Quarterly Report


Table of Contents

    
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2017
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
Commission file number 0-50761

 
AngioDynamics, Inc.
(Exact name of registrant as specified in its charter)
ANGOLOGOA04.GIF
 
 

Delaware
 
11-3146460
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
14 Plaza Drive Latham, New York
 
12110
(Address of principal executive offices)
 
(Zip Code)
(518) 795-1400
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common stock, par value $.01
 
NASDAQ Global Select Market
Preferred Stock Purchase Rights
 
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:


Table of Contents

None
(Title of Class)
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ¨     No   x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes   ¨     No   x
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 whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
¨
  
Accelerated filer
 
x
 
 
 
 
Non-accelerated filer
 
¨
  
Smaller reporting company
 
¨
 
 
 
 
 
 
 
Emerging growth company
 
o
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x
Indicate the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding as of September 26, 2017
Common Stock, par value $.01
 
36,715,736
 



Table of Contents

AngioDynamics, Inc. and Subsidiaries
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.

2

Table of Contents

PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.

AngioDynamics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(unaudited)
(in thousands of dollars, except per share data)
 
 
 
Three Months Ended
 
 
Aug 31, 2017
 
Aug 31, 2016
Net sales
 
$
85,411

 
$
88,098

Cost of sales (exclusive of intangible amortization)
 
44,182

 
43,066

Gross profit
 
41,229

 
45,032

Operating expenses:
 
 
 
 
Research and development
 
6,441

 
6,709

Sales and marketing
 
19,402

 
19,455

General and administrative
 
8,056

 
8,201

Amortization of intangibles
 
4,096

 
4,235

Change in fair value of contingent consideration
 
105

 
443

Acquisition, restructuring and other items, net
 
2,989

 
2,417

Total operating expenses
 
41,089

 
41,460

Operating income
 
140

 
3,572

Other (expenses) income:
 
 
 
 
Interest expense
 
(723
)
 
(719
)
Other income (expense)
 
567

 
50

Total other expenses, net
 
(156
)
 
(669
)
Income (loss) before income tax expense (benefit)
 
(16
)
 
2,903

Income tax expense
 
19

 
1,603

Net income (loss)
 
$
(35
)
 
$
1,300

Earnings (loss) per share
 
 
 
 
Basic
 
$
0.00

 
$
0.04

Diluted
 
$
0.00

 
$
0.04

Weighted average shares outstanding
 
 
 
 
Basic
 
36,919

 
36,319

Diluted
 
36,919

 
36,698

The accompanying notes are an integral part of these consolidated financial statements.

3


AngioDynamics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
(in thousands of dollars)
 
 
 
Three Months Ended
 
 
Aug 31, 2017
 
Aug 31, 2016
Net income (loss)
 
$
(35
)
 
$
1,300

Other comprehensive income (loss), before tax:
 
 
 
 
Unrealized gain (loss) on marketable securities
 

 
(6
)
Foreign currency translation (loss)
 
283

 
(294
)
Other comprehensive income (loss), before tax
 
283

 
(300
)
Income tax expense related to items of other comprehensive income
 

 
2

Other comprehensive income (loss), net of tax
 
283

 
(298
)
Total comprehensive income (loss), net of tax
 
$
248

 
$
1,002

The accompanying notes are an integral part of these consolidated financial statements.


4


AngioDynamics, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands of dollars, except share data)
 
Aug 31, 2017
 
May 31, 2017
Assets
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
48,200

 
$
47,544

Marketable securities
1,215

 
1,215

Accounts receivable, net of allowances of $3,152 and $2,945, respectively
41,283

 
44,523

Inventories
55,425

 
54,506

Prepaid income taxes
312

 
336

Prepaid expenses and other
4,287

 
5,790

Total current assets
150,722

 
153,914

Property, plant and equipment, net
44,353

 
45,234

Other assets
2,431

 
1,886

Intangible assets, net
141,583

 
145,675

Goodwill
361,252

 
361,252

Total assets
$
700,341

 
$
707,961

Liabilities and Stockholders' Equity
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
17,421

 
$
18,087

Accrued liabilities
32,264

 
38,804

Current portion of long-term debt
5,000

 
5,000

Current portion of contingent consideration
9,638

 
9,625

Total current liabilities
64,323

 
71,516

Long-term debt, net of current portion
90,147

 
91,320

Deferred income taxes
26,030

 
26,112

Contingent consideration, net of current portion
1,128

 
3,136

Other long-term liabilities
829

 
850

Total liabilities
182,457

 
192,934

Commitments and contingencies (Note 12)

 

Stockholders' Equity
 
 
 
Preferred stock, par value $.01 per share, 5,000,000 shares authorized; no shares issued and outstanding

 

Common stock, par value $.01 per share, 75,000,000 shares authorized; 37,397,986 and 37,210,091 shares issued and 37,027,986 and 36,840,091 shares outstanding at August 31, 2017 and May 31, 2017, respectively
368

 
367

Additional paid-in capital
535,511

 
532,705

Accumulated deficit
(11,240
)
 
(11,007
)
Treasury stock, 370,000 shares at August 31, 2017 and May 31, 2017, respectively
(5,714
)
 
(5,714
)
Accumulated other comprehensive loss
(1,041
)
 
(1,324
)
Total Stockholders’ Equity
517,884

 
515,027

Total Liabilities and Stockholders' Equity
$
700,341

 
$
707,961

The accompanying notes are an integral part of these consolidated financial statements.

5


AngioDynamics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands of dollars)
 
Three Months Ended
 
Aug 31, 2017
 
Aug 31, 2016
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(35
)
 
$
1,300

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
5,793

 
6,153

Stock based compensation
1,797

 
1,684

Change in fair value of contingent consideration
105

 
443

Deferred income taxes
(82
)
 
1,565

Change in accounts receivable allowances
278

 
(197
)
Fixed and intangible asset impairments and disposals

 
45

Other
(567
)
 
18

Changes in operating assets and liabilities:

 

Accounts receivable
3,103

 
2,822

Inventories
(781
)
 
(3,049
)
Prepaid expenses and other
620

 
(869
)
Accounts payable, accrued and other liabilities
(7,195
)
 
(2,475
)
Net cash provided by operating activities
3,036

 
7,440

Cash flows from investing activities:
 
 
 
Additions to property, plant and equipment
(501
)
 
(481
)
Net cash used in investing activities
(501
)
 
(481
)
Cash flows from financing activities:
 
 
 
Repayment of long-term debt
(1,250
)
 
(2,500
)
Payment of acquisition related contingent consideration
(2,100
)
 
(2,100
)
Proceeds from exercise of stock options and employee stock purchase plan
812

 
2,803

Net cash used in financing activities
(2,538
)
 
(1,797
)
Effect of exchange rate changes on cash and cash equivalents
659

 
(84
)
Increase in cash and cash equivalents
656

 
5,078

Cash and cash equivalents at beginning of period
47,544

 
32,333

Cash and cash equivalents at end of period
$
48,200

 
$
37,411

Supplemental disclosure of non-cash investing and financing activities:
 
 
 
 
 
 
 
Contractual obligations for acquisition of fixed assets
$
38

 
$
52

The accompanying notes are an integral part of these consolidated financial statements.

6


AngioDynamics, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(unaudited)
(in thousands of dollars, except share data)

 
 
Common Stock
 
Additional
paid in
capital
 
Accumulated deficit
 
Accumulated
other
comprehensive
loss
 
Treasury Stock
 
 
 
Shares
 
Amount
 
 
 
Shares
 
Amount
 
Total
Balance at May 31, 2017
37,210,091

 
$
367

 
$
532,705

 
$
(11,007
)
 
$
(1,324
)
 
(370,000
)
 
$
(5,714
)
 
$
515,027

Net income (loss)
 
 
 
 
 
 
(35
)
 
 
 
 
 
 
 
(35
)
Adjustment from the adoption of ASU 2016-09
 
 
 
 
198

 
(198
)
 
 
 
 
 
 
 

Exercise of stock options
17,897

 


 
89

 
 
 
 
 
 
 
 
 
89

Issuance/Cancellation of restricted stock units
119,098

 
1

 


 
 
 
 
 
 
 
 
 
1

Purchases of common stock under ESPP
50,900

 


 
722

 
 
 
 
 
 
 
 
 
722

Stock-based compensation
 
 
 
 
1,797

 
 
 
 
 
 
 
 
 
1,797

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
283

 
 
 
 
 
283

Balance at August 31, 2017
37,397,986

 
$
368

 
$
535,511

 
$
(11,240
)
 
$
(1,041
)
 
(370,000
)
 
$
(5,714
)
 
$
517,884

The accompanying notes are an integral part of these consolidated financial statements.

7


AngioDynamics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of August 31, 2017 , the consolidated statement of stockholders’ equity for the three months ended August 31, 2017 and the consolidated statements of income (loss), consolidated statements of comprehensive income (loss), and consolidated statements of cash flows for the three months ended August 31, 2017 and 2016 have been prepared by us and are unaudited. The consolidated balance sheet as of May 31, 2017 was derived from audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to state fairly the financial position, changes in stockholders’ equity and comprehensive income, results of operations and cash flows as of and for the period ended August 31, 2017 (and for all periods presented) have been made.
The unaudited interim consolidated financial statements for the three months ended August 31, 2017 and 2016 include the accounts of AngioDynamics, Inc. and its wholly owned subsidiaries, collectively, the “Company”. All intercompany balances and transactions have been eliminated.
Reclassifications
A reclassification was made to conform the prior year consolidated financial statements to reclassify bad debt expense from Sales and Marketing to General and Administrative. The amount of the reclassification related to fiscal year 2017 is $0.03 million .


2. INVENTORIES
Inventories are stated at lower of cost (using the first-in, first-out method) or market. As of August 31, 2017 and May 31, 2017 , inventories consisted of the following:
 
Aug 31, 2017
 
May 31, 2017
(in thousands)
 
Raw materials
$
18,389

 
$
17,563

Work in process
11,313

 
12,602

Finished goods
25,723

 
24,341

Inventories
$
55,425

 
$
54,506


The Company periodically reviews for both obsolescence and loss of value. The Company makes assumptions about the future demand for and market value of the inventory. Based on these assumptions, the Company estimates the amount of obsolete, expiring and slow moving inventory. The total inventory reserve at August 31, 2017 and May 31, 2017 was $5.5 million and $7.3 million , respectively. Of the $5.5 million in the first quarter of fiscal year 2018, $1.2 million relates to the inventory reserve for Acculis inventory as a result of the recall announced in the fourth quarter of fiscal year 2017. Of the $7.3 million in the prior year, $2.4 million relates to the inventory reserve for Acculis inventory as a result of the recall.

3. GOODWILL AND INTANGIBLE ASSETS

Intangible assets other than goodwill are amortized over their estimated useful lives on either a straight-line basis or proportionately to the benefit being realized. Useful lives range from two to eighteen years. The Company periodically reviews the estimated useful lives of our intangible assets and review such assets or asset groups for impairment whenever events or changes in circumstances indicate that the carrying value of the assets or asset groups may not be recoverable. If an intangible asset or asset group is considered to be impaired, the amount of the impairment will equal the excess of the carrying value over the fair value of the asset.


8


Goodwill is not amortized, but rather, is tested for impairment annually or more frequently if impairment indicators arise. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination.

The Company's annual testing for impairment of goodwill was completed as of December 31, 2016. The Company operates as a single operating segment with one reporting unit and consequently evaluates goodwill for impairment based on an evaluation of the fair value of the Company as a whole. The Company determines the fair value of the reporting unit based on the market valuation approach and concluded that it was not more-likely-than-not that the fair value of the Company's reporting unit was less than its carrying value.

Even though the Company determined that there was no goodwill impairment as of December 31, 2016, the future occurrence of a potential indicator of impairment, such as a significant adverse change in legal, regulatory, business or economic conditions or a more-likely-than-not expectation that the reporting unit or a significant portion of the reporting unit will be sold or disposed of, would require an interim assessment for the reporting unit prior to the next required annual assessment as of December 31, 2017. The Company continued to assess for potential impairment through August 31, 2017 and noted no events that would be considered a triggering event. There were no adjustments to goodwill for the three months ended August 31, 2017 .  
As of August 31, 2017 and May 31, 2017 , intangible assets consisted of the following:
 
August 31, 2017
 
Gross
carrying
value
 
Accumulated
amortization
 
Net carrying
value
(in thousands)
 
Product technologies
$
147,172

 
$
(61,916
)
 
$
85,256

Customer relationships
56,455

 
(20,290
)
 
36,165

Trademarks
28,400

 
(9,782
)
 
18,618

Licenses
4,487

 
(3,919
)
 
568

Distributor relationships
1,250

 
(274
)
 
976

 
$
237,764

 
$
(96,181
)
 
$
141,583


 
May 31, 2017
 
Gross
carrying
value
 
Accumulated
amortization
 
Net carrying
value
(in thousands)
 
Product technologies
$
147,172

 
$
(59,696
)
 
$
87,476

Customer relationships
56,375

 
(19,194
)
 
37,181

Trademarks
28,400

 
(9,069
)
 
19,331

Licenses
4,487

 
(3,821
)
 
666

Distributor relationships
1,250

 
(229
)
 
1,021

 
$
237,684

 
$
(92,009
)
 
$
145,675


Amortization expense for the three months ended August 31, 2017 and 2016 was $4.1 million and $4.2 million , respectively.

Expected future amortization expense related to the intangible assets is as follows:


9


(in thousands)

Remainder of 2018
$
12,362

2019
16,081

2020
14,525

2021
13,571

2022
12,893

2023 and thereafter
72,151


$
141,583



10


4. ACCRUED LIABILITIES
As of August 31, 2017 and May 31, 2017 , accrued liabilities consisted of the following:  
 
Aug 31, 2017
 
May 31, 2017
(in thousands)
 
Payroll and related expenses
$
6,139

 
$
11,383

Royalties
2,293

 
2,885

Accrued severance
1,931

 
2,075

Sales and franchise taxes
829

 
856

Outside services
1,899

 
1,622

Litigation matters
12,500

 
12,500

Acculis recall liability
1,001

 
2,563

Other
5,672

 
4,920

 
$
32,264

 
$
38,804


In the fourth quarter of fiscal year 2017, the Company issued a voluntary recall of its Acculis probes that were sold over the past two years. As of the first quarter of fiscal year 2018, the deferral of revenue related to the Acculis recall was $1.0 million compared to $2.6 million at May 31, 2017.

5. LONG TERM DEBT

On November 7, 2016, the Company entered into a Credit Agreement (the “Credit Agreement”) with the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, Bank of America, N.A. and Keybank National Association as co-syndication agents, and JPMorgan Chase Bank, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Keybank National Association as joint bookrunners and joint lead arrangers.
The Credit Agreement provides for a $100.0 million senior secured term loan facility (“Term Loan”) and a $150.0 million senior secured revolving credit facility, which includes up to a $20.0 million sublimit for letters of credit and a $5.0 million sublimit for swingline loans (the “Revolving Facility”, and together with the Term Loan, the “Facilities”).
On November 7, 2016, the Company borrowed $100.0 million under the Term Loan and approximately $16.5 million under the Revolving Facility to repay the balance of $116.5 million under the former credit agreement. As of February 28, 2017 the revolver was paid off in full. As of August 31, 2017 and May 31, 2017 the carrying value of long-term debt approximates its fair market value.
The interest rate on the Term Loan at August 31, 2017 was 2.74% .

The Company was in compliance with the Credit Agreement covenants as of August 31, 2017 .

The Company's maturities of principal obligations under the Credit Agreement are as follows, as of August 31, 2017 :
(in thousands)

Remainder of 2018
$
3,750

2019
5,000

2020
7,500

2021
11,250

2022
68,750

     Total term loan
96,250

Revolving facility

     Total debt
96,250

Less: Unamortized debt issuance costs
(1,103
)
     Total
95,147

Less: Current portion of long-term debt
(5,000
)
     Total long-term debt, net
$
90,147


11


6. INCOME TAXES

The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate for the full fiscal year adjusted for any discrete events, which are recorded in the period that they occur.  The estimated annual effective tax rate prior to discrete items was 52.9% in the first quarter of fiscal 2018 , as compared to 55.2% for the same period in fiscal 2017 . The Company’s effective tax rate differs from the U.S. statutory rate primarily due to the valuation allowance, the impact of the deferred tax liability related to indefinite lived intangibles, foreign taxes and state taxes.

A valuation allowance is established if it is more likely than not that all, or a portion of the deferred tax asset will not be realized. The Company has established that it is more likely than not that some, or all of their deferred tax assets will not be recognized in future years. Consequently, the Company continues to maintain a full U.S. valuation allowance on its net deferred tax assets. Management will continue to reevaluate the positive and negative evidence at each reporting period and if future results as projected in the U.S. and our tax planning strategies are favorable, the valuation allowance may be removed, which could have a favorable material impact on our results of operations in the period in which it is recorded.

7. SHARE-BASED COMPENSATION

The Company has two stock-based compensation plans that provide for the issuance of up to approximately 9.5 million shares of common stock. The 2004 Stock and Incentive Award Plan (the "2004 Plan") provides for the grant of incentive options to our employees and for the grant of non-statutory stock options, restricted stock, stock appreciation rights, performance units, performance shares and other incentive awards to our employees, directors and other service providers. The Company also has an employee stock purchase plan.

For the three months ended August 31, 2017 and 2016 , share-based payment expense was $1.8 million and $1.7 million , respectively.

During the three months ended August 31, 2017 and 2016 , the Company granted stock options and restricted stock units under the 2004 Plan to certain employees and members of the Board of Directors. Stock option awards are valued using the Black-Scholes option-pricing model and then amortized on a straight-line basis over the requisite service period of the award. Restricted stock unit awards are valued based on the closing trading value of the Company's shares on the date of grant and then amortized on a straight-line basis over the requisite service period of the award.

In the first quarter of fiscal year 2018 , the Company granted performance share awards under the 2004 Plan to certain employees. The awards may be earned by achieving relative performance levels over the three year requisite service period. The performance criteria are based on the total shareholder return ("TSR") of the Company's common stock relative to the TSR of the common stock of a pre-defined industry peer-group. The fair value of these awards are based on the closing trading value of the Company's shares on the date of grant and use a Monte Carlo simulation model.

As of August 31, 2017 , there were $18.0 million of unrecognized compensation expenses related to share-based payment arrangements. These costs are expected to be recognized over a weighted-average period of approximately four years . The Company has sufficient shares to satisfy expected share-based payment arrangements.
 
8. EARNINGS PER SHARE
Basic earnings per share is based on the weighted average number of common shares outstanding without consideration of potential common stock. Diluted earnings per share includes the dilutive effect of potential common stock consisting of stock options, restricted stock units and performance stock units, provided that the inclusion of such securities is not anti-dilutive. In periods with a net loss, stock options and restricted stock units are not included in the computation of diluted loss per share as the impact would be anti-dilutive.
The following table reconciles basic to diluted weighted-average shares outstanding for the three months ended August 31, 2017 and 2016 (in thousands):

12


 
 
Three Months Ended
(in thousands)
Aug 31, 2017
 
Aug 31, 2016
Basic
36,919

 
36,319

Effect of dilutive securities

 
379

Diluted
36,919

 
36,698

 
 
 
 
Securities excluded as their inclusion would be anti-dilutive
1,085

 
1,503


9. SEGMENT AND GEOGRAPHIC INFORMATION

The Company considers our business to be a single operating segment entity engaged in the development, manufacture and sale of medical devices for vascular access, peripheral vascular disease, oncology and surgery on a global basis. The Company's chief operating decision maker (CEO) evaluates the various global product portfolios on a net sales basis. Executives reporting to the CEO include those responsible for commercial operations, manufacturing operations, regulatory and quality and certain corporate functions. The CEO evaluates profitability, investment and cash flow metrics on a consolidated worldwide basis due to shared infrastructure and resources.
The table below summarizes net sales by product category (in thousands of dollars):  
 
Three Months Ended
(in thousands)
Aug 31, 2017
 
Aug 31, 2016
Net sales
 
 
 
Peripheral Vascular
$
49,865

 
$
52,029

Vascular Access
23,238

 
25,005

Oncology/Surgery
12,308

 
11,064

Total
$
85,411

 
$
88,098

The table below presents net sales by geographic area based on external customer location (in thousands of dollars):
 
 
Three Months Ended
(in thousands)
Aug 31, 2017
 
Aug 31, 2016
Net sales
 
 
 
United States
$
68,931

 
$
72,208

International
16,480

 
15,890

Total
$
85,411

 
$
88,098


10. FAIR VALUE

On a recurring basis, the Company measures certain financial assets and financial liabilities at fair value based upon quoted market prices, where available. Where quoted market prices or other observable inputs are not available, the Company applies valuation techniques to estimate fair value. FASB ASC Topic 820,  Fair Value Measurements and Disclosures, establishes a three-level valuation hierarchy for disclosure of fair value measurements. The categorization of financial assets and financial liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy are defined as follows:

Level 1 - Inputs to the valuation methodology are quoted market prices for identical assets or liabilities.

Level 2 - Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs.

Level 3 - Inputs to the valuation methodology are unobservable inputs based on management’s best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk.

13



The Company's financial instruments include cash and cash equivalents, accounts receivable, marketable securities, accounts payable and contingent consideration. The carrying amount of cash and cash equivalents, accounts receivable, and accounts payable approximates fair value due to the immediate or short-term maturities. The Company's recurring fair value measurements using significant unobservable inputs (Level 3) relate to our marketable securities, which are comprised of auction rate securities, and our contingent consideration liabilities.
The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis as of August 31, 2017 and May 31, 2017 (in thousands of dollars):
 
 
Fair Value Measurements using
inputs considered as:
 
Fair Value at August 31, 2017
(in thousands)
Level 1
 
Level 2
 
Level 3
 
 
Financial Assets:
 
 
 
 
 
 
 
Marketable securities
 
 
 
 
 
 
 
U.S. government agency obligations
$

 
$

 
$
1,215

 
$
1,215

Total Financial Assets
$

 
$

 
$
1,215

 
$
1,215

Financial Liabilities:
 
 
 
 
 
 
 
Contingent consideration for acquisition earn out
$

 
$

 
$
10,766

 
$
10,766

Total Financial Liabilities
$

 
$

 
$
10,766

 
$
10,766

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value Measurements using
inputs considered as:
 
Fair Value at May 31,
2017
(in thousands)
Level 1
 
Level 2
 
Level 3
 
 
Financial Assets:
 
 
 
 

 

Marketable securities
 
 
 
 
 
 
 
U.S. government agency obligations
$

 
$

 
$
1,215

 
$
1,215

Total Financial Assets
$

 
$

 
$
1,215

 
$
1,215

Financial Liabilities:
 
 
 
 
 
 
 
Contingent consideration for acquisition earn out
$

 
$

 
$
12,761

 
$
12,761

Total Financial Liabilities
$

 
$

 
$
12,761

 
$
12,761

There were no transfers between Level 1, 2 and 3 for the three months ended August 31, 2017 .

14


The table below presents the changes in fair value components of Level 3 instruments in the three months ended August 31, 2017 (in thousands of dollars):

Three Months Ended August 31, 2017

Financial Assets

Financial Liabilities
(in thousands)
Fair Value Measurements
Using Significant
Unobservable Inputs
(Level 3)

Fair Value Measurements
Using Significant
Unobservable Inputs
(Level 3)
Balance, May 31, 2017
$
1,215


$
12,761

Total gains or losses (realized/unrealized):





Change in present value of contingent consideration


105

Contingent consideration payments


(2,100
)
Balance, August 31, 2017
$
1,215


$
10,766

Contingent Consideration for Acquisition Earn Outs
Some of our business combinations involve the potential for the payment of future contingent consideration upon the achievement of certain product development milestones or various other performance conditions. Payment of the additional consideration is generally contingent on the acquired company reaching certain performance milestones, including attaining specified revenue levels or product development targets. Contingent consideration is recorded at the estimated fair value of the contingent payments on the acquisition date. The fair value of the contingent consideration is remeasured at the estimated fair value at each reporting period with the change in fair value recognized as income or expense within change in fair value of contingent consideration in the consolidated statements of income.
We measure the initial liability and remeasure the liability on a recurring basis using Level 3 inputs as defined under authoritative guidance for fair value measurements and is determined using a discounted cash flow model applied to projected net sales, using probabilities of achieving projected net sales and projected payment dates. Projected net sales are based on our internal projections and extensive analysis of the target market and the sales potential. Increases or decreases in any valuation inputs in isolation may result in a significantly lower or higher fair value measurement in the future.
The recurring Level 3 fair value measurements of the contingent consideration liabilities include the following significant unobservable inputs as of August 31, 2017 (in thousands of dollars):
 
 
Fair value at
 
Valuation
 
 
 
 
(in thousands)
Aug 31, 2017
 
Technique
 
Unobservable Input
 
Range
Revenue based payments
$
10,766

 
Discounted cash flow
 
Discount rate
 
4%
 
 
 
 
 
Probability of payment
 
100%
 
 
 
 
 
Projected fiscal year of payment
 
2018-2020
At August 31, 2017 , the estimated potential amount of undiscounted future contingent consideration that we expect to pay as a result of all completed acquisitions is approximately $11.0 million , which represents the remaining contractual minimum payments.

11. MARKETABLE SECURITIES
Marketable securities, which can be government agency bonds, auction rate investments or corporate commercial paper, are classified as “available-for-sale securities” and are reported at fair value, with unrealized gains and losses excluded from operations and reported as accumulated other comprehensive income (loss), net of the related tax effects, in stockholders’ equity. Cost is determined using the specific identification method. We hold an investment in an auction rate security that is high credit quality and generally achieved with municipal bond insurance. Sell orders for any security traded through an auction process could exceed bids and, in such cases, the auction fails and we may be unable to liquidate our position in the security in the near term. We have not participated in any recent auctions. As of August 31, 2017 and May 31, 2017 , we had $1.2 million and $1.2 million , respectively, in investments in one auction rate security. The authorities are current in their interest payments on the security. The auction rate security will mature in 2029.
As of August 31, 2017 and May 31, 2017 , marketable securities consisted of the following (in thousands of dollars):

15


 
 
August 31, 2017
(in thousands)
Amortized
cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
Available-for-sale securities:
 
 
 
 
 
 
 
Government agency obligations
$
1,350

 
$

 
$
(135
)
 
$
1,215

 
$
1,350

 
$

 
$
(135
)
 
$
1,215

 
 
May 31, 2017
(in thousands)
Amortized
cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
Available-for-sale securities:
 
 
 
 
 
 
 
Government agency obligations
$
1,350

 
$

 
$
(135
)
 
$
1,215

 
$
1,350

 
$

 
$
(135
)
 
$
1,215



12. COMMITMENTS AND CONTINGENCIES    

Legal Proceedings

The Company is involved in various legal proceedings, including commercial, intellectual property, product liability, and regulatory matters of a nature considered normal for its business. The Company accrues for amounts related to these matters if it is probable that a liability has been incurred, and an amount can be reasonably estimated. The Company discloses such matters when there is at least a reasonable possibility that a material loss may have been incurred. However, the Company cannot predict the outcome of any litigation or the potential for future litigation.
 
C.R. Bard, Inc. v. AngioDynamics, Inc.

On January 11, 2012, C.R. Bard, Inc. (“Bard”) filed a suit in the United States District Court of Utah claiming certain of our implantable port products infringe on three U.S. patents held by Bard (the "Utah Action"). Bard is seeking unspecified damages and other relief. The Court denied Bard’s motion for pre-trial consolidation with separate actions it filed on the same day against Medical Components, Inc. and Smiths Medical ASD, Inc., but had asked for supplemental briefing on the issue of whether to conduct a common Markman hearing. Meanwhile, we filed petitions for reexamination in the US Patent and Trademark Office ("PTO") which seek to invalidate all three patents asserted by Bard in the litigation. Our petitions were granted and 40 of Bard's 41 patent claims were rejected and, following further proceedings, the Patent Office issued a Final Rejection of all 40 claims subject to reexamination. Thereafter, Bard filed appeals to the PTO Board of Appeals and Interferences for all three reexams. The parties completed briefing on the appeals and oral argument was held on June 18, 2015. The Patent Office issued decisions in the three appeals. In one (issued on March 11, 2016 for US Patent No. 7,785,302), the rejections of six of the ten claims under reexamination were affirmed, but were reversed on four of the ten claims. In the second (issued on March 24, 2016 for U.S. Patent No. 7,959,615), the rejections of eight of the ten claims under reexamination were affirmed but the rejections of the other two of the ten claims were reversed. In the third (issued on March 29 for U.S. Patent No. 7,947.022) the rejections of all twenty claims under reexamination were affirmed. Thereafter, Bard filed Requests for Rehearing in all three reexamination appeals and the Company filed Requests for Rehearing in two of the reexamination appeals (the ‘302 and ‘615 patent reexaminations). Each party filed comments in Opposition to the other party’s Rehearing Requests, The PTO has since issued decisions denying all Rehearing Requests on February 1, 2017 for the ‘302; on February 17, 2017 for the ‘022; and on February 21, 2017 for the ‘615. In the ‘302 and ‘022, the PTO modified its characterization of one prior art reference. Bard has since filed a Notice of Appeal to the Federal Circuit Court of Appeals in all three reexams and the Company has filed Cross-Appeals in the ‘302 and the ‘615 reexams. The parties are in the process of preparing and filing the various appellate briefs, starting with Bard’s Opening Brief which was served on August 30, 2017 and ending with our Reply Brief which is currently due on December 6, 2017.   The Utah Action has been stayed pending final resolution of the PTO process. However, Bard has moved to substitute Bard Peripheral Vascular, Inc. ("BPV") as plaintiff because Bard assigned the asserted patents to BPV on July 12, 2016, but the Company has opposed. We believe these claims are without merit and intend

16


to defend them vigorously. We have not recorded an expense related to the outcome of this litigation because it is not yet possible to determine if a potential loss is probable nor reasonably estimable.

On March 10, 2015, C.R. Bard, Inc. ("Bard") and Bard Peripheral Vascular, Inc. (“BPV”) filed suit in the United States District Court for the District of Delaware claiming certain of our implantable port products infringe on three U.S. patents held by Bard (the “Delaware Action"). Bard is seeking unspecified damages and other relief. The patents asserted in the Delaware Action are different than those asserted in the Utah Action. On June 1, 2015, the Company filed two motions in response to Bard’s Complaint - one sought transfer to the District of Utah where the Utah Action is currently pending, and the other sought dismissal of the entire complaint on grounds that none of the claims in the asserted patents is directed to patent eligible subject matter under Section 101 of the Patent Statute and in light of recent authority from the U. S. Supreme Court. On January 12, 2016, the court issued a decision denying both motions. We have since served an Answer and Counterclaim to which Bard has served a Reply. On March 10, 2016, the Court held a case management conference, and, on March 14, 2016, the court entered a Scheduling Order which set, inter alia, a Markman hearing for March 10, 2017, a summary judgment hearing for December 8, 2017 and trial for March 12, 2018. The parties have served various discovery requests on each other, and have been producing documents to each other; on May 27, 2016 Bard served its Infringement Contentions which identified all the port products accused of infringement; and, on June 24, 2016, we served Invalidity Contentions which detail various grounds for invalidating the three asserted patents. The parties completed briefing on the claim construction issues and the Markman hearing was held on March 10, 2017 and the Court issued its Claim Construction Order on May 19, 2017. The Court has since amended the Scheduling Order to provide for the completion of Expert Discovery on October 30, 2017; briefing on Case-Dispositive Motions between November 17, 2017 and January 24, 2018 with oral argument set for February 22, 2018 and trial to commence May 29, 2018. Meanwhile, Bard also sought to substitute BPV as plaintiff in this case via a Supplemental Complaint, but stipulated that the Company could assert in Cross-Claims and/or Third-Party complaint against Bard for our claims of inequitable conduct and unclean hands, which the Company has since done. BPV responded with a partial Motion to Dismiss and the Company has served an amended Answer, Counterclaims and Cross-Claims/Third-Party Complaint. BPV/Bard responses are due September 29, 2017. We believe these claims are without merit and intend to defend them vigorously. We have not recorded an expense related to the outcome of this litigation because it is not yet possible to determine if a potential loss is probable nor reasonably estimable.

AngioDynamics, Inc. v. C.R. Bard, Inc.

On May 30, 2017, we commenced an action in the United States District Court for the Northern District of New York entitled AngioDynamics, Inc. v. C.R. Bard, Inc. and Bard Access Systems, Inc. (“Bard”).  In this action, we allege that Bard has illegally tied the sales of its tip location systems to the sales of its PICCs.  We allege that this practice violates the federal antitrust laws and has had, and continues to have, an anti-competitive effect in the market for PICCs.  We seek both monetary damages and injunctive relief. Bard moved to dismiss on September 8, 2017 and set a return date of November 16, 2017.  The court has adjourned the initial conference in the case pending its resolution of the motion to dismiss.

Governmental Investigations

In June 2014 we received a subpoena from the U.S. Department of Justice (the “DOJ”) requesting documents in relation to a criminal and civil investigation the DOJ is conducting regarding BTG International, Inc.’s LC Bead® product beginning in 2003.  RITA Medical Systems and AngioDynamics, Inc., after its acquisition of RITA, was the exclusive distributor of LC Beads in the United States from 2006 through December 31, 2011.  We are cooperating fully with this investigation.

In April 2015 we received a subpoena from the DOJ requesting documents in relation to a criminal and civil investigation the DOJ is conducting regarding purported promotion of certain of AngioDynamics’ VenaCure EVLT products for un-cleared indications.  We are cooperating fully with this investigation.

As of May 31, 2017, the Company accrued $12.5 million for these matters and in August 2017 the Company agreed in principle with the government to resolve these matters for approximately $12.5 million .


13. ACQUISITION, RESTRUCTURING, AND OTHER ITEMS, NET

Acquisition, Restructuring and Other Items
For the three months ended August 31, 2017 and 2016 acquisition, restructuring and other items, net consisted of:


17


 
Three Months Ended
(in thousands)
Aug 31, 2017
 
Aug 31, 2016
Legal
$
1,764

 
$
1,790

Restructuring
1,216

 

Other
9

 
627

Total
$
2,989

 
$
2,417


Restructuring

The Company evaluates its performance and looks for opportunities to improve the overall operations of the Company on an ongoing basis. As a result of this evaluation, certain restructuring initiatives are taken to enhance the Company’s overall operations.
Operational Consolidation
On February 1, 2017, the Company announced to employees an operational consolidation plan (the “plan”) to consolidate our manufacturing facilities in Manchester, GA and Denmead, UK into the Glens Falls and Queensbury, NY facilities. This plan will streamline and optimize the manufacturing functions into one centralized location increasing the utilization of the Glens Falls and Queensbury facilities, optimizing inventory and reducing cost of goods sold through savings in overhead expenses and direct labor. The restructuring activities associated with the plan are expected to be completed in the third quarter of fiscal year 2018.
The following table provides a summary of our estimated costs associated with the plan:
Type of cost
 
Total estimated amount expected to be incurred (in millions)
Termination benefits
 
$1.75 to $2.25
Plant Consolidation (1)
 
$2.25 to $2.50
Regulatory filings
 
$0.75 to $1.00
Contract cancellations
 
$0.75 to $1.00
Other
 
$0.75 to $1.00
 
 
$6.25 to $7.75
(1) Equipment transfer, validation and other start-up costs to prepare the facilities for the new product lines.
The Company recorded restructuring charges related to the plan during the three months ended August 31, 2017 of $1.2 million . There were no costs associated with this plan during the three months ended August 31, 2016 . Termination benefits are only earned if an employee stays until their termination date; therefore, the expenses related to termination benefits are being recorded ratably over the service period.
The following table presents a rollforward of the restructuring reserve for the first quarter of fiscal year 2018:
 
 
 
 
 
 
 
 
Contract
 
 
 
 
 
 
Termination
 
Plant
 
Regulatory
 
Cancellation
 
Other
 
 
 
 
Benefits
 
Consolidation
 
Filings
 
Costs
 
Costs
 
Total
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Balance at May 31, 2017
 
$
851

 
$
111

 
$

 
$

 
$

 
$
962

Charges
 
594

 
600

 

 

 
22

 
1,216

Non-cash adjustments
 

 
(108
)
 

 

 

 
(108
)
Cash payments
 
(71
)
 
(555
)
 

 

 
(21
)
 
(647
)
Balance at August 31, 2017
 
$
1,374

 
$
48

 
$

 
$

 
$
1

 
$
1,423


18


The Company’s restructuring liability of $1.4 million mainly comprises accruals for termination benefits which are included in accrued expenses on the consolidated balance sheet.

14. ACCUMULATED OTHER COMPREHESIVE INCOME (LOSS)

Changes in each component of accumulated other comprehensive income (loss), net of tax, are as follows as of August 31, 2017 and 2016 :

(in thousands)
 
Foreign currency translation gain (loss)
 
Unrealized gain (loss) on marketable securities
 
Total
Balance at May 31, 2017
 
$
(1,305
)
 
$
(19
)
 
$
(1,324
)
Other comprehensive income (loss) before reclassifications, net of tax
 
283

 

 
283

Amounts reclassified from accumulated other comprehensive income
 

 

 

Net other comprehensive income (loss)
 
$
283

 
$

 
$
283

Balance at August 31, 2017
 
$
(1,022
)
 
$
(19
)
 
$
(1,041
)


15. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Recently Issued Accounting Pronouncements - Adopted

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Based Compensation (Topic 718: Improvements to Employee Share-Based Payment Accounting) . ASU 2016-09 simplifies and improves various aspects of ASC 718 for share-based payments, including income tax items and the classification of these items on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 31, 2016 and early application is permitted. The Company adopted ASU 2016-09 as of June 1, 2017.

Under ASU 2016-09, the Company now recognizes unrealized excess tax benefits and will classify such benefits as an operating activity in the statement of cash flows on a prospective basis. Due to the full valuation allowance on our federal and state income taxes, the adoption of ASU 2016-09 did not impact our accounting for income taxes. Without the valuation allowance, we estimate that we would have recognized a deferred tax asset of approximately $0.6 million upon adoption of ASU 2016-09.
The Company elected the accounting policy change to account for forfeitures as they occur. This was adopted using the modified retrospective transition method by means of a cumulative-effect adjustment to equity as of June 1, 2017. The adoption of ASU 2016-09 did not materially impact the Company’s consolidated statements of income, consolidated balance sheet, equity or cash flows.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) , which simplifies the subsequent measurement of goodwill by eliminating steps from the goodwill impairment test. ASU 2017-04 should be adopted for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. ASU 2017-04 should be applied prospectively and early adoption is permitted, including adoption in an interim period. The Company adopted ASU 2017-04 in the first quarter of fiscal year 2018. This adoption did not have an impact on the Company's financial statements.

In July 2015, the FASB issued ASC Update No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory . Update No. 2015-11 more closely aligns the measurement of inventory in U.S. GAAP with the measurement of inventory in International Financial Reporting Standards by requiring companies using the first-in, first-out and average costs methods to measure inventory using the lower of cost and net realizable value, where net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Update No. 2015-11 is effective for annual reporting periods beginning after December 15, 2016 and interim periods within those fiscal years. Update No. 2015-11 should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. This adoption did not have an impact on the Company's financial statements.

19





Recently Issued Accounting Pronouncements - Not Yet Applicable or Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09) . ASU 2014-09 provides a single, comprehensive accounting model for revenues arising from contracts with customers that supersedes most of the existing revenue recognition guidance, including industry-specific guidance. Under this model, revenue is recognized at an amount that an entity expects to be entitled to upon transferring control of goods or services to a customer, as opposed to when risks and rewards transfer to a customer under existing revenue recognition guidance. ASU 2014-09 is effective for the Company beginning in its fiscal year 2019, and may be applied retrospectively to all prior periods presented or through a cumulative adjustment to the opening retained earnings balance in the year of adoption. The Company is currently in the process of evaluating the impact of ASU 2014-09 on its consolidated financial statements.
    
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . ASU 2016-02 increases transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. For leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and early application is permitted. The Company is currently in the process of evaluating the impact of ASU 2016-02 on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15) . ASU 2016-15 identifies how certain cash receipts and cash payments are presented and classified in the Statement of Cash Flows under Topic 230. ASU 2016-15 is effective for the Company for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. ASU 2016-15 should be applied retrospectively and early adoption is permitted, including adoption in an interim period. The Company is currently in the process of evaluating the impact of ASU 2016-15 on its consolidated financial statements.

Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following information should be read together with the consolidated financial statements and the notes thereto and other information included elsewhere in this quarterly report on Form 10-Q.
Forward-Looking Statements
This quarterly report on Form 10-Q, including the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements regarding AngioDynamics’ expected future financial position, results of operations, cash flows, business strategy, budgets, projected costs, capital expenditures, products, competitive positions, growth opportunities, plans and objectives of management for future operations, as well as statements that include the words such as “expects,” “reaffirms,” “intends,” “anticipates,” “plans,” “believes,” “seeks,” “estimates,” or variations of such words and similar expressions, are forward-looking statements. These forward looking statements are not guarantees of future performance and are subject to risks and uncertainties. Investors are cautioned that actual events or results may differ from our expectations. Factors that may affect our actual results achieved include, without limitation, our ability to develop existing and new products, future actions by FDA or other regulatory agencies, results of pending or future clinical trials, the results of ongoing litigation, overall economic conditions, general market conditions, market acceptance, foreign currency exchange rate fluctuations, the effects on pricing from group purchasing organizations and competition, as well as our ability to integrate purchased businesses. Other risks and uncertainties include, but are not limited to, the factors described from time to time in our reports filed with the SEC.
Although we believe 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 quarterly report on Form 10-Q 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 us or any other person that our objectives and plans will be achieved. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. AngioDynamics disclaims any obligation to update the forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date stated, or if no date is stated, as of the date of this document.

20



EXECUTIVE OVERVIEW

Company and Market

We design, manufacture and sell a wide range of medical, surgical and diagnostic devices used by professional healthcare providers for vascular access, for the treatment of peripheral vascular disease and for use in oncology and surgical settings. Our devices are generally used in minimally invasive, image-guided procedures. Most of our products are intended to be used once and then discarded, or they may be temporarily implanted for short- or longer-term use.

Our business operations cross a variety of markets. Our financial performance is impacted by changing market dynamics, which have included an emergence of value-based purchasing by healthcare providers, consolidation of healthcare providers, the increased role of the consumer in health care decision-making and an aging population, among others. In addition, our growth is impacted by changes within our sector, such as the merging of competitors to gain scale and influence; changes in the regulatory environment for medical devices; and fluctuations in the global economy.

Our sales and profitability growth also depends, in part, on the introduction of new and innovative products, together with ongoing enhancements to our existing products. Expansions to our product offerings are created through internal product development, technology licensing and strategic alliances. We recognize the importance of, and intend to continue to make investments in, research and development activities and business development opportunities. We feel confident that our existing capital structure and free cash flow generation will allow us to properly fund those activities.

We sell our products in the United States primarily through a direct sales force, and outside the U.S. through a combination of a direct sales and distributor relationships. We expect our businesses to grow in both sales and profitability through geographic expansion, market penetration, new product introductions and increasing our direct presence internationally.

During the first quarter of fiscal 2018, AngioDynamics announced:

the FDA clearance for the Solero Microwave Tissue Ablation System;
migration from independent US and international sales strategies to a global sales strategy; and
a lawsuit filed against C.R. Bard for violating Federal Antitrust Laws.

In evaluating the operating performance of our business, management focuses on revenue, gross margin, operating income, earnings per share and cash flow from operations. A summary of these key financial metrics for the quarter ended August 31, 2017 compared to the quarter ended August 31, 2016 are as follows:

First quarter 2018:

Revenue decreased by 3% to $85.4 million
Gross margin decreased by 2.8% to 48.3%
Operating income decreased by $3.4 million to $0.1 million
Earnings per share decreased by $0.04 to $0.00
Cash flow from operations decreased by $4.4 million to $3.0 million

The decline in revenue during the first quarter was primarily driven by declines in Venous and Core within Peripheral Vascular and non-BioFlo products within Vascular Access. Of the decline in Core, $1.6 million is related to the Angiographic Catheter business. During the first quarter of the 2017 fiscal year, we saw a $4.0 million increase in sales as a result of the inventory build by our customers related to a previously disclosed competitor product recall.

The decline was partially offset by 11% growth in the Oncology/Surgery Global Business Unit primarily as a result of sales associated with Solero, a microwave ablation device that received FDA clearance during the first quarter of fiscal year 2018. Other areas of growth include Fluid Management and Thrombus Management within Peripheral Vascular, the BioFlo family of products within Vascular Access, and NanoKnife disposables within Oncology/Surgery.

New Accounting Pronouncements

Information regarding new accounting pronouncements is included in Note 15 to our consolidated financial statements in this Quarterly Report on Form 10-Q.


21



Results of Operations for the Three Months ended August 31, 2017 and 2016

For the three months ended August 31, 2017 , we reported a net loss of $0.04 million , or $0.00 loss per diluted share, on net sales of $85.4 million , compared with net income of $1.3 million , or $0.04 per share, on net sales of $88.1 million during the same quarter of the prior year.

Net Sales

Net sales - Net sales are derived from the sale of our products and related freight charges, less discounts and returns.

Net sales for the three months ended August 31, 2017 and 2016 :

 
Three months ended
 
Aug 31, 2017
 
Aug 31, 2016
 
% Growth
Net Sales by Product Category
 
 
 
 
 
       Peripheral Vascular
$
49,865

 
$
52,029

 
(4)%
       Vascular Access
23,238

 
25,005

 
(7)%
       Oncology/Surgery
12,308

 
11,064

 
11%
            Total
$
85,411

 
$
88,098

 
(3)%
 
 
 
 
 
 
Net Sales by Geography
 
 
 
 
 
       United States
$
68,931

 
$
72,208

 
(5)%
       International
16,480

 
15,890

 
4%
           Total
$
85,411

 
$
88,098

 
(3)%
 
 
 
 
 
 
For the three months ended August 31, 2017 , net sales decreased $2.7 million to $85.4 million compared to the same period in the prior year.
Consolidated and U.S. net sales decreased from the prior year as a result of decreased net sales from Peripheral Vascular and Vascular Access. This decrease was partially offset by 11% year over year growth in our Oncology/Surgery Global Business Unit.

Peripheral Vascular

Total Peripheral Vascular sales decreased $2.2 million primarily attributable to decreased sales volume of Venous and Angiographic products of $3.1 million. The decrease in our Angiographic product line is related to the prior year volume from backorders related to a competitor recall. Softness in Venous was offset by strong performance in our Fluid Management product line, which increased $1.2 million year over year. The increase in Fluid Management was attributed to the Fluid Management dedicated sales team being fully staffed and promoting new custom kits.
U.S. Peripheral Vascular sales decreased $1.3 million and international Peripheral Vascular sales decreased $0.8 million, which was primarily due to decreased sales volume of Venous and Angiographic products. This decreased sales volume was offset by an increase in volume in Fluid Management.

Vascular Access

Total Vascular Access sales decreased $1.8 million primarily in our non-BioFlo businesses. Our BioFlo product lines grew 1% year over year and now comprise 49% of our overall vascular access sales, compared to 45% a year ago.
U.S. Vascular Access sales declined by 7% due to softness across the portfolio offset by Midline, BioFlo Dialysis and BioFlo Ports which continued to gain traction in the marketplace.
International Vascular Access sales decreased 8% which was partially offset by the market penetration of BioFlo PICCs.

22




Oncology/Surgery

Total Oncology/Surgery sales increased $1.2 million year over year primarily due to the successful launch of our Solero product line, which generated $1.6 million of growth year over year. Growth in NanoKnife disposables was 13% year over year, which was offset with timing of capital sales compared to prior year.
U.S. Oncology/Surgery declined by 8%, driven primarily by the timing of NanoKnife capital sales of $0.6 million and market challenges in the Radiofrequency Ablation product line of $0.5 million partially offset by increased Microwave disposable sales of $0.7 million.
International Oncology/Surgery sales increased 41% year over year as a result of Microwave capital and disposable sales of $0.9 million and NanoKnife disposable sales of $0.6 million.
Gross Profit, Operating expenses, and Other income (expense)
 
 
Three months ended
 
 
Aug 31, 2017
 
Aug 31, 2016
 
% Change
Gross profit
 
$
41.2

 
$
45.0

 
(8
)%
Gross profit % of sales
 
48.3
%
 
51.1
%
 

Research and development
 
$
6.4

 
$
6.7

 
(4
)%
% of sales
 
7.5
%
 
7.6
%
 

Selling and marketing
 
$
19.4

 
$
19.5

 
(1
)%
% of sales
 
22.7
%
 
22.1
%
 

General and administrative
 
$
8.1

 
$
8.2

 
(1
)%
% of sales
 
9.4
%
 
9.3
%
 


Gross profit - Gross profit consists of net sales less the cost of goods sold, which includes the costs of materials, products purchased from third parties and sold by us, manufacturing personnel, royalties, freight, business insurance, depreciation of property and equipment and other manufacturing overhead, exclusive of intangible amortization.

Gross profit decreased by $3.8 million compared to the prior year. The decrease is attributable to the following:
    
In first quarter of fiscal year 2018, gross profit was negatively impacted by the market withdrawal of Acculis capital systems by $0.5 million. Softer volume in the plant resulted in a negative $1.0 million impact on gross profit, along with $0.9 million of pricing headwinds and mix of product sales compared to prior year.

Research and development expenses - Research and development (“R&D”) expenses include internal and external costs to develop new products, enhance existing products, validate new and enhanced products, and manage clinical, regulatory and medical affairs.

R&D expense decreased $0.3 million compared to the prior year. The decrease is attributable to the following:

Timing of project spend in the first quarter of fiscal year 2018 compared to prior year was down $0.2 million along with open positions contributing $0.1 million of favorability.
R&D expense as a percentage of sales decreased slightly year over year as a result of the lower R&D expense along with lower sales in the first quarter of fiscal year 2018.

Sales and marketing expenses - Sales and marketing (“S&M”) expenses consist primarily of salaries, commissions, travel and related business expenses, attendance at medical society meetings, product promotions and marketing activities.

S&M expense decreased by $0.1 million compared to the prior year. The decrease is attributable to the following:

A decrease in compensation and benefits of approximately $0.6 million, which was primarily the result of a new commissions plan implemented fiscal year 2018 offset by higher compensation and bonus due to additional employees and accrued severance. The new commissions plan structure is better aligned with the organizations product and revenue growth goals.

23



The decrease in compensation and benefits was partially offset by increased travel of clinical specialists of $0.2 million, increased sample expense related to Solero of $0.2 million and other expenses of approximately $0.2 million.
As a result of the lower S&M expenses along with lower sales in the first quarter of fiscal year 2018, the percentage of S&M to sales increased 0.6%.

General and administrative expenses - General and administrative (“G&A”) expenses include executive management, finance, information technology, human resources, business development, legal, and the administrative and professional costs associated with those activities.

G&A expense decreased by $0.1 million compared to the prior year. The decrease is attributable to the following:

Decreased benefits expense of approximately $0.3 million, lower depreciation of $0.2 million and a decrease in recruiting and relocation expenses of approximately $0.3 million.
The decreases above were partially offset by increased professional fees of $0.5 million and other miscellaneous expenses of $0.2 million.
 
 
Three months ended
 
 
Aug 31, 2017
 
Aug 31, 2016
 
$ Change
Amortization of intangibles
 
$
4.1

 
$
4.2

 
$
(0.1
)
Change in fair value of contingent consideration
 
$
0.1

 
$
0.4

 
$
(0.3
)
Acquisition, restructuring and other items, net
 
$
3.0

 
$
2.4

 
$
0.6

Other expense
 
$
(0.2
)
 
$
(0.7
)
 
$
0.5


Amortization of intangibles - Represents the amount of amortization expense that was taken on intangibles assets held by the Company.

The decrease of $0.1 million is primarily related to intangible assets that became fully amortized.

Change in fair value of contingent consideration - Represents changes in contingent consideration driven by changes to estimated future payments on earn-out liabilities created through acquisitions and amortization of present value discounts on long-term contingent consideration.

The decrease is due to the fact that in the second quarter of fiscal year 2017 the future sales projections for the AngioVac product were updated which resulted in the elimination of any payments above minimums. The normal amortization of the present value discount on the contingent liabilities is now approximately $0.1 million per quarter.

Acquisition, restructuring and other items, net - Represents costs associated with mergers and acquisitions, restructuring expenses, legal costs that are related to litigation that is not in the ordinary course of business, legal settlements and other one-time items.

Acquisition, restructuring and other items, net increased by $0.6 million compared to the prior year. The increase is attributable to the following:

There was $1.2 million of expense related to the plant consolidation that was announced in the third quarter of fiscal year 2017. The expense consisted mainly of severance of $0.6 million and start-up costs to move the product lines including equipment transfer expenses, accelerated depreciation for assets that will not be transferred, validation and other start up costs of $0.6 million.
Legal expenses of $1.8 million were recorded in both the first quarter of fiscal years 2018 and 2017.

Other expenses - Other expenses include interest expense, foreign currency impacts, bank fees, and amortization of deferred financing costs.

The decrease in other expenses of $0.5 million was due to unrealized foreign currency gains from re-measurement.



24



Income Tax Provision (Benefit)
 
 
Three months ended
 
 
Aug 31, 2017
 
Aug 31, 2016
Income tax expense (benefit)
 
$

 
$
1.6

Effective tax rate including discrete items
 
(118.8
)%
 
55.2
%

Our effective tax rate including discrete items for the three month periods ended August 31, 2017 and 2016 was (118.8%) and 55.2%, respectively.

The estimated annual effective tax rate, however, prior to discrete items was 52.9% in the first quarter of fiscal 2018, as compared to 55.2% for the same period in fiscal 2017. The Company’s effective tax rate differs from the U.S. statutory rate primarily due to the impact of the deferred tax liability related to indefinite lived intangibles, valuation allowance, foreign taxes and state taxes.

A valuation allowance is established if it is more likely than not that all, or a portion of the deferred tax asset will not be realized. The Company has established that it is more likely than not that some, or all of their deferred tax assets will not be recognized in future years. Consequently, the Company continues to maintain a full U.S. valuation allowance on its net deferred tax assets. Management will continue to reevaluate the positive and negative evidence at each reporting period and if future results as projected in the U.S. and our tax planning strategies are favorable, the valuation allowance may be removed, which could have a favorable material impact on our results of operations in the period in which it is recorded.

Liquidity and Capital Resources

Our cash and cash equivalents totaled $48.2 million as of August 31, 2017 , compared with $47.5 million as of May 31, 2017 . Marketable securities totaled $1.2 million as of August 31, 2017 and May 31, 2017 , and consist of an auction rate security. As of August 31, 2017 , total principal debt outstanding was $96.3 million and the fair value of contingent consideration payments was $10.8 million .
The table below summarizes our cash flows for the three months ended August 31, 2017 and 2016 :
 
 
Three Months Ended
(in thousands)
Aug 31, 2017
 
Aug 31, 2016
Cash provided by (used in):
 
 
 
Operating activities
$
3,036

 
$
7,440

Investing activities
(501
)
 
(481
)
Financing activities
(2,538
)
 
(1,797
)
Effect of exchange rate changes on cash and cash equivalents
659

 
(84
)
Net change in cash and cash equivalents
$
656

 
$
5,078


During the three months ended August 31, 2017 and 2016 , cash flows consisted of the following:

Cash provided by operating activities

Net loss was driven by lower sales and gross margins.
With regards to working capital, the Company focused on optimizing DSO which contributed to $3.1 million of working capital improvement. This working capital improvement was offset by a $7.2 million decrease in accounts payable and accrued liabilities from May 31, 2017, along with a decrease in the Acculis inventory reserve of $0.5 million and inventory build related to the plant consolidation.

Cash used in investing activities

$0.5 million in fixed asset additions which is consistent with the prior year.


25



Cash used in financing activities

$1.3 million in repayments on long-term debt in the first quarter of fiscal year 2018 compared to $2.5 million in the first quarter of fiscal year 2017. The decrease from the prior year is the result of the Credit Agreement that was entered into in the second quarter of fiscal 2017 that had decreased principal payments.
$0.8 million of proceeds from stock option and ESPP activity compared to $2.8 million in the first quarter of the prior year. The large decrease is related to the exercise of stock based awards from executive management turnover that took place in fiscal year 2017.
$2.1 million payment on earn-out liabilities which is consistent with the prior year.
On November 7, 2016, the Company entered into a Credit Agreement that provides for a $100.0 million senior secured term loan facility and a $150.0 million senior secured revolving credit facility, which includes up to a $20.0 million sublimit for letters of credit and a $5.0 million sublimit for swingline loans.
We believe that our current cash and investment balances, together with future cash generated from operations and our revolving credit facility capacity of up to $150.0 million as of August 31, 2017 , will provide sufficient liquidity to meet our anticipated needs for capital for at least the next 12 months. If we seek to make significant acquisitions of other businesses or technologies in the future, we may require additional external financing.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.

FOREIGN CURRENCY EXCHANGE RATE RISK

We are exposed to market risk from changes in currency exchange rates, as well as interest rate fluctuations on our credit facility and investments that could impact our results of operations and financial position.

We transact sales in currencies other than the U.S. Dollar, particularly the Euro, British pound and Canadian dollar. Approximately 7% of our sales in the first quarter of fiscal 2018 were denominated in foreign currencies. We do not have expenses denominated in foreign currencies at the level of our sales and as a result, our profitability is exposed to currency fluctuations. When the U.S. Dollar strengthens, our sales and gross profit will be negatively impacted. In addition, we have assets and liabilities denominated in non-functional currencies which are remeasured at each reporting period, with the offset to changes presented as a component of Other (Expenses) Income. Significant non-functional balances include accounts receivable due from a sub-section of our international customers.

INTEREST RATE RISK

On November 7, 2016, we entered into the Credit Agreement which provides for a $100 million senior secured Term Loan and a $150 million Revolving Facility. Interest on both the Term Loan and Revolving Facility is based on a base rate or Eurodollar rate plus an applicable margin which increases as our total leverage ratio increases, with the base rate and Eurodollar rate having ranges of 0.50% to 1.25% and 1.50% to 2.25% respectively. In the event of default, the interest rate may be increased by 2.0%. A 50 basis point (0.50%) increase or decrease in the interest rate would result approximately in a $2.0 million increase or decrease in interest expense over the life of the agreement.

CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents, our credit facility and trade accounts receivable.

The Company maintains cash and cash equivalents at various institutions and performs periodic evaluations of the relative credit standings of these financial institutions to ensure their credit worthiness. In addition, the Credit Agreement is structured across five above investment grade banks. The Company has the ability to draw equally amongst the five banks which limits the concentration of credit risk of one institution.

Concentration of credit risk with respect to trade accounts receivable is limited due to the large number of customers that purchase products from the Company. No single customer represents more than 10% of total sales. The Company monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business. Although the Company does not currently foresee a significant credit risk associated with the outstanding accounts receivable, repayment is dependent upon the financial stability of our customers.

26


Item 4.
Controls and Procedures.

Evaluation of disclosure controls and procedures

As of the end of the period covered by this report, our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting for the fiscal quarter ended August 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

AngioDynamics, Inc. and Subsidiaries
PART II: OTHER INFORMATION
Item 1.
Legal Proceedings.

C.R. Bard, Inc. v. AngioDynamics, Inc.

On January 11, 2012, C.R. Bard, Inc. (“Bard”) filed a suit in the United States District Court of Utah claiming certain of our implantable port products infringe on three U.S. patents held by Bard (the "Utah Action"). Bard is seeking unspecified damages and other relief. The Court denied Bard’s motion for pre-trial consolidation with separate actions it filed on the same day against Medical Components, Inc. and Smiths Medical ASD, Inc., but had asked for supplemental briefing on the issue of whether to conduct a common Markman hearing. Meanwhile, we filed petitions for reexamination in the US Patent and Trademark Office ("PTO") which seek to invalidate all three patents asserted by Bard in the litigation. Our petitions were granted and 40 of Bard's 41 patent claims were rejected and, following further proceedings, the Patent Office issued a Final Rejection of all 40 claims subject to reexamination. Thereafter, Bard filed appeals to the PTO Board of Appeals and Interferences for all three reexams. The parties completed briefing on the appeals and oral argument was held on June 18, 2015. The Patent Office issued decisions in the three appeals. In one (issued on March 11, 2016 for US Patent No. 7,785,302), the rejections of six of the ten claims under reexamination were affirmed, but were reversed on four of the ten claims. In the second (issued on March 24, 2016 for U.S. Patent No. 7,959,615), the rejections of eight of the ten claims under reexamination were affirmed but the rejections of the other two of the ten claims were reversed. In the third (issued on March 29 for U.S. Patent No. 7,947.022) the rejections of all twenty claims under reexamination were affirmed. Thereafter, Bard filed Requests for Rehearing in all three reexamination appeals and the Company filed Requests for Rehearing in two of the reexamination appeals (the ‘302 and ‘615 patent reexaminations). Each party filed comments in Opposition to the other party’s Rehearing Requests, The PTO has since issued decisions denying all Rehearing Requests on February 1, 2017 for the ‘302; on February 17, 2017 for the ‘022; and on February 21, 2017 for the ‘615. In the ‘302 and ‘022, the PTO modified its characterization of one prior art reference. Bard has since filed a Notice of Appeal to the Federal Circuit Court of Appeals in all three reexams and the Company has filed Cross-Appeals in the ‘302 and the ‘615 reexams. The parties are in the process of preparing and filing the various appellate briefs, starting with Bard’s Opening Brief which was served on August 30, 2017 and ending with our Reply Brief which is currently due on December 6, 2017.   The Utah Action has been stayed pending final resolution of the PTO process. However, Bard has moved to substitute Bard Peripheral Vascular, Inc. ("BPV") as plaintiff because Bard assigned the asserted patents to BPV on July 12, 2016, but the Company has opposed. We believe these claims are without merit and intend to defend them vigorously. We have not recorded an expense related to the outcome of this litigation because it is not yet possible to determine if a potential loss is probable nor reasonably estimable.

On March 10, 2015, C.R. Bard, Inc. ("Bard") and Bard Peripheral Vascular, Inc. (“BPV”) filed suit in the United States District Court for the District of Delaware claiming certain of our implantable port products infringe on three U.S. patents held by Bard (the “Delaware Action"). Bard is seeking unspecified damages and other relief. The patents asserted in the Delaware

27


Action are different than those asserted in the Utah Action. On June 1, 2015, the Company filed two motions in response to Bard’s Complaint - one sought transfer to the District of Utah where the Utah Action is currently pending, and the other sought dismissal of the entire complaint on grounds that none of the claims in the asserted patents is directed to patent eligible subject matter under Section 101 of the Patent Statute and in light of recent authority from the U. S. Supreme Court. On January 12, 2016, the court issued a decision denying both motions. We have since served an Answer and Counterclaim to which Bard has served a Reply. On March 10, 2016, the Court held a case management conference, and, on March 14, 2016, the court entered a Scheduling Order which set, inter alia, a Markman hearing for March 10, 2017, a summary judgment hearing for December 8, 2017 and trial for March 12, 2018. The parties have served various discovery requests on each other, and have been producing documents to each other; on May 27, 2016 Bard served its Infringement Contentions which identified all the port products accused of infringement; and, on June 24, 2016, we served Invalidity Contentions which detail various grounds for invalidating the three asserted patents. The parties completed briefing on the claim construction issues and the Markman hearing was held on March 10, 2017 and the Court issued its Claim Construction Order on May 19, 2017. The Court has since amended the Scheduling Order to provide for the completion of Expert Discovery on October 30, 2017; briefing on Case-Dispositive Motions between November 17, 2017 and January 24, 2018 with oral argument set for February 22, 2018 and trial to commence May 29, 2018. Meanwhile, Bard also sought to substitute BPV as plaintiff in this case via a Supplemental Complaint, but stipulated that the Company could assert in Cross-Claims and/or Third-Party complaint against Bard for our claims of inequitable conduct and unclean hands, which the Company has since done. BPV responded with a partial Motion to Dismiss and the Company has served an amended Answer, Counterclaims and Cross-Claims/Third-Party Complaint. BPV/Bard responses are due September 29, 2017. We believe these claims are without merit and intend to defend them vigorously. We have not recorded an expense related to the outcome of this litigation because it is not yet possible to determine if a potential loss is probable nor reasonably estimable.

AngioDynamics, Inc. v. C.R. Bard, Inc.

On May 30, 2017, we commenced an action in the United States District Court for the Northern District of New York entitled AngioDynamics, Inc. v. C.R. Bard, Inc. and Bard Access Systems, Inc. (“Bard”).  In this action, we allege that Bard has illegally tied the sales of its tip location systems to the sales of its PICCs.  We allege that this practice violates the federal antitrust laws and has had, and continues to have, an anti-competitive effect in the market for PICCs.  We seek both monetary damages and injunctive relief. Bard moved to dismiss on September 8, 2017 and set a return date of November 16, 2017.  The court has adjourned the initial conference in the case pending its resolution of the motion to dismiss.

Governmental Investigations

In June 2014 we received a subpoena from the U.S. Department of Justice (the “DOJ”) requesting documents in relation to a criminal and civil investigation the DOJ is conducting regarding BTG International, Inc.’s LC Bead® product beginning in 2003.  RITA Medical Systems and AngioDynamics, Inc., after its acquisition of RITA, was the exclusive distributor of LC Beads in the United States from 2006 through December 31, 2011.  We are cooperating fully with this investigation.

In April 2015 we received a subpoena from the DOJ requesting documents in relation to a criminal and civil investigation the DOJ is conducting regarding purported promotion of certain of AngioDynamics’ VenaCure EVLT products for un-cleared indications.  We are cooperating fully with this investigation.

As of May 31, 2017, the Company accrued $12.5 million for these matters and in August 2017 the Company agreed in principle with the government to resolve these matters for approximately $12.5 million .



28


Item 1A.
Risk Factors.
In addition to information set forth in this report, you should carefully consider the factors discussed in “Part I, Item 1A. Risk Factors” of our annual report on Form 10-K for our fiscal year ended May 31, 2017 which set forth information relating to important risks and uncertainties that could materially adversely affect our business, financial condition or operating results. You should review and consider such Risk Factors in making any investment decision with respect to our securities. An investment in our securities continues to involve a high degree of risk. There have been no material changes to the risk factors previously disclosed in our annual report on Form 10-K.

29


Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
The following table provides information with respect to the shares of the Company’s common stock repurchased during the three months ended August 31, 2017 :
 
 
Issuer Purchases of Equity Securities
Period
Total
Number of
Shares
Purchased
(1)
 
Average
Price Paid
per Share
 
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Programs
 
Maximum
Approximate
Dollar Value
of Shares
that May Yet
Be
Purchased
Under Plans
or Programs
June 1 - June 30, 2017

 
$

 

 
$

July 1 - July 31, 2017
5,761

 
$
16.09

 

 
$

August 1 - August 31, 2017
2,169

 
$
16.61

 

 
$

Total
7,930

 
$
16.23

 

 

 
(1)
The Company repurchased 7,930 shares during the three months ended August 31, 2017 from employees to satisfy tax withholding requirements on the vesting of restricted shares from equity-based awards.

Item 3.
Defaults on Senior Securities.
None.
Item 4.
Mine Safety Disclosures.
None.
Item 5.
Other Information.
None.

30


Item 6.
Exhibits.
EXHIBIT INDEX
 
No.
  
Description
 
 
 
 
 
 
 
10.1

 
 
 
 
10.2

 
 
 
 
31.1

 
 
 
31.2

 
 
 
32.1

 
 
 
32.2

 
 
 
 
101.INS

 
XBRL Instance Document
 
 
101.SCH

 
XBRL Schema Document
 
 
101.CAL

 
XBRL Calculation Linkbase Documents
 
 
101.DEF

 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
101.LAB

 
XBRL Labels Linkbase Documents
 
 
101.PRE

 
XBRL Presentation Linkbase Documents


31

Table of Contents

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.
 
 
 
 
 
ANGIODYNAMICS, INC.
 
 
 
 
(Registrant)
 
 
 
 
 
Date:
 
September 29, 2017
 
/ S /    JAMES C. CLEMMER       
 
 
 
 
James C. Clemmer, President,
Chief Executive Officer
(Principal Executive Officer)
 
 
 
Date:
 
September 29, 2017
 
/ S /    MICHAEL C. GREINER       
 
 
 
 
Michael C. Greiner, Executive Vice President,
Chief Financial Officer
(Principal Financial and Principal Accounting Officer)


32


Exhibit 10.1

ANGOLOGOA05.GIF

Total Shareholder Return Performance Unit Award Program (the “Program”)
Performance Period July 19, 2017 - July, 2020

I. Purpose of the Program
The purpose of the Program is to align AngioDynamics’ executive compensation program with the interests of shareholders and to reinforce the concept of pay for performance by comparing the relative Total Shareholder Return (“TSR”) of shares of AngioDynamics’ Common Stock (the “Common Stock”) to the TSR of a pre-defined peer group (the “Peer Group”) of companies over a three-year period beginning on July 19, 2017.

The Program entails the grant of Performance Unit Awards, and the program shall be administered under the AngioDynamics 2004 Stock and Incentive Award Plan, as amended (the “Plan”). Terms not defined in this Program document but defined in the Plan shall have the meaning ascribed to such term in the Plan. The Program is established under section 5.II of the Plan and is intended to qualify for the performance-based compensation exception under Section 162(m) of the Internal Revenue Code (“Code”).

II. Eligible Participants
The Program covers members of the Executive Management Team (“EMT”) on the date that awards are granted under the Program as determined and in the amounts established by the Board of Directors (the “Board”).

The Board may review Program eligibility criteria for Participants in the Program from time to time and may revise such criteria at any time, even within a Program year, with or without notice and within its sole discretion.

III. Performance Share Units
Pursuant to the Plan and this Program, the Board may, in its sole discretion, grant Performance Unit Awards to members of the EMT (the “Grant Date”). Each Performance Unit Award shall specify a target number of shares of Common Stock underlying the Performance Unit Award (the “Target Amount”). Shares of Common Stock underlying the Performance Unit Award granted under the Program (the “Performance Unit Awards”) shall be issued only upon satisfaction of both the performance vesting criteria described in this Section III and the payment eligibility criteria described in Section VII. The applicable performance criteria are based on the TSR of AngioDynamics’ Common Stock relative to the TSR of the common stock of the companies in the Peer Group.

The TSR for AngioDynamics and all other companies in the Peer Group will be measured over a three-year period beginning on July 19, 2017 and ending on the day AngioDynamics’ reports its annual financial results for its fiscal year ended May 31, 2020 (the “Performance Period”).

The number of shares of Common Stock that vest under the Performance Unit Award will be in a range of 0% to 200% of the Target Amount of shares of Common Stock pursuant to the Performance Unit Award





granted to the Participant based upon AngioDynamics’ TSR percentile ranking relative to the Peer Group as follows:

TSR Performance
Percentile Rank
Performance Share Units
as a Percent of Target
75th Percentile or above
200%
50th Percentile
100%
25th Percentile
50%
Below 25th Percentile
0%

If the minimum level of performance set forth above is achieved for the Performance Period, the number of shares of Common Stock vesting under the Performance Unit Award will be calculated linearly between each set of data points.

Following the end of the Performance Period, the Board shall determine the number of shares of Common Stock, based upon the total number of shares of Common Stock underlying the Target amount of the Performance Unit Award, that shall become vested pursuant to AngioDynamics’ relative TRS percentile rank during the Performance Period pursuant to the table set forth above.

The Board shall issue a number of shares of Common Stock underlying the Performance Unit Award to the Participant in accordance with this Program and the applicable grant agreement equal to the number of shares of Common Stock, if any, that vested in the Performance Period.

The Board’s determination regarding the Company’s performance to the performance criteria with respect to the Performance Period shall be final and binding.

Shares of Common Stock will be delivered or otherwise made available to the Participant as soon as practicable (and in all events within sixty (60) days) after the end of the Performance Period. Any shares of Common Stock underlying a Performance Unit Award as to which the performance criteria of this Section III have not been satisfied as of the end of the Performance Period will be forfeited in their entirety.

IV. Calculation of Total Shareholder Return and Definitions

The TSR for AngioDynamics and each other company in the Peer Group shall include any cash dividends paid during the Performance Period and shall be determined as follows:

Total Shareholder Return for each Performance Cycle =
(Change in Stock Price + Dividends Paid) / Beginning Stock Price

Beginning Stock Price ” with respect to AngioDynamics and each company in the Peer Group means the daily average closing price as quoted on the New York Stock Exchange or the NASDAQ Global Select Market, as applicable, of one (1) share of common stock for the period beginning on July 10, 2017 and ending on July 29, 2017.

Change in Stock Price ” means the difference between the Beginning Stock Price and the Ending Stock Price.






Dividends Paid ” means the total of all cash dividends paid on one (1) share of stock during the Performance Period.

Ending Stock Price ” with respect to AngioDynamics and each company in the Peer Group means the daily average closing price as quoted on the New York Stock Exchange or the NASDAQ Global Select Market, as applicable, of one (1) share of common stock for the period beginning nine (9) days prior to the date AngioDynamics announces its financial results for the fiscal year ended May 31, 2020 and ending 10 days after the date AngioDynamics announces its financial results for the fiscal year ended May 31, 2020.

Example: If the Beginning Stock Price for a company was $25.00 per share, and the company paid $2.50 in dividends over the Performance Period, and the Ending Stock Price was $30.00 per share (thereby making the Change in Stock Price $5.00 ($30.00 minus $25.00)), then the TSR for that company would be thirty percent (30%). The calculation is as follows: 0.30 = ($5.00 + $2.50) / $25.00

V. Calculation of Percentile Performance

Following the calculation of the TSR for the Performance Period for AngioDynamics and each other company in the Peer Group, AngioDynamics and the other companies in the Peer Group will be ranked, in order of maximum to minimum, according to their respective TSR for the Performance Period.

After this ranking, the percentile performance of AngioDynamics as compared to the other companies in the Peer Group shall be determined by the following formula:
PSUFORMULA.JPG

“P” represents the percentile performance which will be rounded, if necessary, to the nearest whole percentile by application of standard scientific rounding conventions.

“N” represents the number of companies in the Peer Group, including AngioDynamics.

“R” represents AngioDynamics’ ranking versus the other companies in the Peer Group.

Example: If AngioDynamics ranked 10 th out of 56 companies, the performance (“P”) therefore will be in the 84 th percentile.

This calculation is as follows: 0.837 = 1 - (10 - 1) / (56 - 1)

VI. Peer Group

The companies in the Peer Group can be found in Appendix A attached hereto.

If, during the Performance Period, two companies in the Peer Group merge, the surviving company shall remain in the Peer Group.






If, during the Performance Period, a company in the Peer Group merges with, or is acquired by, a company that is not in the Peer Group, and the company in the Peer Group is the surviving company, then the surviving company shall not be included in the Peer Group.

If, during the Performance Period, a company in the Peer Group merges with, or is acquired by, a company that is not in the Peer Group, and the company in the Peer Group is not the surviving company or the surviving company is no longer publicly traded, then the surviving company shall not be included in the Peer Group.

If, during the Performance Period, a company in the Peer Group sells all or substantially all of its assets, such company shall not be included in the Peer Group.

If, during the Performance Period, a company in the Peer Group splits-off or spins-off or consummates any other extraordinary reorganization transaction, and such spin-off, split-off or reorganization comprises more than 20% of the assets of the company prior to such spin-off, split-off or reorganization, such company shall not be included in the Peer Group.

If, during the Performance Period, a company in the Peer Group files for bankruptcy or otherwise ceases to be traded or quoted on any national exchange, such Company shall remain in the Peer Group. If no public stock price information is available for such company after it files for bankruptcy or otherwise ceases to be traded or quoted on a national securities exchange, the TSR for such company shall equal a total loss of equity (or -100%) during the Performance Period for which no stock price information is available.

The triggering event for determining whether a company shall be excluded from the Peer Group pursuant to this Section VI shall be the first official announcement of an SEC reportable event.

VII. Payment Eligibility Criteria

Except as set forth below with respect to a Change in Control or termination of employment due to Retirement, death, or Disability, (i) no shares of Common Stock underlying the Performance Unit Award shall issue prior to the end of the Performance Period and (ii) a participant must be employed by the Company (as defined below) through the end of the Performance Period to be eligible to receive shares of Common Stock that have vested under the Performance Unit Award pursuant to Section III of this Program.

Death . If the Participant’s employment with AngioDynamics or its subsidiaries or affiliates is terminated due to death on or after the Grant Date, but prior to the end of the Performance Period, the Performance Unit Award shall remain eligible to vest following the end date of the Performance Period according to the vesting provisions set forth in Section III of this Program and the Participant shall receive a pro-rated portion of the Common Stock underlying the Performance Unit Award that would otherwise vest based upon the provisions set forth in Section III of this Program on the end date of the Performance Period, with the pro-rata portion based on the Participant’s whole months of service with the Company during the Performance Period prior to the date of such termination; provided that a partial month of employment will be considered a whole “month of service” for purposes of this Program only if the Participant was employed by AngioDynamics for at least fifteen (15) days during such month. Any portion of the Performance Unit Award that remains unvested on the end date of the Performance Period (after giving effect to such pro-ration) shall be considered to have terminated on such date. The Participant may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to





whom any benefit granted to the Participant under this Program is to be paid in case of his or her death before he or she receives any or all such benefit. Each such designation shall revoke all prior designations by the Participant, shall be in a form prescribed by AngioDynamics, and will be effective only when filed by the Participant in writing with the Secretary of the Company during the Participant’s lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant’s death shall be paid to the Participant’s estate.

Retirement or Disability . If the Participant’s employment with AngioDynamics or its subsidiaries or affiliates is terminated due to Retirement or Disability on or after the Grant Date, but prior to the end of the Performance Period, the Performance Unit Award shall remain eligible to vest pursuant to Section III of this Program on the end date of the Performance Period and the Participant shall receive a pro-rated portion of the Common Stock underlying the Performance Unit Award that would otherwise vest pursuant to Section III of this Program based on performance during the Performance Period, with the pro-rata portion based on the Participant’s whole months of service with AngioDynamics during the Performance Period prior to the date of such termination; provided that a partial month of employment will be considered a whole “month of service” for purposes of this Agreement only if the Participant was employed by AngioDynamics for at least fifteen (15) days during such month. Any portion of the Performance Unit Award that remains unvested on the end date of the Performance Period (after giving effect to such pro-ration) shall be considered to have terminated on such date.

Other Termination of Employment -- Eligibility Conditions . If the Participant’s employment with AngioDynamics or any and of its subsidiaries or affiliates is terminated or the Participant separates from AngioDynamics or its affiliates or subsidiaries for any reason other than death, Retirement or Disability, the Performance Unit Award shall terminate and no shares of Common Stock shall be issued.

Change in Control of the Company . Notwithstanding anything to the contrary in this Agreement, in the event of a Change in Control (as defined in this Program) of AngioDynamics on or after the Grant Date, but prior to the end of the Performance Period and prior to the Participant’s termination of employment for any reason, the Participant shall immediately vest in 100% of the Target Amount of shares of Common Stock subject to the Performance Unit Award. Notwithstanding anything to the contrary in this Agreement, in the event the Participant’s employment with AngioDynamics or any of its subsidiaries or affiliates terminates due to one of the reasons expressly covered above (except as described in “Other Termination of Employment” set forth above) and a Change in Control of AngioDynamics occurs subsequent to such a termination of employment (but during the Performance Period), the pro-rata vesting provided for in such sections shall be based on the Target Amount of shares of Common Stock subject to the Performance Unit Award. Any shares of Common Stock subject to the Performance Unit Award that become vested pursuant to this section of the Program shall be issued to the Participant upon or as soon as practicable (and in all events within thirty (30) days) after the effective date of the Change in Control of AngioDynamics (or, if so provided by the Board, immediately prior to the Change in Control). In the event a Change in Control of AngioDynamics occurs following the last day of the Performance Period, prior to the Participant’s termination of employment for any reason, and prior to the date all vested shares of Common Stock underlying the Performance Unit Award are issued pursuant to this Program, any shares of Common Stock subject to the Performance Unit Award that became vested pursuant to this paragraph of the Program shall be issued to the Participant upon or as soon as practicable (and in all events within thirty (30) days) after the effective date of the Change in Control of AngioDynamics (or, if so provided by the Board, immediately prior to the Change in Control).

For the purposes of this Program, Change in Control shall mean shall mean that any of the following events has occurred:





(i)      any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (A) of paragraph (iii) below; or
(ii)      the following individuals cease for any reason to constitute a majority of the number of directors serving on the Board: individuals who, at the beginning of any period of two consecutive years or less (not including any period prior to the date of this Agreement), constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of such period or whose appointment, election or nomination for election was previously so approved or recommended; or
(iii)      there is consummated a merger or consolidation of the Company or any Subsidiary with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary, at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company's then outstanding securities; or
(iv)      the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.

VIII. Termination, Suspension or Modification and Interpretation of the Program

The Board has sole authority over administration and interpretation of the Program and retains the right to exercise discretion as it sees fit, except that, the Board shall have no discretion to increase the number of shares of Common Stock in which a Participant may vest above the amount described in Section III. The Board may terminate, suspend or modify and if suspended, may reinstate with or without modification all or part of the Program at any time, with or without notice to the Participant. The Board reserves the exclusive right to determine eligibility to participate in this Program and to interpret all applicable terms and conditions, including eligibility criteria.

IX. Other

This document sets forth the terms of the Program and is not intended to be a contract or employment agreement between the Participant and AngioDynamics, its subsidiaries or affiliates. As applicable, it is





understood that both the Participant and AngioDynamics have the right to terminate the Participant’s employment with the company at any time, with or without cause and with or without notice, in acknowledgement of the fact that their employment relationship is “at will.”

To the extent section 409A of the Code (“Section 409A”) applies to any Performance Unit Award under this Program, the Performance Unit Award shall be interpreted in a manner consistent with Section 409A. Where Section 409A applies, in the case of any payment made on termination of employment, a termination of employment shall not be deemed to have occurred unless such termination is also a “separation from service” within the meaning of Section 409A and, for purposes of any such provision, references to a “termination,” “termination of employment,” or like terms shall mean “separation from service.” Where Section 409A applies, in the case of a payment made upon a Change in Control, a Change in Control shall not be deemed to have occurred unless there is a change in the ownership or effective control of AngioDynamics, or in the ownership of a substantial portion of the assets of AngioDynamics, as defined in Section 409A. Where required by Section 409A in the case of a specified employee (as determined under Section 409A), payments on termination shall be made on the first business day of the seventh month following termination.
APPENDIX A

Abaxis Inc.
Integra Lifesciences Holdings Corporation
Abiomed Inc.
Intricon Corporation
Accuray Inc.
Intuitive Surgical, Inc.
AlphaTec Holdings Inc.
Invacare Corporation
Articure, Inc.
Lakeland Industries Inc.
Atrion Corporation
Lemaitre Vascular, Inc.
C.R. Bard, Inc.
Masimo Corporation
Becton, Dickinson & Company
Merit Medical Systems, Inc.
Boston Scientific Corporation
Mine Safety Appliances Company
Cantel Medical Corp.
Natus Medical Incorporated
Conmed Corporation
NuVasive, Inc.
CryoLife, Inc.
NxStage Medical, Inc.
Cutera, Inc.
Resmed Inc.
Cynosure, Inc.
RTI Surgical, Inc.
Dexcom, Inc.
Span-America Medical Systems, Inc.
Digirad Corp
Spectranetics Corporation
Edwards Lifesciences Corporation
St. Jude Medical, Inc.
Endologix, Inc.
Steris Corporation
Exactech, Inc.
Stryker Corporation
Haemonetics Corporation
Teleflex Incorporated
ICU Medical, Inc.
Varian Medical Systems, Inc.
Insulet Corporation
Vascular Solutions, Inc.







ANGOLOGOA06.GIF
PERFORMANCE UNIT AWARD AGREEMENT

This Performance Unit Award Agreement (this “Agreement”), dated as of the 26 th day of July, 2017 (the “Grant Date”), is between AngioDynamics, Inc., a Delaware corporation (the “Company”), and the (“Participant”), an employee of the Company or any of its affiliates or subsidiaries and whose name appears on the signature page hereto. All capitalized terms not otherwise defined herein shall have the meaning ascribed thereto in either the AngioDynamics 2004 Stock and Incentive Award Plan, as amended (the “Plan”) or in the Total Shareholder Return Performance Unit Award Program (the “Program”) for the period beginning July 19, 2017 and ending on the date that is the second trading day following the Company’s annual earnings announcement for the fiscal year ending May 31, 2020 (the “Performance Period”).

1. Grant and Acceptance of Award . Effective as of the Grant Date, the Company hereby grants to the Participant a Performance Unit Award (the “Performance Unit Award”), subject to the terms and conditions set forth in this Agreement, the Program and the Plan, with respect to [TARGET AMOUNT] (the “Target Amount”) shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”). The grant of this Performance Unit Award shall not confer any right to the Participant (or any other participant) to be granted any Performance Unit Awards in the future under the Program.

2. Eligibility Conditions upon Performance Unit Award . The Participant hereby acknowledges the vesting of any shares of Common Stock underlying the Performance Unit Award is subject to certain eligibility, performance and other conditions set forth herein. All shares of Common Stock vested pursuant to the terms of this Agreement, the Program and the Plan shall be issued to the Participant as soon as practicable (and in all events within sixty (60) days) after the end of the Performance Period.

3. Satisfaction of Performance-Based Conditions . Subject to the eligibility conditions described in Section 7 of this Agreement, except as otherwise provided in Sections 5, 6 and 8 of this Agreement, and the satisfaction of the performance conditions set forth on Appendix A to this Agreement during the Performance Period, shares of Common Stock subject to the Performance Unit Award will vest pursuant to the terms and in accordance with the conditions set forth in the Program. Except as set forth in Sections 5, 6 and 8 of this Agreement, no shares of Common Stock in settlement of vested shares of Common Stock underlying the Performance Unit Award shall be issued to the Participant prior to the end of the Performance Period.
4. Participant’s Rights in Common Stock . The shares of Common Stock, if and when issued hereunder, shall be registered in the name of the Participant and evidenced in the manner as the Company may determine. During the period prior to the issuance of Stock (including any Vesting Date according to the Vesting Schedule), the Participant will have no rights of a stockholder of the Company with respect to the Common Stock underlying the Performance Unit Award, including no right to receive dividends or vote the shares of Common Stock underlying each Performance Unit Award.

5. Death . In the event that the Participant’s employment with the Company or its subsidiaries or affiliates is terminated due to death on or after the Grant Date, but prior to the end of the Performance Period, the Performance Unit Award shall remain eligible to vest following the end date of the Performance Period (subject to satisfaction of the performance conditions set forth on Appendix A to this Agreement) and the Participant shall receive a pro-rated portion of the Common Stock underlying the Performance Unit Award that would otherwise vest based on performance on the Vesting Date, with the pro-rata portion based on the Participant’s whole months of service with the Company during the Performance Period prior to the date of such termination; provided that a partial month of employment will be considered a whole “month of service”





for purposes of this Agreement only if the Participant was employed by the Company for at least fifteen (15) days during such month. Any portion of the Performance Unit Award that remains unvested on the Vesting Date (after giving effect to such pro-ration) shall be considered to have terminated on the Vesting Date. The Participant may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under this Agreement is to be paid in case of his or her death before he or she receives any or all such benefit. Each such designation shall revoke all prior designations by the Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Secretary of the Company during the Participant’s lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant’s death shall be paid to the Participant’s estate.

6. Retirement or Disability . In the event that the Participant’s employment with the Company or its subsidiaries or affiliates is terminated due to Retirement or Disability on or after the Grant Date, but prior to the end of the Performance Period, the Performance Unit Award shall remain eligible to vest following the end date of the Performance Period (subject to satisfaction of the performance conditions set forth on Appendix A to this Agreement) and the Participant shall receive a pro-rated portion of the Common Stock underlying the Performance Unit Award that would otherwise vest based on performance on the Vesting Date, with the pro-rata portion based on the Participant’s whole months of service with the Company during the Performance Period prior to the date of such termination; provided that a partial month of employment will be considered a whole “month of service” for purposes of this Agreement only if the Participant was employed by the Company for at least fifteen (15) days during such month. Any portion of the Performance Unit Award that remains unvested on the Vesting Date (after giving effect to such pro-ration) shall be considered to have terminated on the Vesting Date.

7. Other Termination of Employment -- Eligibility Conditions . If the Participant’s employment with the Company and its affiliates or subsidiaries is terminated or the Participant separates from the Company and its affiliates or subsidiaries for any reason other than death, Retirement or Disability, the Performance Unit Award shall terminate and no shares of Common Stock shall be issued. Except as set forth in Sections 5, 6 and 8, eligibility to be issued shares of Common Stock underlying the Performance Unit Award is conditioned on the Participant’s continuous employment with the Company through the last day of the Performance Period.

8. Change in Control of the Company . Notwithstanding anything to the contrary in this Agreement, in the event of a Change in Control (as defined in the Program) of the Company on or after the Grant Date, but prior to the end of the Performance Period and prior to the Participant’s termination of employment for any reason, the Participant shall immediately vest in 100% of the Target Amount of shares of Common Stock subject to the Performance Unit Award. Notwithstanding anything to the contrary in this Agreement, in the event the Participant’s employment with the Company or any Subsidiary terminates due to one of the reasons expressly covered by Section 5 or Section 6 of this Agreement and a Change in Control of the Company occurs subsequent to such a termination of employment (but during the Performance Period), the pro-rata vesting provided for in such sections shall be based on the Target Amount of shares of Common Stock subject to the Performance Unit Award. Any shares of Common Stock subject to the Performance Unit Award that become vested pursuant to this Section 8 shall be issued to the Participant upon or as soon as practicable (and in all events within thirty (30) days) after the effective date of the Change in Control of the Company (or, if so provided by the Board of Directors, immediately prior to the Change in Control). In the event a Change in Control of the Company occurs following the last day of the Performance Period, prior to the Participant’s termination of employment for any reason, and prior to the date all vested shares of Common Stock underlying the Performance Unit Award are issued pursuant to Section 2 above, any shares of Common Stock subject to the Performance Unit Award that became vested pursuant to the terms of this Agreement





and the Program shall be issued to the Participant upon or as soon as practicable (and in all events within thirty (30) days) after the effective date of the Change in Control of the Company (or, if so provided by the Company’s Board of Directors, immediately prior to the Change in Control).

9. Consideration for Stock . The shares of Common Stock underlying the Performance Unit Award that are issued pursuant to this Agreement and the Program will be issued for no cash consideration.

10. Issuance of Stock . The Company shall not be obligated to issue any shares of Common Stock underlying the Performance Unit Award that become vested pursuant to the terms of this Agreement and the Program until (i) all federal and state laws and regulations as the Company may deem applicable have been complied with; (ii) the shares have been listed or authorized for listing upon official notice to the Nasdaq Global Select Market or have otherwise been accorded trading privileges; and (iii) all other legal matters in connection with the issuance and delivery of the shares have been approved by the Company’s legal department.

11. Tax Withholding . The Participant acknowledges that he or she shall be responsible for the payment of any taxes of any kind required by any national, state or local law to be paid with respect to the Performance Unit Award or the shares of Common Stock to be awarded hereunder, including, without limitation, the payment of any applicable withholding, income, social and similar taxes or obligations. The Participant further acknowledges that the Company (1) makes no representations or undertakings regarding the treatment of any tax-related matters in connection with any aspect of this Agreement, including the grant of this Performance Unit Award, the vesting of any shares of Common Stock underlying this Performance Unit Award, the issuance of shares of Common Stock hereunder, the subsequent sale of any shares of Common Stock acquired hereunder and the receipt of any dividends; and (2) does not commit and is under no obligation to structure the terms of the grant or any aspect of the Performance Unit Award to reduce or eliminate the Participant’s liability for tax-related matters or achieve any particular tax result. Further, if the Participant becomes subject to tax and/or social security contributions in more than one jurisdiction between the Date of Grant and the date of any relevant taxable, tax and/or social security contribution withholding event, as applicable, the Participant acknowledges that the Company may be required to withhold or account for tax-related matters in more than one jurisdiction. Prior to any relevant taxable, tax and/or social security contribution withholding event, the Participant shall pay or make adequate arrangements satisfactory to the Company to satisfy all tax-related matters. In this regard, the Participant authorizes the Company, at its sole discretion, to satisfy the obligations with respect to tax-related matters by one or a combination of the following: (i) withholding from the Participant’s wages or other cash compensation paid to him or her by the Company; or (ii) withholding from the proceeds of the sale of shares of Common Stock acquired hereunder, either through a voluntary sale or through a mandatory sale arranged by the Company (on the Participant’s behalf pursuant to this authorization); or (iii) withholding in shares of Common Stock to be issued hereunder. To avoid negative accounting treatment, the Company will withhold or account for tax-related matters by considering applicable minimum statutory withholding amounts or other applicable withholding rates. If the obligation for tax-related matters is satisfied by withholding in shares of Common Stock, for tax purposes, the Participant will be deemed to have been issued the full number of shares of Common Stock subject to the vested portion of this Performance Unit Award, notwithstanding that a number of the shares of Common Stock is held back solely for the purpose of paying the tax-related matters due as a result of any aspect of the Participant’s participation in the Program. Finally, the Participant shall pay to the Company any amount of tax-related matters that the Company may be required to withhold or account for as a result of Participant’s participation in the Program that cannot be satisfied by the means described in this Section 11. The Company may refuse to issue or deliver shares of Common Stock or the proceeds of the sale of shares of Common Stock to the Participant if the Participant fails to comply with Participant’s obligation in connection with any tax-related matters.






12. Compliance with Section 409A . This Agreement is intended to comply with the requirements of Section 409A. Accordingly, all provisions herein shall be construed and interpreted to comply with Section 409A. This Agreement may be amended at any time, without the consent of any party, to avoid the application of Section 409A in a particular circumstance or that is necessary or desirable to satisfy any of the requirements under Section 409A, but the Company shall not be under any obligation to make any such amendment. Nothing in the Agreement shall provide a basis for any person to take action against the Company or any of its subsidiaries or affiliate based on matters covered by Section 409A, including the tax treatment of any amount paid or Performance Unit Award granted under this Agreement, and neither the Company nor any of its subsidiaries or affiliates shall under any circumstances have any liability to any participant or his or her estate or any other party for any taxes, penalties or interest due on amounts paid or payable under the this Agreement, including taxes, penalties or interest imposed under Section 409A. Notwithstanding any provision to the contrary in this Agreement, if shares of Common Stock or other amounts become issuable or distributable under this Agreement by reason of the Participant’s Separation from Service and the Participant is a “specified employee,” within the meaning of Section 409A, at the time of such Separation from Service, the shares of Common Stock shall not be issued or distributed to the Participant prior to the earlier of (i) the first day of the seventh (7th) month following the date of the Participant’s Separation from Service or (ii) the date of the Participant’s death, if such delayed commencement is otherwise required in order to avoid a prohibited distribution under Section 409A(a)(2). Upon the expiration of the applicable Section 409A(a)(2) deferral period, all shares of Common Stock underlying the Performance Unit Award issued pursuant to this Agreement or other amounts deferred pursuant to this Section 12 shall be issued or distributed in a lump sum to the Participant. For purposes of this Agreement, “Separation from Service” means the Participant’s separation from service as determined in accordance with Section 409A and the applicable standards of the Treasury Regulations issued thereunder.

13. Recapitalization . In the event there is any change in the Company’s Common Stock through the declaration of stock dividends or through recapitalization resulting in stock split-ups or through merger, consolidation, exchange of shares of Common Stock, or otherwise, the number and class of shares of Common Stock subject to this Performance Unit Award shall be equitably adjusted by the Company, in the manner determined in its sole discretion, to prevent dilution or enlargement of rights.

14. Investment Intent . The Participant acknowledges that the acquisition of shares of Common Stock to be issued hereunder is for investment purposes without a view to distribution thereof.

15. Limits on Transferability; Restrictions on Shares; Legend on Certificate . Until the eligibility conditions of this Performance Unit Award have been satisfied and shares of Common Stock have been issued in accordance with the terms of this Agreement or by action of the Company’s Board of Directors, this Performance Unit Award is not transferable and shall not be sold, transferred, assigned, pledged, gifted, hypothecated or otherwise disposed of or encumbered by the Participant. Transfers of shares of Common Stock by the Participant are subject to the Company’s Insider Trading Policy and applicable securities laws. Shares of Common Stock issued to the Participant in certificate form or to the Participant’s book entry account upon satisfaction of the vesting and other conditions of this Performance Unit Award may be restricted from transfer or sale by the Company and evidenced by stop-transfer instructions upon the Participant’s book entry account or restricted legend(s) affixed to certificates in the form as the Company or its counsel may require with respect to any applicable restrictions on sale or transfer.

16. Award Subject to the Plan and the Program . The Performance Unit Award made pursuant to this Agreement is made subject to the Plan and the Program. The terms and provisions of the Plan and the Program, as each may be amended from time to time are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained in this Agreement and a term or provision of the





Plan or the Program, the applicable terms and conditions of the Plan or Program will govern and prevail. However, no amendment of the Plan or the Program after the date hereof may adversely alter or impair the issuance of the Common Stock underlying the Performance Unit Award to be made pursuant to this Agreement.

17. No Rights to Continued Employment . This Agreement shall not confer upon the Participant any right to continuation of employment with the Company, its subsidiaries or affiliates, nor shall this Agreement interfere in any way with the Company’s right to terminate the Participant’s employment at any time with or without cause.

18. Legal Notices . Any legal notice necessary under this Agreement shall be addressed to the Company in care of its General Counsel at the principal executive offices of the Company and to the Participant at the address appearing in the personnel records of the Company for such Participant or to either party at such other address as either party may designate in writing to the other. Any such notice shall be deemed effective upon receipt thereof by the addressee.

19. Governing Law . The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of New York (without regard to the conflict of laws principles thereof) and applicable federal laws. For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by this Agreement, the parties hereby submit and consent to the exclusive jurisdiction of the State of New York and agree that such litigation shall be conducted only in the State of New York, or the federal courts for the United States for the Northern District of New York, and no other courts, where this Performance Unit Award is made and/or to be performed.

20. Headings . The headings contained in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement.

21. Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

This Agreement is being signed as of the Grant Date.
AngioDynamics, Inc.
By:      ______________________________
Name:      ______________________________
Title:      ______________________________
Participant
By:      ______________________________
Name:      ______________________________















APPENDIX A
I.
Company Performance Levels
The Performance Share Units will pay out in shares of Common Stock in a range of 0% to 200% of the number of Performance Share Units as follows:

TSR Performance
Percentile Rank
Performance Share Units
as a Percent of Target
75th Percentile or above
200%
50th Percentile
100%
25th Percentile
50%
Below 25th Percentile
0%

II.
The Peer Group (as defined in the Program) with respect to this Agreement is set forth below.
Abaxis Inc.
Integra Lifesciences Holdings Corporation
Abiomed Inc.
Intricon Corporation
Accuray Inc.
Intuitive Surgical, Inc.
AlphaTec Holdings Inc.
Invacare Corporation
Articure, Inc.
Lakeland Industries Inc.
Atrion Corporation
Lemaitre Vascular, Inc.
C.R. Bard, Inc.
Masimo Corporation
Becton, Dickinson & Company
Merit Medical Systems, Inc.
Boston Scientific Corporation
Mine Safety Appliances Company
Cantel Medical Corp.
Natus Medical Incorporated
Conmed Corporation
NuVasive, Inc.
CryoLife, Inc.
NxStage Medical, Inc.
Cutera, Inc.
Resmed Inc.
Cynosure, Inc.
RTI Surgical, Inc.
Dexcom, Inc.
Span-America Medical Systems, Inc.
Digirad Corp
Spectranetics Corporation
Edwards Lifesciences Corporation
St. Jude Medical, Inc.
Endologix, Inc.
Steris Corporation
Exactech, Inc.
Stryker Corporation
Haemonetics Corporation
Teleflex Incorporated
ICU Medical, Inc.
Varian Medical Systems, Inc.
Insulet Corporation
Vascular Solutions, Inc.
 
 
 
 
 
 






Exhibit 31.1

CERTIFICATION

I, James C. Clemmer, certify that:
1.
 
I have reviewed this quarterly report on Form 10-Q of AngioDynamics, Inc.;
2.
 
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
 
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
 
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
 
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(b)
 
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
 
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
 
Discl