UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 29, 1999 Commission file number 1-11479
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E-Z-EM, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 11-1999504
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
717 Main Street, Westbury, New York 11590
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 333-8230
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Securities registered pursuant to Section 12(b) of the Act: Class A Common
Stock, par value $.10 and Class B Common Stock, par value $.10
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the registrant's voting Class A Common Stock held
by non-affiliates on August 2, 1999 was $15,492,000.
On August 2, 1999, there were 4,035,346 shares of the registrant's Class A
Common Stock outstanding and 6,036,578 shares of the registrant's Class B Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for registrants 1999 Annual Meeting of
Stockholders to be held October 19, 1999 are incorporated by reference in Part
III of this Form 10-K Report.
Page 1 of 71
Exhibit Index on Page 33
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E-Z-EM, Inc. and Subsidiaries
INDEX
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Page
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Part I:
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Item l. Business 3
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 14
Part II:
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Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 22
Item 8. Financial Statements and Supplementary Data 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 23
Part III:
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Item 10. Directors and Executive Officers of the Registrant 24
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners
and Management 29
Item 13. Certain Relationships and Related Transactions 31
Part IV:
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Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 33
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Part I
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Item 1. Business
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(a) General Development of Business
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E-Z-EM, Inc. (the "Company" or "E-Z-EM"), organized in Delaware in 1983,
has been in business for over 37 years, and has its corporate offices located at
717 Main Street, Westbury N.Y. 11590. The Company is primarily engaged in
developing, manufacturing and marketing diagnostic products used by radiologists
and other physicians during image-assisted procedures to detect anatomic
abnormalities and diseases. The Company also designs, develops, manufactures and
markets, through its wholly-owned subsidiary, AngioDynamics, Inc.
("AngioDynamics"), a variety of therapeutic and diagnostic products, for use
principally in the diagnosis and treatment of peripheral vascular disease. These
products are primarily used by interventional medical practitioners during
minimally invasive diagnostic and surgical procedures. Thirty-four percent (34%)
of the Company's sales were to customers outside the U.S. during 1999.
E-Z-EM contrast systems consist of specially developed powdered and liquid
barium sulfate formulations and consumable medical devices, which function
together as a system, for examination of the various parts of the
gastrointestinal ("G.I.") tract. Contrast systems are used in X-ray, CT-scanning
and other imaging examinations. The G.I. tract is commonly referred to as the
digestive system and consists of the pharynx, esophagus, stomach, small
intestine (or small bowel) and colon. E-Z-EM manufactures a broad spectrum of
barium sulfate products for different uses in G.I. tract examinations. Each
E-Z-EM barium sulfate formulation is tailored to that portion of the G.I. tract
to be examined, and to the procedures employed by radiologists in each
examination. Based upon sales, the Company believes that it is the leading
worldwide producer of barium sulfate contrast systems for use in G.I. tract
examinations.
The Company also competes in areas related and complementary to its basic
contrast systems business, categorized as non-contrast systems. Non-contrast
systems include: diagnostic radiology devices, custom contract pharmaceuticals,
gastrointestinal cleansing laxatives, X-ray protection equipment, and
immunoassay tests. See "Narrative Description of Business".
The Company's sales of contrast and non-contrast systems, collectively the
diagnostic ("Diagnostic") products industry segment, net of intersegment
eliminations, increased 4% during 1999 as compared to 1998.
The Company manufactures and markets, through AngioDynamics, three
differentiated product groups for use during interventional procedures:
angiography products, therapeutic products and coronary products. AngioDynamics
also manufactures and sells angiographic and coronary products on an O.E.M.
basis. Collectively these products are classified as the AngioDynamics products
industry segment. See "Narrative Description of Business".
During 1999, AngioDynamics product sales, net of intersegment eliminations,
increased 4%. Domestic sales increased by 11% due to continued market
penetration of angiography products, while international sales decreased by 17%
as a result of temporarily suspending product shipments to distributors affected
by the recent Brazilian economic crisis, and a continued decline in sales of the
coronary AngioStent(TM).
Unless the context requires otherwise, all references herein to a
particular year are references to the Company's fiscal year.
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(b) Financial Information About Industry Segments
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The Company is engaged in the manufacture and distribution of a wide
variety of products that are classified into two industry segments: Diagnostic
products and AngioDynamics products. Diagnostic products encompass both contrast
systems, consisting of barium sulfate formulations and related medical devices
used in X-ray, CT-scanning, ultrasound and Magnetic Resonance Imaging ("MRI")
imaging examinations, and non-contrast systems, including diagnostic radiology
devices, custom contract pharmaceuticals, gastrointestinal cleansing laxatives,
X-ray protection equipment, and immunoassay tests. AngioDynamics products
include angiography, therapeutic and coronary medical devices used in the
interventional medical marketplace.
Certain financial information, including net sales, depreciation and
amortization, net earnings (loss), assets and capital expenditures attributable
to each operating segment are set forth in Note O to the Consolidated Financial
Statements included herein.
(c) Narrative Description of Business
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Diagnostic Products
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Diagnostic products include both contrast systems, consisting of barium
sulfate formulations and related medical devices used in X-ray, CT-scanning and
other imaging examinations, and non-contrast systems, including diagnostic
radiology devices, custom contract pharmaceuticals, gastrointestinal cleansing
laxatives, X-ray protection equipment, and immunoassay tests.
Contrast Systems
Contrast systems, using barium sulfate formulations as contrast media
together with consumable medical devices, have been E-Z-EM's principal business
since the Company's organization over 37 years ago. For over 80 years, barium
sulfate has been the contrast medium of choice for virtually all G.I. tract
X-ray examinations. It has the longest history of use among all contrast media.
Barium sulfate is preferred among G.I. tract contrast media because it has a
high absorption coefficient for X-rays. In addition, it is biologically inert,
insoluble in water and chemically stable. Barium sulfate for suspension is
listed in the U.S. Pharmacopeia. The use of properly formulated barium sulfate
suspensions permits the visualization of the entire G.I. tract.
The Company's contrast systems are designed for a variety of radiologic
procedures. In single contrast procedures, a portion of the G.I. tract is filled
with barium sulfate to produce a diagnostic image of the tract's contours. In
double contrast procedures, gas or air is used to distend the G.I. tract after
coating with a high density barium sulfate suspension. This produces a
significantly clearer diagnostic image of the tract's surface than that
obtainable through the use of single contrast procedures. In computed tomography
procedures, known as "CT-scanning", a specially formulated low density barium
sulfate product is used to visualize the G.I. tract and thus significantly
enhance the radiographic image.
Contrast systems provide radiologists with a range of effective and
convenient powdered and liquid product formulations tailored to single contrast,
double contrast or CT-scanning procedures. Many of the Company's products are
functionally packaged in consumable dispensing containers. The Company believes
that it currently has the broadest barium sulfate product line of any worldwide
manufacturer and is continuing to develop additional formulations for modern
X-ray techniques. E-Z-EM also sells accessory medical devices for use in
contrast system procedures, including empty enema administration kits and
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components. Sales of contrast systems increased 3% during 1999 as compared to
1998.
Non-Contrast Systems
The Company also competes in areas related and complementary to its basic
contrast systems business, categorized as non-contrast systems. Non-contrast
systems include: diagnostic radiology devices, custom contract pharmaceuticals,
gastrointestinal cleansing laxatives, X-ray protection equipment, and
immunoassay tests. Sales of non-contrast systems increased 6% during 1999 as
compared to 1998.
The Company's line of diagnostic radiology devices include
electromechanical injectors and syringes, needles, trays and ancillary devices
used during a variety of diagnostic radiologic and ultrasound procedures. This
product grouping includes the PercuPump TouchscreenTM with EDA injector ("PP
with EDA"), which is designed to inject contrast media into the vascular system
for visualization purposes during CT procedures. The PP with EDA, introduced in
1998, is the first CT injector designed to aid in the detection of
extravasation, an accidental infiltration of contrast media into surrounding
tissue. The PP with EDA is comprised of an electromechanical injector, a
consumable syringe, and an EDA detector patch. Other diagnostic radiology
devices include entry needles, biopsy needles, trays and ancillary products used
during mammography, amniocentesis and other specialty procedures.
Custom contract pharmaceutical and cosmetic products are manufactured on a
contract basis by E-Z-EM Canada Inc. ("E-Z-EM Canada"), the Company's Canadian
subsidiary. Pharmaceutical products include liquid vitamins and antacids,
decongestants, cough medicines and vaporizing ointments. Cosmetic products
include tanning and sun screen lotions and bath powders.
During 1999, E-Z-EM Canada entered into a long-term agreement with O'Dell
Engineering Ltd. of Cambridge, Ontario, Canada, to commercialize a
decontamination lotion for chemical warfare agents. The product line, known as
Reactive Skin Decontaminant Lotion ("RSDL"), is initially aimed at the defense
sector market. Under the terms of the agreement, E-Z-EM Canada is the exclusive
manufacturer of the product and is responsible for all phases of product
development, including future generation decontaminants.
RSDL is a unique decontamination lotion which neutralizes and destroys
chemical warfare agents on personnel. It has been shown to be effective against
the G and V families of nerve agents, which include Sarin (used in the Tokyo
subway terrorist attack) and VX, and the H and L families of vesicants (blister
agents), which include Mustard and Lewisite. Developed by the Defense Research
Establishment of the Canadian Department of National Defense, the product patent
is held by the Canadian government which has entered into an exclusive licensing
agreement with O'Dell until the year 2010. To date, patents have been issued for
RSDL in the U.S., Canada and over a dozen European countries.
The Company offers laxative products specially formulated to cleanse the
G.I. tract prior to X-ray and colonoscopic examinations. These products are sold
through the same distribution network as the Company's contrast systems.
The Company markets a line of X-ray protection equipment featuring
Adjust-A-Weight(TM), a patented design concept which allows the wearer to adjust
the weight distribution of the protective apron to relieve fatigue. This product
line is sold through the same distribution network as the Company's contrast
systems.
The Company, through its wholly-owned subsidiary, Enteric Products, Inc.
("EPI"), markets immunoassay tests for use in the detection of Helicobacter
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pylori ("H. pylori"). The tests analyze a patient's serum or whole blood sample
using a patented antigen licensed from Baylor College of Medicine. These tests
are available for both laboratory use and for use in a physician's office.
H. pylori infection has been identified as the leading cause of duodenal
and gastric ulcers and has also been linked to gastritis and gastric cancer. The
World Health Organization has categorized H. pylori as a Class 1 carcinogen, a
definite cancer causing agent in humans. Gastric cancer is a leading cause of
death in Asia, Africa and Eastern Europe.
The Company's agreement with Abbott Laboratories for the international
marketing of its physician's office test to detect H. pylori expired in December
1998. The Primary Care Division of Beckman Coulter, Inc. ("Beckman"), 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. EPI is currently working with Beckman to find an exclusive
international marketing partner for its physician's office test. EPI receives
revenue from royalties on the sale of product by Beckman to its distributors and
end-users, and from the sale of EPI's patented antigen to Beckman for use in
both tests. In addition, EPI derives revenue from the sale of HM-CAP(TM), the
laboratory version of the blood serum test. The Company markets the HM-CAP test
direct and through distributors in the U.S. and abroad.
EPI, through its EndoDynamics division, also sells products to the
gastroenterology and cardiology markets. These products include the patented
Suction Polyp Trap(TM) that is used during colonoscopy and the patented
E-Z-Guard(TM) Mouthpiece that is used during esophageal echocardiography
procedures. EndoDynamics markets its products through a network of independent
sales representatives in the U.S. and specialty distributors outside the U.S.
Sales to Picker International, Inc., which is a distributor of the
Company's Diagnostic products, were 17% of total net sales during 1999.
AngioDynamics Products
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The Company, through its wholly-owned subsidiary, AngioDynamics, develops,
manufactures and markets a variety of differentiated products and systems for
the worldwide interventional medical marketplace, which is the practice of
medicine using both traditional and new diagnostic procedures for therapeutic
purposes.
The Company believes that the interventional medical 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.
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Angiography Products
Angiography products include diagnostic catheters, fluid management
products and CO2Ject(TM), a proprietary angiographic system that uses carbon
dioxide ("CO2") instead of standard iodinated contrast media. These products are
used during procedures known as "angiograms", "venograms", and "cardiac
catheterizations", which provide images of the human vasculature and blood flow.
The Company manufactures three lines of diagnostic catheters,
Memory-Vu(TM), ANGIOPTIC(TM), and Soft-Vu(TM), suitable for diagnosing the
complete human vascular system. These catheters are made in 3, 4, 5, and 6
French sizes, with wire braided and non-braided nylon shafts, and are available
in over 500 tip configurations and lengths, either as standard catalogue items
or made to order through the Company's customization program. The Company's
lines of angiographic catheters are cleared for sale in the U.S. and
internationally.
The proprietary Soft-Vu/Memory-Vu catheter technology incorporates a soft,
atraumatic tip that is attached to a more rigid shaft. In addition to being
soft, the catheter tips are also easily visualized under fluoroscopy. The
Company believes this soft tipped catheter technology offers the physician a
safe diagnostic catheter with less propensity to perforate or lacerate an artery
or vein.
The Company has developed a unique catheter line called ANGIOPTIC. The
distinguishing characteristic of this product is that the entire catheter is
highly visible under fluoroscopy. The catheter is constructed of a proprietary
triple-layer extrusion technology.
The Company manufactures several lines of products used to administer
fluids and contain the blood and other biological wastes produced during an
interventional procedure. These products are designed to meet the increased
concern about HIV and hepatitis. The AngioFill(TM) product line controls
airborne blood borne pathogens by aspirating a catheter and injecting the blood
into an appropriate receptacle. The AngioFill systems also have fluid lines that
connect to saline and contrast media bottles. In use, the physicians will
aspirate the catheter with a syringe and release the contents in the AngioFill
bag. While the syringe is still connected to the AngioFill, the physician will
draw fresh saline or contrast media to flush the catheter. The patented Pulse-Vu
Needle(TM) and Sos Bloodless Entry Needle(TM) control airborne blood borne
pathogens and the spurting blood flow normally encountered in a femoral arterial
puncture. Both needles have a thin diaphragm to divert the pressurized column of
blood into a clear, flexible side arm tube thus preventing the blood from
entering the clinical environment. The special diaphragm has a slit that allows
easy passage of a guidewire through the needle hub and needle lumen and into the
lumen of the artery. The Company believes its diaphragm technology is
proprietary. All of the Company's fluid management products are cleared for sale
in the U.S. and internationally.
The CO2Ject is comprised of CO2 contrast, an automated injector, a CO2
connection set, a diagnostic catheter and an angioplasty balloon catheter. Since
a normal function of the human vasculature and blood flow system is the transfer
and expulsion of CO2 through the respiratory system, the Company believes that
CO2 provides a higher degree of safety than iodinated contrast media, which can
cause severe allergic reactions in certain patients. The Company also believes
that CO2 is more cost effective and provides better images than iodinated
contrast media. Currently, the CO2Ject is being sold in Europe, South America,
Australia and Asia. To date, there is no automated CO2 system that has received
U.S. Food and Drug Administration ("FDA") clearance for sale in the U.S. The
Company does not anticipate receiving FDA clearance for the CO2Ject in the near
future, and there can be no assurance that such clearance will be obtained at
all.
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Therapeutic Products
The Company's therapeutic line principally consists of thrombolytic
products, vascular access products for dialysis, stents for non coronary use and
liver access products.
The Company's proprietary thrombolytic product line is marketed under the
names Pulse*Spray(R) and UNI*FUSE(TM) which are used to dissolve blood clots in
hemodialysis access grafts, arteries and veins. Pulse*Spray and UNI*FUSE Sets
include PRO(TM) Infusion Catheters, occluding wires, check valves, and syringes.
The Pulse*Spray and UNI*FUSE Sets optimize the delivery of lytic agent (the drug
that actually dissolves the clot) by providing a controlled, forceful, uniform
dispersion. This improvement has been clinically shown to reduce the amount of
lytic agent and the time necessary for the procedure by a factor of three. This
represents significant cost savings for the hospital, the patient, and the
healthcare system, while reducing the complications associated with the use of
larger volumes of lytic agent. The Pulse*Spray and UNI*FUSE Sets are cleared for
sale in the U.S. and internationally.
The Pulse*Spray Injector is designed to be used in conjunction with
AngioDynamics' other therapeutic products. This automated injector replaces hand
pressure as an injection mechanism and improves the consistency and efficiency
of the delivery of lytic agents through various Pulse*Spray and UNI*FUSE Sets,
as well as PRO Infusion Catheters. The Pulse*Spray Injector will only accept the
Company's manufactured single use components. 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 cleared for sale in the U.S. and
internationally. The Company believes that the Pulse*Spray Injector may provide
the first viable treatment for dissolving deep vein clots ("DVT's") in a wide
patient population. Early clinical experience with the Pulse*Spray Injector
indicates a significant reduction in the amount of thrombolytic drugs and time
required to resolve thrombosed deep veins in the legs. Further clinical evidence
is needed to confirm these initial results.
The Company's vascular access products, marketed under the Schon trade
name, are primarily used by patients requiring blood dialysis. These vascular
access catheters are classified as long-term or acute. A long-term catheter is
used in the event the patient is waiting for a permanent dialysis graft to heal
after a surgical placement or repair. Acute catheters are placed in patients
with a temporary interruption of renal function due to serious injury or trauma.
The Company believes that vascular access procedures in general and dialysis
access procedures specifically, are growing rapidly.
Stents are used to hold open passageways in the body that may have closed
or become obstructed as a result of aging, disease, or trauma. Stents are
increasingly being used as an alternative to or adjunct to surgical and
minimally invasive procedures and drug therapies, which reduce procedure time,
patient trauma, hospitalization and recovery time.
The Company's patent pending stent for non coronary use, the VISTAFLEX(TM),
incorporates a platinum linked-looped design. The VISTAFLEX stent is constructed
from a single strand of platinum alloy wire that is precision formed. The
Company believes that this design provides more consistent vessel support and
radial force than other stent designs, as well as more visibility, flexibility,
and easier delivery than competitive stents. The Company believes that its use
of platinum imparts better hemocompatibility and long-term biocompatibility than
stainless steel stent designs.
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During 1999, the FDA granted AngioDynamics a 510(k) clearance to market the
VISTAFLEX stent for biliary stricture in the U.S. Biliary stricture, a condition
common among hepatic and pancreatic cancer patients, is a narrowing of the bile
duct as a result of tumor ingrowth. The VISTAFLEX for peripheral vascular
applications has not yet been cleared for sale in the U.S. The Company intends
to submit a premarket approval ("PMA") application to obtain marketing clearance
from the FDA for peripheral vascular applications. The VISTAFLEX is marketed
internationally for peripheral vascular and biliary stricture applications.
The Company markets a transjugular intrahepatic portosystemic shunt
("TIPS") for liver access. The Company's TIPS access set is designed to probe
the liver with a small 21 gauge needle and utilizes carbon dioxide as a contrast
agent to visualize important liver structures such as the hepatic artery and
bile ducts. Cirrhosis of the liver often causes bleeding of the esophageal
varices. As an alternative to traditional surgical methods, a TIPS (shunt) is
placed between the portal vein and hepatic vein in the liver to reduce pressure
and thus relieve the bleeding.
Coronary Products
The Company believes that the coronary AngioStent provides a competitive
advantage over competing stent products and alternative therapies. The
AngioStent incorporates a number of unique and proprietary design features. The
AngioStent is constructed from a single strand of platinum alloy wire that is
precision formed into a spiraling sinusoidal configuration. This configuration
has the wire turn back on itself and attach back at its beginning, thereby
forming a longitudinal wire that imparts added strength and stability. The
Company believes that its patented stent design provides more consistent vessel
support and radial force than other stent designs, as well as more visibility,
flexibility, and easier delivery than competitive stents. The Company believes
that its use of platinum imparts better hemocompatibility and long-term
biocompatibility than stainless steel stent designs. The AngioStent is available
in a variety of diameters and lengths and is provided pre-mounted on both the
over-the-wire and rapid exchange delivery systems. Both of these delivery
systems offer advanced features, such as a high pressure balloon and
one-step-placement with no necessity for pre-dilation of the target lesion. The
AngioStent has been utilized in a variety of coronary 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 currently is marketed internationally for coronary
applications. The AngioStent for coronary applications has not been cleared for
sale in the U.S. and the Company does not intend to submit for such approval.
The Company also develops and manufacturers percutaneous transluminal
coronary angioplasty ("PTCA") balloon catheters. A PTCA balloon catheter is used
to inflate a narrowing in the arteries of the heart, either by expanding a stent
or on a stand-alone basis during balloon angioplasty procedures. The PTCA
products include the Racer Pico, Racer Select, Pico Runner and Pico ST II
balloon catheters, each of which is approved for sale internationally (with the
Pico Runner and Pico ST II cleared for sale in the U.S.). The Company intends to
use the base of balloon catheter technology to develop PTA balloon catheters for
the peripheral vascular market.
O.E.M. Manufacturing
The Company has two ISO 9001 certified facilities with available
manufacturing capacity and is seeking partnerships, joint ventures and O.E.M.
arrangements to manufacture PTCA balloon catheters, stent delivery systems and
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similar products. The Company also sells certain angiographic products on a
bulk, non-sterile basis. The Company is focusing its marketing efforts in the
interventional radiology market and is seeking a strategic partner, with an
existing cardiovascular sales and marketing franchise, to leverage its stent and
angioplasty technology in the cardiology market.
Marketing
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The Company believes that the success of its barium sulfate products is
primarily due to its ability to create contrast systems with specific,
sophisticated barium formulations for varying radiologic needs. E-Z-EM continues
to develop new barium sulfate products, including products for CT-scanning and
MRI procedures.
E-Z-EM's contrast systems, laxatives, X-ray protection equipment and
diagnostic radiology devices, such as syringes, biopsy needles and trays, are
marketed to radiologists and hospitals in the U.S. through about 200
distributors, supported by 31 E-Z-EM sales people, many of whom have had
technical training as X-ray technicians. The Company also advertises in medical
journals and displays at most national and international radiology conventions.
Outside the U.S., the Company's contrast systems are also marketed through
113 distributors, including wholly-owned subsidiaries in Canada, the United
Kingdom, Japan and Holland. Significant sales are made in Canada, the United
Kingdom, Japan, Holland, Italy, Brazil, Germany, Austria, South Africa and
Belgium. Foreign distributors are generally granted exclusive distribution
rights and hold governmental product registrations in their names, although new
registrations are currently being filed in the Company's name.
The Company's AngioDynamics products are marketed to interventional
radiologists, cardiologists, vascular surgeons and nephrologists. Domestic sales
are supported by 19 direct sales employees, while the international marketing
effort is conducted through 49 distributors, including 3 wholly-owned
subsidiaries. Foreign distributors are generally granted exclusive distribution
rights on a country-by-country basis.
Competition
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Based upon sales, E-Z-EM contrast systems are the most widely used
diagnostic imaging products of their kind in the U.S., Canada and certain
European countries. The Company faces competition domestically from Lafayette
Pharmaceuticals, Incorporated, as well as from small U.S. competitors, and it
also faces competition outside of the U.S. The Company competes primarily on the
basis of product quality, customer service, the availability of a full line of
barium sulfate formulations tailored to user needs, and price.
Radiologic procedures for which the Company supplies products complement,
as well as compete with, endoscopic procedures such as colonoscopy and
endoscopy. Such examinations involve visual inspection of the G.I. tract through
the use of a flexible fiber optic instrument inserted into the patient by a
gastroenterologist. The use of gastroenterology procedures has been growing in
both upper and lower G.I. examinations as patients have been increasingly
referred to gastroenterologists rather than radiologists. Also, the availability
of drugs which successfully treat ulcers and other gastrointestinal disorders
has tended to reduce the need for upper G.I. tract examinations. In January
1998, Medicare began reimbursing for colorectal cancer screening utilizing G.I.
examinations, as well as other procedures.
The major non-contrast systems market that the Company competes in is the
medical device radiology market, which is highly competitive. No single company,
domestic or foreign, competes with the Company across all of its non-contrast
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system product lines. In electromechanical injectors and syringes, the Company's
main competitors are Schering AG and Mallinckrodt, Inc. In needles and trays,
the Company competes with C.R. Bard, Inc., Baxter Healthcare Corporation,
Sherwood Medical Co. and various other competitors. The Company also encounters
competition in the marketing of its other non-contrast systems products.
The Company competes in the AngioDynamics products segment on the basis of
product quality, product innovation, sales, marketing and service effectiveness,
and price. There are many large companies, with significantly greater financial,
manufacturing, marketing, distribution and technical resources than the Company,
focusing on these markets. Those Company products that already have FDA
clearance and those Company products that in the future receive FDA clearance
will have to compete vigorously for market acceptance and market share.
Cook, Inc., Boston Scientific Corporation, Johnson & Johnson Interventional
System, Co., C.R. Bard, Inc., Medtronic, Inc., Guidant Corporation, Biotronik
GmbH, Progressive Angioplasty Systems, American Biomed, Inc. and Global
Therapeutics, among others, currently compete against the Company in the
development, production and marketing of stents and stent technology.
The medical indications that can be treated by stents can also be treated
by surgery, drugs, or other medical devices, many of which are widely accepted
in the medical community. The ability to use patents and other proprietary
rights to prevent sales by competitors is an important tool in the medical
devices industry.
Within the contrast media market, the Company's CO2Ject system competes
with a product offered by Daum GmbH. The Company also competes with companies
marketing iodinated contrast agents. These companies include Nycomed Inc.,
Bracco s.p.a., Schering AG and Mallinckrodt, Inc.
In the market for diagnostic angiography catheters, the Company's major
competitors are Cook, Inc., Boston Scientific Corporation and Johnson & Johnson
Interventional System, Co.
The competitive situation in the market for thrombolytic therapeutic
products is complex. The first level of competition is the medical profession,
where each physician can decide if an artery or 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 Boston Scientific Corporation, Micro
Therapeutics, Inc., Cook, Inc. and Arrow International.
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 Boston Scientific Corporation, Merit, Burron Medical, DeRoyal, Biocore,
Advanced Medical Design, and Furon, Inc. These products are non-patient contact
and, therefore, the barriers to entry, such as regulatory clearance, potential
liability, and the need for technical sophistication, are not significant.
Research and Development
------------------------
In addition to its technical staff, consisting of a Medical/Technical
Director and 45 employees, the Company has consulting arrangements with various
physicians who assist through their independent research and product
development. Research and development expenditures totaled $4,847,000, or 5% of
net sales, in 1999, as compared to $5,662,000, or 6% of net sales, in 1998 and
$6,881,000, or 7% of net sales, in 1997, reflecting the Company's commitment to
expansion of its product lines through research and development.
-11-
<PAGE>
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 E-Z-EM
Canada, which operates a barium sulfate mine and processing facility in Nova
Scotia and whose reserves are anticipated to last a minimum of five years at
current usage rates. The Company believes that these sources should be adequate
for its foreseeable needs.
The Company has generally been able to obtain adequate supplies of all
components for its AngioDynamics business in a timely manner from existing
sources. However, the inability to develop alternative sources, if required, or
a reduction or interruption in supply, or a significant increase in the price of
components, could adversely affect operations.
Patents and Trademarks
----------------------
Although several products and processes are patented and the Company
considers its trademarks to be a valuable marketing tool, the Company does not
consider any single patent, group of patents, or trademarks to be materially
important to its Diagnostic business segment. E-Z-EM and AngioDynamics are
examples of the Company's registered trademarks in the U.S.
The Company believes that success in the AngioDynamics products segment is
dependent, to a large extent, on patent protection and the proprietary nature of
its technology. The Company intends to file and prosecute patent applications
for technology for which it believes 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
-12-
<PAGE>
number of responsible parties, and the lack of information concerning the degree
of contamination and potential clean-up costs, it is not possible to estimate
what, if any, liability exists with respect to the Company. Further, it has not
been alleged that the Company contributed to the contamination, and it is the
Company's belief that it has not done so.
Employees
---------
The Company employs 931 persons, 196 of whom are covered by various
collective bargaining agreements. Collective bargaining agreements covering 100
and 92 employees expire in December 1999 and December 2004, respectively. The
Company considers employee relations to be satisfactory.
(d) Financial Information Regarding Foreign and Domestic Operations and Export
---------------------------------------------------------------------------
Sales
-----
The Company derived about 34% of its sales from customers outside the U.S.
during 1999. 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 sales to
Japanese customers, which are made by the Company's Japanese subsidiary, are
also billed in local currency.
The Company employs 334 persons involved in the developing, manufacturing
and marketing of products internationally. The Company's product lines are
marketed through approximately 138 foreign distributors to 84 countries outside
of the U.S.
The net sales of each geographic area and the long-lived assets
attributable to each geographic area are set forth in Note O to the Consolidated
Financial Statements included herein.
Item 2. Properties
----------
The Company's principal manufacturing facilities and executive offices are
located in Westbury, New York. They consist of three buildings, one of which is
owned by the Company, containing an aggregate of 183,800 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. See
"Certain Relationships and Related Transactions". AngioDynamics occupies
manufacturing and warehousing facilities located in Queensbury, New York
consisting of two buildings, one of which is owned by the Company, containing an
aggregate of 29,312 square feet. AngioDynamics Ltd. owns a 20,000 square-foot
manufacturing and warehousing facility located in Enniscorthy, Ireland. E-Z-EM
Caribe owns a 38,600 square-foot plant in San Lorenzo, Puerto Rico which
fabricates enema tips and heat-sealed products. E-Z-EM Canada leases a 29,120
square-foot building in Debert, Nova Scotia and both owns and leases land
encompassing its barium sulfate mining operation. E-Z-EM Canada also owns a
64,050 square-foot manufacturing and warehousing facility located in Montreal,
Canada.
Item 3. Legal Proceedings
-----------------
The Company is presently involved in various 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
-13-
<PAGE>
would not have a material adverse effect on the Company's financial position.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
-14-
<PAGE>
Part II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
E-Z-EM, Inc. Class A and Class B Common Stock is traded on the American
Stock Exchange ("AMEX") under the symbols "EZM.A" and "EZM.B", respectively. The
following table sets forth, for the periods indicated, the high and low sale
prices for the Class A and Class B Common Stock as reported by the AMEX.
<TABLE>
<CAPTION>
Class A Class B
------------------------ -------------------------
High Low High Low
------- ------- -------- -------
<S> <C> <C> <C> <C>
Fifty-two weeks ended May 29, 1999
----------------------------------
First Quarter..................... $7.63 $5.88 $7.50 $5.38
Second Quarter.................... 7.13 5.88 6.13 5.50
Third Quarter..................... 7.00 5.88 6.50 4.38
Fourth Quarter.................... 7.00 4.88 6.00 4.38
Fifty-two weeks ended May 30, 1998
----------------------------------
First Quarter..................... $9.13 $7.50 $7.88 $6.63
Second Quarter.................... 8.63 7.13 7.50 5.88
Third Quarter..................... 7.88 6.88 7.38 6.25
Fourth Quarter.................... 9.75 6.75 9.00 5.88
</TABLE>
As of August 2, 1999 there were approximately 226 and 356 record holders of
the Company's Class A and Class B Common Stock, respectively.
During fiscal 1997 and 1998, the Company issued 3% stock dividends. During
fiscal 1999, such stock dividends were not issued. The Company will continue to
evaluate its dividend policy on an ongoing basis. Any future dividends are
subject to the Board of Directors' review of operations and financial and other
conditions then prevailing.
-15-
<PAGE>
Item 6. Selected Financial Data
-----------------------
<TABLE>
<CAPTION>
Fifty-two weeks ended Fifty-three
----------------------------------------------------- weeks ended
May 29, May 30, May 31, June 1, June 3,
1999 1998# 1997 1996 1995
--------- --------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income statement data:
Net sales ............... $107,179 $102,884 $97,324 $91,932 $88,526
Gross profit ............ 45,157 37,433 36,570 36,414 36,681
Operating profit (loss) . 7,242 (5,351) (4,911) 957 2,837
Earnings (loss) from
continuing operations
before income taxes ... 6,671 (5,534) (4,530) 1,940 3,559
Earnings (loss) from
continuing operations . 4,797 (5,967) (3,208) 1,697 2,473
Net earnings (loss) ..... 4,797 (5,967) (3,208) 21,008 1,630
Earnings (loss) from
continuing operations
per common share
Basic (1) ........... .48 (.60) (.33) .17 .26
Diluted (1) ......... .47 (.60) (.33) .17 .26
Earnings (loss) per
common share
Basic (1) ........... .48 (.60) (.33) 2.16 .17
Diluted (1) ......... .47 (.60) (.33) 2.04 .17
Weighted average common
shares
Basic (1) ........... 10,077 9,952 9,871 9,712 9,634
Diluted (1) ......... 10,314 9,952 9,871 10,315 9,640
May 29, May 30, May 31, June 1, June 3,
1999 1998# 1997 1996 1995
--------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance sheet data:
Working capital ......... $48,430 $41,597 $ 43,115 $53,508 $33,254
Cash, certificates of
deposit and short-
term debt and equity
securities ............ 13,289 8,129 15,475 23,610 4,447
Total assets ............ 96,059 90,706 100,720 96,037 76,095
Long-term debt, less
current maturities .... 477 606 842 680 1,114
Stockholders' equity .... 75,291 71,223 77,244 80,603 57,890
</TABLE>
# Includes the impairment charge of $4,121,000 described in Note C to the
Consolidated Financial Statements included herein.
(1) Retroactively restated to reflect the total shares issued after the 3%
stock dividends described in Note M to the Consolidated Financial
Statements included herein.
-16-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
The Company's fiscal years ended May 29, 1999, May 30, 1998 and May 31,
1997 represent fifty-two weeks.
Results of Operations
- ---------------------
Segment Overview
----------------
The Company operates in two industry segments: Diagnostic products and
AngioDynamics products. The Diagnostic products operating segment encompasses
both contrast systems, consisting of barium sulfate formulations and related
medical devices used in X-ray, CT-scanning, ultrasound and MRI imaging
examinations, and non-contrast systems, including diagnostic radiology devices,
custom contract pharmaceuticals, gastrointestinal cleansing laxatives, X-ray
protection equipment, and immunoassay tests. Contrast systems, which constitute
the Company's core business and the majority of the Diagnostic products segment,
accounted for 56% of net sales in 1999, as compared to 57% in 1998 and 61% in
1997. Non-contrast system sales accounted for 25% of net sales in 1999, as
compared to 24% in 1998 and 21% in 1997. The AngioDynamics products operating
segment, which includes angiography products, therapeutic products and coronary
products used in the interventional medical marketplace, accounted for 19% of
net sales in 1999, as compared to 19% in 1998 and 18% in 1997.
<TABLE>
<CAPTION>
Diagnostic AngioDynamics Eliminations Total
---------- ------------- ------------ -----
(in thousands)
<S> <C> <C> <C> <C>
Fifty-two weeks ended May 29, 1999
- ----------------------------------
Unaffiliated customer sales $86,920 $20,259 - $107,179
Intersegment sales 36 503 ($539) -
Gross profit (loss) 36,154 9,028 (25) 45,157
Operating profit (loss) 8,237 (990) (5) 7,242
Fifty-two weeks ended May 30, 1998
- ----------------------------------
Unaffiliated customer sales $83,475 $19,409 - $102,884
Intersegment sales 91 483 ($574) -
Gross profit (loss) 30,220 7,263 (50) 37,433
Operating profit (loss) 1,988 (7,317) (22) (5,351)
Fifty-two weeks ended May 31, 1997
- ----------------------------------
Unaffiliated customer sales $79,588 $17,736 - $97,324
Intersegment sales 1,250 926 ($2,176) -
Gross profit (loss) 28,794 7,783 (7) 36,570
Operating profit (loss) (1,088) (3,816) (7) (4,911)
</TABLE>
Diagnostic Products
-------------------
Diagnostic segment operating results for 1999 improved by $6,249,000 due to
increased sales, improved gross profit and reduced operating expenses. Net sales
increased 4%, or $3,445,000, due to increased demand for sales of both contrast
systems and non-contrast systems. Price increases had little effect on net sales
in 1999. Gross profit expressed as a percentage of net sales improved to 42%
during 1999, versus 36% during 1998 due primarily to reduced unabsorbed overhead
costs. Decreased operating expenses of $315,000 can be attributed to a decline
in research and development ("R&D") expenditures of $651,000, partially offset
by an increase in selling and administrative expenses of $336,000. The decline
in R&D expenses resulted primarily from decreases in corporate projects of
$341,000 and expenses associated with product validations and clinical trials of
$273,000, partially offset by increased selling and administrative expenses
-17-
<PAGE>
of $336,000.
Diagnostic segment operating results for 1998 improved by $3,076,000 due to
a 5% sales increase, as well as reduced operating expenses of $1,650,000. Price
increases had little effect on net sales in 1998. Gross profit expressed as a
percentage of net sales was 36% during both 1998 and 1997, as the effects of
increased sales discounts to group purchasing organizations were offset by
reduced unabsorbed overhead costs associated with the manufacturing site
relocation.
AngioDynamics Products
----------------------
AngioDynamics segment operating results for 1999 improved by $6,327,000, of
which $4,121,000 resulted from the recording of an impairment charge in 1998
(described below). Excluding the effect of the impairment charge, AngioDynamics
operating results improved by $2,206,000 due to increased sales, improved gross
profit and reduced operating expenses of $441,000. Net sales increased 4%, or
$850,000, due to continued domestic market penetration of angiography products.
International sales declined 17% as a result of temporarily suspending product
shipments to distributors affected by the recent Brazilian economic crisis, and
a continued decline in sales of the coronary AngioStent(TM). Gross profit
expressed as a percentage of net sales improved to 43% during 1999, as compared
to 37% during 1998, due primarily to increased manufacturing efficiencies at the
Queensbury, New York facility, increased production throughput at both the
Queensbury and Irish facilities, and the consolidation of operations, resulting
from the closing of its Leocor facility in 1998.
AngioDynamics segment operating results for 1998, which declined by
$3,501,000, were adversely affected by a non-cash accounting charge of
$4,121,000, relating to an impairment of certain long-lived assets used in the
cardiovascular market. The Company determined that the revenue potential of this
technology, as it relates to the cardiovascular market, was impaired due to
increased competition and price erosion for coronary stents and angioplasty
products and the Company's strategic decision to commercially exploit this
technology in the interventional radiology market. The Company is seeking a
strategic business partner with an existing cardiovascular sales and marketing
franchise in order to be successful in the cardiovascular market, although there
can be no assurances that such a partner can be found. The charge had no impact
on the Company's cash flow or its ability to generate cash flow in the future.
As a result of the impairment charge, amortization expense related to these
assets decreased by approximately $250,000 per year.
Excluding the effect of the impairment charge, AngioDynamics operating
results improved by $620,000 in 1998 due to reduced operating expenses,
partially offset by lower gross profit. Domestic sales improved by $3,154,000,
or 27%, due to continued market penetration, while international sales decreased
$1,480,000, or 24%, due to a decline in sales of the coronary AngioStent(TM).
Overall, AngioDynamics sales increased 9% in 1998. Gross profit expressed as a
percentage of net sales declined to 37% during 1998 versus 42% during 1997 due
primarily to price erosion in the coronary stent marketplace, underutilized
capacity at the Irish manufacturing facility, and increased inventory reserves
of $344,000. Operating expenses before the impairment charge decreased
$1,140,000 due, in part, to the write-off of expenses relating to the proposed
initial public offering of AngioDynamics in 1997.
Certain financial information, including net sales, depreciation and
amortization, net earnings (loss), assets and capital expenditures attributable
to each operating segment are set forth in Note O to the Consolidated Financial
Statements included herein.
-18-
<PAGE>
Consolidated Results of Operations
----------------------------------
The Company reported net earnings of $4,797,000, or $.48 and $.47 per
common share on a basic and diluted basis, respectively, for 1999, as compared
to a net loss of $5,967,000, or ($.60) per common share on a basic and diluted
basis, for 1998, and a net loss of $3,208,000, or ($.33) per common share on a
basic and diluted basis, for 1997. Results for 1998 included the AngioDynamics
impairment charge, with no associated tax benefit, of $4,121,000, or $.41 per
common share. The fact that the Company did not record a tax benefit for
financial reporting purposes, associated with the impairment charge, does not
affect its ability to record the deduction for tax purposes at some future date.
Results for 1999 were favorably affected by increased sales, improved gross
profit and decreased operating expenses, before impairment charge, in both
operating segments.
Results for 1998 were adversely affected by the AngioDynamics impairment
charge of $4,121,000, or $.41 per share, and lower AngioDynamics gross profit.
Results were positively affected by increased sales coupled with reduced
operating expenses, before impairment charge, in both operating segments.
Net sales increased 4%, or $4,295,000, to $107,179,000 in 1999, and
increased 6%, or $5,560,000, to $102,884,000 in 1998. Net sales in 1999 were
favorably affected by increased sales of contrast systems of $1,892,000, non-
contrast systems of $1,553,000 and AngioDynamics products of $850,000. Price
increases had little effect on net sales in 1999. Net sales in 1998 were
favorably affected by increased sales of non-contrast systems of $4,192,000,
including $2,648,000 relating to custom contracts, and AngioDynamics products of
$1,673,000. Price increases had little effect on net sales in 1998.
Net sales in international markets, including direct exports from the U.S.,
decreased less than 1%, or $114,000, to $36,625,000 in 1999 and decreased 3%, or
$975,000, to $36,739,000 in 1998. The 1999 decline was due to foreign currency
exchange rate fluctuations, which adversely affected the translation of Canadian
and Japanese sales to U.S. dollars for financial reporting purposes, partially
offset by the effects of volume and price increases. The 1998 decline was due to
decreased sales of contrast systems of $1,691,000 and AngioDynamics products of
$1,480,000, partially offset by increased sales of non-contrast systems of
$2,196,000. The decline in sales of AngioDynamics products was due to lower
stent sales. The increase in sales of non-contrast systems was attributable to
increased sales of custom contracts.
Gross profit expressed as a percentage of net sales was 42% in 1999, as
compared to 36% in 1998 and 38% in 1997. The improvement in gross profit,
expressed as a percentage of net sales, in 1999 was due to increased gross
profit in both operating segments. The improved Diagnostic gross profit is due
primarily to reduced unabsorbed overhead costs. The improved AngioDynamics gross
profit is due primarily to increased manufacturing efficiencies at the
Queensbury facility, increased production throughput at both the Queensbury and
Irish facilities, and the consolidation of operations, resulting from the
closing of its Leocor facility in 1998. The decline in gross profit, expressed
as a percentage of net sales, in 1998 was due primarily to reduced AngioDynamics
gross profit, resulting from price erosion in the coronary stent marketplace,
underutilized capacity at the Irish manufacturing facility, and increased
inventory reserves of $344,000. In the Diagnostic segment, the effects of
increased discounts to group purchasing organizations, were offset by reduced
unabsorbed overhead costs associated with the manufacturing site relocation.
Selling and administrative ("S&A") expenses were $33,068,000 in 1999,
$33,001,000 in 1998 and $34,600,000 in 1997. There were no materially
significant factors affecting the comparison of S&A expenses in 1999 versus
1998.
-19-
<PAGE>
The decrease in 1998 versus 1997 of $1,599,000, or 5%, was due to decreased
Diagnostic S&A expenses of $1,053,000 and decreased AngioDynamics S&A expenses
of $546,000, which resulted, in part, from the write-off of expenses relating to
the proposed initial public offering of AngioDynamics in 1997.
R&D expenditures in 1999 totalled $4,847,000, or 5% of net sales, as
compared to $5,662,000, or 6% of net sales, in 1998 and $6,881,000, or 7% of net
sales, in 1997. The decline in 1999 versus 1998 of $815,000 was due primarily to
decreases in corporate projects of $341,000, expenses associated with Diagnostic
product validations and clinical trials of $273,000, and AngioDynamics projects
of $164,000. The decline in 1998 versus 1997 of $1,219,000 was due primarily to
decreases in regulatory expenses associated with product validations of $826,000
and AngioDynamics project spending of $593,000, partially offset by increased
contrast system spending of $415,000. Of the R&D expenditures in 1999,
approximately 47% relate to contrast systems, 34% to AngioDynamics projects, 11%
to general regulatory costs, 3% to immunological projects, and 5% to other
projects. R&D expenditures are expected to continue at approximately current
levels. In addition to its in-house technical staff, the Company is presently
sponsoring various independent R&D projects and is committed to continued
expansion of its product lines through R&D.
Other income, net of other expenses, totalled $571,000 of expense in 1999,
$183,000 of expense in 1998 and $381,000 of income in 1997. The increase in
other expense in 1999 versus 1998 was primarily due to the recording of an
impairment charge of $896,000 relating to the Company's investment in ITI
Medical Technologies, Inc. ("ITI"), partially offset by improved foreign
currency exchange gains and losses of $259,000 and decreased interest expense,
resulting from the repayment of AngioDynamics debt. The change in 1998 versus
1997 was primarily due to increased interest expense of $177,000 and decreased
interest income of $138,000, resulting from bank financing for the AngioDynamics
operations, coupled with the recording of the Company's approximate 23% share in
the losses of ITI of $219,000.
Note H to the Consolidated Financial Statements included herein details the
major elements affecting income taxes for 1999, 1998 and 1997. In 1999, the
Company's effective tax rate of 28% differed from the Federal statutory tax rate
of 34% due primarily to the fact that the Company reversed a portion of its
valuation allowance against certain domestic tax benefits since it is now more
likely than not that such benefits will be realized. The utilization of
previously unrecorded carryforward benefits and earnings of the Puerto Rican
subsidiary, which are subject to favorable U.S. tax treatment, also favorably
affected the Company's effective tax rate in 1999, but were offset by the fact
that the Company did not provide for the tax benefit on losses incurred in
certain foreign jurisdictions, since it is more likely than not that such
benefits will not be realized. In 1998, the Company reported an income tax
provision of $433,000 against losses before income taxes of $5,534,000 due
primarily to the fact that the Company did not provide for the tax benefit on
losses incurred in certain jurisdictions, since, at that time, it was more
likely than not that such benefits would not be realized. In 1997, the Company's
effective tax benefit rate of 29% differed from the Federal statutory tax rate
of 34% due primarily to losses incurred in a foreign jurisdiction subject to
lower tax rates and to the fact that the Company did not provide for the tax
benefit on losses incurred in certain foreign jurisdictions, since, at that
time, it was more likely than not that such benefits would not be realized,
partially offset by earnings of the Puerto Rican subsidiary, which are subject
to favorable U.S. tax treatment.
Liquidity and Capital Resources
- -------------------------------
During 1999, capital expenditures and debt repayments were funded by cash
provided by operations. During 1998, debt repayments, capital expenditures and
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<PAGE>
investment in affiliate were funded primarily by cash reserves. During 1997, the
purchase of Leocor, capital expenditures and increased inventory levels were
funded primarily by cash reserves and proceeds from the issuance of bank debt.
The Company's policy has been to fund capital requirements without incurring
significant debt. At May 29, 1999, debt (notes payable, current maturities of
long-term debt and long-term debt) was $2,503,000 as compared to $3,934,000 at
May 30, 1998. The Company has available $3,357,000 under two bank lines of
credit of which $718,000 was outstanding at May 29, 1999.
Presently, the Company is continuing to look for both new and complementary
lines of business for expansion in order to ensure its continued growth.
At May 29, 1999, approximately 65% of the Company's assets consist of
inventories, accounts receivable, cash and cash equivalents, and short-term debt
and equity securities. The current ratio is 3.71 to 1, with net working capital
of $48,430,000 at May 29, 1999, as compared to the current ratio of 3.43 to 1,
with net working capital of $41,597,000 at May 30, 1998.
Net capital expenditures, primarily for machinery and equipment, were
$2,207,000 in 1999, as compared to $1,897,000 in 1998 and $4,370,000 in 1997. Of
the 1997 expenditures, approximately $1,900,000 relates to the acquisition, and
related improvements, of a manufacturing facility by AngioDynamics' Irish
subsidiary. No material increase in the aggregate level of capital expenditures
is currently contemplated for 2000.
In January 1999, the Board of Directors authorized the repurchase of the
Company's Class B Common Stock up to an aggregate purchase price of $2,000,000.
As of May 29, 1999, the Company had repurchased 12,100 shares of Class B Common
Stock for approximately $68,000.
Year 2000 Compliance
--------------------
Management has developed a plan to modify the Company's information
technology to recognize the Year 2000. The Year 2000 issue is the result of
computer programs being written using two digits rather than four to define the
applicable year. The plan has three distinct areas of focus; namely, traditional
information systems, technology used in support areas, and preparedness of
suppliers and customers.
The first area of focus has been an assessment of traditional information
technology, namely internal software business applications, hardware and desktop
support. All of the Company's domestic and most of its international software
systems, applications and desktop support have been assessed, modified and
tested to be Year 2000 compliant. The remaining system upgrades or
modifications, at two of the Company's international subsidiaries, are scheduled
for completion during the second quarter of fiscal 2000.
The second area of focus has been an assessment of technology used in
support areas, which includes the electronics in manufacturing equipment,
telephone systems, security systems and payroll time clocks. At the present
time, substantially all such equipment, except the Company's Westbury telephone
system, has either been tested to assure Year 2000 compliance or has been
certified by vendors to be Year 2000 compliant. The vendor that handles the
Company's telephone system at its Westbury offices has assured the Company that
the system will be made Year 2000 compliant during the second quarter of fiscal
2000, at no cost to the Company.
The third area of focus is communications with suppliers and customers to
understand their level of readiness and assure a constant flow of materials to
support business plans. The Company has sought compliance statements from each
of its significant suppliers. Communication has shown a high level of awareness
-21-
<PAGE>
and planning by these parties, most of which have provided positive assurances
to maintain a constant flow of materials. At the present time, no material
problems or concerns are indicated by these responses. However, if a significant
vendor or customer is non-compliant, the Company can give no assurance that such
occurrence will not have an adverse affect on the Company's results. The Company
believes its action plans will minimize these risks and prevent any major
interruptions in the flow of materials and products.
Formal contingency plans will not be formulated unless the Company has
identified specific areas where there is a substantial risk of year 2000
problems occurring. No such areas have been identified to date. If during our
remaining testing the Company finds results that warrant concern, we will
dedicate appropriate staff to procure readiness and to do re-testing.
The plan is being administered by internal staff and management. Costs
incurred in the Company's readiness effort are being expensed as incurred,
except for those costs capitalized as fixed assets. Anticipated costs are
expected to approximate $130,000 and to date an estimated $50,000 has been
spent. Management has no reason to believe that the Company will not meet its
compliance goals and does not anticipate that this project will have a material
impact on the Company's operations, though no assurance can be given in this
regard.
Forward-Looking Statements
--------------------------
This Form 10-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 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company is exposed to market risk from changes in foreign currency
exchange rates and, to a much lesser extent, interest rates on investments and
financing, which could impact results of operations and financial position. The
Company does not currently engage in hedging or other market risk management
tools.
Foreign Currency Exchange Rate Risk
-----------------------------------
The Company's international subsidiaries are denominated in currencies
other than the U.S. dollar. However, since the functional currency of the
Company's international subsidiaries is the local currency, foreign currency
translation adjustments are accumulated as a component of accumulated other
comprehensive income (loss) in stockholders' equity. Assuming a hypothetical
change in the foreign currency versus the U.S. dollar exchange rates of 10% at
May 29, 1999, the Company's assets and liabilities would increase or decrease by
$2,283,000 and $764,000, respectively, and the Company's net sales and net
earnings would increase or decrease by $2,376,000 and $38,000, respectively, on
an annual basis.
-22-
<PAGE>
The Company also maintains intercompany balances and loans receivable with
subsidiaries with different local currencies. These amounts are at risk of
foreign exchange losses if exchange rates fluctuate. Assuming a hypothetical
change in the foreign currency versus the U.S. dollar exchange rates of 10% at
May 29, 1999, results of operations would be favorably or unfavorably impacted
by approximately $458,000 on an annual basis.
Interest Rate Risk
------------------
The Company is exposed to interest rate change market risk with respect to
its investments in tax-free municipal bonds in the amount of $5,155,000. The
bonds bear interest at a floating rate established weekly. During 1999, the
interest rate on the bonds approximated 3.4%. Each 100 basis point (1%)
fluctuation in interest rates will increase or decrease interest income on the
bonds by approximately $52,000 on an annual basis.
As the Company's principal amount of fixed and variable interest rate
financing approximates $1,785,000 and $718,000, respectively, at May 29, 1999, a
change in interest rates would not materially impact results of operations or
financial position.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Financial statements and supplementary data required by Part II, Item 8 are
included in Part IV of this form as indexed at Item 14 (a) 1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
-23-
<PAGE>
Part III
--------
Certain information required by Part III is omitted from this Annual Report
on Form 10-K because the Company will file a definitive proxy statement within
120 days after the end of its fiscal year pursuant to Regulation 14A (the "Proxy
Statement") for its Annual Meeting of Stockholders, currently scheduled for
October 19, 1999, and the information included in the Proxy Statement is
incorporated herein by reference.
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The following table sets forth certain information with respect to the
Company's officers and directors.
Name Age Positions
---- --- ---------
Howard S. Stern (1)...... 68 Chairman of the Board, President, Chief
Executive Officer, Director
Arthur L. Zimmet......... 63 Senior Vice President - Special Projects
Sandra D. Baron.......... 47 Vice President - Human Resources
Craig A. Burk............ 46 Vice President - Manufacturing
Joseph A. Cacchioli...... 43 Vice President - Controller
Dennis J. Curtin......... 52 Vice President - Chief Financial Officer
Agustin V. Gago.......... 40 Vice President - International
Eamonn P. Hobbs.......... 46 Vice President - AngioDynamics Division
Joseph J. Palma.......... 57 Vice President - Sales and Marketing
Archie B. Williams....... 48 Vice President - Imaging Products
Management
Terry S. Zisowitz........ 52 Vice President - Legal and Regulatory
Affairs
Michael A. Davis, M.D.... 58 Medical Director/Technical Director,
Director
Paul S. Echenberg (1).... 55 Chairman of the Board of E-Z-EM Canada,
Director
James L. Katz CPA, JD.... 63 Director
(1)(2)(4)(5)
Donald A. Meyer (3)(4)... 65 Director
David P. Meyers.......... 35 Director
Robert M. Topol (1)(2)... 74 Director
(3)(5)
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Nominating Committee
(4) Member of Compensation Committee
(5) Member of Finance Committee
Directors are elected for a three year term and each holds office until his
successor is elected and qualified. Officers are elected annually and serve at
the pleasure of the Board of Directors.
Mr. Stern is a co-founder of the Company and has served as Chairman of the
Board and Director of the Company since its formation in 1962. Mr. Stern has
also served as President and Chief Executive Officer of the Company since 1997.
From 1990 to 1994, Mr. Stern served as Chief Executive Officer, and from the
formation of the Company until 1990, he served as President and Chief Executive
Officer. Mr. Stern is also a director of ITI Medical Technologies, Inc. The
Company has an investment in ITI Medical Technologies, Inc.
-24-
<PAGE>
Mr. Zimmet has served as Senior Vice President - Special Projects since
1988, and has been an employee of the Company since 1982.
Ms. Baron has served as Vice President - Human Resources since 1995, and
has been an employee of the Company since 1985.
Mr. Burk has served as Vice President - Manufacturing since 1987.
Mr. Cacchioli has served as Vice President - Controller since 1988, and has
been an employee of the Company since 1984.
Mr. Curtin has served as Vice President - Chief Financial Officer since
1995, and previously served as Vice President - Finance from 1985 to 1995. Mr.
Curtin has been an employee of the Company since 1983.
Mr. Gago has served as Vice President - International since 1997, and has
been an employee of the Company since 1979.
Mr. Hobbs has served as Vice President - AngioDynamics Division since 1991,
and has been an employee of the Company since 1988.
Mr. Palma has served as Vice President - Sales and Marketing since 1996,
and previously served as Vice President - Sales from 1995 to 1996. Mr. Palma has
been an employee of the Company since 1994.
Mr. Williams has served as Vice President - Imaging Products Management
since 1993, and has been an employee of the Company since 1980.
Ms. Zisowitz has served as Vice President - Legal and Regulatory Affairs
since 1995, and previously served as Vice President - Legal Affairs from 1990 to
1995. Ms. Zisowitz has been an employee of the Company since 1989.
Dr. Davis has served as Medical Director/Technical Director and Director of
the Company since 1997, and previously served as Medical Director and Director
of the Company from 1995 to 1996, and as Medical Director from 1994 to 1995. He
has been Professor of Radiology and Nuclear Medicine and Director of the
Division of Radiologic Research, University of Massachusetts Medical Center
since 1980. He is also the President, Chief Executive Officer and Director of
Amerimmune Pharmaceuticals, Inc. and its wholly-owned subsidiary, Amerimmune,
Inc., since February 1999. He is also a director of MacroChem Corp.
Mr. Echenberg has been a director of the Company since 1987 and has served
as Chairman of the Board of E-Z-EM Canada since 1994. He is the President, Chief
Executive Officer and Director of Schroders & Associates Canada Inc. (investment
buy-out advisory services) and Director of Schroders Ventures Ltd. since 1997.
He is also a founder and has been a general partner and director of Eckvest
Equity Inc. (personal investment and consulting services) since 1989. He is also
a director of Lallemand Inc., ISG Technologies, Inc., Benvest Capital Inc.,
Colliers MacAuley Nicholl, Huntington Mills (Canada) Ltd., ITI Medical
Technologies, Inc., Flexia Corporation, Fib-Pak Industries Inc. and Shirmax
Fashions Ltd. The Company has investments in ISG Technologies, Inc. and ITI
Medical Technologies, Inc.
Mr. Katz has been a director of the Company since 1983. He is a founder and
managing director since its organization in 1995 of Chapman Partners LLC
(investment banking). Previously, he had been the co-owner and President of Ever
Ready Thermometer Co., Inc. from its acquisition in 1985 until its sale in 1994.
From 1971 until 1980 and from 1983 until 1985, he held various executive
positions with Baxter International and subsidiaries of Baxter International,
including that of Chief Financial Officer of Baxter International. He is also a
director of Intec, Inc., Lakeshore Medical Fitness, LLC and ELPAS North
-25-
<PAGE>
America, Inc.
Mr. Meyer has been a director of the Company since 1968. He is currently an
independent consultant in legal matters to arts and business organizations,
specializing in technical assistance. He had been the Executive Director of the
Western States Arts Federation, Santa Fe, New Mexico, which provides and
develops regional arts programs, from 1990 to 1995. From 1958 through 1990, he
was an attorney practicing in New Orleans, Louisiana.
Mr. Meyers has been a director of the Company since 1996. He is the founder
of MedTest Express, Inc., an Atlanta, Georgia provider of contracted laboratory
services for home health agencies, and has served as its President, Chief
Executive Officer and Director since 1994.
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). He is also a director of First American Health
Concepts, Fund for the Aging, City Meals on Wheels, American Health Foundation,
State University of New York - Purchase and Redstone Resources Inc.
Item 11. Executive Compensation
----------------------
Summary Compensation Table
The following table sets forth information concerning the compensation for
services, in all capacities for 1999, 1998 and 1997, of those persons who were,
at the end of 1999, Chief Executive Officer ("CEO") (Howard S. Stern) and each
of the four most highly compensated executive officers of the Company other than
the CEO (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------- -------------------------------------
Awards Payouts
Other ---------------------------- -------
Annual Restricted All Other
Name and Compensa- Stock Options LTIP Compensa-
Principal Fiscal Salary Bonus tion (1) Awards ---------------- Payouts tion (4)
Position Year ($) ($) ($) ($) # (2) # (3) ($) ($)
--------- ------ ------ ----- --------- ---------- ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Howard S. Stern,........ 1999 $250,000 $83,250 None None None .2273 None $15,404
Chairman of the Board, 1998 250,000 61,874 None None None .2273 None 19,609
President and Chief 1997 250,000 11,538 None None None 8.5227 None 7,090
Executive Officer
Arthur L. Zimmet,....... 1999 $165,000 $54,945 None None None None None $ 9,264
Senior Vice President 1998 155,000 40,283 None None None None None 8,069
1997 153,000 7,062 None None None None None 7,380
Eamonn P. Hobbs,........ 1999 $200,000 $17,481 None None None .2273 None $ 8,083
Vice President 1998 195,000 21,923 None None None .2273 None 7,630
1997 176,250 6,058 None None None 45.4545 None 7,902
Dennis J. Curtin,....... 1999 $160,000 $39,996 None None None None None $ 8,956
Vice President 1998 146,667 38,861 None None None None None 7,637
1997 144,000 6,646 None None None 3.4091 None 7,534
Joseph J. Palma,........ 1999 $150,000 $49,950 None None None None None $ 9,150
Vice President 1998 135,000 33,247 None None None None None 6,052
1997 132,000 3,046 None None None None None 6,428
</TABLE>
- ---------------
(1) The Company has concluded that the aggregate amount of perquisites and
other personal benefits paid to each of the Named Executive Officers for
1999, 1998 and 1997 did not exceed the lesser of 10% of such officer's
total annual salary and bonus for 1999, 1998 or 1997 or $50,000; such
amounts are, therefore, not reflected in the table.
(2) Options are exercisable in Class B Common Stock of the Company.
(3) Options are exercisable in Class B Common Stock of AngioDynamics, Inc., a
-26-
<PAGE>
wholly-owned subsidiary of the Company.
(4) For 1999, 1998 and 1997, includes for each of the Named Executive Officers
the amounts contributed by the Company under the Profit-Sharing Plan and,
as matching contributions, under the companion 401(k) Plan. For 1999 and
1998, also includes for Howard S. Stern fees of $6,000 and $12,000,
respectively, relating to attendance at AngioDynamics directors' meetings.
Option/SAR Grants Table
The following table sets forth certain information concerning stock option
grants made during 1999 to the Named Executive Officers. These grants are also
reflected in the Summary Compensation Table. All of the options granted during
1999 have an exercise price not less than the fair market value of the Class B
Common Stock of AngioDynamics, Inc., a wholly-owned subsidiary of the Company,
on the date of grant, and expire in ten years. In accordance with SEC disclosure
rules, the hypothetical gains or "option spreads" for each option grant are
shown based on compound annual rates of stock price appreciation of 5% and 10%
from the grant date to the expiration date. The assumed rates of growth are
prescribed by the SEC and are for illustrative purposes only; they are not
intended to predict future stock prices, which will depend upon market
conditions and the Company's future performance. The Company did not grant any
stock appreciation rights during 1999.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Individual Grants Price Appreciation for Option Term
- ------------------------------------------------------------------------ --------------------------------------
Number of % of Total
Securities Options 5% 10%
Underlying Granted to Exercise ------------------ -----------------
Options Employees in or Base Stock Potential Stock Potential
Granted Fiscal Year Price Expiration Price Value Price Value
Name (#) 1999 ($/Sh) Date ($/Sh) $ ($/Sh) $
---- ---------- ----------- -------- ---------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Howard S. Stern....... .2273 (1) 29% (2) $40,000 (3) 5/28/09 $65,156 $5,717 $103,750 $14,489
Arthur L. Zimmet...... None
Eamonn P. Hobbs....... .2273 (1) 29% (2) $40,000 (3) 5/28/09 $65,156 $5,717 $103,750 $14,489
Dennis J. Curtin...... None
Joseph J. Palma....... None
</TABLE>
- ---------------
(1) Options are exercisable in Class B Common Stock of AngioDynamics, Inc., a
wholly-owned subsidiary of the Company. Options are exercisable 20% per
year over five years from the date of grant, provided a threshold event
occurs or 100% on the ninth anniversary of the grant, if no threshold event
occurs. A threshold event is the earlier of (i) fourteen months after
either an initial public offering ("IPO") or the spin off of all
AngioDynamics stock to the Company's shareholders, or (ii) two months after
the occurrence of both an IPO and the spin off of all AngioDynamics stock
to the Company's shareholders.
(2) Represents the percentage of total options granted to employees during 1999
and exercisable in Class B Common Stock of AngioDynamics, Inc.
(3) The options granted during 1999 have an exercise price not less than the
fair market value of the Class B Common Stock of AngioDynamics, Inc. on the
date of grant. A total of 136.36 shares of AngioDynamics' Class B Common
Stock may be issued under this plan.
-27-
<PAGE>
Aggregated Option Exercises and Fiscal Year-End Option Value Table
The following table sets forth certain information concerning all exercises
of stock options during 1999 by the Named Executive Officers and the fiscal
year-end value of unexercised stock options on an aggregated basis:
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
May 29, 1999 May 29, 1999
(#) ($) (1)
------------- -------------
Shares Value Exercisable/ Exercisable/
Acquired on Realized Unexercisable Unexercisable
Name Exercise (#) ($) (2) (2)
---- ------------ --------- ------------- -------------
<S> <C> <C> <C> <C>
Howard S. Stern... None None 78,786/ $61,428/
None None
Arthur L. Zimmet.. None None 50,884/ $33,347/
None None
Eamonn P. Hobbs... None None 39,595/ $25,449/
None None
Dennis J. Curtin.. None None 50,556/ $39,207/
None None
Joseph J. Palma... None None 27,974/ $17,551/
None None
</TABLE>
- --------------
(1) Options are "in-the-money" if on May 29, 1999, the market price of the
stock exceeded the exercise price of such options. At May 29, 1999, the
closing price of the Company's Class A and Class B Common Stock was $5.06
and $5.00, respectively. The value of such options is calculated by
determining the difference between the aggregate market price of the stock
covered by the options on May 29, 1999 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
On an annual basis, directors, who are not employees of the Company, are
entitled to directors fees of $15,000, 1,000 shares of the Company's Class B
Common Stock, and stock options for 1,000 shares of Class B Common Stock, which
vest one year from date of grant. Directors, who are not employees of the
Company, are also entitled to a fee of $1,000 for each regular board meeting
attended and $250 for each telephonic board meeting attended. 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 a committee is entitled to a fee of $1,000 for each
committee meeting attended.
-28-
<PAGE>
Employment Contract
During 1994, the Company entered into an employment contract with Howard S.
Stern. This employment contract is for a term of eight years at an annual
compensation of $250,000.
Severance Arrangements
The information required by this caption is incorporated by reference to
the Company's Proxy Statement under the heading "Severance Arrangements."
Compensation and Stock Option Committee Report on Executive Compensation
The information required by this caption is incorporated by reference to
the Company's Proxy Statement under the heading "Compensation and Stock Option
Committee Report on Executive Compensation."
Common Stock Performance
The information required by this caption is incorporated by reference to
the Company's Proxy Statement under the heading "Common Stock Performance."
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth information, as of August 2, 1999, as to the
beneficial ownership of the Company's voting Class A Common Stock by each person
known by the Company to own beneficially more than 5% of the Company's voting
Class A Common Stock:
Name and Address of Shares Percent of
Beneficial Owner Beneficially Owned Class
---------------- ------------------ -----
Howard S. Stern,.................. 956,412 23.7
Chairman of the Board,
President, Chief Executive
Officer, Director
717 Main Street
Westbury, NY 11590
Betty S. Meyers,.................. 820,806 20.3
401 Emerald Street
New Orleans, LA 70124
David P. Meyers,.................. 311,551 (1) 7.7
Director
1220 Pasadena Avenue
Atlanta, GA 30306
Jonas I. Meyers,.................. 311,551 (2) 7.7
904 Oakland Avenue
Ann Arbor, MI 48104
Stuart J. Meyers,................. 311,551 (3) 7.7
434 Bellaire Drive
New Orleans, LA 70124
Dimensional Fund Advisors, Inc.,.. 222,475 5.5
1299 Ocean Avenue
Santa Monica, CA 90401
-29-
<PAGE>
Name and Address of Shares Percent of
Beneficial Owner Beneficially Owned Class
---------------- ------------------ -----
Wellington Management Company,.... 219,258 5.4
75 State Street
Boston, MA 02109
- ------------------
(1) Includes 154,801 shares in which David P. Meyers has only a remainder
interest. Betty S. Meyers holds a life estate in such shares.
(2) Includes 154,801 shares in which Jonas I. Meyers has only a remainder
interest. Betty S. Meyers holds a life estate in such shares.
(3) Includes 154,801 shares in which Stuart J. Meyers has only a remainder
interest. Betty S. Meyers holds a life estate in such shares.
The following table sets forth information, as of August 2, 1999, as to the
beneficial ownership of the Company's voting Class A and nonvoting Class B
Common Stock, by (i) each of the Company's directors, (ii) each of the Company's
Named Executive Officers, and (iii) all directors and executive officers of the
Company as a group:
<TABLE>
<CAPTION>
Class A Class B
------------------------------ --------------------------------
Shares Percent Shares Percent
Name of Beneficially of Beneficially of
Beneficial Owner Owned (1) Class Owned (2) Class
---------------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Howard S. Stern,........... 956,412 23.7 1,256,164 20.5
Chairman of the Board,
President, Chief Executive
Officer, Director
David P. Meyers,........... 311,551 (3) 7.7 614,439 (4) 10.2
Director
Arthur L. Zimmet,.......... 28,750 * 90,784 1.5
Senior Vice President
Robert M. Topol,........... 25,291 * 66,933 1.1
Director
Paul S. Echenberg,......... 2,291 * 76,497 1.3
Chairman of the Board of
E-Z-EM Canada, Director
Donald A. Meyer,........... 19,470 * 44,462 *
Director
James L. Katz,............. 2,316 * 55,763 *
Director
Dennis J. Curtin,.......... 2,052 * 53,382 *
Vice President
Eamonn P. Hobbs,........... 50 * 39,604 *
Vice President
Michael A. Davis, M.D.,.... None * 39,836 *
Medical Director/Technical
Director, Director
</TABLE>
-30-
<PAGE>
<TABLE>
<CAPTION>
Class A Class B
------------------------------ --------------------------------
Shares Percent Shares Percent
Name of Beneficially of Beneficially of
Beneficial Owner Owned (1) Class Owned (2) Class
---------------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Joseph J. Palma,........... None * 27,974 *
Vice President
All directors and executive
officers as a group (17
persons).................. 1,348,183 (3) 33.4 2,490,988 (4) 37.5
</TABLE>
- -------------
* 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 2, 1999 as
follows: Robert M. Topol (1,791), Paul S. Echenberg (1,791), Donald A.
Meyer (1,791), James L. Katz (1,791) and all directors and executive
officers as a group (7,164).
(2) Includes Class B Common Stock shares issuable upon exercise of options
currently exercisable or exercisable within 60 days from August 2, 1999 as
follows: Howard S. Stern (78,786), Arthur L. Zimmet (50,884), Robert M.
Topol (41,041), Paul S. Echenberg (74,807), Donald A. Meyer (18,869), James
L. Katz (52,952), Dennis J. Curtin (50,556), Eamonn P. Hobbs (39,595),
Michael A. Davis, M.D. (39,836), Jospeh J. Palma (27,974) and all directors
and executive officers as a group (601,450).
(3) Includes 154,801 shares in which Mr. Meyers has only a remainder interest.
Betty S. Meyers, a principal shareholder, holds a life estate in such
shares.
(4) Includes 201,014 shares in which Mr. Meyers has only a remainder interest.
Betty S. Meyers, a principal shareholder, holds a life estate in such
shares. Also includes 190,035 shares owned by a partnership which Mr.
Meyers has an interest in.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
A facility of the Company located in Westbury, New York is owned 27% by
Howard S. Stern, 25% by Betty S. Meyers, a principal shareholder, 2% by other
employees of the Company and 46% by unrelated parties, which includes a 25%
owner who manages the property. Aggregate rentals, including real estate tax
payments, were $154,000 during 1999. The lease term expires in 2004.
During 1998, the Company entered into split dollar life insurance
arrangements with Howard S. Stern (including his spouse) and Betty S. Meyers
(the "insureds"). On an annual basis, the Company makes interest bearing
advances of approximately $100,000 per insured toward the cost of such life
insurance policies. Interest on the advances is to be paid to the Company
annually by the insureds. Under collateral assignment agreements, the proceeds
from the policies will first be paid to the Company to repay the advances it
made. If the policies are terminated prior to the death of the insured, the
Company will be entitled to the cash surrender value of the policies at that
time, and any shortfall between that amount and the amount of the advances made
by the Company will be repaid to the Company by the insureds.
The Company has an unsecured, two-year interest bearing note receivable
from Eamonn P. Hobbs, an executive officer of the Company, in the principal
-31-
<PAGE>
amount of $320,000. The outstanding principal and interest matures on September
30, 1999.
The Company has engaged Michael A. Davis, M.D., a director of the Company,
for consulting services. Fees for such services were approximately $147,000
during 1999.
-32-
<PAGE>
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 36
Consolidated balance sheets - May 29, 1999 and May 30, 1998 37
Consolidated statements of operations - fifty-two weeks ended
May 29, 1999, May 30, 1998 and May 31, 1997 39
Consolidated statement of stockholders' equity and
comprehensive income (loss) - fifty-two weeks ended
May 29, 1999, May 30, 1998 and May 31, 1997 40
Consolidated statements of cash flows - fifty-two weeks ended
May 29, 1999, May 30, 1998 and May 31, 1997 41
Notes to consolidated financial statements 43
(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) Certificate of Incorporation (a)
3(ii) Amended Bylaws (b)
10(a) Agreement and Plan of Merger dated November 7, 1995 among
United States Surgical Corporation, USSC Acquisition
Corporation, Surgical Dynamics Inc., and E-Z-EM, Inc. and
Calmed Laboratories, Inc. and E-Z-SUB, Inc. (c)
10(b) 1983 Stock Option Plan (d)
10(c) 1984 Directors and Consultants Stock Option Plan (e)
10(d) Income Deferral Program (f)
13 Annual report to security holders (g)
21 Subsidiaries of the Registrant 68
-33-
<PAGE>
Page
----
(a) 3. Exhibits (continued)
--------------------
22 Proxy statement to security holders (h)
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 annual report filed on Form 10-K for the
fiscal year ended May 31, 1997
(b) Incorporated by reference to Exhibit 3(ii) of the
Company's annual report filed on Form 10-K for the
fiscal year ended May 28, 1994
(c) Incorporated by reference to Exhibit 10 of the
Company's current report filed on Form 8-K/A dated
November 22, 1995
(d) Incorporated by reference to Exhibit 10(a) of the
Company's quarterly report filed on Form 10-Q for
the quarterly period ended December 2, 1995
(e) Incorporated by reference to Exhibit 10(b) of the
Company's quarterly report filed on Form 10-Q for
the quarterly period ended December 2, 1995
(f) Incorporated by reference to Exhibit 10(c) of the
Company's annual report filed on Form 10-K for the
fiscal year ended May 29, 1993
(g) The Company intends to mail a copy of its annual
report on Form 10-K to its security holders. The
Company's shareholders letter will be filed on a
subsequent date together with its proxy statement to
security holders.
(h) To be filed on a subsequent date
(b) 1. Reports on Form 8-K
-------------------
No reports on Form 8-K were filed for the quarter ended May 29, 1999.
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.
-34-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
E-Z-EM, Inc.
------------------------------------
(Registrant)
Date August 27, 1999 /s/ Howard S. Stern
------------------ ------------------------------------
Howard S. Stern, Chairman of the
Board, President, Chief Executive
Officer, Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date August 27, 1999 /s/ Howard S. Stern
------------------ ------------------------------------
Howard S. Stern, Chairman of the
Board, President, Chief Executive
Officer, Director
Date August 27, 1999 /s/ Dennis J. Curtin
------------------ ------------------------------------
Dennis J. Curtin, Vice President -
Chief Financial Officer
Date August 27, 1999 /s/ Michael A. Davis
------------------ ------------------------------------
Michael A. Davis, Director
Date August 27, 1999 /s/ Paul S. Echenberg
------------------ ------------------------------------
Paul S. Echenberg, Director
Date August 27, 1999 /s/ James L. Katz
------------------ ------------------------------------
James L. Katz, Director
Date August 27, 1999 /s/ Donald A. Meyer
------------------ ------------------------------------
Donald A. Meyer, Director
Date August 27, 1999 /s/ David P. Meyers
------------------ ------------------------------------
David P. Meyers, Director
Date August 27, 1999 /s/ Robert M. Topol
------------------ ------------------------------------
Robert M. Topol, Director
-35-
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
E-Z-EM, Inc.
We have audited the accompanying consolidated balance sheets of E-Z-EM, Inc. and
Subsidiaries as of May 29, 1999 and May 30, 1998, and the related consolidated
statements of operations, stockholders' equity and comprehensive income (loss),
and cash flows for the fifty-two weeks ended May 29, 1999, May 30, 1998 and May
31, 1997. 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 17% in 1999 and 18% in 1998 and net sales constituting
approximately 12% in 1999, 12% in 1998 and 10% in 1997 of the related
consolidated totals. Those statements were audited by other auditors, whose
report thereon has been furnished to us, and our opinion, insofar as it relates
to the amounts included for this subsidiary, is based solely upon the report of
the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of E-Z-EM, Inc. and Subsidiaries as of May
29, 1999 and May 30, 1998, and the consolidated results of their operations and
their consolidated cash flows for the fifty-two weeks ended May 29, 1999, May
30, 1998 and May 31, 1997, in conformity with generally accepted accounting
principles.
We have also audited the financial statement schedule listed in the Index at
Item 14(a)(2). In our opinion, this schedule presents fairly, in all material
respects, the information required to be set forth therein.
GRANT THORNTON LLP
Certified Public Accountants
Melville, New York
July 27, 1999
-36-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
May 29, May 30,
ASSETS 1999 1998
------ -------
CURRENT ASSETS
Cash and cash equivalents $8,073 $4,654
Debt and equity securities 5,216 3,475
Accounts receivable, principally
trade, net of allowance for
doubtful accounts of $1,028 in
1999 and $1,148 in 1998 21,904 21,348
Inventories 26,974 26,764
Other current assets 4,151 2,499
------ ------
Total current assets 66,318 58,740
INVESTMENT IN AFFILIATE 1,121
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 21,325 21,917
COST IN EXCESS OF FAIR VALUE OF NET ASSETS
ACQUIRED, less accumulated amortization
of $464 in 1999 and $441 in 1998 424 446
INTANGIBLE ASSETS, less accumulated
amortization of $870 in 1999 and
$652 in 1998 2,328 2,546
DEBT AND EQUITY SECURITIES 3,015 2,057
OTHER ASSETS 2,649 3,879
------ ------
$96,059 $90,706
====== ======
The accompanying notes are an integral part of these statements.
-37-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
May 29, May 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
------ ------
CURRENT LIABILITIES
Notes payable $1,829 $3,041
Current maturities of long-term debt 197 287
Accounts payable 7,320 6,265
Accrued liabilities 7,736 6,958
Accrued income taxes 806 592
------ ------
Total current liabilities 17,888 17,143
LONG-TERM DEBT, less current maturities 477 606
OTHER NONCURRENT LIABILITIES 2,403 1,734
COMMITMENTS AND CONTINGENCIES
------ ------
Total liabilities 20,768 19,483
------ ------
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 1999 and 1998 403 403
Class B (nonvoting), par value $.10 per
share - authorized, 10,000,000 shares;
issued and outstanding 6,058,277 shares
in 1999 (excluding 12,100 shares held in
treasury) and 5,999,073 shares in 1998 606 600
Additional paid-in capital 21,917 21,643
Retained earnings 53,887 49,090
Accumulated other comprehensive income (loss) (1,522) (513)
------ ------
Total stockholders' equity 75,291 71,223
------ ------
$96,059 $90,706
====== ======
The accompanying notes are an integral part of these statements.
-38-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Fifty-two weeks ended
----------------------------------
May 29, May 30, May 31,
1999 1998 1997
------- ------- ------
Net sales $107,179 $102,884 $97,324
Cost of goods sold 62,022 65,451 60,754
------- ------- ------
Gross profit 45,157 37,433 36,570
------- ------- ------
Operating expenses
Selling and administrative 33,068 33,001 34,600
Research and development 4,847 5,662 6,881
Impairment of long-lived assets 4,121
------ ------ ------
Total operating expenses 37,915 42,784 41,481
------ ------ ------
Operating profit (loss) 7,242 (5,351) (4,911)
Other income (expense)
Interest income 505 692 830
Interest expense (263) (694) (517)
Write-down of investment in affiliate (1,121) (219)
Other, net 308 38 68
----- ----- -----
Earnings (loss) before income
taxes 6,671 (5,534) (4,530)
Income tax provision (benefit) 1,874 433 (1,322)
----- ----- -----
NET EARNINGS (LOSS) $ 4,797 $ (5,967) $(3,208)
===== ===== =====
Earnings (loss) per common share
Basic $ .48 $ (.60) $ (.33)
===== ===== =====
Diluted $ .47 $ (.60) $ (.33)
===== ===== =====
The accompanying notes are an integral part of these statements.
-39-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
Fifty-two weeks ended May 29, 1999, May 30, 1998 and May 31, 1997
(in thousands, except share data)
<TABLE>
<CAPTION>
Class A Class B Accumulated Compre-
common stock common stock Additional other hensive
--------------- --------------- paid-in Retained comprehensive income
Shares Amount Shares Amount capital earnings income (loss) Total (loss)
------ ------ ------ ------ ------- -------- ------------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 1, 1996 4,035,346 $403 5,199,615 $520 $15,165 $63,347 $1,168 $80,603
Exercise of stock options 117,919 12 600 612
Income tax benefits on
stock options exercised 261 261
Compensation related to
stock options plans 2 2
Issuance of stock 3,022 24 24
3% common stock dividend 280,327 28 3,021 (3,052) (3)
Net loss (3,208) (3,208) $(3,208)
Unrealized holding loss on
debt and equity securities (1,028) (1,028) (1,028)
Foreign currency translation
adjustments (19) (19) (19)
--------- --- --------- --- ------ ------ ----- ----- -----
Comprehensive loss $(4,255)
=====
Balance at May 31, 1997 4,035,346 403 5,600,883 560 19,073 57,087 121 77,244
Exercise of stock options 107,417 11 470 481
Income tax benefits on
stock options exercised 88 88
Compensation related to
stock option plans 7 7
Issuance of stock 1,025 6 6
3% common stock dividend 289,748 29 1,999 (2,030) (2)
Net loss (5,967) (5,967) $(5,967)
Unrealized holding gain on
debt and equity securities 12 12 12
Foreign currency translation
adjustments (646) (646) (646)
--------- --- --------- --- ------ ------ ----- ------ -----
Comprehensive loss $(6,601)
=====
Balance at May 30, 1998 4,035,346 403 5,999,073 600 21,643 49,090 (513) 71,223
Exercise of stock options 64,704 6 267 273
Income tax benefits on
stock options exercised 38 38
Compensation related to
stock option plans 5 5
Issuance of stock 6,600 1 31 32
Purchase of treasury stock (12,100) (1) (67) (68)
Net earnings 4,797 4,797 $4,797
Unrealized holding loss on
debt and equity securities (151) (151) (151)
Foreign currency translation
adjustments (858) (858) (858)
--------- --- --------- --- ------ ------ ----- ----- -----
Comprehensive income $3,788
=====
Balance at May 29, 1999 4,035,346 $403 6,058,277 $606 $21,917 $53,887 $(1,522) $75,291
========= === ========= === ====== ====== ===== ======
</TABLE>
The accompanying notes are an integral part of these statements.
-40-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Fifty-two weeks ended
-----------------------------------
May 29, May 30, May 31,
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 4,797 $ (5,967) $ (3,208)
Adjustments to reconcile net earnings
(loss) to net cash provided by (used
in) operating activities
Depreciation and amortization 2,829 3,315 3,037
Impairment of long-lived assets 4,121
Provision for doubtful accounts 250 286 451
Write-down of investment in
affiliate 1,121 219
Loss (gain) on sale of assets 39 (11) 2
Deferred tax (benefit) provision (735) (64) (147)
Other non-cash items 30 7 20
Changes in operating assets and
liabilities, net of acquisition
Accounts receivable (806) (4,663) (1,270)
Inventories (210) 587 (3,421)
Other current assets (251) 1,565 (1,111)
Other assets (35) (588) (137)
Accounts payable 1,055 97 1,073
Accrued liabilities 778 127 608
Accrued income taxes 183 310 (54)
Other noncurrent liabilities 146 (21) (25)
------ ------ ------
Net cash provided by (used
in) operating activities 9,191 (680) (4,182)
------ ------ ------
Cash flows from investing activities:
Additions to property, plant and
equipment (2,207) (1,897) (4,370)
Acquisition of business (7,096)
Investment in affiliate (1,340)
Proceeds from disposal of business 510
Proceeds from sale of assets 8 50 114
Available-for-sale securities
Purchases (34,061) (12,290) (22,735)
Proceeds from sale 32,320 19,806 31,998
------ ------ ------
Net cash (used in) provided by
investing activities (3,940) 4,839 (2,089)
------ ------ ------
</TABLE>
The accompanying notes are an integral part of these statements.
-41-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
Fifty-two weeks ended
---------------------------------
May 29, May 30, May 31,
1999 1998 1997
------- ------- -------
Cash flows from financing activities:
Repayments of debt $(2,670) $(7,704) $(1,023)
Proceeds from issuance of debt 1,072 3,619 7,592
Proceeds from exercise of stock
options, including related income
tax benefits 311 569 873
Purchase of treasury stock (68)
Proceeds from issuance of stock in
connection with the stock purchase
plan 7 6 24
----- ----- -----
Net cash (used in) provided by
financing activities (1,348) (3,510) 7,466
----- ----- -----
Effect of exchange rate changes on
cash and cash equivalents (484) (479) (74)
----- ----- -----
INCREASE IN CASH AND CASH
EQUIVALENTS 3,419 170 1,121
Cash and cash equivalents
Beginning of year 4,654 4,484 3,363
----- ----- -----
End of year $ 8,073 $ 4,654 $ 4,484
===== ===== =====
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 154 $ 650 $ 398
===== ===== =====
Income taxes (net of $218,
$1,337 and $686 in refunds
in 1999, 1998 and 1997,
respectively) $ 2,153 $ (762) $ 6
===== ===== =====
The accompanying notes are an integral part of these statements.
-42-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies is presented to assist the
reader in understanding and evaluating the consolidated financial
statements. These policies are in conformity with generally accepted
accounting principles and have been applied consistently in all
material respects.
Nature of Business
------------------
The Company is primarily engaged in developing, manufacturing and marketing
diagnostic products used by radiologists and other physicians during
image-assisted procedures to detect anatomic abnormalities and
diseases. The Company also designs, develops, manufactures and
markets, through its wholly-owned subsidiary, AngioDynamics, Inc.
("AngioDynamics"), a variety of therapeutic and diagnostic products,
for use principally in the diagnosis and treatment of peripheral
vascular disease (see Note O).
Basis of Consolidation
----------------------
The consolidated financial statements include the accounts of E-Z-EM, Inc.
and all 100%-owned subsidiaries (the "Company"). All significant
intercompany balances and transactions have been eliminated. The
Company's approximate 23% interest in an affiliate was accounted for
by the equity method. Pursuant to this method, such investment was
recorded at cost and adjusted by the Company's share of undistributed
earnings (or losses) (see Note D).
Operations outside the U.S. are included in the consolidated financial
statements and consist of: a subsidiary operating a mining and
chemical processing operation in Nova Scotia, Canada and a
manufacturing and marketing facility in Montreal, Canada; a subsidiary
manufacturing products located in Puerto Rico; a subsidiary
manufacturing and marketing products located in Japan; a subsidiary
promoting and distributing products located in Holland; a subsidiary
promoting and distributing products located in the United Kingdom; and
a subsidiary manufacturing products located in Ireland.
Fiscal Year
-----------
The Company reports on a fiscal year which concludes on the Saturday
nearest to May 31. Fiscal years 1999, 1998 and 1997 ended on May 29,
1999, May 30, 1998 and May 31, 1997, respectively, for reporting
periods of fifty-two weeks.
Cash and Cash Equivalents
-------------------------
The Company considers all unrestricted highly liquid investments purchased
with a maturity of less than three months to be cash equivalents.
Included in cash equivalents are certificates of deposit and
Eurodollar investments of $5,089,000 and $1,220,000 at May 29, 1999
and May 30, 1998, respectively. The carrying amount of these financial
instruments reasonably approximates fair value because of their short
maturity. Foreign-denominated cash and cash equivalents aggregated
$1,116,000 and $2,359,000 at May 29, 1999 and May 30, 1998,
respectively.
-43-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Debt and Equity Securities
--------------------------
Debt and equity securities are classified as "available-for-sale
securities" and reported at fair value, with unrealized gains and
losses excluded from operations and reported as a component of
accumulated other comprehensive income (loss), net of the related tax
effects, in stockholders' equity. 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 was $2,595,000, $2,827,000 and $2,721,000 in 1999, 1998 and
1997, respectively.
Cost in Excess of Fair Value of Net Assets Acquired
---------------------------------------------------
The cost in excess of fair value of net assets acquired ("goodwill") is
being amortized on a straight-line basis over 40 years. Amortization
of goodwill was $16,000, $17,000 and $64,000 in 1999, 1998 and 1997,
respectively.
Intangible Assets
-----------------
Intangible assets are being amortized on a straight-line basis over the
estimated useful lives of the respective assets ranging from three to
fifteen and one-half years. Amortization of intangible assets was
$218,000, $471,000 and $252,000 in 1999, 1998 and 1997, respectively.
On an ongoing basis, management reviews the valuation and amortization of
goodwill and intangible assets to determine possible impairment by
considering current operating results and comparing the carrying
values to the anticipated undiscounted future cash flows of the
related assets (see Note C).
Advertising
-----------
All costs associated with advertising are expensed when incurred.
Advertising expense, included in selling and administrative expenses,
was $1,074,000, $900,000 and $1,156,000 in 1999, 1998 and 1997,
respectively.
-44-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
------------
Deferred income taxes are recognized for temporary differences between
financial statement and income tax bases of assets and liabilities and
loss carryforwards and tax credit carryforwards for which income tax
benefits are expected to be realized in future years. A valuation
allowance has been established to reduce deferred tax assets as it is
more likely than not that all, or some portion, of such deferred tax
assets will not be realized. The effect on deferred taxes of a change
in tax rates is recognized in income in the period that includes the
enactment date.
Foreign Currency Translation
----------------------------
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
52, "Foreign Currency Translation," the Company has determined that
the functional currency for its foreign subsidiaries is the local
currency. This assessment considers that the day-to-day operations are
not dependent upon the economic environment of the parent's functional
currency, financing is effected through their own operations, and the
foreign operations primarily generate and expend foreign currency.
Foreign currency translation adjustments are accumulated as a
component of accumulated other comprehensive income (loss) in
stockholders' equity.
Earnings (Loss) Per Common Share
--------------------------------
In 1998, the Company adopted SFAS No. 128, "Earnings Per Share," which
requires public companies to present basic earnings per share and, if
applicable, diluted earnings per share. In accordance with SFAS No.
128, all comparative periods were restated, if applicable. Basic
earnings per share are based on the weighted average number of common
shares outstanding without consideration of potential common stock.
Diluted earnings per share are based on the weighted average number of
common and potential common shares outstanding. The calculation takes
into account the shares that may be issued upon exercise of stock
options, reduced by the shares that may be repurchased with the funds
received from the exercise, based on the average price during the
period. Potential common shares were excluded from the diluted
calculation for 1998 and 1997, as their effects were anti-dilutive.
The following table sets forth the reconciliation of the weighted average
number of common shares:
1999 1998 1997
------ ------ ------
Basic 10,077,445 9,952,482 9,870,732
Effect of dilutive securities
(stock options) 236,644
---------- --------- ---------
Diluted 10,314,089 9,952,482 9,870,732
========== ========= =========
The weighted average number of common shares and the per share amounts for
all periods presented have been retroactively restated to reflect the
total shares issued after the 3% stock dividends described in Note M.
-45-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
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.
NOTE B - COMPREHENSIVE INCOME (LOSS)
During 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the
adoption of SFAS No. 130 had no impact on the Company's net earnings
(loss) or stockholders' equity. SFAS No. 130 requires unrealized
holding gains or losses on debt and equity securities
available-for-sale and cumulative translation adjustments, which prior
to adoption were reported separately in stockholders' equity, to be
included in accumulated other comprehensive income (loss). Prior year
financial statements have been reclassified to conform to the
requirements of SFAS No. 130.
The components of comprehensive income (loss), net of related tax, are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Net earnings (loss) $4,797 $(5,967) $(3,208)
Unrealized holding (loss) gain on
debt and equity securities, net of
income tax provision (benefit) of
$1,118, $6 and $(508) in 1999,
1998 and 1997, respectively (151) 12 (1,028)
Foreign currency translation
adjustments (858) (646) (19)
----- ----- -----
Comprehensive income (loss) $3,788 $(6,601) $(4,255)
===== ===== =====
</TABLE>
The components of accumulated other comprehensive income (loss), net of
related tax, are as follows:
May 29, May 30,
1999 1998
---- ----
(in thousands)
Unrealized holding gain on debt and equity
securities, net of income tax (liability)
asset of $(204) and $914 at May 29, 1999
and May 30, 1998, respectively $ 1,193 $ 1,344
Cumulative translation adjustments (2,715) (1,857)
----- -----
Accumulated other comprehensive income
(loss) $(1,522) $ (513)
===== =====
-46-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE C - ASSET PURCHASE AND IMPAIRMENT CHARGE
On January 8, 1997, the Company purchased certain assets of Leocor, Inc.
("Leocor") and certain other assets directly from a principal
shareholder of Leocor for approximately $7,096,000, including
acquisition costs. Leocor developed and manufactured angioplasty
catheters. No liabilities were assumed in connection with this
acquisition. The acquisition was accounted for under the purchase
method with the results of operations being included in the Company's
consolidated statement of operations from the date of acquisition.
Prior to the impairment charge described below, the fair values of the
intangible assets acquired ($6,543,000), representing technology,
trademarks, licenses and know-how, were amortized on a straight- line
basis over fifteen years.
In connection with this acquisition, the Company also entered into a
consulting agreement with the principal shareholder of Leocor for
consideration of $200,000. The term of this consulting agreement was
for a period of two years from the acquisition date of January 8,
1997. As a result of the intangible asset impairment, the unamortized
consideration was written off in 1998.
The following unaudited pro forma information has been prepared assuming
Leocor had been acquired as of the beginning of the period presented,
after giving effect to certain adjustments, including amortization of
intangible assets, interest expense on the acquisition debt and
related income tax effects. The pro forma information is presented for
informational purposes only and is not necessarily indicative of what
would have occurred if the acquisition had been made as of the
beginning of fiscal 1997.
Pro Forma Information (Unaudited)
1997
------
(in thousands,
except per share data)
Net sales $97,882
Net loss (3,651)
Loss per common share:
Basic (.37)
Diluted (.37)
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the
Company recorded an impairment charge in 1998, with no associated tax
benefit, of $4,121,000, or $.41 per share, relating to certain
long-lived assets pertaining to the Leocor acquisition and used in the
cardiovascular market. The Company determined that the revenue
potential of this technology, as it relates to the cardiovascular
market, was impaired due to increased competition and price erosion
for coronary stents and angioplasty products and the Company's
strategic decision to commercially exploit this technology in the
interventional radiology market. The Company is seeking a strategic
business partner with an existing cardiovascular sales and marketing
franchise in order to be successful in the cardiovascular market,
although there can be no assurances that such a partner can be found.
The impairment
-47-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE C - ASSET PURCHASE AND IMPAIRMENT CHARGE (continued)
charge represents the difference between the carrying value of
intangible assets and the fair market value of these assets based on
estimated future cash flows discounted at a rate commensurate with the
risk involved. The charge had no impact on the Company's cash flow or
its ability to generate cash flow in the future. As a result of the
impairment charge, amortization related to these assets decreased by
approximately $250,000 per year, with the remaining intangible assets
being amortized on a straight-line basis over the remaining estimated
useful lives of approximately eight years.
NOTE D - INVESTMENT IN AFFILIATE AND IMPAIRMENT CHARGE
In August 1997, the Company acquired approximately 23% of ITI Medical
Technologies, Inc. ("ITI") for $1,340,000, including acquisition
related expenses of $40,000. ITI is a California corporation, based in
Livermore, California, which develops and manufactures MRI diagnostic
and therapeutic medical devices. The Company's investment in ITI was
accounted for by the equity method. In accordance with SFAS No. 121,
the Company recorded an impairment charge in the fourth quarter of
1999, with no associated tax benefit, of $896,000, as it was
determined that the fair value of such investment was zero, with no
future cash flows anticipated due to ITI's inability to generate
income from operations or raise additional capital. Prior to the
impairment charge, the Company's investment in ITI had been reduced by
its proportionate share of losses in 1999 and 1998 of approximately
$225,000 and $219,000, respectively. For 1999 and 1998, the impairment
charge and the Company's proportionate share of losses are included in
the consolidated statements of operations under the caption
"Write-down of investment in affiliate".
-48-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE E - DEBT AND EQUITY SECURITIES
Debt and equity securities at May 29, 1999 consist of the following:
Unrealized
Amortized Fair holding
cost value gain
--------- ----- ----------
(in thousands)
Current
-------
Available-for-sale securities
(carried on the balance sheet
at fair value)
Debt securities $5,155 $5,155
Other 61 61
----- -----
$5,216 $5,216
===== =====
Noncurrent
----------
Available-for-sale securities
(carried on the balance sheet
at fair value)
Equity securities $1,617 $3,014 $1,397
Other 1 1
----- ----- -----
$1,618 $3,015 $1,397
===== ===== =====
Debt and equity securities at May 30, 1998 consist of the following:
Unrealized
Amortized Fair holding
cost value gain
--------- ----- ----------
(in thousands)
Current
-------
Available-for-sale securities
(carried on the balance sheet
at fair value)
Debt securities $3,470 $3,470
Other 5 5
----- -----
$3,475 $3,475
===== =====
Noncurrent
----------
Available-for-sale securities
(carried on the balance sheet
at fair value)
Equity securities $1,626 $2,056 $430
Other 1 1
----- ----- ---
$1,627 $2,057 $430
===== ===== ===
-49-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE F - INVENTORIES
Inventories consist of the following:
May 29, May 30,
1999 1998
------- -------
(in thousands)
Finished goods $14,000 $13,846
Work in process 1,926 1,474
Raw materials 11,048 11,444
------ ------
$26,974 $26,764
====== ======
NOTE G - PROPERTY, PLANT AND EQUIPMENT, AT COST
Property, plant and equipment are summarized as follows:
Estimated
useful May 30, May 29,
lives 1999 1998
--------- ------ ------
(in thousands)
Building and building
improvements 10 to 39 years $13,411 $13,337
Machinery and equipment 2 to 10 years 28,675 26,964
Leasehold improvements Term of lease 1,740 1,645
------ ------
43,826 41,946
Less accumulated depreciation
and amortization 25,984 23,506
------ ------
17,842 18,440
Land 3,483 3,477
------ ------
$21,325 $21,917
====== ======
-50-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE H - INCOME TAXES
Income tax expense (benefit) analyzed by category and by income statement
classification is summarized as follows:
1999 1998 1997
------ ------ ------
(in thousands)
Current
Federal $1,592 $(159) $ (724)
State and local 204 131 54
Foreign 813 525 (505)
----- --- -----
Subtotal 2,609 497 (1,175)
Deferred (735) (64) (147)
----- --- -----
Total $1,874 $ 433 $(1,322)
===== === =====
Temporary differences which give rise to deferred tax assets and
liabilities are summarized as follows:
May 29, May 30,
1999 1998
------- -------
(in thousands)
Deferred tax assets
Difference between book and tax basis in
investment sold to Canadian subsidiary $1,137 $1,137
Tax operating loss carryforwards 982 677
Tax credit carryforwards 356 642
Alternative minimum tax ("AMT") credit
carryforward 4 125
Impairment of long-lived assets 1,356 1,507
Expenses incurred not currently deductible 1,171 1,435
Unrealized investment losses 951
Inventories 721 591
Deferred compensation costs 603 548
Write-down of investment in affiliate 496 81
Other 88 87
----- -----
Gross deferred tax asset 6,914 7,781
----- -----
Deferred tax liabilities
Excess tax over book depreciation 1,026 1,054
Unrealized investment gains 204 37
Tax on unremitted profits of Puerto
Rican subsidiary 112 86
Other 16 20
----- -----
Gross deferred tax liability 1,358 1,197
Valuation allowance (4,754) (5,405)
----- -----
Net deferred tax asset $ 802 $1,179
===== =====
-51-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE H - INCOME TAXES (continued)
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 1999, the Company reduced its valuation allowance primarily to
recognize deferred tax assets of approximately $832,000, in the fourth
quarter, that management believes is more likely than not to be
realized through future taxable earnings from U.S. operations.
If not utilized, the tax operating loss carryforwards will expire in
various amounts over the years 2001 through 2004. The tax credit
carryforwards will expire in various amounts over the years 2000
through 2012.
Deferred income taxes are provided for the expected Tollgate tax on the
undistributed earnings of the Company's Puerto Rican subsidiary, which
are expected to be distributed at some time in the future.
At May 29, 1999, undistributed earnings of certain foreign subsidiaries
aggregated $14,778,000 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 $739,000.
Deferred tax assets and liabilities are included in the consolidated
balance sheets as follows:
May 29, May 30,
1999 1998
------- -------
(in thousands)
Current - Other current assets $1,401
Current - Accrued income taxes (112) $ (86)
Noncurrent - Other assets 1,265
Noncurrent - Other noncurrent liabilities (487)
----- -----
Net deferred tax asset $ 802 $1,179
===== =====
-52-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE H - INCOME TAXES (continued)
Earnings (loss) before income taxes for U.S. and international operations
consist of the following:
1999 1998 1997
------ ------ ------
(in thousands)
U.S. $5,371 $(5,225) $(1,977)
International 1,300 (309) (2,553)
----- ----- -----
$6,671 $(5,534) $(4,530)
===== ===== =====
The Company's consolidated income tax provision (benefit) has differed from
the amount which would be provided by applying the U.S. Federal
statutory income tax rate to the Company's earnings (loss) before
income taxes for the following reasons:
1999 1998 1997
------ ------ ------
(in thousands)
Income tax provision (benefit) $1,874 $ 433 $(1,322)
Effect of:
State income taxes, net of Federal
tax benefit (108) (40) (34)
Research and development credit 27 41 75
Earnings of the Puerto Rican
subsidiary, net of Puerto Rico
Corporate tax and Tollgate tax 242 188 214
Earnings of the Foreign Sales
Corporation 22 7 7
Tax-exempt portion of investment
income 27 96 202
Change in valuation allowance 770 (1,807) (100)
Losses of foreign entities
generating no current tax
benefit (553) (526) (380)
Nondeductible expenses (148) (324) (269)
Other 115 50 67
----- ----- -----
Income tax provision (benefit)
at statutory tax rate of 34% $2,268 $(1,882) $(1,540)
===== ===== =====
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 June 3, 1995
have been closed by the Internal Revenue Service.
-53-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE I - DEBT
Notes payable consist of the following:
May 29, May 30,
1999 1998
------- -------
(in thousands)
Bank, lines of credit
6.25% (1) $ 718
6.50% (1) $1,961
Japanese bank
2.43% note (2) 1,111
2.13% note (2) 1,080
----- -----
$1,829 $3,041
===== =====
Long-term debt consists of the following:
May 29, May 30,
1999 1998
------- -------
(in thousands)
Japanese bank loan, due November 2007,
2.38% (2) $301 $298
Japanese bank loan, due November 2004,
1.80% (2) 260 252
Canadian bank loan, due November 1999,
6.75% (3) 113 343
--- ---
674 893
Less current maturities 197 287
--- ---
$477 $606
=== ===
(1) The Company's Canadian subsidiary has available $1,357,000 (Canadian
$2,000,000) under this line of credit with a bank, which is
collateralized by accounts receivable and inventory and expires on
September 30, 1999.
(2) Guaranteed by the Company and collateralized by property, plant and
equipment having a net carrying value of $1,886,000 at May 29, 1999.
(3) Collateralized by accounts receivable and $678,000 (Canadian
$1,000,000) in machinery and equipment.
The Company also has available $2,000,000 under an unsecured line of credit
with a bank, which expires on November 30, 1999. At May 29, 1999, no
amounts were outstanding under this line of credit.
The Company believes that the carrying amount of its debt approximates the
fair value as the variable interest rates approximate current
prevailing interest rates.
During 1999, 1998 and 1997, the weighted average interest rates on
short-term debt were 3.54%, 6.38% and 6.19%, respectively.
-54-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE J - ACCRUED LIABILITIES AND OTHER NONCURRENT LIABILITIES
Accrued liabilities consist of the following:
May 29, May 30,
1999 1998
------ ------
(in thousands)
Payroll and related expenses $3,808 $3,792
Accrued sales rebates 2,604 1,421
Other 1,324 1,745
----- -----
$7,736 $6,958
===== =====
Other noncurrent liabilities consist of the following:
May 29, May 30,
1999 1998
------ ------
(in thousands)
Deferred compensation $1,628 $1,481
Deferred taxes 487
Other 288 253
----- -----
$2,403 $1,734
===== =====
NOTE K - RETIREMENT PLANS
E-Z-EM, Inc. and its domestic subsidiaries ("E-Z-EM") provide pension
benefits through three Profit-Sharing Plans, under which E-Z-EM makes
discretionary contributions to eligible employees, and three companion
401(k) Plans, under which eligible employees can defer a portion of
their annual compensation, part of which is matched by E-Z-EM. These
plans cover all E-Z-EM employees not otherwise covered by collective
bargaining agreements. In 1999, 1998 and 1997, profit-sharing
contributions were $581,000, $534,000 and $507,000, respectively, and
401(k) matching contributions were $359,000, $341,000 and $328,000,
respectively.
E-Z-EM also contributed $36,000, $42,000 and $52,000 in 1999, 1998 and
1997, respectively, to a multiemployer pension plan for employees
covered by a collective bargaining agreement. This plan is not
administered by E-Z-EM and contributions are determined in accordance
with provisions of negotiated labor contracts.
E-Z-EM Canada Inc., a wholly-owned subsidiary of the Company, also provides
pension benefits to eligible employees through two Defined
Contribution Plans. In 1999, 1998 and 1997, contributions were
$71,000, $70,000 and $55,000, respectively.
-55-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE L - COMMITMENTS AND CONTINGENCIES
The Company is committed under non-cancellable operating leases for
facilities, automobiles and equipment, including certain facility
leases with related parties. During 1999, 1998 and 1997, aggregate
rental costs under all operating leases were approximately $1,743,000,
$1,325,000 and $1,216,000, respectively, of which approximately
$196,000, $196,000 and $197,000, respectively, were paid to related
parties. Future annual operating lease payments in the aggregate,
which include escalation clauses and real estate taxes, with initial
remaining terms of more than one year at May 29, 1999, are summarized
as follows:
Related
Total party
leases leases
------ -------
(in thousands)
2000 $ 990 $184
2001 796 128
2002 681 107
2003 509 109
2004 486 101
Thereafter 1,335
----- ---
$4,797 $629
===== ===
The Company has an employment contract with a key executive that provides
for a term of eight years. Future annual commitments with respect to
this contract at May 29, 1999, are summarized as follows:
(in thousands)
2000 $250
2001 250
2002 125
---
$625
===
-56-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE M - COMMON STOCK
In 1983, the Company adopted a Stock Option Plan (the "1983 Plan"). The
1983 Plan provides for the grant to key employees of both nonqualified
stock options and incentive stock options. A total of 1,817,974 shares
of the Company's Common Stock may be issued under the 1983 Plan
pursuant to the exercise of options. All stock options must have an
exercise price of not less than the market value of the shares on the
date of grant. Options will be exercisable over a period of time to be
designated by the administrators of the 1983 Plan (but not more than
10 years from the date of grant) and will be subject to such other
terms and conditions as the administrators may determine. The 1983
Plan terminates in December 2005.
In 1984, the Company adopted a second Stock Option Plan (the "1984 Plan").
The 1984 Plan provides for the grant to members of the Board of
Directors and consultants of nonqualified stock options. A total of
459,490 shares of the Company's Common Stock may be issued under the
1984 Plan pursuant to the exercise of options. All stock options must
have an exercise price of not less than the market value of the shares
on the date of grant. Options will be exercisable over a period of
time to be designated by the administrators of the 1984 Plan (but not
more than 10 years from the date of grant) and will be subject to such
other terms and conditions as the administrators may determine. The
1984 Plan terminates in December 2005.
In 1997, the Company's AngioDynamics subsidiary adopted a Stock Option Plan
(the "1997 Plan"). The 1997 Plan provides for the grant to key
employees of both nonqualified stock options and incentive stock
options and to members of the Board of Directors and consultants of
nonqualified stock options. A total of 136.36 shares of AngioDynamics'
Class B Common Stock may be issued under the 1997 Plan pursuant to the
exercise of options. All stock options must have an exercise price of
not less than the market value of the shares on the date of grant.
Options will be exercisable over a period of time to be designated by
the administrators of the 1997 Plan (but not more than 10 years from
the date of grant) and will be subject to such other terms and
conditions as the administrators may determine. The 1997 Plan
terminates in March 2007. As a result of the 1997 Plan, the Company's
equity interest in AngioDynamics may become diluted by as much as 12%.
Effective in 1997, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation". SFAS 123 allows for a choice of the method
of accounting used for stock-based compensation. Entities may elect
the "intrinsic value" method based on APB Opinion No. 25, "Accounting
for Stock Issued to Employees" or the new "fair value" method
contained in SFAS 123. The Company elected to continue to account for
stock-based compensation under the guidelines of APB Opinion No. 25.
Accordingly, no compensation expense has been recognized under these
plans concerning options granted to key employees and to members of
the Board of Directors, as such options were granted to Board members
in their capacity as Directors. Compensation expense of $5,000, $7,000
and $2,000 in 1999, 1998 and 1997, respectively, was recognized under
these plans for options granted to consultants. The Company has
adopted the disclosure provisions of SFAS 123.
-57-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE M - COMMON STOCK (continued)
If the Company had elected to recognize compensation expense based upon the
fair value at the grant date for options granted under these plans to
key employees and to members of the Board of Directors, consistent
with the methodology prescribed by SFAS 123, the Company's pro forma
net earnings (loss) and earnings (loss) per common share would be as
follows:
1999 1998 1997
------ ------ ------
(in thousands, except per share data)
Net earnings (loss)
As reported $4,797 $(5,967) $(3,208)
Pro forma 4,345 (6,549) (3,672)
Basic earnings (loss) per
common share
As reported $.48 $(.60) $(.33)
Pro forma .43 (.66) (.37)
Diluted earnings (loss) per
common share
As reported $.47 $(.60) $(.33)
Pro forma .42 (.66) (.37)
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense
related to grants made before 1996. The fair value of options was
estimated at the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions for 1999, 1998
and 1997, respectively: dividend yields of zero for all years;
expected volatility ranging from 41.32% to 48.90% in 1999, from 43.89%
to 47.30% in 1998 and from 46.90% to 47.61% in 1997; risk-free
interest rates ranging from 4.78% to 5.98% in 1999, from 5.61% to
6.35% in 1998 and from 5.90% to 7.09% in 1997; and expected terms
ranging from 5 to 9 1/2 years for all years.
-58-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE M - COMMON STOCK (continued)
A summary of the status of the Company's stock option plans as of May 29,
1999, May 30, 1998 and May 31, 1997, and changes for the three years
then ended, is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- ------------------------- -------------------------
Weighted Weighted Weighted
-Average -Average -Average
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
1983 Plan
---------
Outstanding at
beginning of year 1,002 $ 4.94 1,115 $4.90 1,225 $ 4.90
Granted 33 $ 5.83 11 $10.13
Exercised (56) $ 4.22 (107) $4.48 (118) $ 5.19
Forfeited (3) $ 6.23 (5) $7.01 (3) $ 8.77
Expired (3) $10.68 (1) $8.74
----- ----- -----
Outstanding at
end of year 973 $ 4.99 1,002 $4.94 1,115 $ 4.90
===== ===== =====
Options exercisable
at year-end 940 $ 4.96 995 $4.91 1,100 $ 4.86
Weighted-average
fair value of
options granted
during the year $ 2.59 $ 5.13
1984 Plan
---------
Outstanding at
beginning of year 304 $ 5.51 305 $5.60 306 $ 5.65
Granted 6 $ 5.00 6 $5.88 16 $ 9.32
Exercised (9) $ 4.22
Expired (7) $9.53 (17) $10.00
--- --- ---
Outstanding at
end of year 301 $ 5.54 304 $5.51 305 $ 5.60
=== === ===
Options exercisable
at year-end 289 $ 5.55 293 $5.47 283 $ 5.24
Weighted-average
fair value of
options granted
during the year $ 2.36 $2.72 $ 4.76
</TABLE>
-59-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE M - COMMON STOCK (continued)
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- ------------------------- -----------------------
Weighted Weighted Weighted
-Average -Average -Average
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
1997 Plan
---------
Outstanding at
beginning of year 130.00 $40,000 122.39 $80,000
Granted 1.93 $40,000 140.63 $43,022 122.39 $80,000
Forfeited (2.78) $40,000 (133.01) $80,000
------ ------ ------
Outstanding at
end of year 129.15 $40,000 130.00 $40,000 122.39 $80,000
====== ====== ======
Options exercisable
at year-end None None None
Weighted-average
fair value of
options granted
during the year $26,480 $24,877 $36,463
</TABLE>
The following information applies to options outstanding and exercisable at
May 29, 1999:
<TABLE>
<CAPTION>
Outstanding Exercisable
----------------------------------------------------- ------------------------------
Weighted-
Number Average Weighted- Number Weighted-
Out- Remaining Average Exer- Average
Range of standing Life in Exercise cisable Exercise
Exercise Prices (000) Years Price (000) Price
--------------- -------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
1983 Plan
---------
$3.66 to $5.39 821 4.91 $4.46 821 $4.46
$5.63 to $6.00 33 9.21 $5.83
$7.54 to $10.13 119 5.01 $8.40 119 $8.40
--- ---
973 940
=== ===
1984 Plan
---------
$3.66 to $5.49 211 5.59 $4.17 205 $4.15
$5.88 to $8.58 66 5.65 $7.93 60 $8.14
$9.58 to $12.49 24 5.37 $10.93 24 $10.93
--- ---
301 289
=== ===
</TABLE>
On May 29, 1999, there remained 191,366, 107,259 and 7.22 shares available
for granting of options under the 1983, 1984 and 1997 Plans,
respectively.
Options granted prior to the Company's recapitalization on October 26, 1992
are exercisable one-half in Class A Common Stock and one-half in Class
B Common Stock. Options granted after the recapitalization are
exercisable in Class B Common Stock.
-60-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE M - COMMON STOCK (continued)
On May 5, 1998, the Company's Board of Directors approved the repricing of
all outstanding stock options previously granted under the 1997 Plan.
The repricing provided for the exercise price of 128.41 options to be
reduced from $80,000 per share to $40,000 per share, to reflect
current fair value. The repricing did not affect the term or vesting
period of the options.
In 1985, the Company adopted an Employee Stock Purchase Plan (the "Employee
Plan"). The Employee Plan provides for the purchase by employees of
the Company's Class B Common Stock at a discounted price of 85% of the
market value of the shares on the date of purchase. A total of 150,000
shares of the Company's Class B Stock may be purchased under the
Employee Plan which terminates on September 30, 2002. During 1999,
employees purchased 1,600 shares, at prices ranging from $4.36 to
$5.10 per share. Total proceeds received by the Company approximated
$7,000.
On March 4, 1997, the Board of Directors declared a 3% stock dividend on
shares of Class A and Class B Common Stock. The dividend, payable in
nonvoting Class B Stock, was distributed on April 21, 1997 to
shareholders of record on March 31, 1997. On January 23, 1998, the
Board of Directors declared a 3% stock dividend on shares of Class A
and Class B Common Stock. The dividend, payable in nonvoting Class B
Stock, was distributed on March 16, 1998 to shareholders of record on
February 26, 1998. Earnings (loss) per common share have been
retroactively adjusted to reflect the stock dividends.
In January 1999, the Board of Directors authorized the repurchase of the
Company's Class B Common Stock up to an aggregate purchase price of
$2,000,000. As of May 29, 1999, the Company had repurchased 12,100
shares of Class B Common Stock for approximately $68,000.
NOTE N - RELATED PARTIES
During 1998, the Company entered into split dollar life insurance
arrangements with a key executive (including his spouse) and a
principal shareholder (the "insureds"). On an annual basis, the
Company makes interest bearing advances of approximately $100,000 per
insured toward the cost of such life insurance policies. Interest on
the advances is to be paid to the Company annually by the insureds.
Under collateral assignment agreements, the proceeds from the policies
will first be paid to the Company to repay the advances it made. If
the policies are terminated prior to the death of the insured, the
Company will be entitled to the cash surrender value of the policies
at that time, and any shortfall between that amount and the amount of
the advances made by the Company will be repaid to the Company by the
insureds. At May 29, 1999 and May 30,1998, advances of $400,000 and
$200,000, respectively, are recorded in the consolidated balance
sheets under the caption "Other Assets".
The Company has an unsecured, two-year interest bearing note receivable
from an executive officer in the principal amount of $320,000. The
outstanding principal and interest matures on September 30, 1999.
-61-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE N - RELATED PARTIES (continued)
Several directors provided consulting services to the Company during 1999,
1998 and 1997. Fees for such services, including fees relating to
attendance at directors' meetings, were approximately $258,000,
$298,000 and $525,000 during 1999, 1998 and 1997, respectively.
NOTE O - OPERATING SEGMENT, GEOGRAPHIC AREA OPERATIONS AND CONCENTRATION OF
CREDIT RISK
In 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". The statement redefines how
operating segments are determined and requires disclosure of certain
financial and descriptive information about a company's operating
segments. The Company has adopted the new requirements retroactively.
The Company is engaged in the manufacture and distribution of a wide
variety of products which are classified into two operating segments:
Diagnostic products and AngioDynamics products. Diagnostic products
encompass both contrast systems, consisting of barium sulfate
formulations and related medical devices used in X-ray, CT-scanning,
ultrasound and MRI imaging examinations, and non-contrast systems,
including diagnostic radiology devices, custom contract
pharmaceuticals, gastrointestinal cleansing laxatives, X-ray
protection equipment, and immunoassay tests. AngioDynamics products
include angiography, therapeutic and coronary medical devices used in
the interventional medical marketplace. The Company's 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 1999, 1998 and 1997, there was one customer to whom sales of Diagnostic
products represented 17%, 15% and 15% of total sales, respectively.
Approximately 20% and 19% of accounts receivable pertained to this
customer at May 29, 1999 and May 30, 1998, respectively.
The Company's chief operating decision maker utilizes operating segment net
earnings (loss) information in assessing performance and making
overall operating decisions and resource allocations. The accounting
policies of the operating segments are the same as those described in
the summary of significant accounting policies. Information about the
Company's segments is as follows:
-62-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE O - OPERATING SEGMENT, GEOGRAPHIC AREA OPERATIONS AND CONCENTRATION OF
CREDIT RISK (continued)
<TABLE>
<CAPTION>
Operating Segments 1999 1998 1997
------------------ ------ ------ ------
(in thousands)
<S> <C> <C> <C>
Net sales from external customers
Diagnostic products
Contrast systems $ 60,366 $ 58,474 $58,779
Non-contrast systems 26,554 25,001 20,809
------- ------- ------
Total Diagnostic products 86,920 83,475 79,588
AngioDynamics products 20,259 19,409 17,736
------- ------- ------
Total net sales from external
customers $107,179 $102,884 $97,324
======= ======= ======
Intersegment net sales
Diagnostic products $ 36 $ 91 $ 1,250
AngioDynamics products 503 483 926
------- ------- ------
Total intersegment net sales $ 539 $ 574 $ 2,176
======= ======= ======
Interest income
Diagnostic products $ 1,475 $ 1,269 $ 918
AngioDynamics products 16 20 87
Eliminations (986) (597) (175)
------- ------- ------
Total interest income $ 505 $ 692 $ 830
======= ======= ======
Interest expense
Diagnostic products $ 263 $ 340 $ 287
AngioDynamics products 986 951 405
Eliminations (986) (597) (175)
------- ------- ------
Total interest expense $ 263 $ 694 $ 517
======= ======= ======
Depreciation and amortization
Diagnostic products $ 2,125 $ 2,361 $ 2,437
AngioDynamics products 704 954 600
------- ------- ------
Total depreciation and amortization $ 2,829 $ 3,315 $ 3,037
======= ======= ======
Equity in losses of affiliate
Diagnostic products $ 225 $ 219 $ -
------- ------- ------
Total equity in losses of affiliate $ 225 $ 219 $ -
======= ======= ======
Income tax expense (benefit)
Diagnostic products $ 2,419 $ 1,198 $ (295)
AngioDynamics products (545) (765) (1,027)
------- ------- ------
Total income tax expense (benefit) $ 1,874 $ 433 $(1,322)
======= ======= ======
</TABLE>
-63-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE O - OPERATING SEGMENT, GEOGRAPHIC AREA OPERATIONS AND CONCENTRATION OF
CREDIT RISK (continued)
<TABLE>
<CAPTION>
Operating Segments (continued) 1999 1998 1997
------------------------------ ------ ------ ------
(in thousands)
<S> <C> <C> <C>
Net earnings (loss)
Diagnostic products $ 5,960 $ 1,623 $ 138
AngioDynamics products (1,158) (7,568)* (3,339)
Eliminations (5) (22) (7)
------- ------- -------
Total net earnings (loss) $ 4,797 $ (5,967) $ (3,208)
======= ======= =======
Other significant noncash items
Diagnostic products
Impairment of investment in
affiliate $ 896 $ - $ -
AngioDynamics products
Impairment of long-lived assets - 4,121 -
------- ------- -------
Total other significant noncash
items $ 896 $ 4,121 $ -
======= ======= =======
Assets
Diagnostic products $107,027 $ 99,846 $ 95,537
AngioDynamics products 17,922 19,631 * 25,515
Eliminations (28,890) (28,771) (20,332)
------- ------- -------
Total assets $ 96,059 $ 90,706 $100,720
======= ======= =======
Capital expenditures
Diagnostic products $ 1,831 $ 1,745 $ 1,484
AngioDynamics products 376 152 2,886
------- ------- -------
Total capital expenditures $ 2,207 $ 1,897 $ 4,370
======= ======= =======
Investment in affiliate
Diagnostic products $ - $ 1,121 $ -
------- ------- -------
Total investment in affiliate $ - $ 1,121 $ -
======= ======= =======
</TABLE>
* Includes an impairment charge of $4,121,000 (see Note C).
-64-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE O - OPERATING SEGMENT, GEOGRAPHIC AREA OPERATIONS AND CONCENTRATION OF
CREDIT RISK (continued)
Geographic Areas
----------------
The following geographic area data includes net sales generated by and
long-lived assets employed in operations located in each area:
1999 1998 1997
------ ------ ------
(in thousands)
Net sales
U.S. operations $ 89,200 $ 85,014 $79,873
International operations:
Canada 22,735 20,321 14,369
Other 12,226 13,932 12,871
Eliminations (16,982) (16,383) (9,789)
------- ------- ------
Total net sales $107,179 $102,884 $97,324
======= ======= ======
Long-lived assets
U.S. operations $11,826 $12,229 $12,750
International operations:
Canada 5,248 5,276 5,987
Other 4,251 4,412 4,681
------ ------ ------
Total long-lived assets $21,325 $21,917 $23,418
====== ====== ======
NOTE P - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly results of operations during 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999
------------------------------------------------------
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $25,665 $26,508 $26,618 $28,388
Gross profit 10,669 11,538 11,192 11,758
Net earnings 1,470 1,528 959 840
Earnings per common share
Basic .15 .15 .10 .08
Diluted (1) .14 .15 .09 .08
</TABLE>
-65-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
May 29, 1999, May 30, 1998 and May 31, 1997
NOTE P - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (continued)
<TABLE>
<CAPTION>
1998
------------------------------------------------------
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $25,713 $24,711 $24,385 $28,075
Gross profit 9,735 8,721 8,239 10,738
Net earnings (loss) 128 (1,375) (5,819) 1,099
Earnings (loss) per common
share (2)
Basic and diluted .01 (.14) (.58) .11
</TABLE>
(1) The sum of the quarters does not equal the fiscal year due to rounding
and changes in the calculation of weighted average shares.
(2) Earnings (loss) per common share in 1998 was retroactively restated to
reflect the total shares issued after the 3% stock dividends described
in Note M.
The third quarter of 1998 includes an impairment charge of $4,121,000 (see
Note C).
-66-
<PAGE>
E-Z-EM, Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
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
----------- --------- -------- -------- -------- ------
<S> <C> <C> <C> <C>
Fifty-two weeks
ended May 31, 1997
Allowance for
doubtful accounts.... $527 $451 $48 (a) $930
=== === == ===
Fifty-two weeks
ended May 30, 1998
Allowance for
doubtful accounts.... $930 $286 $68 (a) $1,148
=== === == =====
Fifty-two weeks
ended May 29, 1999
Allowance for
doubtful accounts.... $1,148 $250 $370 (a) $1,028
===== === === =====
</TABLE>
(a) Amounts written off as uncollectible.
-67-
Exhibit 21
Subsidiaries of the Registrant
- ------------------------------
The Registrant, E-Z-EM, Inc., is a Delaware corporation. The subsidiaries
of the Registrant included in the consolidated financial statements are as
follows:
Incorporated
------------
AngioDynamics, Inc. Delaware
AngioDynamics Ltd. Ireland
E-Z-EM Belgium B.V.B.A. Belgium
E-Z-EM Canada Inc. Canada
E-Z-EM Caribe, Inc. Delaware
E-Z-EM International, Inc. Barbados
E-Z-EM Ltd. England
E-Z-EM Nederland B.V. Holland
E-Z-SUB, Inc. Delaware
Enteric Products, Inc. Delaware
Leocor, Inc. Delaware
Toho Kagaku Kenkyusho Co., Ltd. Japan
All subsidiaries of the Registrant are wholly-owned.
-68-
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in Registration Statements No.
33-00184 and No. 33-43168 of E-Z-EM, Inc. on Form S-8 of our report dated July
27, 1999, appearing in the Annual Report on Form 10-K of E-Z-EM, Inc. and
Subsidiaries for the fifty-two weeks ended May 29, 1999.
GRANT THORNTON LLP
Melville, New York
July 27, 1999
-69-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-K for the fifty-two weeks ended May 29, 1999 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-29-1999
<PERIOD-END> MAY-29-1999
<CASH> 8,073
<SECURITIES> 5,216
<RECEIVABLES> 22,932
<ALLOWANCES> 1,028
<INVENTORY> 26,974
<CURRENT-ASSETS> 66,318
<PP&E> 47,309
<DEPRECIATION> 25,984
<TOTAL-ASSETS> 96,059
<CURRENT-LIABILITIES> 17,888
<BONDS> 477
0
0
<COMMON> 1,009
<OTHER-SE> 74,282
<TOTAL-LIABILITY-AND-EQUITY> 96,059
<SALES> 107,179
<TOTAL-REVENUES> 107,179
<CGS> 62,022
<TOTAL-COSTS> 62,022
<OTHER-EXPENSES> 37,915
<LOSS-PROVISION> 250
<INTEREST-EXPENSE> 263
<INCOME-PRETAX> 6,671
<INCOME-TAX> 1,874
<INCOME-CONTINUING> 4,797
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,797
<EPS-BASIC> .48
<EPS-DILUTED> .47
</TABLE>
Exhibit 99
AUDITORS' REPORT
To the shareholder of
E-Z-EM Canada Inc.
We have audited the consolidated balance sheets of "E-Z-EM CANADA INC." as of
May 31, 1999 and 1998 and the consolidated statements of earnings, retained
earnings and changes in financial position for the years ended May 31, 1999,
1998 and 1997. 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 conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as of May 31, 1999 and
1998 and the results of their operations and the changes in their financial
position for the years ended May 31, 1999, 1998 and 1997 in accordance with
generally accepted accounting principles.
Jacques Davis Lefaivre
Chartered Accountants
Montreal, July 6, 1999
