-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VDpSzRUEfzZEKayFJD+TOnDpidVoJlS2W2OPy9s0JJr5h356CvgXuXzpKrjqbePn t+IH3+e8Wy+BouIPH+WXAg== /in/edgar/work/20000901/0000891554-00-002106/0000891554-00-002106.txt : 20000922 0000891554-00-002106.hdr.sgml : 20000922 ACCESSION NUMBER: 0000891554-00-002106 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000603 FILED AS OF DATE: 20000901 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EZ EM INC CENTRAL INDEX KEY: 0000727008 STANDARD INDUSTRIAL CLASSIFICATION: [2835 ] IRS NUMBER: 111999504 STATE OF INCORPORATION: DE FISCAL YEAR END: 0529 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11479 FILM NUMBER: 715749 BUSINESS ADDRESS: STREET 1: 717 MAIN ST CITY: WESTBURY STATE: NY ZIP: 11590 BUSINESS PHONE: 5163338230 10-K 1 form10-k_23536.txt FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 3, 2000 Commission file number 1-11479 ------------ ------- E-Z-EM, Inc. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 11-1999504 ------------------------------ ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 717 Main Street, Westbury, New York 11590 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (516) 333-8230 -------------- Securities registered pursuant to Section 12(b) of the Act: Class A Common Stock, par value $.10 and Class B Common Stock, par value $.10 Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the registrant's voting Class A and non-voting Class B Common Stock held by non-affiliates on August 4, 2000 was $42,804,000. On August 4, 2000, there were 4,014,641 shares of the registrant's Class A Common Stock outstanding and 5,898,686 shares of the registrant's Class B Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for registrants 2000 Annual Meeting of Stockholders to be held October 24, 2000 are incorporated by reference in Part III of this Form 10-K Report. Page 1 of 81 Exhibit Index on Page 33 E-Z-EM, Inc. and Subsidiaries INDEX ----- Page ---- Part I: - ------- 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: - -------- 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 21 Item 8. Financial Statements and Supplementary Data 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 22 Part III: - --------- Item 10. Directors and Executive Officers of the Registrant 23 Item 11. Executive Compensation 26 Item 12. Security Ownership of Certain Beneficial Owners and Management 29 Item 13. Certain Relationships and Related Transactions 32 Part IV: - -------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 33 -2- Part I ------ Item 1. Business -------- (a) General Development of Business ------------------------------- E-Z-EM, Inc. (the "Company" or "E-Z-EM"), organized in Delaware in 1983, together with its predecessors, has been in business for over 38 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. Interventional radiologists primarily use these products during minimally invasive diagnostic and therapeutic surgical procedures. E-Z-EM's products consist of specially developed powdered and liquid barium sulfate formulations and consumable medical devices, which function together as a system ("contrast systems"), 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: radiological medical 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 6% during 2000 as compared to 1999 due to price increases and increased demand. The Company manufactures and markets, through AngioDynamics, six differentiated product groups for use during interventional radiology procedures: angiographic products, thrombolytic products, image-guided vascular access products, angioplasty products, stents, and drainage products. Collectively these products are classified as the AngioDynamics products industry segment. See "Narrative Description of Business". During 2000, AngioDynamics product sales, net of intersegment eliminations, decreased 1%. International sales decreased 32% due, in large part, to a continued decline in stent sales. Domestic sales increased 5% as a result of the introduction of several new products, namely Abscession(TM) fluid drainage catheters, VistaFlex(TM) platinum biliary stents, and Workhorse(TM) PTA balloon catheters, in the second quarter of 2000. On July 27, 2000, AngioDynamics entered into two agreements to sell all the capital stock of AngioDynamics Ltd., a wholly-owned subsidiary, and certain other assets to AngioDynamics Ltd.'s management. AngioDynamics Ltd., located in -3- Ireland, manufactured cardiovascular and interventional radiology products. The aggregate consideration paid was $3,250,000 in cash. The sale was the culmination of AngioDynamics' strategic decision to exit the cardiovascular market and to focus entirely on the interventional radiology marketplace. The gain resulting from this sale will not be material to the financial position and results of operations for the quarter ended September 2, 2000. Further, AngioDynamics entered into a manufacturing agreement, a distribution agreement and a royalty agreement with the buyer. Under the two-year manufacturing agreement, the buyer will manufacture certain interventional radiology products sold by AngioDynamics. Unless the context requires otherwise, all references herein to a particular year are references to the Company's fiscal year. (b) Financial Information About Industry Segments --------------------------------------------- The Company is engaged in the manufacture and distribution of a wide variety of products that are classified into two industry segments: Diagnostic products and AngioDynamics products. Diagnostic products encompass both contrast systems, consisting of barium sulfate formulations and related medical devices used in X-ray, CT-scanning, ultrasound and Magnetic Resonance Imaging ("MRI") imaging examinations, and non-contrast systems, including radiological medical devices, custom contract pharmaceuticals, gastrointestinal cleansing laxatives, X-ray protection equipment, and immunoassay tests. AngioDynamics products include angiographic, thrombolytic, image-guided vascular access, angioplasty, stents, and drainage medical devices used in the interventional radiology 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 --------------------------------- Diagnostic Products ------------------- Diagnostic products include both contrast systems, consisting of barium sulfate formulations and related medical devices used in X-ray, CT-scanning and other imaging examinations, and non-contrast systems, including radiological medical 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 38 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, CO2 or air is used to distend the G.I. tract after -4- 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 fill and thus identify the G.I. tract. 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 disposable dispensing containers. The Company believes that it currently has the broadest barium sulfate product line of any worldwide manufacturer and is continuing to develop additional formulations for modern X-ray techniques. E-Z-EM also sells accessory medical devices for use in contrast system procedures, including empty enema administration kits and components. Sales of contrast systems increased 8% during 2000 as compared to 1999. 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: radiological medical devices, custom contract pharmaceuticals, gastrointestinal cleansing laxatives, X-ray protection equipment, and immunoassay tests. Sales of non-contrast systems increased 2% during 2000 as compared to 1999. The Company's line of radiological medical devices include electromechanical injectors and syringes, needles, trays and ancillary devices used during a variety of radiologic and ultrasound procedures. This product grouping includes the PercuPump Touchscreen(TM) with EDA(TM) 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 a disposable EDA detector patch. Other radiological medical 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 wholly- owned Canadian subsidiary. Pharmaceuticals include products for dermatology, cough and cold medicines, liquid vitamins, antacids and sun screen lotions and creams. Cosmetic products include skin care products, namely anti-aging and moisturizers. E-Z-EM Canada has a long-term agreement with O'Dell Engineering Ltd. ("O'Dell") of Cambridge, Ontario, Canada, to commercialize a decontamination lotion for chemical warfare agents. The product line, known as Reactive Skin Decontaminant Lotion ("RSDL"), is currently marketed to the defense sector. 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 decontamination lotion which neutralizes and destroys chemical warfare agents. 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 -5- 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 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 Primary Care Division of Beckman Coulter, Inc. ("Beckman"), with whom EPI co-developed the serum and whole blood tests, also markets its version of the product under the name FlexSure(TM) HP in the U.S. and other selected territories. 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. Significant Customers Sales to Marconi Medical Systems, Inc. (formally Picker International, Inc.) and Diagnostic Imaging Inc., which are distributors of the Company's Diagnostic products, were 18% and 12%, respectively, of total net sales during 2000. AngioDynamics Products ---------------------- The Company, through its wholly-owned subsidiary, AngioDynamics, designs, develops, manufactures and markets a variety of differentiated products and systems for the worldwide interventional radiology marketplace, which is the practice of medicine using both traditional and new imaging procedures to perform minimally invasive diagnostic and therapeutic surgical procedures. The Company believes that the interventional radiology market is growing dramatically. This is due, in large part, to the less invasive aspects of interventional radiology 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 radiology procedures are often -6- 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 more traditional surgical procedures. Interventional radiology procedures also typically can 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 more traditional surgical procedures. The Company expects the number of interventional radiology 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 imaging and device technology should further expand the application of interventional radiology procedures. Angiographic Products Angiographic 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" and "venograms", which provide images of the human peripheral vasculature and blood flow. The Company manufactures three lines of angiographic catheters, Soft-Vu(TM), Memory-Vu(TM), and ANGIOPTIC(TM), suitable for diagnosing the peripheral human vascular system. These catheters 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., the European community, Japan and elsewhere throughout the world. 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's ANGIOPTIC catheter line is distinguished from other catheters because the entire catheter is highly visible under fluoroscopy. The catheter is constructed using 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 radiology procedure. These products are designed to meet the 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, physicians 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 draws 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 has secured patents on its bloodless needle technology. All of the Company's fluid management products are cleared for sale in the U.S., the European community, Japan and elsewhere throughout the world. -7- 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 has not applied for FDA clearance for the CO2Ject, and, in the event that the Company does, there can be no assurance that such clearance will be obtained at all. Thrombolytic 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., the European community, Japan and elsewhere throughout the world. The Pulse*Spray Injector is designed to be used in conjunction with AngioDynamics' other thrombolytic 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. 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., the European community and elsewhere throughout the world. The Company believes that the Pulse*Spray Injector provides the first viable treatment for dissolving deep vein clots ("DVT's") in a wide patient population. 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. Image-Guided Vascular Access Products The Company's image-guided vascular access products are marketed under the AVA(TM) trade name and include the Schon catheter, the Schon XL catheter, peripherally inserted central catheters ("PICC's"), implanted medication ports ("Port's") and central venous catheters. The AVA(TM) trade name stands for "AngioDynamics Vascular Access" and is the Company's banner for an initiative into the market for image-guided vascular access. Precise placement of vascular access devices has become a significant part of the practice of interventional radiology primarily due to the mastery of high quality imaging equipment including fluoroscopy and ultrasound. These devices are used to provide a dialysis conduit, and to deliver nutrition, antibiotics and chemotherapy drugs. Mixing these fluids in a high blood flow -8- near the heart reduces damage to the venous system and more rapidly distributes these drugs through the body. The Company believes image-guided vascular access ("IGVA") is the most rapidly growing procedure that is performed by interventional radiologists. Angioplasty Products In 2000, the Company introduced a new percutaneous transluminal angioplasty ("PTA") balloon catheter, the Workhorse(TM). This high-pressure balloon is positioned to perform nearly 80% of all PTA procedures at a very economical price. The product is offered in 54 configurations. The product is cleared for sale in the U.S., the European community and elsewhere throughout the world. The Company is pursuing vigorous sales and marketing efforts. Stents 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 patented stent for biliary and peripheral vascular 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. The stent is also unique in that it can be easily imaged using MRI guidance, thus permitting the use of non-invasive MRI in place of the more invasive fluoroscopic imaging that other stents require. During 1999, the FDA granted AngioDynamics a 510(k) clearance to market the VISTAFLEX stent for the treatment of 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 is marketed internationally for peripheral vascular and biliary stricture applications. 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, but there can be no assurance that such clearance will be obtained. Drainage Products In 2000, the Company introduced a new line of fluid drainage catheters, trade named Abscession(TM). These catheters are intended to drain abscesses, chest fluid, pancreatitis fluid, and urine percutaneously from the body. This product line features a soft catheter material that is intended to be more comfortable for the patient. The catheter material also recovers its shape if bent or severely deformed; these events are common as patients roll over and kink the catheters during sleep. Drainage procedures are routinely performed by interventional radiologists using fluoroscopy, CT or ultrasound guidance. Coronary Products The Company made a strategic decision to exit the market for coronary products in order to focus entirely on the interventional radiology marketplace. -9- This decision culminated in the sale, on July 27, 2000, of AngioDynamics Ltd., the Irish subsidiary that manufactured the Company's coronary products. Marketing --------- The Company believes that the success of its barium sulfate products is primarily due to its ability to create contrast systems with specific, sophisticated barium formulations for varying radiologic needs. E-Z-EM continues to develop new barium sulfate products, including products for CT-scanning and MRI procedures. E-Z-EM's contrast systems, laxatives, X-ray protection equipment and radiological medical devices, such as syringes, biopsy needles and trays, are marketed to radiologists and hospitals in the U.S. through approximately 170 distributors, supported by 29 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 126 distributors, including wholly-owned subsidiaries in Canada, the United Kingdom, Japan and Holland. Significant sales are made in Canada, the United Kingdom, Japan, Italy, Holland, Austria, Sweden, Germany, South Africa and Australia. Foreign distributors are generally granted exclusive distribution rights and hold governmental product registrations in their names, although new registrations are currently being filed in the Company's name where permissible by applicable law. The Company's AngioDynamics products are marketed to interventional radiologists. Domestic sales are supported by 21 direct sales employees, while the international marketing effort is conducted through 50 distributors, including three wholly-owned subsidiaries. Foreign distributors are generally granted exclusive distribution rights on a country-by-country basis. Competition ----------- Based upon sales, E-Z-EM contrast systems are the most widely used diagnostic imaging products of their kind in the U.S., Canada and certain European countries. The Company faces competition domestically from Inovision Holdings LP (formally 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 system product lines. In electromechanical injectors and syringes, the Company's main competitors are Schering AG and Mallinckrodt, Inc. In needles and trays, -10- 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 the FDA has already cleared 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. and Guidant Corporation, among others, currently compete against the Company in the development, production and marketing of stents and stent technology. The Company's stent technology also competes against more traditional treatments. For example, 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. 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 angiographic catheters, the Company's major competitors are Cook, Inc. and Johnson & Johnson Interventional System, Co. The competitive situation in the market for thrombolytic products is complex. The first level of competition is the medical profession, where each physician can decide if an artery or graft will be cleared surgically or by thrombolysis. If thrombolysis is used, the second level of competition is for the specific type of catheter or wire that will be used. The Company's 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, which consists of a Medical/Technical Director and 39 employees, the Company has consulting arrangements with various physicians who assist through their independent research and product development. Research and development expenditures totaled $4,880,000, or 4% of net sales, in 2000, as compared to $4,847,000, or 5% of net sales, in 1999 and $5,662,000, or 6% of net sales, in 1998. The Company is committed to expansion of its product lines through research and development. Raw Materials and Supplies -------------------------- Most of the barium sulfate for contrast systems is supplied by a number of European and U.S. manufacturers, with a minor portion being supplied by E-Z-EM -11- 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 Soft-Vu angiographic catheters, thrombolytic products and VISTAFLEX are significant to its AngioDynamics business. Because patent applications are secret until patents are issued in the U.S. or corresponding applications are published in foreign countries, and because publication of discoveries in the scientific or patent literature often lags behind actual discoveries, the Company cannot be certain that it was the first to make the inventions covered by each of its pending patent applications, or that it was the first to file patent applications for such inventions. The Company also relies on trade secret protection and confidentiality agreements for certain unpatented aspects of its proprietary technology. Regulation ---------- The Company's products are registered with the FDA and with similar regulatory agencies in foreign countries where they are sold. The Company believes it is in compliance, in all material respects, with applicable regulations of these agencies. Certain of the Company's products are subject to FDA regulation as medical devices and certain other products, such as various contrast systems products and CO2Ject, are regulated as pharmaceuticals. Outside of the U.S., the regulatory process and categorization of products vary on a country-by-country basis. The Company's products are covered by Medicare, Medicaid and private healthcare insurers, subject to patient eligibility. Changes in the reimbursement policies and procedures of such insurers may affect the frequency with which such procedures are performed. The Company operates several facilities within a broad industrial area located in Nassau County, New York, which has been designated by New York State as a Superfund site. This industrial area has been listed as an inactive hazardous waste site, due to ground water investigations conducted on Long Island during the 1980's. Due to the broad area of the designated site, the potential number of responsible parties, and the lack of information concerning the degree of contamination and potential clean-up costs, it is not possible to estimate what, if any, liability exists with respect to the Company. Further, it has not -12- 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 955 persons, 185 of whom are covered by various collective bargaining agreements. Collective bargaining agreements covering 91 and 90 employees expire in December 2002 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 33% of its sales from customers outside the U.S. during 2000. 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 366 persons involved in the developing, manufacturing and marketing of products internationally. The Company's product lines are marketed through approximately 155 foreign distributors to 83 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. 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 occupies manufacturing and warehousing facilities located in Montreal, Canada consisting of two buildings, one of which is owned by the Company, containing an aggregate of 109,950 square feet. E-Z-EM Canada also leases a 29,120 square-foot building in Debert, Nova Scotia and both owns and leases land encompassing its barium sulfate mining operation. 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 either without merit, or involve such amounts that unfavorable disposition would not have a material adverse effect on the Company's financial position and results of operations. -13- Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None. -14- Part II ------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters --------------------------------------------------------------------- E-Z-EM, Inc. Class A and Class B Common Stock is traded on the American Stock Exchange ("AMEX") under the symbols "EZM.A" and "EZM.B", respectively. The following table sets forth, for the periods indicated, the high and low sale prices for the Class A and Class B Common Stock as reported by the AMEX.
Class A Class B -------------------- --------------------- High Low High Low --------- -------- --------- -------- Fifty-three weeks ended June 3, 2000 ------------------------------------ First Quarter .................... $ 6.13 $5.19 $ 6.25 $4.88 Second Quarter ................... 5.75 4.13 5.50 4.38 Third Quarter .................... 10.63 5.75 10.88 5.50 Fourth Quarter ................... 10.13 6.63 10.00 6.50 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
As of August 4, 2000 there were 204 and 342 record holders of the Company's Class A and Class B Common Stock, respectively. During fiscal 1998, the Company declared a 3% stock dividend payable in non-voting Class B Common Stock. During fiscal 1999 and 2000, no stock dividends were declared. The Company will continue to evaluate its dividend policy, including the payment of any cash dividends, on an ongoing basis. Any future dividends are subject to the Board of Directors' review of operations and financial and other conditions then prevailing. On September 1, 1999, the Company issued 10,000 shares of non-voting Class B Common Stock to Paul S. Echenberg, a director of the Company, in consideration for consulting services rendered. On November 1, 1999, the Company issued 1,000 shares of non-voting Class B Common Stock to each of the following directors of the Company in consideration for services rendered as directors: Paul S. Echenberg, James L. Katz, Donald A. Meyer and Robert M. Topol. All such shares were issued pursuant to Section 4(2) of the Securities Act of 1933. The basis upon which the exemption is claimed is that the issued shares were made only to directors of the Company. -15- Item 6. Selected Financial Data -----------------------
Fifty-three Fifty-two weeks ended weeks ended -------------------------------------------------------------- June 3, May 29, May 30, May 31, June 1, 2000 1999 1998# 1997 1996 --------- --------- --------- --------- --------- (in thousands, except per share data) Income statement data: Net sales ................................. $112,093 $107,179 $102,884 $97,324 $91,932 Gross profit .............................. 50,465 45,157 37,433 36,570 36,414 Operating profit (loss) ................... 8,599 7,242 (5,351) (4,911) 957 Earnings (loss) from continuing operations before income taxes ..................... 9,234 6,671 (5,534) (4,530) 1,940 Earnings (loss) from continuing operations ................... 5,965 4,797 (5,967) (3,208) 1,697 Net earnings (loss) ....................... 5,965 4,797 (5,967) (3,208) 21,008 Earnings (loss) from continuing operations per common share Basic (1) ............................. .60 .48 (.60) (.33) .17 Diluted (1) ........................... .58 .47 (.60) (.33) .17 Earnings (loss) per common share Basic (1) ............................. .60 .48 (.60) (.33) 2.16 Diluted (1) ........................... .58 .47 (.60) (.33) 2.04 Weighted average common shares Basic (1) ............................. 10,013 10,077 9,952 9,871 9,712 Diluted (1) ........................... 10,314 10,314 9,952 9,871 10,315 June 3, May 29, May 30, May 31, June 1, 2000 1999 1998 1997 1996 --------- --------- --------- --------- --------- (in thousands) Balance sheet data: Working capital ........................... $51,434 $48,430 $41,597 $43,115 $53,508 Cash, certificates of deposit and short- term debt and equity securities .............................. 13,634 13,289 8,129 15,475 23,610 Total assets .............................. 99,085 96,059 90,706 100,720 96,037 Long-term debt, less current maturities ...................... 453 477 606 842 680 Stockholders' equity ...................... 80,034 75,291 71,223 77,244 80,603
# 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 dividend described in Note M to the Consolidated Financial Statements included herein. -16- Item 7. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations ------------- The Company's fiscal year ended June 3, 2000 represents fifty-three weeks and the fiscal years ended May 29, 1999 and May 30, 1998 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 radiological medical 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 58% of net sales in 2000, as compared to 56% in 1999 and 57% in 1998. Non-contrast system sales accounted for 24% of net sales in 2000, as compared to 25% in 1999 and 24% in 1998. The AngioDynamics products operating segment, which includes angiographic products, thrombolytic products, image- guided vascular access products, angioplasty products, stents, and drainage products used in the interventional radiology marketplace, accounted for 18% of net sales in 2000, as compared to 19% in both 1999 and 1998.
Diagnostic AngioDynamics Eliminations Total ---------- ------------- ------------ ----- (in thousands) Fifty-three weeks ended June 3, 2000 - ------------------------------------ Unaffiliated customer sales $92,132 $19,961 - $112,093 Intersegment sales 2 1,063 ($1,065) - Gross profit 40,519 9,895 51 50,465 Operating profit (loss) 9,285 (739) 53 8,599 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)
Diagnostic Products ------------------- Diagnostic segment operating results for 2000 improved by $1,048,000 due to increased sales and improved gross profit, partially offset by increased operating expenses. Net sales increased 6%, or $5,212,000, due to price increases and increased demand for contrast systems. Price increases accounted for approximately 4% of net sales in 2000. Gross profit expressed as a percentage of net sales improved to 44% during 2000, versus 42% during 1999 due primarily to sales price increases. Increased operating expenses of $3,317,000 can be attributed to increased S&A expenses, resulting, in part, from investment in new product introductions and selling and marketing initiatives. -17- 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 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. AngioDynamics Products ---------------------- AngioDynamics segment operating results for 2000 improved by $251,000 due to improved gross profit, partially offset by increased operating expenses. Net sales decreased 1%, or $298,000, due primarily to reduced international sales of $1,199,000, partially offset by increased domestic sales of $901,000. The international sales decline resulted, in large part, from the continued decline in stent sales. The domestic sales improvement resulted from the introduction of several new products, namely Abscession(TM) fluid drainage catheters, VistaFlex(TM) platinum biliary stents, and Workhorse(TM) PTA balloon catheters, in the second quarter of 2000. Gross profit expressed as a percentage of net sales improved to 47% during 2000, as compared to 43% during 1999 due primarily to decreased provision for inventory reserves of $727,000. Increased operating expenses of $616,000 was primarily due to an expansion of the domestic sales force. AngioDynamics segment operating results for 1999 improved by $6,327,000, of which $4,121,000 resulted from the recording of an impairment charge (described in Note C to the Consolidated Financial Statements included herein) in 1998. 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 domestic market penetration of angiographic products. International sales declined 17% as a result of temporarily suspending product shipments to distributors affected by the 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. 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. Consolidated Results of Operations ---------------------------------- The Company reported net earnings of $5,965,000, or $.60 and $.58 per common share on a basic and diluted basis, respectively, for 2000, as compared to net earnings of $4,797,000, or $.48 and $.47 per common share on a basic and diluted basis, respectively, for 1999, and a net loss of $5,967,000, or ($.60) per common share on a basic and diluted basis, for 1998. 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. -18- Results for 2000 were favorably affected by increased Diagnostic sales and improved gross profit in both operating segments, partially offset by increased operating expenses in both operating segments. Results for 1999 were favorably affected by increased sales, improved gross profit and decreased operating expenses in both operating segments. Net sales increased 5%, or $4,914,000, to $112,093,000 in 2000, and increased 4%, or $4,295,000, to $107,179,000 in 1999. Net sales in 2000 were favorably affected primarily by increased sales of contrast systems of $4,684,000, resulting from price increases and increased demand. Price increases accounted for approximately 3% of net sales in 2000. 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 international markets, including direct exports from the U.S., increased less than 1%, or $219,000, to $36,844,000 in 2000 and decreased less than 1%, or $114,000, to $36,625,000 in 1999. The improvement in 2000 was due to increased sales of contrast systems of $1,778,000, partially offset by decreased sales of AngioDynamics products of $1,199,000 and non-contrast systems of $360,000. The decrease in sales of AngioDynamics products was due to the continued decline in stent sales. The decline in sales of non-contrast systems was attributable to decreased custom contract sales. 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. Gross profit expressed as a percentage of net sales was 45% in 2000, as compared to 42% in 1999 and 36% in 1998. The improvement in gross profit, expressed as a percentage of net sales, in 2000 was due to increased gross profit in the Diagnostic segment, resulting from sales price increases, and increased gross profit in the AngioDynamics segment, resulting from decreased provision for inventory reserves of $727,000. 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 was due primarily to reduced unabsorbed overhead costs. The improved AngioDynamics gross profit was 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. Selling and administrative ("S&A") expenses were $36,986,000 in 2000, $33,068,000 in 1999 and $33,001,000 in 1998. The increase in 2000 versus 1999 of $3,918,000, or 12%, was due to increased Diagnostic S&A expenses of $3,319,000, resulting, in part, from investment in new product introductions and selling and marketing initiatives, and increased AngioDynamics S&A expenses of $599,000, resulting from an expansion of its domestic sales force. There were no materially significant factors affecting the comparison of S&A expenses in 1999 versus 1998. R&D expenditures in 2000 totaled $4,880,000, or 4% of net sales, as compared to $4,847,000, or 5% of net sales, in 1999 and $5,662,000, or 6% of net sales, in 1998. There were no materially significant factors affecting the comparison of R&D expenditures in 2000 versus 1999. 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. Of the R&D expenditures in 2000, approximately 46% relate to contrast systems, 34% to AngioDynamics projects, 12% to general regulatory costs, 4% to immunological -19- projects, and 4% to other projects. R&D expenditures are expected to continue at or exceed current levels and significant revenues resulting from future product commercialization are not anticipated during the next fiscal year. 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, totaled $635,000 of income in 2000, compared to $571,000 of expense in 1999 and $183,000 of expense in 1998. The improvement in 2000 versus 1999 was primarily due to the write-down of the Company's investment in ITI Medical Technologies, Inc. ("ITI") of $1,121,000 in 1999. 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, partially offset by improved foreign currency exchange gains and losses of $259,000 and decreased interest expense, resulting from the repayment of AngioDynamics debt in 1998. Note H to the Consolidated Financial Statements included herein details the major elements affecting income taxes for 2000, 1999 and 1998. In 2000, the Company's effective tax rate of 35% differed from the Federal statutory tax rate of 34% due primarily to losses incurred in a foreign jurisdiction subject to lower tax rates and to the fact that the Company did not provide for the tax benefit on losses incurred in certain foreign jurisdictions, since it is more likely than not that such benefits will not be realized, partially offset by earnings of the Puerto Rican subsidiary, which are subject to favorable U.S. tax treatment. In 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, at that time, it was more likely than not that such benefits would 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, at that time, it was more likely than not that such benefits would 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. Liquidity and Capital Resources - ------------------------------- During 2000, capital expenditures, the purchase of treasury stock and debt repayments were funded by cash provided by operations. During 1999, capital expenditures and debt repayments were funded by cash provided by operations. During 1998, debt repayments, capital expenditures and investment in affiliate were funded primarily by cash reserves. The Company's policy has been to fund capital requirements without incurring significant debt. At June 3, 2000, debt (notes payable, current maturities of long-term debt and long-term debt) was $1,636,000 as compared to $2,503,000 at May 29, 1999. The Company has available $3,354,000 under two bank lines of credit of which no amounts were outstanding at June 3, 2000. At June 3, 2000, approximately 63% of the Company's assets consist of inventories, accounts receivable, short-term debt and equity securities, and cash and cash equivalents. The current ratio is 4.25 to 1, with net working capital of $51,434,000, at June 3, 2000, as compared to the current ratio of 3.71 to 1, with net working capital of $48,430,000, at May 29, 1999. -20- Net capital expenditures, primarily for machinery and equipment, were $3,206,000 in 2000, as compared to $2,207,000 in 1999 and $1,897,000 in 1998. Of the 2000 expenditures, approximately $703,000 relates to the upgrading of the Company's information systems at its Canadian subsidiary. No material increase in the aggregate level of capital expenditures is currently contemplated for 2001. In January 1999, the Board of Directors authorized the repurchase of up to 500,000 shares of the Company's Class B Common Stock at an aggregate purchase price of up to $2,000,000. In October 1999, the Board modified the program to include the Company's Class A Common Stock. In February 2000, the Board further modified the program to increase the aggregate purchase price of Class A and Class B Common Stock by an additional $2,000,000. As of June 3, 2000, the Company had repurchased 38,145 shares of Class A Common Stock and 313,748 shares of Class B Common Stock for approximately $2,503,000. 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. Words such as "expects," "intends," "anticipates," "plans," "believes," "seeks," "estimates," or variations of such words and similar expressions are intended to identify such forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty, including without limitation, the ability of the Company to develop its products, future actions by the FDA, results of pending or future clinical trials, 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. Effects of Recently Issued Accounting Pronouncements ---------------------------------------------------- In September 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires entities to recognize all derivatives in their financial statements as either assets or liabilities measured at fair value. SFAS No. 133 also specifies new methods of accounting for hedging transactions, prescribes the items and transactions that may be hedged and specifies detailed criteria to be met to qualify for hedge accounting. SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning after September 15, 2000. The Company currently does not use derivative instruments as defined by SFAS No. 133. If the Company continues not to use these derivative instruments by the effective date of SFAS No. 133, the adoption of this pronouncement will have no effect on the Company's results of operations or financial position. 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. There have been no material changes with respect to market risk previously disclosed in the 1999 Annual Report on Form 10-K. -21- Foreign Currency Exchange Rate Risk ----------------------------------- The Company's international subsidiaries are denominated in currencies other than the U.S. dollar. 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 aggregate change in the foreign currencies versus the U.S. dollar exchange rates of 10% at June 3, 2000, the Company's assets and liabilities would increase or decrease by $2,318,000 and $604,000, respectively, and the Company's net sales and net earnings would increase or decrease by $2,347,000 and $56,000, respectively, on an annual basis. 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 aggregate change in the foreign currencies versus the U.S. dollar exchange rates of 10% at June 3, 2000, results of operations would be favorably or unfavorably impacted by approximately $982,000 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 $7,980,000. The bonds bear interest at a floating rate established weekly. During 2000, the after-tax interest rate on the bonds approximated 3.9%. Each 100 basis point (1%) fluctuation in interest rates will increase or decrease interest income on the bonds by approximately $80,000 on an annual basis. As the Company's principal amount of fixed interest rate financing approximated $1,636,000 at June 3, 2000, a change in interest rates would not materially impact results of operations or financial position. At June 3, 2000, the Company did not maintain any variable interest rate financing. 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. -22- 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 24, 2000. The information included in the Proxy Statement under the respective headings noted below 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)...... 69 Chairman of the Board, Director Anthony A. Lombardo...... 53 President, Chief Executive Officer, Director Dennis J. Curtin......... 53 Senior Vice President - Chief Financial Officer Joseph J. Palma.......... 58 Senior Vice President - Sales and Marketing Arthur L. Zimmet......... 64 Senior Vice President - Special Projects Sandra D. Baron.......... 48 Vice President - Human Resources Craig A. Burk............ 47 Vice President - Manufacturing Joseph A. Cacchioli...... 44 Vice President - Controller Agustin V. Gago.......... 41 Vice President - International Eamonn P. Hobbs.......... 47 Vice President - AngioDynamics Division Archie B. Williams....... 49 Vice President - Imaging Products Management Terry S. Zisowitz........ 53 Vice President - Legal and Regulatory Affairs Michael A. Davis, M.D.... 59 Medical Director/Technical Director, Director Paul S. Echenberg (1).... 56 Chairman of the Board of E-Z-EM Canada, Director James L. Katz CPA, JD.... 64 Director (1)(2)(4)(5) Donald A. Meyer (3)(4)... 66 Director David P. Meyers.......... 36 Director Robert M. Topol (1)(2)... 75 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 from 1997 to April 2000. From 1990 to 1994, Mr. Stern served as Chief Executive Officer, and -23- 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. Mr. Lombardo has served as President, Chief Executive Officer and Director of the Company since April 2000. Prior to joining the Company, he served as President of ALI Imaging Systems, Inc. (radiology information management) from 1998 to April 2000. From 1996 to 1998, Mr. Lombardo served as Global Manager of the Integrated Imaging Systems business of General Electric Medical Systems. From 1994 to 1996, he served as President of the Medical business of Loral/Lockhead Martin Corp. Mr. Curtin has served as Senior Vice President - Chief Financial Officer since October 1999, and previously served as Vice President - Chief Financial Officer from 1985 to October 1999. Mr. Curtin has been an employee of the Company since 1983. Mr. Palma has served as Senior Vice President - Sales and Marketing since October 1999, and previously served as Vice President - Sales and Marketing from 1996 to October 1999, and Vice President - Sales from 1995 to 1996. Mr. Palma has been an employee of the Company since 1994. 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. 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. 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. Previously, he served as the President and Chief Executive Officer of Amerimmune Pharmaceuticals, Inc. and its wholly-owned subsidiary, Amerimmune, Inc., from February 1999 to November 1999. He is also a director of MacroChem Corp. and Amerimmune Pharmaceuticals, Inc. 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 -24- Equity Inc. (personal investment and consulting services) since 1989. He is also a director of Lallemand Inc., Cedara Software Corp., Benvest Capital Inc., Colliers MacAuley Nicholl, Huntington Mills (Canada) Ltd., ITI Medical Technologies, Inc., Flexia Corp., Fib-Pak Industries Inc., Shirmax Fashions Ltd., Med-King Systems Inc. and MacroChem Corp. The Company has investments in Cedara Software Corp. and ITI Medical Technologies, Inc. Mr. Katz has been a director of the Company since 1983. He is a founder of Lakeshore Medical Fitness, LLC (fitness and diagnostic facilities with hospitals), and has served as its Chief Executive Officer since April 2000. Previously, he had been a founder and managing director from its organization in 1995 until May 2000 of Chapman Partners LLC (investment banking). From its acquisition in 1985 until its sale in 1994, he had been the co-owner and President of Ever Ready Thermometer Co., Inc. From 1971 until 1980 and from 1983 until 1985, he held various executive positions with Baxter International and subsidiaries of Baxter International, principally that of Chief Financial Officer of Baxter International. He is also a director of Intec, Inc. and Lakeshore Management Group, LLC, as well as a member of the Board of Advisors of Jerusalem Global and The Patterson Group. Mr. Meyer has been a director of the Company since 1968. Since 1995, he has served as 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. -25- Item 11. Executive Compensation ---------------------- Summary Compensation Table The following table sets forth information concerning the compensation for services, in all capacities for 2000, 1999 and 1998, of those persons who were, during 2000, Chief Executive Officer ("CEO") (Howard S. Stern and Anthony A. Lombardo), those persons who were, at the end of 2000, each of the four most highly compensated executive officers of the Company other than the CEO, and the President of E-Z-EM Canada, who would otherwise be included in this table had he been an executive officer of the Company (collectively, the "Named Executive Officers"):
Annual Compensation Long Term Compensation -------------------------- ------------------------------------- Awards Payouts ---------------------------- ------- Other Annual Restricted All Other Name and Compensa- Stock Options LTIP Compensa- Principal Fiscal Salary Bonus tion (1) Awards ---------------- Payouts tion (4) Position Year ($) ($) ($) ($) # (2) # (3) ($) ($) --------- ------ ------ ----- --------- ---------- ------- ------ ------- --------- Howard S. Stern,........ 2000 $261,458 $89,105 None None None .2273 None $ 6,975 Chairman of the Board, 1999 250,000 83,250 None None None .2273 None 15,404 and former President and 1998 250,000 61,874 None None None .2273 None 19,609 Chief Executive Officer Anthony A. Lombardo,.... 2000 $ 41,667 None None None 300,000 None None None President and Chief Executive Officer (effective April 2000) Arthur L. Zimmet,....... 2000 $172,563 $58,809 None None None None None $ 6,838 Senior Vice President 1999 165,000 54,945 None None None None None 9,264 1998 155,000 40,283 None None None None None 8,069 Joseph J. Palma,........ 2000 $159,792 $54,457 None None 10,000 None None $ 7,830 Senior Vice President 1999 150,000 49,950 None None None None None 9,150 1998 135,000 33,247 None None None None None 6,052 Dennis J. Curtin,....... 2000 $167,333 $42,308 None None None None None $ 7,107 Senior Vice President 1999 160,000 39,996 None None None None None 8,956 1998 146,667 38,861 None None None None None 7,637 Eamonn P. Hobbs,........ 2000 $209,166 None None None None .2273 None $ 8,208 Vice President 1999 200,000 $17,481 None None None .2273 None 8,083 1998 195,000 21,923 None None None .2273 None 7,630 Pierre A. Ouimet,....... 2000 $223,844 $45,344 None None None None None $ 6,554 President of E-Z-EM 1999 181,441 47,963 None None 10,000 None None 6,395 Canada 1998 129,223 46,407 None None None None None 6,167
- ----------- (1) The Company has concluded that the aggregate amount of perquisites and other personal benefits paid to each of the Named Executive Officers for 2000, 1999 and 1998 did not exceed the lesser of 10% of such officer's total annual salary and bonus for 2000, 1999 or 1998 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 wholly-owned subsidiary of the Company. (4) For 2000, 1999 and 1998, includes for each of the Named Executive Officers, except Mr. Ouimet, the amounts contributed by the Company under the Profit-Sharing Plan and, as matching contributions, under the companion 401(k) Plan. For Mr. Ouimet, represents amounts contributed by E-Z-EM Canada under a defined contribution plan. For 1999 and 1998, also includes for Howard S. Stern fees of $6,000 and $12,000, respectively, relating to attendance at AngioDynamics directors' meetings. -26- Option/SAR Grants Table The following table sets forth certain information concerning stock option grants made during 2000 to the Named Executive Officers. These grants are also reflected in the Summary Compensation Table. In accordance with SEC disclosure rules, the hypothetical gains or "option spreads" for each option grant are shown based on compound annual rates of stock price appreciation of 5% and 10% from the grant date to the expiration date. The assumed rates of growth are prescribed by the SEC and are for illustrative purposes only; they are not intended to predict future stock prices, which will depend upon market conditions and the Company's future performance. The Company did not grant any stock appreciation rights during 2000.
Potential Realizable Value at Assumed Annual Rates of Stock Individual Grants Price Appreciation for Option Term - ------------------------------------------------------------------------ -------------------------------------- Number of % of Total Securities Options 5% 10% Underlying Granted to Exercise ------------------ ----------------- Options Employees in or Base Stock Potential Stock Potential Granted Fiscal Year Price Expiration Price Value Price Value Name (#) 2000 ($/Sh) Date ($/Sh) $ ($/Sh) $ ---- ---------- ----------- -------- ---------- ------ --------- ------ --------- Howard S. Stern....... .2273 (1) 3.2% (2) $40,000(3) 6/02/10 $65,156 $5,717 $103,750 $14,489 Anthony A. Lombardo... 300,000 (4) 63.5% (5) $8.50(6) 4/02/10 $13.85 $1,603,681 $22.05 $4,064,043 Arthur L. Zimmet...... None Joseph J. Palma....... 10,000 (4) 2.1% (5) $5.63(6) 7/28/09 $9.16 $35,375 $14.59 $89,648 Dennis J. Curtin...... None Eamonn P. Hobbs....... .2273 (1) 3.2% (2) $40,000(3) 6/02/10 $65,156 $5,717 $103,750 $14,489 Pierre A. Ouimet...... None
- ----------- (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 2000 and exercisable in Class B Common Stock of AngioDynamics, Inc. (3) The options granted during 2000 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, and expire in ten years. A total of 136.36 shares of AngioDynamics Class B Common Stock may be issued under this plan. (4) Options are exercisable in Class B Common Stock of the Company. Options granted to Mr. Lombardo are exercisable 25% per year over four years from the date of grant. Options granted to Mr. Palma are exercisable 33 1/3% per year over three years from the date of grant. (5) Represents the percentage of total options granted to employees during 2000 and exercisable in Class B Common Stock of the Company. (6) The options granted during 2000 have an exercise price not less than the fair market value of the Class B Common Stock of the Company on the date of grant, and expire in ten years. -27- Aggregated Option Exercises and Fiscal Year-End Option Value Table The following table sets forth certain information concerning all exercises of stock options during 2000 by the Named Executive Officers and the fiscal year-end value of unexercised stock options on an aggregated basis:
Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options at Options at June 3, 2000 June 3, 2000 (#) ($) (1) ------------- ------------- Shares Value Exercisable/ Exercisable/ Acquired on Realized Unexercisable Unexercisable Name Exercise (#) ($) (2) (2) ---- ------------ --------- ------------- ------------- Howard S. Stern.... None None 78,786/ $179,607/ None None Anthony A. Lombardo None None None/ None/ 300,000 None Arthur L. Zimmet... None None 50,884/ $106,498/ None None Joseph J. Palma.... None None 31,307/ $54,232/ 6,667 $5,834 Dennis J. Curtin... None None 50,556/ $111,867/ None None Eamonn P. Hobbs.... None None 39,595/ $82,120/ None None Pierre A. Ouimet... None None 34,906 $66,085/ 3,334 $2,917
- -------------------- (1) Options are "in-the-money" if on June 3, 2000, the market price of the stock exceeded the exercise price of such options. At June 3, 2000, the closing price of the Company's Class A and Class B Common Stock was $6.88 and $6.50, respectively. The value of such options is calculated by determining the difference between the aggregate market price of the stock covered by the options on June 3, 2000 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 the following compensation: a retainer of $15,000; a fee of $1,000 for each regular board meeting attended; a fee of $250 for each telephonic board meeting attended; 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 -28- of grant. Directors, who serve on committees of the Company and who are not employees 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. Employment Contracts During 1994, the Company entered into an employment contract with Howard S. Stern in his capacity as Chairman of the Board. This employment contract is for a term of eight years at an annual compensation currently of $262,500. During 2000, the Company entered into an employment contract with Anthony A. Lombardo in his capacity as President and Chief Executive Officer. This employment contract provides for annual base salary of $250,000. The contract is cancellable at any time by either the Company or Mr. Lombardo, but provides for severance pay of one years base salary in the event of termination by the Company without cause, as defined in the contract. A copy of this employment contract has been attached as Exhibit 10(e). 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 4, 2000, 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 23.8 Chairman of the Board, Director 717 Main Street Westbury, NY 11590 Betty S. Meyers,.................. 820,806 20.4 401 Emerald Street New Orleans, LA 70124 David P. Meyers,.................. 311,551 (1) 7.8 Director 1220 Pasadena Avenue Atlanta, GA 30306 -29- Name and Address of Shares Percent of Beneficial Owner Beneficially Owned Class ---------------- ------------------ ----- Jonas I. Meyers,.................. 311,551 (2) 7.8 904 Oakland Avenue Ann Arbor, MI 48104 Stuart J. Meyers,................. 311,551 (3) 7.8 434 Bellaire Drive New Orleans, LA 70124 Dimensional Fund Advisors, Inc.,.. 238,575 (4) 5.9 1299 Ocean Avenue Santa Monica, CA 90401 Wellington Management Company,.... 219,258 (4) 5.5 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. (4) Information was derived from a Schedule 13G dated December 31, 1999. The following table sets forth information, as of August 4, 2000, as to the beneficial ownership of the Company's voting Class A and non-voting Class B Common Stock, by (i) each of the Company's directors, (ii) each of the Company's Named Executive Officers, and (iii) all directors and executive officers of the Company as a group:
Class A Class B --------------------------- --------------------------- Shares Percent Shares Percent Name of Beneficially of Beneficially of Beneficial Owner Owned (1) Class Owned (2) Class ---------------- ------------ ------- ------------ ------- Howard S. Stern,........... 956,412 23.8 1,228,169 20.5 Chairman of the Board, Director David P. Meyers,........... 311,551 (3) 7.8 615,439 (4) 10.4 Director Arthur L. Zimmet,.......... 28,750 * 90,784 1.5 Senior Vice President Robert M. Topol,........... 24,694 * 68,336 1.2 Director Paul S. Echenberg,......... 1,694 * 87,900 1.5 Chairman of the Board of E-Z-EM Canada, Director Donald A. Meyer,........... 18,873 * 44,865 * Director
-30-
Class A Class B --------------------------- --------------------------- Shares Percent Shares Percent Name of Beneficially of Beneficially of Beneficial Owner Owned (1) Class Owned (2) Class ---------------- ------------ ------- ------------ ------- James L. Katz,............. 1,719 * 56,166 * Director Dennis J. Curtin,.......... 2,052 * 53,382 * Senior Vice President Michael A. Davis, M.D.,.... None * 39,786 * Medical Director/Technical Director, Director Eamonn P. Hobbs,........... 50 * 39,604 * Vice President Pierre A. Ouimet,.......... 500 * 34,936 * President of E-Z-EM Canada Joseph J. Palma,........... None * 31,307 * Senior Vice President Anthony A. Lombardo,....... None * None * President, Chief Executive Officer, Director All directors and executive officers as a group (18 persons).................. 1,345,795 (3) 33.5 2,495,128 (4) 38.3
- ---------------- * 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 4, 2000 as follows: Robert M. Topol (1,194), Paul S. Echenberg (1,194), Donald A. Meyer (1,194), James L. Katz (1,194) and all directors and executive officers as a group (4,776). (2) Includes Class B Common Stock shares issuable upon exercise of options currently exercisable or exercisable within 60 days from August 4, 2000 as follows: Howard S. Stern (78,786), David P. Meyers (2,000), Arthur L. Zimmet (50,884), Robert M. Topol (31,444), Paul S. Echenberg (75,210), Donald A. Meyer (19,272), James L. Katz (53,355), Dennis J. Curtin (50,556), Michael A. Davis, M.D. (39,091), Eamonn P. Hobbs (39,595), Pierre A. Ouimet (34,906), Joseph J. Palma (31,307) and all directors and executive officers as a group (610,890). (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 in which Mr. Meyers has an interest. -31- 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 $167,000 during 2000. 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. At June 3, 2000, the cash surrender value of such policies aggregated $474,000, and advances of $600,000 are recorded in the consolidated balance sheet under the caption "Other Assets". The Company had an unsecured, two-year interest bearing note receivable from Eamonn P. Hobbs, an executive officer of the Company, in the principal amount of $320,000. Approximately $297,000 of this note receivable was satisfied in October 1999, while the remaining portion was satisfied during June 2000. The Company has engaged Michael A. Davis, M.D., a director of the Company, for consulting services. Fees for such services were approximately $165,000 during 2000. The Company engaged Paul S. Echenberg, a director of the Company, for consulting services in 2000. Fees for such services, including fees relating to attendance at directors' meetings, were approximately $62,000 in cash and 11,000 shares of non-voting Class B Common Stock valued at $55,000 during 2000. The Company has engaged David P. Meyers, a director of the Company, for consulting services. Fees for such services, including fees relating to attendance at directors' meetings, were approximately $100,000 during 2000. -32- 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 - June 3, 2000 and May 29, 1999 37 Consolidated statements of earnings - fifty-three weeks ended June 3, 2000 and fifty-two weeks ended May 29, 1999 and May 30, 1998 39 Consolidated statement of stockholders' equity and comprehensive income (loss) - fifty-three weeks ended June 3, 2000 and fifty-two weeks ended May 29, 1999 and May 30, 1998 40 Consolidated statements of cash flows - fifty-three weeks ended June 3, 2000 and fifty-two weeks ended May 29, 1999 and May 30, 1998 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) 10(e) Employment Agreement dated April 3, 2000 between E-Z-EM, Inc. and Anthony A. Lombardo 68 -33- Page ---- (a) 3. Exhibits (continued) ------------------- 13 Annual report to security holders (g) 21 Subsidiaries of the Registrant 78 22 Proxy statement to security holders (h) 23 Consent of Independent Certified Public Accountants 79 27 Financial Data Schedule 80 99 Report of Independent Certified Public Accountants Other than Principal Accountants 81 - --------------- (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 of the Company's quarterly report filed on Form 10-Q for the quarterly period ended February 26, 2000 (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 June 3, 2000. 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- 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 30, 2000 /s/ Howard S. Stern ------------------- ----------------------------------- Howard S. Stern, Chairman of the Board, Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date August 30, 2000 /s/ Howard S. Stern ------------------- ----------------------------------- Howard S. Stern, Chairman of the Board, Director Date August 30, 2000 /s/ Anthony A. Lombardo ------------------- ----------------------------------- Anthony A. Lombardo, President, Chief Executive Officer, Director Date August 30, 2000 /s/ Dennis J. Curtin ------------------- ----------------------------------- Dennis J. Curtin, Senior Vice President - Chief Financial Officer Date August 30, 2000 /s/ Michael A. Davis ------------------- ----------------------------------- Michael A. Davis, Director Date August 26, 2000 /s/ Paul S. Echenberg ------------------- ----------------------------------- Paul S. Echenberg, Director Date August 30, 2000 /s/ James L. Katz ------------------- ----------------------------------- James L. Katz, Director Date August 24, 2000 /s/ Donald A. Meyer ------------------- ----------------------------------- Donald A. Meyer, Director Date August 30, 2000 /s/ David P. Meyers ------------------- ----------------------------------- David P. Meyers, Director Date August 30, 2000 /s/ Robert M. Topol ------------------- ----------------------------------- Robert M. Topol, Director -35- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors E-Z-EM, Inc. We have audited the accompanying consolidated balance sheets of E-Z-EM, Inc. and Subsidiaries as of June 3, 2000 and May 29, 1999, and the related consolidated statements of earnings, stockholders' equity and comprehensive income (loss), and cash flows for the fifty-three weeks ended June 3, 2000 and the fifty-two weeks ended May 29, 1999 and May 30, 1998. 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 2000 and 1999 and net sales constituting approximately 12% in 2000, 1999 and 1998 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 auditing standards generally accepted in the United States of America. 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 June 3, 2000 and May 29, 1999, and the consolidated results of their operations and their consolidated cash flows for the fifty-three weeks ended June 3, 2000 and the fifty-two weeks ended May 29, 1999 and May 30, 1998 in conformity with accounting principles generally accepted in the United States of America. 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 28, 2000 -36- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands) June 3, May 29, ASSETS 2000 1999 ------ ------ CURRENT ASSETS Cash and cash equivalents $ 5,583 $ 8,073 Debt and equity securities 8,051 5,216 Accounts receivable, principally trade, net of allowance for doubtful accounts of $853 in 2000 and $1,028 in 1999 22,256 21,904 Inventories 26,856 26,974 Other current assets 4,530 4,151 ------ ------ Total current assets 67,276 66,318 PROPERTY, PLANT AND EQUIPMENT - AT COST, less accumulated depreciation and amortization 21,721 21,325 COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED, less accumulated amortization of $251 in 2000 and $464 in 1999 407 424 INTANGIBLE ASSETS, less accumulated amortization of $959 in 2000 and $870 in 1999 2,151 2,328 DEBT AND EQUITY SECURITIES 4,067 3,015 OTHER ASSETS 3,463 2,649 ------ ------ $99,085 $96,059 ====== ====== The accompanying notes are an integral part of these statements. -37- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) June 3, May 29, LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999 ------ ------ CURRENT LIABILITIES Notes payable $ 1,080 $ 1,829 Current maturities of long-term debt 103 197 Accounts payable 6,384 7,320 Accrued liabilities 7,798 7,736 Accrued income taxes 477 806 ------ ------ Total current liabilities 15,842 17,888 LONG-TERM DEBT, less current maturities 453 477 OTHER NONCURRENT LIABILITIES 2,756 2,403 ------ ------ Total liabilities 19,051 20,768 ------ ------ COMMITMENTS AND CONTINGENCIES 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 4,015,111 shares in 2000 and 4,035,346 shares in 1999 (excluding 38,145 shares held in treasury in 2000) 401 403 Class B (non-voting), par value $.10 per share - authorized, 10,000,000 shares; issued and outstanding 5,909,277 shares in 2000 and 6,058,277 shares in 1999 (excluding 313,748 and 12,100 shares held in treasury in 2000 and 1999, respectively) 591 606 Additional paid-in capital 20,521 21,917 Retained earnings 59,852 53,887 Accumulated other comprehensive income (loss) (1,331) (1,522) ------ ------ Total stockholders' equity 80,034 75,291 ------ ------ $ 99,085 $ 96,059 ====== ====== The accompanying notes are an integral part of these statements. -38- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share data)
Fifty-three Fifty-two weeks ended weeks ended ----------------------- June 3, May 29, May 30, 2000 1999 1998 ------ ------ ------ Net sales $112,093 $107,179 $102,884 Cost of goods sold 61,628 62,022 65,451 ------- ------- ------- Gross profit 50,465 45,157 37,433 ------- ------- ------- Operating expenses Selling and administrative 36,986 33,068 33,001 Research and development 4,880 4,847 5,662 Impairment of long-lived assets 4,121 ------- ------- ------- Total operating expenses 41,866 37,915 42,784 ------- ------- ------- Operating profit (loss) 8,599 7,242 (5,351) Other income (expense) Interest income 716 505 692 Interest expense (253) (263) (694) Write-down of investment in affiliate (1,121) (219) Other, net 172 308 38 ------- ------- ------- Earnings (loss) before income taxes 9,234 6,671 (5,534) Income tax provision 3,269 1,874 433 ------- ------- ------- NET EARNINGS (LOSS) $ 5,965 $ 4,797 $ (5,967) ======= ======= ======= Earnings (loss) per common share Basic $ .60 $ .48 $ (.60) ======= ======= ======= Diluted $ .58 $ .47 $ (.60) ======= ======= =======
The accompanying notes are an integral part of these statements. -39- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) Fifty-three weeks ended June 3, 2000 and fifty-two weeks ended May 29, 1999 and May 30, 1998 (in thousands, except share data)
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) --------- ------ --------- ------ ------- ------- ------------- ------- -------- 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 options 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 Exercise of stock options 17,910 2 137,373 13 807 822 Income tax benefits on stock options exercised 119 119 Compensation related to stock option plans 5 5 Issuance of stock 15,275 2 74 76 Purchase of treasury stock (38,145) (4) (301,648) (30) (2,401) (2,435) Net earnings 5,965 5,965 $5,965 Unrealized holding gain on debt and equity securities 871 871 871 Foreign currency translation adjustments (680) (680) (680) --------- --- --------- --- ------ ------ ----- ----- ----- Comprehensive income $6,156 ===== Balance at June 3, 2000 4,015,111 $401 5,909,277 $591 $20,521 $59,852 $(1,331) $80,034 ========= === ========= === ====== ====== ====== ======
The accompanying notes are an integral part of this statement. -40- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Fifty-three Fifty-two weeks ended weeks ended --------------------- June 3, May 29, May 30, 2000 1999 1998 ------ ------ ------ Cash flows from operating activities: Net earnings (loss) $ 5,965 $ 4,797 $ (5,967) Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities Depreciation and amortization 2,803 2,829 3,315 Impairment of long-lived assets 4,121 Provision for doubtful accounts 37 250 286 Write-down of investment in affiliate 1,121 219 Loss (gain) on sale of assets 39 (11) Deferred tax benefit (40) (735) (64) Other non-cash items 75 30 7 Changes in operating assets and liabilities Accounts receivable (389) (806) (4,663) Inventories 118 (210) 587 Other current assets (334) (251) 1,565 Other assets (814) (35) (588) Accounts payable (936) 1,055 97 Accrued liabilities 62 778 127 Accrued income taxes (360) 183 310 Other noncurrent liabilities 162 146 (21) ------ ------ ------ Net cash provided by (used in) operating activities 6,349 9,191 (680) ------ ------ ------ Cash flows from investing activities: Additions to property, plant and equipment (3,206) (2,207) (1,897) Investment in affiliate (1,340) Proceeds from disposal of business 510 Proceeds from sale of assets 33 8 50 Available-for-sale securities Purchases (36,845) (34,061) (12,290) Proceeds from sale 34,010 32,320 19,806 ------ ------ ------ Net cash (used in) provided by investing activities (6,008) (3,940) 4,839 ------ ------ ------
The accompanying notes are an integral part of these statements. -41- E-Z-EM, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (in thousands)
Fifty-three Fifty-two weeks ended weeks ended --------------------- June 3, May 29, May 30, 2000 1999 1998 ------ ------ ------ Cash flows from financing activities: Repayments of debt $(1,100) $(2,670) $(7,704) Proceeds from issuance of debt 26 1,072 3,619 Proceeds from exercise of stock options, including related income tax benefits 941 311 569 Purchase of treasury stock (2,435) (68) Proceeds from issuance of stock in connection with the stock purchase plan 6 7 6 ------ ------ ------ Net cash used in financing activities (2,562) (1,348) (3,510) ------ ------ ------ Effect of exchange rate changes on cash and cash equivalents (269) (484) (479) ------ ------ ------ (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,490) 3,419 170 Cash and cash equivalents Beginning of year 8,073 4,654 4,484 ------ ------ ------ End of year $5,583 $8,073 $4,654 ===== ===== ===== Supplemental disclosures of cash flow information: Cash paid (refunded) during the year for: Interest $ 95 $ 154 $ 650 ===== ===== ===== Income taxes (net of $16, $218 and $1,337 in refunds in 2000, 1999 and 1998, respectively) $ 3,577 $ 2,153 $ (762) ===== ===== =====
The accompanying notes are an integral part of these statements. -42- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 3, 2000, May 29, 1999 and May 30, 1998 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. Through 1999, 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 (see Note Q). Fiscal Year ----------- The Company reports on a fiscal year which concludes on the Saturday nearest to May 31. Fiscal year 2000 ended on June 3, 2000 for a reporting period of fifty-three weeks and fiscal years 1999 and 1998 ended on May 29, 1999 and May 30, 1998, 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 Eurodollar investments and certificates of deposit of $4,575,000 and $5,089,000 at June 3, 2000 and May 29, 1999, respectively. The carrying amount of these financial instruments reasonably approximates fair value because of their short maturity. Foreign-denominated cash and cash equivalents aggregated $1,960,000 and $1,116,000 at June 3, 2000 and May 29, 1999, respectively. -43- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 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 $2,610,000, $2,595,000 and $2,827,000 in 2000, 1999 and 1998, 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, $16,000 and $17,000 in 2000, 1999 and 1998, respectively. Intangible Assets ----------------- Intangible assets are being amortized on a straight-line basis over the estimated useful lives of the respective assets ranging from approximately eight to fifteen years. Amortization of intangible assets was $177,000, $218,000 and $471,000 in 2000, 1999 and 1998, 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). Revenue Recognition ------------------- The Company recognizes revenues as products are shipped to customers. -44- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Advertising ----------- All costs associated with advertising are expensed when incurred. Advertising expense, included in selling and administrative expenses, was $1,103,000, $1,074,000 and $900,000 in 2000, 1999 and 1998, respectively. 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 -------------------------------- 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, as their effects were anti-dilutive. The following table sets forth the reconciliation of the weighted average number of common shares: 2000 1999 1998 ------ ------ ------ Basic 10,012,973 10,077,445 9,952,482 Effect of dilutive securities (stock options) 301,198 236,644 ---------- ---------- --------- Diluted 10,314,171 10,314,089 9,952,482 ========== ========== ========= -45- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The weighted average number of common shares and the per share amounts for all periods presented have been retroactively restated to reflect the total shares issued after the 3% stock dividends described in Note M. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at year-end and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Effects of Recently Issued Accounting Pronouncements ---------------------------------------------------- In September 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires entities to recognize all derivatives in their financial statements as either assets or liabilities measured at fair value. SFAS No. 133 also specifies new methods of accounting for hedging transactions, prescribes the items and transactions that may be hedged and specifies detailed criteria to be met to qualify for hedge accounting. SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning after September 15, 2000. The Company currently does not use derivative instruments as defined by SFAS No. 133. If the Company continues not to use these derivative instruments by the effective date of SFAS No. 133, the adoption of this pronouncement will have no effect on the Company's results of operations or financial position. NOTE B - COMPREHENSIVE INCOME (LOSS) During 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 established 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). The 1998 financial statements have been reclassified to conform to the requirements of SFAS No. 130. -46- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 NOTE B - COMPREHENSIVE INCOME (LOSS) (continued) The components of comprehensive income (loss), net of related tax, are as follows:
2000 1999 1998 ------ ------ ------ (in thousands) Net earnings (loss) $ 5,965 $ 4,797 $(5,967) Unrealized holding gain (loss) on debt and equity securities, net of income tax provision of $183, $1,118 and $6 in 2000, 1999 and 1998, respectively 871 (151) 12 Foreign currency translation adjustments (680) (858) (646) ------ ------ ------ Comprehensive income (loss) $ 6,156 $ 3,788 $(6,601) ====== ====== ======
The components of accumulated other comprehensive income (loss), net of related tax, are as follows:
June 3, May 29, 2000 1999 ------ ------ (in thousands) Unrealized holding gain on debt and equity securities, net of income tax liability of $387 and $204 at June 3, 2000 and May 29, 1999, respectively $ 2,064 $ 1,193 Cumulative translation adjustments (3,395) (2,715) ------ ------ Accumulated other comprehensive income (loss) $(1,331) $(1,522) ====== ======
NOTE C - ASSET IMPAIRMENT CHARGE 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 acquisition of Leocor, Inc. 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 impairment 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. -47- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 NOTE D - INVESTMENT IN AFFILIATE AND IMPAIRMENT CHARGE In 1998, 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 earnings under the caption "Write-down of investment in affiliate". NOTE E - DEBT AND EQUITY SECURITIES Debt and equity securities at June 3, 2000 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 with maturities Due in 1 through 10 years $ 90 $ 90 Due after 10 years and through 20 years 3,875 3,875 Due after 20 years 4,015 4,015 Other 71 71 ----- ----- $8,051 $8,051 ===== ===== Noncurrent ---------- Available-for-sale securities (carried on the balance sheet at fair value) Equity securities $1,615 $4,066 $2,451 Other 1 1 ----- ----- ----- $1,616 $4,067 $2,451 ===== ===== =====
-48- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 NOTE E - DEBT AND EQUITY SECURITIES (continued) 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 ===== ===== =====
NOTE F - INVENTORIES Inventories consist of the following: June 3, May 29, 2000 1999 ------- ------- (in thousands) Finished goods $13,246 $14,000 Work in process 2,813 1,926 Raw materials 10,797 11,048 ------ ------ $26,856 $26,974 ====== ====== -49- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 NOTE G - PROPERTY, PLANT AND EQUIPMENT, AT COST Property, plant and equipment are summarized as follows: Estimated useful June 3, May 29, lives 2000 1999 --------- ------ ------ (in thousands) Building and building improvements 10 to 39 years $13,613 $13,411 Machinery and equipment 2 to 10 years 31,306 28,675 Leasehold improvements Term of lease 1,619 1,740 ------ ------ 46,538 43,826 Less accumulated depreciation and amortization 28,309 25,984 ------ ------ 18,229 17,842 Land 3,492 3,483 ------ ------ $21,721 $21,325 ====== ====== NOTE H - INCOME TAXES Income tax expense analyzed by category and by income statement classification is summarized as follows: 2000 1999 1998 ------ ------ ------ (in thousands) Current Federal $2,304 $1,592 $ (159) State and local 199 204 131 Foreign 806 813 525 ----- ----- --- Subtotal 3,309 2,609 497 Deferred (40) (735) (64) ----- ----- --- Total $3,269 $1,874 $ 433 ===== ===== === -50- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 NOTE H - INCOME TAXES (continued) Temporary differences which give rise to deferred tax assets and liabilities are summarized as follows: June 3, May 29, 2000 1999 ------ ------ (in thousands) Deferred tax assets Tax operating loss carryforwards $ 1,219 $ 982 Difference between book and tax basis in investment sold to Canadian subsidiary 1,137 1,137 Tax credit carryforwards 224 356 Alternative minimum tax ("AMT") credit carryforward 4 4 Impairment of long-lived assets 1,256 1,356 Expenses incurred not currently deductible 1,184 1,171 Inventories 793 721 Deferred compensation costs 663 603 Write-down of investment in affiliate 496 496 Other 82 88 ------ ------ Gross deferred tax asset 7,058 6,914 ------ ------ Deferred tax liabilities Excess tax over book depreciation 1,061 1,026 Unrealized investment gains 387 204 Tax on unremitted profits of Puerto Rican subsidiary 124 112 Other 16 16 ------ ------ Gross deferred tax liability 1,588 1,358 Valuation allowance (4,791) (4,754) ------ ------ Net deferred tax asset $ 679 $ 802 ====== ====== In 1994, the Company sold to its Canadian subsidiary warrants to purchase 396,396 shares of stock in Cedara Software Corporation (formally 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 2005. The tax credit carryforwards will expire in various amounts over the years 2001 through 2012. -51- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 NOTE H - INCOME TAXES (continued) 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 June 3, 2000, undistributed earnings of certain foreign subsidiaries aggregated $16,644,000 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. 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 $832,000. Deferred tax assets and liabilities are included in the consolidated balance sheets as follows:
June 3, May 29, 2000 1999 ------ ------ (in thousands) Current - Other current assets $1,446 $1,401 Current - Accrued income taxes (124) (112) Noncurrent - Other noncurrent liabilities (643) (487) ----- ----- Net deferred tax asset $ 679 $ 802 ===== =====
Earnings (loss) before income taxes for U.S. and international operations consist of the following:
2000 1999 1998 ------ ------ ------ (in thousands) U.S. $7,789 $5,371 $(5,225) International 1,445 1,300 (309) ----- ----- ------ $9,234 $6,671 $(5,534) ===== ===== ======
-52- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 The Company's consolidated income tax provision has differed from the amount which would be provided by applying the U.S. Federal statutory income tax rate to the Company's earnings (loss) before income taxes for the following reasons:
2000 1999 1998 ------ ------ ------ (in thousands) Income tax provision $ 3,269 $ 1,874 $ 433 Effect of: State income taxes, net of Federal tax benefit (128) (108) (40) Research and development credit 22 27 41 Earnings of the Puerto Rican subsidiary, net of Puerto Rico Corporate tax and Tollgate tax 223 242 188 Earnings of the Foreign Sales Corporation 22 22 7 Tax-exempt portion of investment income 111 27 96 Change in valuation allowance 94 770 (1,807) Losses of foreign entities generating no current tax benefit (445) (553) (526) Nondeductible expenses (187) (148) (324) Other 159 115 50 ----- ----- ----- Income tax provision (benefit) at statutory tax rate of 34% $ 3,140 $ 2,268 $(1,882) ===== ===== ======
The Company has an agreement with the Commonwealth of Puerto Rico pursuant to which its operations in Puerto Rico are subject to a partial tax exemption which expires January 23, 2007. Commonwealth taxes are currently being provided on earnings of the subsidiary. The U.S. Federal income tax returns of the Company through May 31, 1997 have been closed by the Internal Revenue Service. -53- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 NOTE I - DEBT Notes payable consist of the following: June 3, May 29, 2000 1999 ------ ------ (in thousands) Japanese bank 2.68% note (1) $1,080 2.43% note (1) $1,111 Bank, lines of credit 6.25% (2) 718 ----- ----- $1,080 $1,829 ===== ===== Long-term debt consists of the following: June 3, May 29, 2000 1999 ------ ------ (in thousands) Japanese bank loan, due November 2007, 2.68% (1) $238 $301 Japanese bank loan, due November 2004, 1.80% (1) 298 260 Canadian bank loan, repaid November 1999, 6.75% 113 Other 20 --- --- 556 674 Less current maturities 103 197 --- --- $453 $477 === === (1) Guaranteed by the Company and collateralized by property, plant and equipment having a net carrying value of $1,914,000 at June 3, 2000. (2) The Company's Canadian subsidiary has available $1,354,000 (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, 2000. The Company also has available $2,000,000 under an unsecured line of credit with a bank, which expires on November 30, 2000. At June 3, 2000, 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 2000, 1999 and 1998, the weighted average interest rates on short-term debt were 2.71%, 3.54% and 6.38%, respectively. -54- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 NOTE J - ACCRUED LIABILITIES AND OTHER NONCURRENT LIABILITIES Accrued liabilities consist of the following: June 3, May 29, 2000 1999 ------ ------ (in thousands) Payroll and related expenses $4,565 $3,808 Accrued sales rebates 1,498 2,604 Other 1,735 1,324 ----- ----- $7,798 $7,736 ===== ===== Other noncurrent liabilities consist of the following: June 3, May 29, 2000 1999 ------ ------ (in thousands) Deferred compensation $1,792 $1,628 Deferred taxes 643 487 Other 321 288 ----- ----- $2,756 $2,403 ===== ===== 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 2000, 1999 and 1998, profit-sharing contributions were $589,000, $581,000 and $534,000, respectively, and 401(k) matching contributions were $355,000, $359,000 and $341,000, respectively. E-Z-EM also contributed $34,000, $36,000 and $42,000 in 2000, 1999 and 1998, 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 2000, 1999 and 1998, contributions were $85,000, $71,000 and $70,000, respectively. -55- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 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 2000, 1999 and 1998, aggregate rental costs under all operating leases were approximately $1,713,000, $1,743,000 and $1,325,000, respectively, of which approximately $212,000, $196,000 and $196,000, 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 June 3, 2000, are summarized as follows: Related Total party leases leases ------ ------- (in thousands) 2001 $1,198 $156 2002 927 106 2003 701 109 2004 663 101 2005 584 Thereafter 1,905 ----- --- $5,978 $472 ===== === The Company has employment contracts with two executive officers. One such contract expires November 30, 2001 and one contract is cancellable at any time, but provides for severance pay in the event such executive is terminated by the Company without cause, as defined in the contract. Aggregate minimum compensation commitments under these contracts at June 3, 2000, are summarized as follows: (in thousands) 2001 $513 2002 131 --- $644 === -56- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 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 2,617,974 shares (including 800,000 shares authorized in October 1999) 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%. In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company elected to continue to account for stock-based compensation using the "intrinsic value" method under the guidelines of APB Opinion No. 25, "Accounting for Stock Issued to Employees" as opposed to the "fair value" method contained in SFAS 123. 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, $5,000 and $7,000 in 2000, 1999 and 1998, respectively, was recognized under these plans for options granted to consultants. -57- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 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: 2000 1999 1998 ------ ------ ------ (in thousands, except per share data) Net earnings (loss) As reported $5,965 $4,797 $(5,967) Pro forma 5,317 4,345 (6,549) Basic earnings (loss) per common share As reported $.60 $.48 $(.60) Pro forma .53 .43 (.66) Diluted earnings (loss) per common share As reported $.58 $.47 $(.60) Pro forma .52 .42 (.66) 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 2000, 1999 and 1998, respectively: dividend yields of zero for all years; expected volatility ranging from 44.59% to 48.65% in 2000, from 41.32% to 48.90% in 1999 and from 43.89% to 47.30% in 1998; risk-free interest rates ranging from 5.99% to 6.89% in 2000, from 4.78% to 5.98% in 1999 and from 5.61% to 6.35% in 1998; and expected terms ranging from 5 to 9 1/2 years for all years. -58- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 NOTE M - COMMON STOCK (continued) A summary of the status of the Company's stock option plans as of June 3, 2000, May 29, 1999 and May 30, 1998, and changes for the three years then ended, is presented below:
2000 1999 1998 ---------------------- ---------------------- --------------------- Weighted Weighted Weighted -Average -Average -Average Shares Exercise Shares Exercise Shares Exercise (000) Price (000) Price (000) Price ------ -------- ------ -------- ------ -------- 1983 Plan --------- Outstanding at beginning of year 973 $ 4.99 1,002 $ 4.94 1,115 $4.90 Granted 472 $ 7.45 33 $ 5.83 Exercised (144) $ 5.42 (56) $ 4.22 (107) $4.48 Forfeited (12) $ 4.75 (3) $ 6.23 (5) $7.01 Expired (3) $10.68 (1) $8.74 ----- ----- ----- Outstanding at end of year 1,289 $ 5.84 973 $ 4.99 1,002 $4.94 ===== ===== ===== Options exercisable at year-end 796 $ 4.89 940 $ 4.96 995 $4.91 Weighted-average fair value of options granted during the year $ 3.66 $ 2.59 1984 Plan --------- Outstanding at beginning of year 301 $ 5.54 304 $ 5.51 305 $5.60 Granted 6 $ 6.50 6 $ 5.00 6 $5.88 Exercised (12) $ 3.75 (9) $ 4.22 Forfeited (2) $ 8.58 Expired (12) $ 9.55 (7) $9.53 --- --- --- Outstanding at end of year 281 $ 5.44 301 $ 5.54 304 $5.51 === === === Options exercisable at year-end 275 $ 5.42 289 $ 5.55 293 $5.47 Weighted-average fair value of options granted during the year $ 3.24 $ 2.36 $2.72
-59- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 NOTE M - COMMON STOCK (continued)
2000 1999 1998 ---------------------- ---------------------- --------------------- Weighted Weighted Weighted -Average -Average -Average Shares Exercise Shares Exercise Shares Exercise (000) Price (000) Price (000) Price ------ -------- ------ -------- ------ -------- 1997 Plan --------- Outstanding at beginning of year 129.15 $40,000 130.00 $40,000 122.39 $80,000 Granted 8.18 $40,000 1.93 $40,000 140.62 $43,022 Forfeited (1.19) $40,000 (2.78) $40,000 (133.01) $80,000 ------ ------ ------ Outstanding at end of year 136.14 $40,000 129.15 $40,000 130.00 $40,000 ====== ====== ====== Options exercisable at year-end None None None Weighted-average fair value of options granted during the year $26,427 $26,480 $24,877
The following information applies to options outstanding and exercisable at June 3, 2000:
Outstanding Exercisable ------------------------------------------- ----------------------- Weighted- Number Average Weighted- Number Weighted- Out- Remaining Average Exer- Average Range of standing Life in Exercise cisable Exercise Exercise Prices (000) Years Price (000) Price --------------- -------- --------- --------- ------- --------- 1983 Plan --------- $3.66 to $5.39 702 3.94 $4.42 702 $4.42 $5.63 to $6.00 204 9.00 $5.66 11 $5.83 $8.50 to $10.13 383 8.93 $8.56 83 $8.78 ----- --- 1,289 796 ===== === 1984 Plan --------- $3.66 to $5.49 199 4.53 $4.20 199 $4.20 $5.88 to $8.58 64 5.54 $7.74 58 $7.86 $9.58 to $12.49 18 6.12 $10.99 18 $10.99 --- --- 281 275 === ===
On June 3, 2000, there remained 531,271, 115,385 and .23 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- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 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 2000, employees purchased 1,275 shares, at $4.46 per share. Total proceeds received by the Company approximated $6,000. 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 non- voting 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 up to 500,000 shares of the Company's Class B Common Stock at an aggregate purchase price of up to $2,000,000. In October 1999, the Board modified the program to include the Company's Class A Common Stock. In February 2000, the Board further modified the program to increase the aggregate purchase price of Class A and Class B Common Stock by an additional $2,000,000. As of June 3, 2000, the Company had repurchased 38,145 shares of Class A Common Stock and 313,748 shares of Class B Common Stock for approximately $2,503,000. 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 June 3, 2000, the cash surrender value of such policies aggregated $474,000. At June 3, 2000 and May 29, 1999, advances of $600,000 and $400,000, respectively, are recorded in the consolidated balance sheets under the caption "Other Assets". -61- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 NOTE N - RELATED PARTIES (continued) The Company had an unsecured, two-year interest bearing note receivable from an executive officer in the principal amount of $320,000. Approximately $297,000 of this note receivable was satisfied in October 1999, while the remaining portion was satisfied during June 2000. Several directors provided consulting services to the Company during 2000, 1999 and 1998. Fees for such services, including fees relating to attendance at directors' meetings, were approximately $446,000, $258,000 and $298,000 during 2000, 1999 and 1998, 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 radiological medical devices, custom contract pharmaceuticals, gastrointestinal cleansing laxatives, X-ray protection equipment, and immunoassay tests. AngioDynamics products include angiographic, thrombolytic, image-guided vascular access, angioplasty, stents, and drainage medical devices used in the interventional radiology 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 2000, there were two customers to whom sales of Diagnostic products represented 18% and 12%, respectively. In 1999 and 1998, there was one customer to whom sales of Diagnostic products represented 17% and 15% of total sales, respectively. Approximately 21% and 14% of accounts receivable pertained to these customers at June 3, 2000 and approximately 20% of accounts receivable pertained to this customer at May 29, 1999. 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- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 NOTE O - OPERATING SEGMENT, GEOGRAPHIC AREA OPERATIONS AND CONCENTRATION OF CREDIT RISK (continued)
Operating Segments 2000 1999 1998 ------------------ ------ ------ ------ (in thousands) Net sales to external customers Diagnostic products Contrast systems $ 65,050 $ 60,366 $ 58,474 Non-contrast systems 27,082 26,554 25,001 -------- -------- -------- Total Diagnostic products 92,132 86,920 83,475 AngioDynamics products 19,961 20,259 19,409 -------- -------- -------- Total net sales to external customers $ 112,093 $ 107,179 $ 102,884 ======== ======== ======== Intersegment net sales Diagnostic products $ 2 $ 36 $ 91 AngioDynamics products 1,063 503 483 -------- -------- -------- Total intersegment net sales $ 1,065 $ 539 $ 574 ======== ======== ======== Interest income Diagnostic products $ 1,708 $ 1,475 $ 1,269 AngioDynamics products 12 16 20 Eliminations (1,004) (986) (597) -------- -------- -------- Total interest income $ 716 $ 505 $ 692 ======== ======== ======== Interest expense Diagnostic products $ 252 $ 263 $ 340 AngioDynamics products 1,005 986 951 Eliminations (1,004) (986) (597) -------- -------- -------- Total interest expense $ 253 $ 263 $ 694 ======== ======== ======== Depreciation and amortization Diagnostic products $ 2,124 $ 2,125 $ 2,361 AngioDynamics products 679 704 954 -------- -------- -------- Total depreciation and amortization $ 2,803 $ 2,829 $ 3,315 ======== ======== ======== Equity in losses of affiliate Diagnostic products $ -- $ 225 $ 219 -------- -------- -------- Total equity in losses of affiliate $ -- $ 225 $ 219 ======== ======== ======== Income tax provision (benefit) Diagnostic products $ 3,566 $ 2,419 $ 1,198 AngioDynamics products (297) (545) (765) -------- -------- -------- Total income tax provision $ 3,269 $ 1,874 $ 433 ======== ======== ========
-63- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 NOTE O - OPERATING SEGMENT, GEOGRAPHIC AREA OPERATIONS AND CONCENTRATION OF CREDIT RISK (continued)
Operating Segments (continued) 2000 1999 1998 ------------------------------ -------- ------- ------- (in thousands) Net earnings (loss) Diagnostic products $ 7,328 $ 5,960 $ 1,623 AngioDynamics products (1,416) (1,158) (7,568)* Eliminations 53 (5) (22) -------- -------- -------- Total net earnings (loss) $ 5,965 $ 4,797 $ (5,967) ======== ======== ======== 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 $ 111,046 $ 107,027 $ 99,846 AngioDynamics products 17,573 17,922 19,631 * Eliminations (29,534) (28,890) (28,771) -------- -------- -------- Total assets $ 99,085 $ 96,059 $ 90,706 ======== ======== ======== Capital expenditures Diagnostic products $ 2,813 $ 1,831 $ 1,745 AngioDynamics products 393 376 152 -------- -------- -------- Total capital expenditures $ 3,206 $ 2,207 $ 1,897 ======== ======== ======== Investment in affiliate Diagnostic products $ - $ - $ 1,121 -------- -------- -------- Total investment in affiliate $ - $ - $ 1,121 ======== ======== ========
* Includes an impairment charge of $4,121,000 (see Note C). -64- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 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:
2000 1999 1998 ------- ------- ------- (in thousands) Net sales U.S. operations $ 94,271 $ 89,200 $ 85,014 International operations: Canada 23,671 22,735 20,321 Other 12,697 12,226 13,932 Eliminations (18,546) (16,982) (16,383) -------- -------- -------- Total net sales $112,093 $107,179 $102,884 ======= ======= ======= Long-lived assets U.S. operations $13,727 $14,154 $14,752 International operations: Canada 6,526 5,672 5,745 Other 4,026 4,251 4,412 -------- -------- ------- Total long-lived assets $24,279 $24,077 $24,909 ======= ======= =======
NOTE P - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Quarterly results of operations during 2000 and 1999 were as follows: 2000 --------------------------------------------- First Second Third Fourth quarter quarter quarter quarter ------- ------- ------- ------- (in thousands, except per share data) Net sales $27,197 $27,973 $25,752 $31,171 Gross profit 12,083 13,234 11,105 14,043 Net earnings 1,798 1,817 516 1,834 Earnings per common share Basic (1) .18 .18 .05 .18 Diluted (1) .18 .18 .05 .18 -65- E-Z-EM, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 3, 2000, May 29, 1999 and May 30, 1998 NOTE P - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (continued) 1999 --------------------------------------------- First Second Third Fourth quarter quarter quarter quarter ------- ------- ------- ------- (in thousands, except per share data) 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 (1) The sum of the quarters does not equal the fiscal year due to rounding and changes in the calculation of weighted average shares. NOTE Q - SUBSEQUENT EVENT On July 27, 2000, AngioDynamics entered into two agreements to sell all the capital stock of AngioDynamics Ltd., a wholly-owned subsidiary, and certain other assets to AngioDynamics Ltd.'s management. AngioDynamics Ltd., located in Ireland, manufactured cardiovascular and interventional radiology products. The aggregate consideration paid was $3,250,000 in cash. The sale was the culmination of AngioDynamics' strategic decision to exit the cardiovascular market and to focus entirely on the interventional radiology marketplace. The gain resulting from this sale will not be material to the financial position and results of operations for the quarter ended September 2, 2000. Further, AngioDynamics entered into a manufacturing agreement, a distribution agreement and a royalty agreement with the buyer. Under the two-year manufacturing agreement, the buyer will be manufacturing certain interventional radiology products sold by AngioDynamics. -66- E-Z-EM, Inc. and Subsidiaries SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Additions ---------------------------- (1) (2) Balance Charged to Balance at Charged to other at end beginning costs and accounts- Deductions- of Description of period expenses describe describe period ----------- --------- ---------- ---------- ----------- ------- Fifty-two weeks ended May 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 ===== === === ===== Fifty-three weeks ended June 3, 2000 Allowance for doubtful accounts.... $1,028 $37 $212 (a) $853 ===== == === ===
(a) Amounts written off as uncollectible. -67- EX-10.E 2 ex-10_23536.txt EMPLOYMENT AGREEMENT Exhibit 10(e) EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT ("Agreement") effective as of the 3rd day of April 2000 (the "Effective Date") BETWEEN E-Z-EM, Inc., with its principal office at 717 Main Street Westbury, N.Y. 11590 (hereinafter referred to as the "Company") AND Anthony A. Lombardo, having an address at 801 North Ponderosa Drive Hartland, WI 53029-8640 (hereinafter referred to as the "Employee") WITNESSETH WHEREAS, the Company is in the business of (i) developing, manufacturing, marketing, selling and distributing medical products and medical devices for use in the imaging field, including but not limited to gastrointestinal contrast agents and associated devices, and other products for the fields of diagnostic and interventional radiology and gastroenterology, and (ii) developing, manufacturing, marketing, selling and distributing H. Pylori products and associated devices for digestive disease diagnosis and treatment, ((i) and (ii) collectively the "Imaging Division") and (iii) developing, manufacturing, marketing, selling and distributing therapeutic and diagnostic products for use in the cardiovascular and peripheral vascular field and associated devices (the "Angiographic Division") and engaging in activities relating thereto ((i), (ii) and (iii) collectively the "Business"); WHEREAS, the Company recognizes the unique qualifications and potential contributions of the Employee and desires to secure the services of the Employee on an exclusive basis on the terms and conditions set forth herein; and WHEREAS, the Employee is prepared to commit to such exclusive services in return for specific arrangements on compensation and other benefits on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements herein contained, the Company and the Employee do hereby agree as follows: 1 SCOPE OF EMPLOYMENT ------------------- 1.1 Subject to the terms and conditions hereof, the Company hereby employs the Employee to render services to the Company as President and Chief Executive Officer, subject to the direction of the Board of Directors of the Company (the "Board") or any committee thereof. Subject to the foregoing, the Employee shall be responsible, consistent with his position, for all aspects of the management, business, personnel, activities and affairs of the Company as such responsibilities reasonably are defined by the Board from time to time. -68- 1.2 The Employee hereby accepts such employment and agrees faithfully to render the services described above and to promote the interests of the Company to the best of his ability. The Employee further agrees to devote his full working time, attention, skill and best efforts to the performance of his duties under this Agreement. The Employee shall not engage in any other business or occupation during the term of this Agreement without the prior written consent of the Board, which consent the Board may withhold in its sole discretion. 1.3 The Employee shall have such power and authority, consistent with his position, as shall reasonably be required to enable him to perform his duties hereunder in an efficient manner, provided that in exercising such power and authority and performing such duties, he shall at all times be subject to the authority and control of the Board or any committee thereof and shall report directly to the Board. 1.4 The Employee shall perform his duties hereunder principally at the Company's offices at 717 Main Street, Westbury, N.Y., provided, however, that he will be required to travel and render services in different locations, from time to time as appropriate in connection with the performance of such duties. 1.5 Throughout the term of this Agreement, the Company agrees to seek to cause the Employee to be elected to the Board. Upon the termination of this Agreement for any reason, the Employee shall be deemed to have automatically resigned from any position he may then hold on the Board. Such resignation shall be deemed effective immediately without the requirement that a written resignation be delivered. 2 TERM OF EMPLOYMENT ------------------ This Agreement shall continue until terminated by either the Company or the Employee in accordance with the terms and conditions contained herein. 3 COMPENSATION, BENEFITS AND VACATION ----------------------------------- 3.1 The Company agrees to pay the Employee, during the term of his employment, a base salary of Two Hundred Fifty Thousand Dollars ($250,000) per year of employment (the "Base Salary"). Base Salary shall be payable in equal installments on a monthly basis, less such deductions or amounts to be withheld as shall be required by applicable law and regulations. The Company shall be under no obligation to increase the Base Salary, but may review the Employee's Base Salary at its sole discretion. 3.2 The Employee shall be eligible for an annual bonus (the "Bonus") of up to Fifty percent (50%) of the Base Salary during each fiscal year. A. The Bonus, if any, shall be calculated in accordance with the following: 1. The Employee shall participate in the Company's Executive Bonus Cash Compensation Program ("Bonus Compensation Program") (a copy of which is attached herewith as Exhibit A)(or as such Bonus Compensation Program may be uniformly modified for all participants from time to time by the Board in its sole discretion), and, except as provided herein, in accordance with the terms and conditions of the Bonus Compensation Program shall be eligible to receive an annual cash bonus of up to Thirty Six percent (36%) of the Base Salary based upon the Imaging Division's operating income results as compared to the Board approved budgeted operating income results for the Imaging Division in the applicable fiscal year, such Bonus to be paid on a quarterly basis in accordance with the terms and -69- conditions of the Bonus Compensation Program. For the first year of Employee's participation in the Bonus Compensation Program, Employee shall be guaranteed a cash Bonus equal to fifteen percent (15%) of the Base Salary which amount shall be paid on a quarterly basis. If during the first year of Employee's participation in the Bonus Compensation Program, the Employee earns any amount of the Bonus under the Bonus Compensation Program, such amount shall be first offset against the guaranteed fifteen percent (15%). 2. The Board, in its sole discretion, may elect to cause the Company to award to Employee a discretionary Bonus for the preceding fiscal year, in the form of stock grants equal in amount to up to Fourteen (14%) percent of the Base Salary ("Discretionary Bonus"). The stock grants shall be in the form of Company Class B Common Stock and the value of each share shall be based upon the closing price of a share of the Company's Class B Common stock as listed on the American Stock Exchange (AMEX) or such other exchange or market as the Company may decide on the last day of each fiscal year. (The Company's 1983 Stock Option Plan shall have no application with respect to any stock granted pursuant to the Discretionary Bonus). Any stock granted pursuant to the Discretionary Bonus shall be subject to the applicable Federal Securities Laws. Such Discretionary Bonus, if any, to be awarded within one hundred and twenty (120) days of the end of each fiscal year. Such Discretionary Bonus to be awarded at the determination of the Board, in its sole and absolute judgement, based upon the Employee's and the Company's achievement of certain pre-determined goals, such goals to be established by the Board in concert with the Employee in writing within Sixty (60) days of the commencement of each fiscal year. The Employee shall not be eligible to participate in either the Bonus Compensation Program or the Discretionary Bonus until the commencement of the Company's fiscal year 2001 (June 1, 2000-May 31, 2001, hereinafter "Fiscal Year 2001"). In the event this Agreement is terminated by the Company for Cause, as such term is defined in Section 4 of this Agreement, the Employee shall not be eligible for the Bonus or any escrowed or accrued Bonus. In the event this Agreement is terminated by the Company without Cause or by the Employee, the Employee shall only be eligible to receive that portion of the Bonus, if any, that was earned during the most recent completed fiscal quarter prior to the date of termination of this Agreement under the Bonus Compensation Program and shall not be eligible for any other Bonus, including, but not limited to the Discretionary Bonus. 3.3 The Company hereby grants to Employee non-qualified stock options to purchase Three Hundred Thousand (300,000) shares of the Company's Class B non- voting stock subject, except as provided herein, to the terms and conditions of the E-Z-EM, Inc. 1983 Stock Option Plan (the "Plan"). The exercise price of such stock options shall be the closing market price (as determined on the American Stock Exchange) on the Effective Date. The stock options shall vest at a rate of Seventy Five Thousand (75,000) shares per complete year commencing on the one (1) year anniversary of the Effective Date and continuing for each of the next three annual anniversary dates thereafter, subject to the forfeiture as provided in the Plan or in this Agreement. -70- 3.4 The Company shall pay or reimburse the Employee for all reasonable expenses actually and properly (in accordance with the Company's policy) incurred or paid by him in connection with the performance of his services under this Agreement upon presentation of expense statements or vouchers or such other supporting documentation in such form and containing such information as the Company may from time to time reasonably require. 3.5 The Employee shall be entitled to four (4) weeks of paid vacation during each fiscal year of employment with the Company, provided, however that the Employee shall not be eligible for any vacation until the commencement of Fiscal Year 2001. Vacation time shall not accrue and, may not be carried forward to future years. 3.6 The Company shall provide the Employee with health, accident, disability and life insurance in accordance with its standard policies for Company executives as adopted from time to time by the Board. 3.7 The Company shall enter into a Change in Control Agreement with the Employee, a copy of which is attached herewith as Exhibit B. 3.8 The Employee agrees to relocate his residence to a location within the greater New York metropolitan area, including Connecticut and New Jersey ("New York Area") no later than October 1, 2000. The Company agrees to reimburse the Employee for the expenses associated with the relocation from Hartland, WI to the New York Area in accordance with the following: a. The Company will pay for the moving of the Employee's belongings, which includes the packing and unpacking of the Employee's belongings. The Employee shall be required to obtain three (3) bids from national moving companies for the costs of such move, and the lowest of such bids shall be accepted. b. The Company shall pay the reasonable cost of travel, hotel accommodations and meals for two house hunting trips for the Employee and the Employee's spouse. c. The Company shall also pay the Employee an amount of money equivalent to his Base Salary for one (1) month for miscellaneous and incidental items associated with the move. This amount will be paid to the Employee within thirty (30) days after the closing of the new residence in the New York Area. d. The Company agrees to pay the sales commission or other fee, if any, due to a real estate agent or broker for the sale of the Employee's home residence located at 801 North Ponderosa Drive, Hartland, WI, such commission or fee not to exceed the customary amount charged in Hartland, WI by a real estate agent or broker in connection with the sale of a residence. e. Notwithstanding anything herein to the contrary, the aggregate amount payable by the Company pursuant to Sections 3.8 a, b, c and d shall not exceed One Hundred Thousand Dollars ($100,000) and any costs over such One Hundred Thousand Dollar ($100,000) amount shall be the sole obligation of the Employee. 3.9 In order to assist the Employee with the purchase of a new residence in the New York Area, the Company agrees to provide a second mortgage to the Employee, subject to the following: a. The Company agrees to provide a second mortgage of up to three hundred thousand dollars ($300,000). The interest rate on the -71- mortgage shall be the applicable federal rate in effect under Section 1274 (d) of the Internal Revenue Code of 1986, as amended, in order to ensure that the Employee does not incur any imputed interest income. The amount of the second mortgage shall be the lesser of (i) the excess of the purchase price of the new home in the New York Area ("New Home") as evidenced by the closing documents over the sale price of the Employee's residence at 801 North Ponderosa Drive, Hartland, WI as evidenced by the closing documents or (ii) three hundred thousand dollars ($300,000). The Company and the Employee shall enter into a mortgage agreement ("Mortgage Agreement") which shall include the terms and conditions as set forth herein. b. For the first five (5) years following the disbursement of funds pursuant to the Mortgage Agreement (the "Funding Date"), the Employee shall only be obligated to pay accrued and unpaid interest on the outstanding principal balance of the mortgage on an annual basis. Such annual payments shall be due on each anniversary of the Funding Date for the first five years. Commencing on the sixth anniversary of the Funding Date and continuing on the next three (3) anniversaries of the Funding Date thereafter, the Employee shall pay the Company accrued and unpaid interest plus ten percent (10%) of the initial principal amount of the mortgage. On the tenth anniversary of the Funding Date the Employee shall repay the Company the remaining outstanding principal amount of the mortgage plus any accrued and unpaid interest. At any time during the term of the Mortgage Agreement, the Employee may elect to repay the entire amount, or a portion thereof, of the outstanding principal amount of the mortgage without penalty. At any time during the term of the Mortgage Agreement, if the Employee sells the New Home, the Employee shall repay the outstanding principal amount of the mortgage plus all accrued and unpaid interest immediately upon the closing of the sale of the New Home. c. If the Employee's employment with the Company is terminated for any reason, whether by the Company or by the Employee, the Employee shall repay the outstanding principal amount of the mortgage plus all accrued and unpaid interest within eighteen (18) months from the date of such termination; provided, however that if the Employee sells the New Home at any time during such eighteen (18) month period, the Employee shall repay the outstanding principal amount of the mortgage plus all accrued and unpaid interest immediately upon the closing of the sale of the New Home. 3.10 The Company shall provide, at no cost to the Employee, housing at 21 Willets Road, Old Westbury, NY from the Effective Date until October 1, 2000. 3.11 The Company shall pay the reasonable transportation costs for the Employee to travel to and from Hartland, WI each weekend from the Effective Date until such time as his family permanently relocates to the New York Area or by October 1, 2000, whichever is sooner. The Employee agrees to take the appropriate action in order to obtain, where commercially available to the public, a discounted economy advanced purchase ticket price on any transportation in connection with any travel pursuant to this Section 3.11. In the event that any payments made by the Company pursuant to this Section 3.11 results in any federal, state or local tax liabilities to the Employee, the Company agrees to reimburse the Employee for such tax payments. 3.12 The Company shall provide the Employee, at no cost, an automobile in accordance with the Company's standard automobile policy for Company executives as adopted from time to time by the Board. -72- 4 TERMINATION ----------- 4.1 Notwithstanding anything contained herein to the contrary, it is agreed that this Agreement may be terminated without cause upon the giving of thirty (30) days written notice by the Company to the Employee or the Employee to the Company. 4.2 This Agreement shall automatically terminate upon the occurrence of the first to occur of the following events or conditions: (a) the death of the Employee; or (b) the delivery by the Company to the Employee of written notice that his employment is terminated for "disability" (as defined in Section 4.3 hereof); or (c) the delivery by the Company to the Employee of written notice that his employment is terminated for "cause" (as defined in Section 4.4 hereof). 4.3 "Disability" shall mean the good faith determination by the Company that by reason of a physical or mental illness the Employee is unable to perform the essential functions of his position as contemplated by this Agreement, with or without reasonable accommodations by the Company, continuing for more than 60 consecutive business days or for more than an aggregate of 90 business days in any period of 365 days. Such determination shall not be arbitrary or unreasonable, and the Company shall take into consideration the opinion of a physician retained by the Company, if reasonably available, as well as the applicable provisions, if any, of the Americans with Disabilities Act. In the event this Agreement is terminated pursuant to Section 4.2 (b), the Company shall be obligated to continue to pay the compensation provided for in Section 3.1 to the Employee until the end of the Company's fiscal year in which the Company provides notice to the Employee that this Agreement is terminated. During the period of time that the Company agrees to continue to pay the Employee as set forth in Section 4.3, any disability insurance that the Employee receives under the Company's disability plan shall be offset against any payments made by the Company pursuant to Section 4.3. 4.4 As used herein "Cause" shall mean the following: (i) the good faith determination by the Company that there has been continued neglect by the Employee of his duties hereunder; (ii) the good faith determination by the Company that there has been willful misconduct on the Employee's part in connection with the performance of such duties; (iii) any willful violation of any express direction or rule or regulation established by the Board; (iv) Employee's failure to relocate to the New York Area by October 1, 2000; (v) any commission of any act of fraud, embezzlement or dishonesty by the Employee; (vi) the commission by the Employee of a crime or offense amounting to a felony or a crime involving moral turpitude or theft. Provided, however that prior to terminating this Agreement for "Cause" pursuant to Section 4.4 (i) and (ii), the Company shall provide the Employee -73- with written notice of the continued neglect or willful misconduct in reasonable detail and the Employee shall have ten (10) days from receipt of such notice to cure such neglect or misconduct to the reasonable satisfaction of the Company and such termination shall be effective upon the Employee's failure to cure such neglect or misconduct within such ten (10) days period. Notwithstanding anything herein to the contrary, the Employee shall only be entitled to one notice and cure period during any twelve (12) month period of employment for any act constituting continued neglect and one notice and cure period during any twelve (12) month period of employment for any act constituting willful misconduct. 4.5 If the Employee's employment hereunder is terminated by the Company pursuant to Section 4.1 without cause, he shall be entitled to severance pay equal to one (1) years Base Salary, payable in twelve (12) equal monthly installments on the first regular pay day of each fiscal month commencing in the first fiscal month following termination. If following the termination of Employee by the Company pursuant to Section 4.1 of this Agreement, the Employee breaches any provisions of Section 5 of this Agreement, the obligations of the Company to make payments pursuant to this Section 4.5 shall immediately terminate. Except as provided in Section 4.5 and 3.2, the Employee shall not be entitled to any severance pay or to any other compensation, payments or benefit (by way of salary, bonus, stock options, damages or otherwise) of any nature relating to this Agreement or otherwise relating to or arising out of his employment by the Company, for any period subsequent to the date of such termination. Furthermore, upon the termination of this Agreement, the applicable provisions of the Plan will apply to any stock option, provided, however that in the event this Agreement is terminated, any and all unvested stock options shall immediately expire and the Employee shall return all documents evidencing such options to the Company. 5 EMPLOYMENT AND POST EMPLOYMENT RESTRICTIONS ------------------------------------------- 5.1 Employee acknowledges that the Company's Business is highly specialized and operates in a competitive market, and that in rendering his services to the Company the Employee has had or will have access to or will be exposed to valuable trade secrets, and confidential and proprietary information belonging to the Company. Because of the nature of the Business, the Company may be unfairly harmed by certain activities of its present and former employees. These activities may include disclosure or use of trade secrets or confidential and proprietary information, entering into or participating in a competing business of the Company, appropriating or diverting business or customers of the Company and inducing employees of the Company to leave the employment of the Company, all of which are in violation of recognized employee obligations. Employees may be able to do these unfair acts because of information which was learned and contacts which were made while in the employment of the Company. Therefore, the Company desires to protect itself by requiring that certain persons working for it agree to reasonable restrictions concerning their employment and post employment activities. These restrictions are necessarily designed to prevent harm to the Company (as well as to other employees of the Company whose business or compensation depends upon the continuous success of the business) through indirect methods as well as through direct activities. 5.2 For the reasons set forth above, and in consideration of the salary and other compensation and benefits received and to be received by the Employee, the Employee agrees as follows: (a) The Employee agrees that during the period of his employment under this Agreement and for a period of twelve (12) months following the termination of this Agreement for any reason, he shall not in any state or territory of the United States in which the Company conducts business, directly or indirectly, own, manage, operate, control, be employed by, be a shareholder of, be an officer of, participate in, contract with or be -74- connected in any capacity or any manner with any business that directly or indirectly (whether through related companies or otherwise) manufactures, develops, designs, distributes, sells, or markets any product, device or equipment substantially similar to any product, device or equipment which at the time during the term of Employee's employment has been manufactured, marketed, sold, or distributed by the Company or any product, device or equipment which the Company was developing or designing during the Employee's employment with the Company for future manufacture, marketing, sale or distribution; provided, however that nothing herein shall prohibit the Employee from owning, directly or indirectly, as a passive investor, in the aggregate not more than one percent (1%) of the outstanding publically traded stock of any company that competes with the Company in the Business. (b) The Employee agrees that during the period of his employment under this Agreement and for a period of twelve (12) months following the termination of this Agreement for any reason, he will not, directly or indirectly, solicit or hire or attempt to solicit or hire any employee of the Company or otherwise induce any employee of the Company to leave the employment of the Company. (c) The Employee agrees that during the period of his employment under this Agreement and for a period of twelve (12) months following the termination of this Agreement for any reason, he will not appropriate, divert or assist another to appropriate or divert any business or customer away from the Company or attempt to do any of the foregoing. (d) The Employee agrees that during the period of his employment under this Agreement and following the termination of this Agreement, he will not disclose, cause to be disclosed or otherwise allow the following information to come into the possession of any person or entity (other than those persons and entities that the Company has determined as being entitled thereto) or use the following information, whether such information is on the Company's forms, memos, computer disc or tape, or otherwise and whether such information is in written or verbal form: sales information, operations information, financial information, administrative information, research information, technical information, scientific information, data, designs, formulas, and any other information concerning the Company, its business, its properties or its affairs that the Company deems to be confidential or that is confidential according to industry practices. The Employee understands and agrees that his obligations set forth herein shall continue for so long as any information as set forth above is deemed confidential and/or proprietary by the Company or according to industry practices. The Employee further agrees that upon termination of this Agreement for any reason, he will promptly return to the Company all information of the type described above within his possession or within his power to control, including, without limitation all copies of such information, all abstracts of such information and any other information containing such information in whole or in part. (e) The Employee agrees to assign and transfer to the Company his entire right, title and interest in and to any and all inventions, discoveries, improvements, innovations, know-how, new ideas, formulas, processes, techniques or concepts (collectively "Inventions") created, conceived or developed by Employee, either solely or jointly with others, arising out of or during the course of employment with the Company relating to the Business together with all rights to letters patent which may be granted thereon and that such Inventions shall inure to and be the sole property of the Company. Immediately upon the making any Inventions, Employee shall notify the Company thereof and shall thereafter execute and deliver to the Company without further compensation such documents as may be -75- necessary to prepare and prosecute applications for letters patent upon any such Inventions, and to assign and transfer to the Company the Employee's entire right, title and interest in and to any and all Inventions. The Employee agrees that he will cooperate with the Company in connection with the foregoing after termination of this Agreement. 5.3 In the event of a violation of Section 5.2, if the Employee is prevented by a court from committing any further violation, whether by a temporary restraining order, injunction or otherwise, the time periods set forth in Section 5.2 shall be computed by commencing the periods on the date of the applicable court order and continuing them from that date for the full period provided. 5.4 In the event of a violation of Section 5.2, the Company shall be entitled to seek injunctive relief in addition to damages and other remedies for the violation, and additionally, the Company shall be entitled to reasonable attorneys' fees and all costs incurred for the enforcement of this Agreement and the Company shall be relieved of any further obligation to pay any compensation or severance to Employee and the Employee shall have no further rights with respect to benefits, including but not limited to stock options not already vested which shall expire, except as is required by law. 5.5 The Employee shall have the right to request a waiver of all or part of the restrictions contained in Section 5.2 by providing the Company with a written statement containing all relevant details. The Company may, in its sole discretion, waive all or part of the restrictions contained in Section 5.2 on such terms and conditions, and to such extent, as it, in its sole discretion, deems appropriate. Such waiver must be in writing. 5.6 Notwithstanding the termination of this Agreement, Section 5 hereof shall continue in full force and effect for the periods of time provided for therein. 6 MISCELLANEOUS ------------- 6.1 This Agreement expresses the entire understanding and agreement of the parties and supersedes any and all prior agreements and understandings, whether written or oral, relating in any way to the subject matter of this Agreement. This Agreement cannot be modified, amended or supplemented except by a written instrument or instruments executed by each of the parties hereto. 6.2 All notices concerning this Agreement shall be deemed to have been received two (2) days after being properly sent by commercial overnight courier to the address below: If to the Company: E-Z-EM, Inc. 717 Main Street Westbury, NY 11590 Att: Howard Stern, Chairman of the Board If to Employee: Anthony A. Lombardo E-Z-EM, Inc. 717 Main Street Westbury, NY 11590 -76- 6.2 All rights and remedies herein granted or referred to are cumulative, resort to one shall not preclude resort to another. No waiver by either party of a breach of this Agreement, or any part hereof, shall be deemed to be a waiver of any other prior, concurrent or subsequent breach of the same or different provisions of this Agreement. 6.3 If an action is commenced to enforce the performance of any part of this Agreement, including, without limitation, any order or release made hereunder, the prevailing party shall be reimbursed by the other party for all reasonable attorneys' fees and expenses. 6.4 This Agreement shall be governed by and construed under the laws of the State of New York. If any provision of this Agreement shall be invalid or unenforceable, this Agreement shall be deemed amended but only to the extent required to make it valid and enforceable, and this Agreement as thereby amended shall remain in full force and effect. 6.5 Employee represents and warrants that Employee is not subject to any agreement, whether written or oral, contract, order, judgement, or decree of any kind that would prevent Employee from entering into this Agreement or performing his duties and obligations hereunder. 6.6 The section headings appearing in this Agreement are inserted only as a matter convenience and in no way define, limit, construe or describe the scope or extent of such section or in any way affect such section. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the day and year set forth below. E-Z-EM, Inc. /s/ Howard S. Stern /s/ Anthony A. Lombardo -------------------------------- --------------------------- Howard S. Stern, Chairman of the Anthony A. Lombardo Board Date: February 23, 2000 Date: February 23, 2000 -------------------- -------------------- -77- EX-21 3 ex-21_23536.txt SUBSIDIARIES OF THE REGISTRANT 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 Enteric Products, Inc. Delaware Leocor, Inc. Delaware Toho Kagaku Kenkyusho Co., Ltd. Japan All subsidiaries of the Registrant are wholly-owned. -78- EX-23 4 ex-23_23536.txt CONSENT OF INDEPENDENT CERT. PUBLIC ACCOUNTANTS 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 28, 2000, appearing in the Annual Report on Form 10-K of E-Z-EM, Inc. and Subsidiaries for the fifty-three weeks ended June 3, 2000. GRANT THORNTON LLP Melville, New York August 29, 2000 -79- EX-27 5 ex-27_23536.txt ARTICLE 5 FDS FOR 10-K
5 This schedule contains summary financial information extracted from the Company's Form 10-K for the fifty-three weeks ended June 3, 2000 and is qualified in its entirety by reference to such financial statements. 1,000 YEAR JUN-03-2000 JUN-03-2000 5,583 8,051 23,109 853 26,856 67,276 50,030 28,309 99,085 15,842 453 0 0 992 79,042 99,085 112,093 112,093 61,628 61,628 41,866 37 253 9,234 3,269 5,965 0 0 0 5,965 .60 .58
EX-99 6 ex-99_23536.txt AUDITORS' REPORT 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, 2000 and 1999 and the consolidated statements of income, retained earnings and cash flows for the years ended May 31, 2000, 1999 and 1998. 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, 2000 and 1999 and the results of its operations and its cash flows for the years ended May 31, 2000, 1999 and 1998 in accordance with generally accepted accounting principles. Jacques Davis Lefaivre Chartered Accountants Montreal, July 7, 2000 -81- -----END PRIVACY-ENHANCED MESSAGE-----