in fiscal 1997 by continuing to account for
stock-based compensation under the guidelines of APB No. 25. As required by
SFAS 123, the pro forma effects on net earnings and earnings per common
share will be determined as if the fair value based method had been applied
and disclosed in the notes to the consolidated financial statements.
-47-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at year-end and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year amounts to conform
to the 1996 presentation.
NOTE B - DISCONTINUED OPERATION
On November 22, 1995 (the "Closing Date"), E-Z-EM, Inc. completed the sale of
all of the capital stock of SDI held by E-Z-EM, Inc. through its subsidiary,
E-Z-SUB, Inc., (collectively, the "Company") to United States Surgical
Corporation ("USSC") pursuant to the terms of an Agreement and Plan of
Merger Agreement dated November 7, 1995 (the "Merger Agreement") by and
among USSC, USSC Acquisition Corporation, SDI, CalMed Laboratories, Inc.
("CalMed") and the Company. As of the Closing Date, the Company owned 51%
(approximately 47% on a fully diluted basis after taking into account
outstanding options) of the outstanding capital stock of SDI and CalMed, a
company not affiliated with E-Z-EM, Inc., owned 49% (approximately 45% on a
fully diluted basis after taking into account outstanding options) of the
outstanding capital stock of SDI. The aggregate consideration paid for SDI
was $59,900,000 in cash, which amount included repayment by USSC of $200,000
of loans owed by SDI to its shareholders. After closing costs and payments
made to option holders, the Company received, at closing, cash proceeds of
$27,073,000 for the sale of its interest in SDI. In addition, $510,000 of
the consideration payable to the Company is being held back by USSC as a
nonexclusive source of indemnification for breaches of representations and
warranties, and to the extent not drawn upon, will be repaid to the Company
two years after the Closing Date. As a result of this sale, the Company
recognized a gain, pretax, of approximately $25,539,000, after-tax of
approximately $19,520,000, or $2.01 per common share on a primary basis. The
effective tax rate of 24% on the gain on the sale of SDI differs from the
Federal statutory tax rate of 35% due primarily to the utilization of
previously unrecorded tax loss and tax credit carryforwards.
-48-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE B - DISCONTINUED OPERATION (continued)
SDI is a manufacturer of minimally invasive surgical devices for the spine,
including the NucleotomeTM for use in percutaneous diskectomy and the Ray
Threaded Fusion CageTM spine implants for use in interbody fusions.
SDI has been reported as a discontinued operation and, accordingly, the gain
from the sale of SDI and the Company's proportionate share of losses from
operations of SDI have been classified as a discontinued operation for all
periods presented in the accompanying consolidated statements of earnings.
Revenues attributable to the SDI operations were approximately $3,475,000
for the period June 4, 1995 through November 22, 1995 and $9,071,000 and
$8,478,000 for the fiscal years ended June 3, 1995 and May 28, 1994. Changes
in operating assets and liabilities reflected in the consolidated statements
of cash flows include amounts pertaining to the operations of SDI.
NOTE C - DEBT AND EQUITY SECURITIES
Debt and equity securities at June 1, 1996 consist of the following:
Unrealized
Amortized Fair holding
cost value gain (loss)
--------- ------ -----------
(in thousands)
CURRENT
Available-for-sale securities
(carried on the balance
sheet at fair value)
Debt securities $19,787 $19,776 $ (11)
Equity securities 398 376 (13)
Other 95 95
------ ------- -------
$20,280 $20,247 $ (24)
====== ====== ======
NONCURRENT
Available-for-sale securities
(carried on the balance
sheet at fair value)
Equity securities $1,675 $3,646 $1,971
Other 1 1
------ ------ ------
$1,676 $3,647 $1,971
===== ===== =====
-49-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE C - DEBT AND EQUITY SECURITIES (continued)
Debt and equity securities at June 3, 1995 consist of the following:
Unrealized
Amortized Fair holding
cost value gain (loss)
--------- ----- -----------
(in thousands)
CURRENT
Held-to-maturity securities
(carried on the balance
sheet at amortized cost)
Debt securities $ 75 $ 75
----- -----
Available-for-sale securities
(carried on the balance
sheet at fair value)
Equity securities 398 357 $ (31)
Other 53 53
----- ----- ------
451 410 (31)
----- ----- ------
$ 526 $ 485 $ (31)
===== ===== =====
NONCURRENT
Held-to-maturity securities
(carried on the balance
sheet at amortized cost)
Debt securities with
maturities after one
year through five years $1,593 $1,605
------ -------
Available-for-sale securities
(carried on the balance
sheet at fair value)
Equity securities 1,670 2,758 $1,088
Other 1 1
----- ----- -----
1,671 2,759 1,088
----- ----- -----
$3,264 $4,364 $1,088
===== ===== =====
-50-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE D - INVENTORIES
Inventories consist of the following:
June 1, June 3,
1996 1995
------- -------
(in thousands)
Finished goods $13,157 $11,856
Work in process 1,159 2,214
Raw materials 9,392 8,682
------ -------
$23,708 $22,752
====== ======
NOTE E - PROPERTY, PLANT AND EQUIPMENT, AT COST
Property, plant and equipment are summarized as follows:
Estimated
useful June 1, June 3,
lives 1996 1995
--------- ------- -------
(in thousands)
Building and building
improvements 10 to 39 years $11,661 $11,176
Machinery and equipment 2 to 10 years 24,008 23,897
Leasehold improvements Term of lease 1,568 1,816
------ ------
37,237 36,889
Less accumulated depreciation
and amortization 18,903 19,709
------ ------
18,334 17,180
Land 3,489 3,684
------ ------
$21,823 $20,864
====== ======
-51-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE F - INCOME TAXES
Income tax expense (benefit) from continuing operations analyzed by category
and by income statement classification is summarized as follows:
1996 1995 1994
------ ------ ------
(in thousands)
Current
Federal $ 413 $ 1 $ 1
State and local 31 60 59
Foreign (261) 877 1,015
------ ----- ------
Subtotal 183 938 1,075
Deferred 60 148 74
----- ----- -----
Total $ 243 $1,086 $1,149
===== ===== =====
Temporary differences which give rise to deferred tax assets and liabilities
are summarized as follows:
June 1, June 3,
1996 1995
------- -------
(in thousands)
Deferred tax assets
Difference between book and tax basis
in investment sold to Canadian
subsidiary $1,137 $1,137
Tax credit carryforwards 638 1,295
Tax operating loss carryforwards 372 3,767
Capital loss carryforwards 453
Alternative minimum tax ("AMT")
credit carryforward 165
Expenses incurred not currently
deductible 1,191 1,455
Unrealized investment losses 722 877
Deferred compensation costs 547 487
Inventories 291 243
Other 89 67
----- -----
Gross deferred tax asset 4,987 9,946
----- -----
-52-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE F - INCOME TAXES (continued)
June 1, June 3,
1996 1995
------- -------
(in thousands)
Deferred tax liabilities
Excess tax over book depreciation $1,074 $ 914
Unrealized investment gains 305 144
Tax on unremitted profits of Puerto
Rican subsidiary 67 145
Other 86 109
----- -----
Gross deferred tax liability 1,532 1,312
Valuation allowance (3,040) (7,861)
------- -------
Net deferred tax asset $ 415 $ 773
===== =====
In 1994, the Company sold to its Canadian subsidiary warrants to purchase
396,396 shares of stock in ISG Technologies, Inc. This transaction generated
a capital gain for tax purposes of approximately $3,344,000, utilizing a
portion of the Company's capital loss carryforward and giving rise to a
temporary difference pertaining to the difference between the financial
statement and tax basis in this asset.
During 1996, the Company utilized tax operating and capital losses, tax credit
and AMT credit carryforwards of approximately $8,279,000, $596,000 and
$121,000, respectively, in connection with the sale of SDI described in Note
B.
If not utilized, the tax operating loss carryforwards will expire in various
amounts over the years 1997 through 2010. The tax credit carryforwards will
expire in various amounts over the years 1997 through 2003.
Deferred income taxes are provided for the expected Tollgate tax on the
undistributed earnings of the Company's Puerto Rico subsidiary, which are
expected to be distributed at some time in the future.
-53-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE F - INCOME TAXES (continued)
At June 1, 1996, undistributed earnings of certain foreign subsidiaries
aggregated $13,339,000 which will not be subject to U.S. tax until
distributed as dividends. Any taxes paid to foreign governments on these
earnings may be used, in whole or in part, as credits against the U.S. tax
on any dividends distributed from such earnings. It is not practical to
estimate the amount of U.S. tax, if any, that might be payable on the
eventual remittance of such earnings. On remittance, certain foreign
countries impose withholding taxes that are then available for use as
credits against a U.S. tax liability, if any, subject to certain
limitations. The amount of withholding tax that would be payable on
remittance of the entire amount of undistributed earnings would approximate
$667,000. Under the provisions of the Omnibus Budget Reconciliation Act of
1993, undistributed earnings of foreign subsidiaries may be taxable in
certain situations for fiscal years beginning after September 30, 1993.
Deferred tax assets and liabilities are included in the consolidated balance
sheets as follows:
June 1, June 3,
1996 1995
------- -------
(in thousands)
Current - Accrued income taxes $(118) $(220)
Noncurrent - Other assets 533 993
--- ---
Net deferred tax asset $ 415 $ 773
=== ===
Earnings (loss) from continuing operations before income taxes for
U.S. and international operations consist of the following:
1996 1995 1994
------ ------ ------
(in thousands)
U.S. $2,280 $ 805 $(1,563)
International (340) 2,754 3,091
----- ------ -------
$1,940 $3,559 $ 1,528
===== ===== =====
-54-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE F - INCOME TAXES (continued)
The Company's consolidated income tax provision has differed from the amount
which would be provided by applying the U.S. Federal statutory income tax
rate to the Company's earnings from continuing operations before income
taxes for the following reasons:
1996 1995 1994
------ ------ ------
(in thousands)
Income tax provision $243 $1,086 $1,149
Effect of:
State income taxes, net of
Federal tax benefit (21) (22) (19)
Research and development credit 95 24 11
Earnings of the Puerto Rico
subsidiary, net of Puerto
Rico Corporate tax and
Tollgate tax 348 373 367
Earnings of the Foreign Sales
Corporation 16
Tax-exempt portion of
investment income 137 7 13
Nondeductible expenses (251) (138) (53)
Losses of entities generating
no current tax benefit (79) (83) (1,034)
Utilization of tax operating
and capital loss
carryforwards 61 50
Change in valuation allowance 74
Other 56 (37) 36
--- ----- -----
Income tax provision at
statutory tax rate of 35% in
1996 and 34% in 1995 and 1994 $679 $1,210 $ 520
=== ===== =====
The Company has an agreement with the Commonwealth of Puerto Rico pursuant to
which its operations in Puerto Rico are subject to a partial tax exemption
which expires January 23, 2007. Commonwealth taxes are currently being
provided on earnings of the subsidiary.
The U.S. Federal income tax returns of the Company through May 30, 1992 have
been closed by the Internal Revenue Service.
-55-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE G - DEBT
Short-term debt consists of the following:
June 1, June 3,
1996 1995
------- -------
(in thousands)
Japanese bank
2.63% note (1) $462
4.00% note (1) $ 607
Bank, lines of credit
6.5% (2) 287
10.75% 150
Other financial institutions
6.12% note, unsecured 230
6.37% note, unsecured 264
---- ------
$979 $1,021
=== =====
Long-term debt consists of the following:
June 1, June 3,
1996 1995
------- -------
(in thousands)
Japanese bank loans, due December 1998
through March 2001, 1.45% to 4.10% (1) $948 $1,277
Obligations under capital leases 45
--- -----
948 1,322
Less current maturities 268 208
--- -----
$680 $1,114
=== =====
(1) Collateralized by property, plant and equipment having a net carrying
value of $1,900,000 at June 1, 1996.
(2) The Company's Canadian subsidiary has available $730,600 (Canadian
$1,000,000) under this line of credit with a bank, which is collateralized
by accounts receivable and expires on September 30, 1996.
The Company has available $4,000,000 under an unsecured line of credit with a
bank, which expires on November 30, 1996. At June 1, 1996, no amounts were
outstanding under this line of credit.
-56-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE G - DEBT (continued)
The Company believes that the carrying amount of its debt approximates the
fair value as the variable interest rates approximate current prevailing
interest rates.
During 1996 and 1995, the weighted average interest rates on short-term debt
were 5.93% and 5.48%, respectively.
NOTE H - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
June 1, June 3,
1996 1995
------- -------
(in thousands)
Payroll and related expenses $3,146 $3,341
Accrued sales rebates 1,040 370
Accrued lease settlement (Note J) 510 600
Other 1,522 1,248
------ -------
$6,218 $5,559
====== ======
NOTE I - RETIREMENT PLANS
E-Z-EM, Inc. and certain domestic subsidiaries ("E-Z-EM") provide pension
benefits through a Profit-Sharing Plan, under which E-Z-EM makes
discretionary contributions to eligible employees, and a companion 401(k)
Plan, under which eligible employees can defer a portion of their annual
compensation, part of which is matched by E-Z-EM. These plans cover all
E-Z-EM employees not otherwise covered by collective bargaining agreements.
In 1996, 1995 and 1994, profit-sharing contributions were $468,000, $464,000
and $457,000, respectively, and 401(k) matching contributions were $316,000,
$292,000 and $274,000, respectively.
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 1996, 1995 and 1994, contributions were $45,000, $53,000 and $88,000,
respectively.
-57-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE J - COMMITMENTS AND CONTINGENCIES
The Company is presently a defendant in a product liability action. This suit
claims damages based upon alleged injuries resulting from the use of one of
the Company's products. The action is in its early stages and while the
Company is actively defending against the claim, it is unable to predict its
outcome. It should be noted that in this action the Company is one among
several defendants and, as such, the Company's liability, if any, is not
quantifiable at this time. The Company does not believe that the ultimate
outcome in this action will have a material adverse effect on the
consolidated financial statements.
The Company was the defendant in a product liability action with respect to an
alleged injury resulting from the use of one of its products. The Company
was dismissed without prejudice from such action in February 1996.
Pursuant to a contractual agreement with Picker International, Inc.
("Picker"), the Company assumed the defense of a lawsuit in which Picker,
along with multiple other named defendants, had been sued for injuries
alleged to have resulted from the use of protective aprons. The plaintiff
has recently abandoned this action.
The Company has been sued by Olympia Holding Corporation p/k/a P-I-E
Nationwide, Inc. for $443,830. The suit, filed on October 5, 1992, is
presently pending in the U.S. Bankruptcy Court for the Middle District of
Florida. The Company is being represented in this action by a law firm which
is also representing numerous other defendants being sued by the same
plaintiff on the same grounds-recovery for alleged undercharges for freight
carriage. It is not possible, at this stage, to determine what, if any,
liability exists with respect to the Company in this matter. The Company
will vigorously defend against this action; it has been informed by legal
counsel that there exist numerous valid defenses to this case.
During 1993, SDI's lease agreement on the Alameda, California, office and
production facilities was prematurely terminated by SDI, a former 51%-owned
subsidiary of the Company. In 1993, SDI accrued $600,000 for the estimated
settlement of the lease commitment. Pursuant to the terms of the Merger
Agreement described in Note B, the $600,000 liability was assumed by USSC
(the purchaser of SDI), and the Company and the previous minority
shareholder of SDI assumed any liability in excess of $600,000 in connection
with the lease termination. The dispute was settled in July 1996 for
$1,600,000, of which the Company was liable for $510,000, or 51% of the
$1,000,000 excess. Such amount is included in accrued liabilities at June 1,
1996.
-58-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE J - COMMITMENTS AND CONTINGENCIES (continued)
During March 1994, the Company began recalling its effervescent granules and
colon cleansing products due to packaging and formulation problems, which
might have resulted in inconsistent product performance over time. The
recalls were initiated by the Company's desire to ensure complete product
efficacy, as patient safety issues were not involved. The Company recorded a
pretax provision in the aggregate amount of $1,546,000 during 1994, with
respect to such recalls. During 1995, such recall was completed and the
Company reduced this provision by $156,000 based upon the actual results of
the recall. Such amounts are reflected in cost of goods sold in the
consolidated statements of earnings. These products currently account for
less than five percent of the Company's sales volume.
The Company leases several facilities from related parties. During 1996, 1995
and 1994, aggregate rental costs under all operating leases from continuing
operations, which primarily consist of facility rentals, were approximately
$1,131,000, $1,041,000 and $1,288,000, respectively, of which approximately
$202,000, $205,000 and $198,000 were paid to related parties. Future annual
operating lease payments in the aggregate, which include escalation clauses
and real estate taxes, with initial remaining terms of more than one year at
June 1, 1996, are summarized as follows:
Total Related party
leases leases
------ -------------
(in thousands)
1997 $ 759 $ 69
1998 465 25
1999 399
2000 414
2001 429
Thereafter 2,531
----- ---
$4,997 $ 94
===== ===
-59-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE J - COMMITMENTS AND CONTINGENCIES (continued)
The Company has an employment contract with a key executive that provides for
a term of eight years. Future annual commitments with respect to this
contract at June 1, 1996, are summarized as follows:
(in thousands)
1997 $ 250
1998 250
1999 250
2000 250
2001 250
2002 125
-----
$1,375
=====
NOTE K - COMMON STOCK
In August 1983, the Company adopted a Stock Option Plan (the "1983 Plan"). The
1983 Plan provides for the grant to key employees of both nonqualified stock
options and incentive stock options. A total of 1,742,694 shares of the
Company's Common Stock may be issued under the 1983 Plan pursuant to the
exercise of options. All stock options must have an exercise price of not
less than the market value of the shares on the date of grant. Options will
be exercisable over a period of time to be designated by the administrators
of the 1983 Plan (but not more than 10 years from the date of grant) and
will be subject to such other terms and conditions as the administrators may
determine. The 1983 Plan terminates in December 2005.
In August 1984, the Company adopted a second Stock Option Plan (the "1984
Plan"). The 1984 Plan provides for the grant to members of the Board of
Directors and consultants of nonqualified stock options. A total of 435,553
shares of the Company's Common Stock may be issued under the 1984 Plan
pursuant to the exercise of options. All stock options must have an exercise
price of not less than the market value of the shares on the date of grant.
Options will be exercisable over a period of time to be designated by the
administrators of the 1984 Plan (but not more than 10 years from the date of
grant) and will be subject to such other terms and conditions as the
administrators may determine. The 1984 Plan terminates in December 2005.
-60-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE K - COMMON STOCK (continued)
On June 1, 1996, options for 640,180 shares were exercisable at prices ranging
from $3.88 to $11.33 per share under the 1983 Plan and 185,954 shares were
exercisable at prices ranging from $3.88 to $11.38 per share under the 1984
Plan. On June 1, 1996, there remained 207,088 and 103,636 shares available
for granting of options under the 1983 and 1984 Plans, respectively.
The following schedules summarize the changes in stock options for the three
fiscal years ended June 1, 1996:
1983 Plan 1984 Plan
------------------------- -------------------------
Number of Option price Number of Option price
shares per share shares per share
--------- ------------ --------- ------------
Outstanding at
May 29, 1993 806,867 $5.58 to $12.02 133,437 $5.58 to $15.79
Granted 2,185 4.58 7,957 4.71
Cancelled (111,544) 5.58 to 11.33
-------------------------- ------------------------
Outstanding at
May 28, 1994 697,508 4.58 to 12.02 141,394 4.71 to 15.79
Granted 968,882 3.88 to 4.48 178,875 3.88 to 4.48
Cancelled (394,542) 4.48 to 12.02 (74,793) 5.58 to 15.79
-------------------------- ------------------------
Outstanding at
June 3, 1995 1,271,848 3.88 to 11.33 245,476 3.88 to 15.03
Granted 81,612 9.10 52,350 5.83 to 13.25
Cancelled (45,111) 4.48 to 9.23 (5,909) 15.03
Exercised (145,682) 4.01 to 11.33 (2,500) 4.71
-------------------------- ------------------------
Outstanding at
June 1, 1996 1,162,667 $3.88 to $11.33 289,417 $3.88 to $13.25
========================== ========================
On June 1, 1996, the weighted average exercise price for outstanding options
under the 1983 and 1984 Plans was $5.16 and $5.97 per share, respectively.
Options granted prior to the Company's recapitalization on October 26, 1992
are exercisable one-half in Class A Common Stock and one-half in Class B
Common Stock. Options granted after the recapitalization are exercisable in
Class B Common Stock.
In August 1985, the Company adopted an Employee Stock Purchase Plan (the
"Employee Plan"). The Employee Plan provides for the purchase by employees
of Company stock at a discounted price of 85% of the market value of the
shares on the date of purchase. A total of 150,000 shares of the Company's
Common Stock may be purchased under the Employee Plan which terminates on
September 30, 1998. During 1996, employees purchased 932 shares, at prices
ranging from $4.57 to $8.82. Total proceeds received by the Company
approximated $5,000.
-61-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE K - COMMON STOCK (continued)
On January 10, 1994, the Board of Directors declared a 3% stock dividend on
shares of Class A and Class B Common Stock. The dividend, payable in
nonvoting Class B Stock, was distributed on March 11, 1994 to shareholders
of record on February 11, 1994. On January 24, 1995, the Board of Directors
declared a 3% stock dividend on shares of Class A and Class B Common Stock.
The dividend, payable in nonvoting Class B Stock, was distributed on March
16, 1995 to shareholders of record on February 24, 1995. On January 23,
1996, the Board of Directors declared a 3% stock dividend on shares of Class
A and Class B Common Stock. The dividend, payable in nonvoting Class B
Stock, was distributed on March 15, 1996 to shareholders of record on
February 23, 1996. Earnings per common share have been retroactively
adjusted to reflect the stock dividends.
NOTE L - OTHER RELATED PARTIES
A director provided services, both as a consultant and employee, to the
Company during 1996, 1995 and 1994. Fees for such services, including fees
relating to attendance at directors' meetings, were approximately $319,000,
$165,000 and $88,000 during 1996, 1995 and 1994, respectively. In connection
with the sale of SDI in November 1995, 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, an executive officer resigned as a
director of SDI and received a bonus of $191,000 arising from the sale and a
payment of $268,000 in connection with the surrender of outstanding stock
options in SDI.
Two other directors provided consulting services to the Company during 1996,
1995 and 1994. Fees for such services, including fees relating to attendance
at directors' meetings, were approximately $196,000, $196,000 and $195,000
during 1996, 1995 and 1994, respectively.
-62-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE M - 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 and other imaging examinations,
and non-contrast systems, including diagnostic radiology devices, custom
contract pharmaceuticals, gastrointestinal cleansing laxatives, X-ray
protection equipment, and immunoassay tests. AngioDynamics products include
stent products, angiographic and fluid management products, and thrombolytic
products used in the interventional medicine marketplace. The Company's
primary business activity is conducted with radiologists and hospitals,
located throughout the U.S. and abroad, through numerous distributors. The
Company's exposure to credit risk is dependent, to a certain extent, on the
healthcare industry. The Company performs ongoing credit evaluations of its
customers and does not generally require collateral; however, in certain
circumstances, the Company may require letters of credit from its customers.
In the tables below, operating profit (loss) from continuing operations
includes total net sales less operating expenses. Identifiable assets are
those associated with industry segment or geographic area operations,
excluding loans to or investments in another industry segment or geographic
area operation. Intersegment sales and intergeographic sales are not
material.
In 1996, 1995 and 1994, there was one customer to whom sales of Diagnostic
products represented 16%, 15% and 16% of total sales, respectively.
Approximately 21% and 17% of accounts receivable pertained to this customer
at June 1, 1996 and June 3, 1995, respectively.
-63-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE M - INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS (continued)
Industry Segments 1996 1995* 1994*
----------------- ------ ------ ------
(in thousands)
Net Sales
Diagnostic products $80,936 $81,525 $80,966
AngioDynamics products 11,696 7,396 5,001
Eliminations (700) (395) (322)
------- ------- -------
Total Net Sales $91,932 $88,526 $85,645
====== ====== ======
Operating Profit (Loss)
Diagnostic products $2,509 $7,452 $4,658
AngioDynamics products (1,536) (4,603) (3,468)
Eliminations (16) (12) 10
------- ------- -------
Total Operating Profit $ 957 $2,837 $1,200
===== ===== =====
Identifiable Assets
Diagnostic products $83,304 $62,585 $59,760
AngioDynamics products 12,945 8,529 6,911
Discontinued operation 5,033 5,162
Eliminations (212) (52) (302)
------- ------- -------
Total Identifiable Assets $96,037 $76,095 $71,531
====== ====== ======
Depreciation and Amortization
Diagnostic products $2,112 $2,110 $1,976
AngioDynamics products 316 277 360
Discontinued operation 124 413 392
------- ------- -------
Total Depreciation and
Amortization $2,552 $2,800 $2,728
===== ===== =====
Capital Expenditures
Diagnostic products $3,850 $4,187 $1,330
AngioDynamics products 370 361 527
Discontinued operation 11 264 318
------- ------- -------
Total Capital Expenditures $4,231 $4,812 $2,175
===== ===== =====
* Net sales and operating profit (loss) amounts have been reclassified to
reflect the discontinued operation described in Note B.
-64-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE M - 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:
1996 1995* 1994*
------ ------ ------
(in thousands)
Net Sales
U.S. operations $71,939 $65,073 $63,422
International operations:
Canada 12,254 14,100 14,301
Other 13,456 13,763 12,196
Eliminations (5,717) (4,410) (4,274)
------- ------- -------
Total Net Sales $91,932 $88,526 $85,645
====== ====== ======
Operating Profit (Loss)
U.S. operations $1,084 $ 118 $(2,086)
International operations:
Canada (410) 2,350 3,143
Other 225 456 100
Eliminations 58 (87) 43
----- ------ ------
Total Operating Profit $ 957 $2,837 $ 1,200
===== ===== =====
Identifiable Assets
U.S. operations:
Continuing operations $73,604 $47,590 $48,356
Discontinued operation 5,033 5,162
International operations:
Canada 15,543 15,816 12,433
Other 8,067 8,857 7,731
Eliminations (1,177) (1,201) (2,151)
------- ------- -------
Total Identifiable Assets $96,037 $76,095 $71,531
====== ====== ======
* Net sales and operating profit (loss) amounts have been reclassified to
reflect the discontinued operation described in Note B.
-65-
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE M - INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS (continued)
The Company's domestic export sales by geographic area are summarized as
follows:
1996 1995 1994
------ ------ ------
(in thousands)
Europe $5,655 $2,605 $1,728
Other 3,783 3,421 3,206
----- ----- -----
$9,438 $6,026 $4,934
===== ===== =====
NOTE N - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly results of operations during 1996 and 1995 were as follows:
1996
----------------------------------
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
(in thousands, except per share data)
Net sales $21,999 $23,005 $21,550 $25,378
Gross profit 9,131 9,623 8,209 9,451
Net earnings 569 20,087 9 343
Earnings per common share (1)
Primary (2) .06 2.09 .00 .03
Fully diluted (2) .06 2.07 .00 .03
1995 (3)
----------------------------------
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
(in thousands, except per share data)
Net sales $21,545 $21,377 $19,856 $25,748
Gross profit 9,379 8,834 7,455 11,013
Net earnings (loss) 1,050 455 (1,077) 1,202
Earnings (loss) per common
share (1)
Primary and fully diluted .12 .05 (.12) .13
(1) Earnings per common share have been retroactively restated to reflect the
total shares issued after the 3% stock dividends described in Note K.
(2) The sum of the quarters does not equal the fiscal year due to rounding and
changes in the calculation of weighted average shares.
(3) Reclassified to reflect the discontinued operation described in
Note B.
-66-
E-Z-EM, Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
---------------------
(1) (2)
Balance Charged to Balance
at Charged to other at end
beginning costs and accounts- Deductions- of
Description of period expenses describe describe period
----------- --------- -------- -------- -------- ------
Fifty-two weeks
ended May 28, 1994
Allowance for
doubtful accounts.. $353 $149 $ 96 (a) $406
=== === === ===
Fifty-three weeks
ended June 3, 1995
Allowance for
doubtful accounts.. $406 $ 91 $ 32 (a) $465
=== === === ===
Fifty-two weeks
ended June 1, 1996
Allowance for
doubtful accounts.. $465 $176 $114 (b) $527
=== === === ===
(a) Amounts written off as uncollectible.
(b) Represents amounts written off as uncollectible of $64,000 and an amount
deducted in conjunction with the sale of SDI of $50,000.
-67-