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CONFORMED COPY
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
Transition Report Pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
Commission File No. 0-10005
BIOCHEM INTERNATIONAL INC.
A Delaware Corporation I.R.S. Employer Identification
No. 39-1272816
Address Telephone Number
- ------- ----------------
N7 W22025 Johnson Road (414) 542-3100
Waukesha, Wisconsin 53186-1856
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.02 par value.
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
--- ---
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-K is not contained in this form and no disclosure will be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
The aggregate market value of the Common Stock of the Company held by
non-affiliates on August 31, 1998 was approximately $15,080,767, computed by
reference to the average ($5.375) of the bid and ask prices of the Common Stock
as reported by the National Quotation Bureau. For purposes of this calculation,
officers and directors of the registrant were considered affiliates of the
registrant.
The number of shares outstanding of the Company's Common Stock, par value $.02
per share, on August 31, 1998 was 13,050,282.
Exhibit Index on Page 46
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF THE BUSINESS
The Registrant, Biochem International Inc. (the "Company" or "BCI" or "BCI
International"), was incorporated in April, 1976 to acquire from the Medical
Systems Business Division of General Electric Company certain assets, patents
and technology associated with its blood gas chemistry business. This
acquisition was completed in January, 1978.
D.S. Medical Products Company
In July, 1984, D.S. Medical Products Company ("DS Medical"), was formed for the
exclusive purpose of acquiring up to an 80% interest in BCI for investment
purposes. On March 2, 1998, DS Medical was merged with and into BCI, thus
dissolving DS Medical. Ken M. Davee and David H. Sanders, the principal
shareholders of DS Medical, then directly owned their shares in BCI. Mr. Sanders
and Mr. Davee are also directors and executive officers of the Company. On
August 13, 1998, Mr. Davee passed away, his spouse, Mrs. Ruth Davee, is now a
principal shareholder of the Company. At this time, the Company has not filled
this open Director and Officer position. (see ITEM 10. Directors and Executive
Officers of the Registrant).
NARRATIVE DESCRIPTION OF BUSINESS
The Company's Products
BCI International is a designer, manufacturer and worldwide distributor of
comprehensive monitoring systems for reliable and cost-effective patient care.
BCI is committed to innovation, ongoing development of lower cost products,
excellence in customer service and quality manufacturing. BCI manufactures
primarily non-invasive real time patient monitoring equipment. BCI's products
are used to monitor respiration, blood gases, exhaled gases, anesthetic agent
gases, blood pressure and related cardiovascular/pulmonary functions.
Non-invasive monitoring is used in patient care in operating and emergency
rooms, intensive care units, critical care units and neonatal facilities.
Additionally, these monitoring techniques have applications in recovery,
radiology, respiratory therapy, out-patient care, veterinary and ambulatory as
well as home and sleep study situations. During the second quarter of fiscal
1998, BCI established a subsidiary, SurgiVet, Inc. SurgiVet was established to
design and distribute medical equipment to the veterinary market.
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BCI's product line includes monitoring devices for oxygen saturation, anesthetic
agents, ECG, both invasive and non-invasive blood pressure, temperature,
respiration, carbon dioxide and nitrous oxide. BCI engineers and technicians
continue to expand the Company's technology base by developing new products and
combining existing ones in new ways to meet the medical community's fast-growing
and changing needs.
New product releases in fiscal 1998 include a new handheld pulse oximeter
featuring an integrated printer and pulse tones. This device, labeled as the
Model 3401 FingerPrint(TM), is intended for a variety of markets to include home
health care, respiratory departments in both alternate care and hospitals, and
emergency medicine. The Company also received FDA 510(k) clearance in November
1997 for its Model 6004 Mini-Torr(TM) non-invasive blood pressure monitor which
includes the options of pulse oximetry and an integrated printer. Other products
released this fiscal year include a new Comfort Clip(TM) oximeter finger sensor
and a combination non-invasive blood pressure/pulse oximeter OEM module.
SurgiVet, the Company's veterinary subsidiary, launched five new monitors and
five new veterinary-specific pulse oximetry sensors. The monitors include three
new pulse oximeters, a combined end-tidal CO2/SpO2 monitor and a handheld CO2
device. The sensors were developed for use with these devices and were
customized to adapt to and monitor a variety of animals in the operating room
setting.
New product releases in fiscal 1997 include the Model 9004 Capnograph and the
Model 6004 Vital Signs monitor. Additionally, fiscal 1997 was the first full
year of sales of the Model 3304 Pulse Oximeter, approved by the FDA in August,
1996. The Model 9004 Capnograph, also known as the Capnocheck Plus, is the
second in our Clarity(TM) series of monitors. The Capnocheck Plus is a compact,
lightweight monitor which provides for measurement of end-tidal CO2, pulse
oximetry and inspired oxygen. It is well suited to monitoring of both intubated
and non-intubated patients in all types of environments. The Model 6004 monitor,
also known as the Mini-Torr(TM) monitor, was released to the majority of the
international marketplace late in fiscal 1997. The Mini-Torr(TM) is the third
Clarity(TM) series monitor, which offers cost-effective non-invasive monitoring
of blood pressure and pulse oximetry. It is a transportable monitor, allowing
for use in hospital, transport and emergency settings.
New products in fiscal 1996 include the Model 3303 Pulse Oximeter and the Model
3304 Pulse Oximeter. The Model 3303 oximeter is a handheld unit with alarms,
featuring an internal rechargeable battery. This
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unit can be used both as a handheld, spot-check device and also as a bedside,
long-term monitoring device. The Model 3304 Pulse Oximeter, the first product
released in our new Clarity(TM) series of monitors, was released to the
international market late in fiscal 1996. It features advanced digital signal
processing, designed for demanding clinical environments.
BCI's mission is to provide cost-effective, quality patient monitoring equipment
to meet the rapidly-growing and ever-changing needs of the world-wide health
care community. Consequently, management contemplates that new products will
continue to be added to its existing product lines.
Marketing and Distribution
BCI International monitoring systems are marketed in the United States directly
through twenty-three Company sales representatives and selectively through
medical distributors. Health care facilities, principally hospitals, are
typically the purchasers of the Company's systems. BCI also sells into alternate
care markets, such as emergency medical services, surgery centers and home
health care. BCI's increased targeting of the alternate care market will allow
the Company to benefit from the trend away from hospitals toward the more cost
effective alternate care setting. International sales, promoted through medical
distributors and manufacturers worldwide, account for approximately 46% of
revenues. BCI technologies are also marketed to original equipment manufacturers
(OEM's) as individual components or as finished, private label products, and are
in turn then sold to end users. Generally, the Company sells its products to OEM
customers based on long-term contracts, which, in certain cases, provide for the
purchase of minimum quantities of products at specified prices.
Competition
The Company is in a highly fragmented industry characterized by rapid
technological change. Price and product features such as accuracy, ease-of-use
and flexibility are the primary bases for competition. The Company has a number
of competitors in each of its product areas, many of which are larger and
financially stronger than BCI. Due to the high costs of product development,
long development cycles and high regulatory costs, the risk of new competitors
entering the industry is moderate to low.
Product pricing is the most significant competitive factor in the health care
industry. Competition continues to cause price reductions. The Company is
continually seeking manufacturing cost
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reductions, but there can be no assurance that these cost reductions will offset
the impact of potential price declines.
Product quality is also a competitive factor, although the quality issue is
somewhat mitigated by the standards imposed by the Food and Drug Administration
("FDA").
Competition among international suppliers is generally based on the same set of
factors as in the U.S., with price as the primary factor. One of the
distinguishing characteristics of the international market is that many foreign
health care systems are state run. Thus, the government rather than a private
enterprise is often the customer. Additionally, each country has a different set
of regulatory standards and specifications which creates additional demands on
suppliers participating in the international market.
Manufacturing
The Company's products are manufactured and assembled in its Waukesha, Wisconsin
facility. The manufacture of the Company's products involves certain techniques
which, in the opinion of management, are proprietary.
Raw Materials
Raw materials utilized by the Company in its manufacturing process are generally
available from a number of domestic commercial sources. Since the Company has
historically experienced delivery delays and lead times as long as 22 to 24
weeks in acquiring certain electronic components, which is common in the
industry, it closely monitors and maintains higher inventory levels for such
components than for other raw materials.
Inventory
The Company maintains inventories of previously described materials and finished
goods at levels believed to be consistent with anticipated sales and at levels
required to respond quickly to customer needs. Inventories of demonstration
equipment are also maintained for use by BCI's salespeople. BCI also maintains
an inventory of finished goods to loan to customers at their request when the
Company is servicing their units. See "Service and Warranty" below in this
ITEM 1.
The Company will, in general, not accept returns except consistent with the
terms of its warranties.
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To the best of the Company's knowledge, the foregoing practices are consistent
with the practices of the industry.
Service and Warranty
A two year warranty is extended on all BCI International monitoring equipment.
During this time, the Company warrants to the purchaser that the equipment is
free from defects in material and workmanship. Any repairs needed during this
time period will be made free of charge to the customer unless the repairs
required are due to intentional damage. Service in foreign countries is provided
primarily by the Company's foreign distributors.
In the event a monitor requires service, the Company's policy during the
warranty period is to provide a free replacement on loan at the customer's
request, which requires that the Company maintain an inventory of monitors for
this purpose. BCI services monitors in its Waukesha, Wisconsin facility. The
Company believes that this approach generally permits the customer to have a
replacement system whenever needed and provides quality repair service.
Backlog
The Company had approximately $3,300,000 in backlog orders believed to be firm
at August 31, 1998, as compared to approximately $3,600,000 at August 31, 1997.
The decline in the backlog is mainly due to a decrease in the backorder of OEM
componentry. The Company's order activity is not seasonal in nature. The Company
usually manufactures and ships equipment ordered within 2 to 15 days following
receipt of an order, unless the customer requests later release dates.
Research and Development
The Company's research and development activities are dedicated to both product
enhancement and new product development. At the date of this report, the Company
employs twenty-two trained technicians and engineers, and utilizes outside
consultants in its research and development activities. For the three years
ended June 30, 1998, the Company incurred research and development expenses of
$6,045,571, all of which were Company sponsored. Of this amount, $2,414,103 was
attributable to fiscal 1998, $1,983,817 to fiscal 1997 and $1,647,651 to fiscal
1996.
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Patents
The Company owns numerous domestic patents related to its products.
The electronic medical instruments industry is permeated with patented products
and processes and new patents are being issued regularly. Therefore, the Company
cannot be certain that its existing products, or those it expects to produce, do
not infringe on valid patents owned by others, or will not be subject to
technological obsolescence.
Government Regulation
The medical devices manufactured and marketed by BCI are subject to regulation
by the FDA, and, in many cases, by foreign governments and other regulatory
organizations. Under the Federal Food, Drug and Cosmetics Act ("FDC Act"), as
amended, manufacturers of medical devices must comply with certain provisions
and regulations promulgated by the FDA governing the testing, manufacturing,
packaging and marketing of medical devices. Under the FDC Act, medical devices
are subject to varying levels of review, the most comprehensive of which
requires that a device receive pre-market approval by the FDA for commercial
distribution in the United States.
As a manufacturer of medical devices, the Company is also subject to certain
other FDA regulations, such as general controls provisions which include
manufacturing process requirements. The Company's manufacturing processes and
facility are subject to a biannual inspection by the FDA. The FDA has the power
to order a limited detention of products and to exercise other remedies where it
finds the devices to be in violation of the FDC Act. BCI believes it is
generally in compliance with the FDA regulations. Federal and foreign
regulations regarding the manufacture and sale of medical devices are subject to
change. The Company cannot predict what impact, if any, such changes might have
on its business. The Company also seeks, where appropriate, to comply with
safety standards of Underwriters Laboratories, the Canadian Standards
Association, the European Community standards and the standards of other
countries in which it markets its products.
Compliance with international standards is an expanding factor in conducting
business in international markets. The Company has obtained ISO 9001/EN46001
certification and certification to Annex II of the Medical Device Directive. By
certification to these standards, the Company is permitted to place a "CE" mark
on its products which indicates product compliance as specifically required by
the European marketplace. To date, foreign regulations have not adversely
affected the Company's business. However, there can be no assurance that any
such regulations will not have a material adverse effect on the Company's
business and financial condition in the future.
Environmental Matters
The Company is engaged in only light manufacturing and its capital expenditures,
earnings or competitive position have not been, and are not expected to be,
materially affected by compliance with federal, state, or local provisions which
have been enacted or adopted regulating the discharge of materials into the
environment or otherwise relating to the protection of the environment.
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Employees
As of August 31, 1998, the Company employed 121 persons, consisting of 27 in
production and 94 in sales, administration, engineering and research.
Financial Information About Export Sales
Export sales, which were principally in the Far East, Central and South America
and Western Europe were approximately $13,253,000, $13,523,000 and $14,872,000
in fiscal 1998, 1997 and 1996, respectively. The decrease in sales is a result
of many factors. Although BCI continues to expand its international sales
network and regions covered, some key regions experienced decreased sales due to
the weakness of the local currency as compared to the strength of the dollar.
The financial conditions in these markets could continue to impact future sales.
Additionally, sales of the Company's higher end OEM componentry have decreased
significantly. All foreign sales are denominated in U.S. Dollars, so the Company
is not exposed to foreign currency valuation fluctuations.
ITEM 2. PROPERTIES
The Company's executive offices and production facilities are located at N7
W22025 Johnson Road, Waukesha, Wisconsin. The building contains approximately
55,600 square feet, of which approximately 27,800 square feet constitutes
administrative office space, with the balance used for production and storage.
BCI purchased this facility in November, 1997, and began the build-out of the
interior in January, 1998. The build out was completed in early July and
operations and administration moved during July, 1998. Manufacturing was not
operational for 2 days, and administration was down for less than a day;
accordingly, the impact on operations was minimal. The Company used current cash
and cash equivalent balances to fund the purchase and build out. This new
facility will allow the Company the space needed for growth and efficient
operations. Additionally, the Company leases a small amount of office space
located several miles from the main facility, which is used for additional
engineering personnel. The Company also leases space at an outside location for
file storage purposes only.
The Company closed on the sale of its previous facility located at W238 N1650
Rockwood Drive, Waukesha, Wisconsin on July 24, 1998. The land and building were
sold for $785,000, which constitutes a small gain over net book value. BCI had
purchased this facility on June 30, 1995. It had previously been leased from a
related party (see
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Item 12, Related Party Information). The Company has also closed on the sale of
the land adjacent to its previous facility on September 24, 1998 for $255,000,
an amount approximately equal to net book value. BCI had purchased this land in
April, 1996, with the intent to expand its then current facility. After an
investigation of the available options, it was decided that a new facility was
the best course of action, and the Rockwood properties should be sold.
The Company owns all of its machinery and manufacturing equipment, and leases
certain office equipment. The Company does not anticipate the need to purchase
any material amounts of capital equipment in the coming fiscal year.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended June 30, 1998, no matters
were submitted to a vote of security holders.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock ($.02 par value) is traded in the over-the-counter
market. Price quotations are recorded on The OTC Bulletin Board.
The following table sets forth the bid and asked quotations for the Company's
common stock for the quarterly periods indicated, as provided by the National
Quotation Bureau. These quotations reflect interdealer prices, without retail
markup, markdown or commissions, and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
Bid Asked
-------------------- --------------------
High Low High Low
----- ----- ----- -----
<S> <C> <C> <C> <C>
Fiscal year ended
June 30, 1998
1st Quarter 5 3/8 5 5 3/8 6
2nd Quarter 5 7/8 5 5 5/8 6
3rd Quarter 5 7/8 5 1/4 5 7/8 6 1/4
4th Quarter 5 7/8 5 1/8 5 5/16 5 5/8
Fiscal year ended
June 30, 1997
1st Quarter 6 3/4 4 3/4 8 5 1/8
2nd Quarter 6 1/2 4 3/4 6 3/4 4 3/4
3rd Quarter 5 7/8 4 7/8 6 3/4 4 3/4
4th Quarter 5 3/4 5 6 5
</TABLE>
The approximate number of record holders of the Company's common stock on August
31, 1998 was 639. BCI International has not paid dividends on its common stock.
The Company does not anticipate paying any such dividends, and further, is
restricted from declaring or paying dividends without the prior written consent
of the banking institution with which it currently has a lending facility.
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ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR COMPARISON OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended June 30
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
EARNINGS (IN THOUSANDS):
Net Sales $ 28,532 $ 27,006 $ 29,000 $ 25,056 $ 17,861
Cost of sales 12,418 11,978 12,903 11,310 8,214
Gross profit 16,114 15,028 16,097 13,745 9,647
Earnings before income taxes and
cumulative effect of change in
accounting principle 7,380 7,179 8,471 6,735 3,504
Cumulative benefit from change in
accounting principle -- -- -- -- 5,197
Income tax expense 2,376 2,540 3,102 2,475 1,309
Net income 5,004 4,640 5,370 4,260 7,392
EARNING PER SHARE DATA:
Basic earnings per share .38 .35 .41 .32 .56
Diluted Earnings per share .38 .35 .41 .32 .56
COMMON STOCK:
Number of shareholders 639 694 750 793 850
Weighted average shares outstanding -
Basic 13,097,254 13,086,784 13,083,284 13,081,613 13,070,654
Effect of dilutive securities 79,265 114,187 103,665 88,029 58,314
Weighted average shares outstanding -
Dilutive 13,176,519 13,200,971 13,186,949 13,169,642 13,128,968
FINANCIAL POSITION (IN THOUSANDS):
Working capital $ 18,404 $ 16,347 $ 11,782 $ 8,388 $ 3,248
Capital expenditures 3,347 241 591 1,205 216
Total assets 27,959 22,616 18,429 12,336 12,767
Long-term debt -- -- -- -- --
Shareholders' equity 24,833 19,800 15,485 10,113 5,851
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal 1998 versus Fiscal 1997
The Company realized income before income tax expense of $7,379,532 in 1998, as
compared to $7,179,312 in 1997. Net income realized in fiscal 1998 and 1997
after income tax expense is $5,003,810 and $4,639,797, respectively. Based upon
the weighted average number of basic and diluted common shares outstanding,
these translate into net income per share of $.38 and $.35 in 1998 and 1997,
respectively. It is the opinion of management that these amounts may be
compared, and are attributable to the factors discussed below.
Net sales in fiscal 1998 increased by $1,526,041, or by 5.7% when compared to
fiscal 1997. The growth in sales was experienced both in the domestic and the
international marketplaces. The increases were predominantly due to sales of our
Clarity(TM) series products and our Model 3303 Pulse Oximeter. The Clarity(TM)
products are a series of compact, tabletop, transport monitors designed for use
in hospitals, transport and emergency settings. Sales of these products in
fiscal 1998 were approximately $3.4 million compared to $1.1 million world-wide
in fiscal 1997. Sales of the Model 3303 Pulse Oximeter were approximately $2.1
million in fiscal 1998 compared to $1.3 million world-wide in fiscal 1997.
Additionally, on March 18, 1998, the Company was awarded its second contract by
the U.S. Government for the Clarity(TM) series Model 3304 AutoCorr pulse
oximeter. This contract will provide needed ground based monitoring equipment to
the government on a worldwide basis. The Company, like its competitors, is
focusing on sales to alternate care markets, sales of replacement equipment and
sales of follow-on quantities of this product line to initial purchasers. The
challenge for the Company, which it is addressing through product development
and marketing activities, is to enhance its existing product line by adding not
only new products, but also new features, functionality and product
configuration to existing products.
Domestic BCI label sales increased 21.9% from fiscal 1997. The increase was in
virtually all product areas: sales of our handheld pulse oximeters (Model
numbers 3301, 3303 and 3401) increased about $650,000 or about 16% over fiscal
1997, sales of our Clarity(TM) products increased nearly $600,000 or about 165%
and sales of our higher-end vital signs and multi-parameter products were up
about $391,000 or about 74%. Domestic OEM sales declined by 27.0% from fiscal
1997 sales, in part because approximately $640,000 of sales
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revenues were reclassified from domestic OEM to our SurgiVet division.
Additionally, there were decreases in sales of our Model 3101 and 3302 pulse
oximeters to this market. International dealer sales of BCI-labeled products
increased by 21.8%, largely due to sales of our Clarity(TM) products. Sales of
these products increased $962,000 or about 150% over fiscal 1997. International
OEM sales decreased by 13.8% when compared to fiscal 1997 due to decreased sales
of our higher end OEM componentry. SurgiVet sales were $1,174,000, consisting
mostly of sales of our Model numbers 3101, 3303, and 3304 that were reconfigured
for veterinary applications. Selling prices have not fluctuated significantly
during these time periods.
Cost of goods sold as a percentage of net sales decreased slightly in fiscal
1998 going from 44.4% in fiscal 1997 to 43.5% in fiscal 1998. The decrease is
primarily due to decreased raw material costs.
Selling, general and administrative expenses increased by approximately $570,000
when comparing 1998 to 1997. The increase is partially attributable to the
startup and continuing costs of the Company's new division, SurgiVet.
Additionally, the Company continues to invest in its sales and marketing
efforts. During fiscal 1996, BCI began focusing more on the alternate care
markets, and increased the amount spent on marketing to those areas. That
spending continued in fiscal 1997 and into fiscal 1998. In fiscal 1998 the
Company also began to expand its domestic sales force in order to support and
increase sales. Also in fiscal 1998, the Company increased its international
marketing efforts through additional advertising and promotions. BCI feels these
increases were needed to strengthen the domestic and international sales efforts
and position the Company for the future. BCI also continues to invest in its OEM
sales efforts.
Research and development expenses increased by approximately $430,000 when
comparing fiscal 1998 to 1997. The engineering staff grew in fiscal 1998 to
twenty-two employees, who continued to focus their time and efforts on new
product releases. As a result, payroll and related expenses increased.
Additionally, work continues on several new product releases scheduled for
fiscal 1999 and beyond.
Other income is comprised primarily of interest received from investments of the
Company's excess cash. The increase from 1997 to 1998 is due to the increased
investment balances.
Federal and state income tax paid in fiscal 1998 amounted to approximately $2.7
million, versus $2.6 million in fiscal 1997. BCI's effective tax rate is 32.2%
in fiscal 1998 versus 35.4% in fiscal 1997. The decrease in the effective tax
rate is due to additional benefits related to the Company's FSC.
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It is management's opinion that the Company's future success is primarily a
function of its sales level. Management believes that it is not only necessary
to improve the sales of the Company's products which were available for sale
this year, but also to introduce other products to provide increased revenue.
Plans are in progress to achieve these results.
The rate of inflation continues to have a marginal impact on the operations of
the Company. While management routinely assesses the possible effects of
inflation with respect to the Company's future business plans, the rate of
inflation is not expected to have a material impact upon the growth of the
Company during Fiscal 1999. All export sales are denominated in U.S. currency
and therefore, the Company is not exposed to foreign currency risk.
Fiscal 1997 versus Fiscal 1996
The Company realized income before income tax expense of $7,179,312 in 1997, as
compared to $8,471,494 in 1996. Net income realized in fiscal 1997 and 1996
after income tax expense is $4,639,797 and $5,369,669. Based upon the weighted
average number of basic and diluted common shares outstanding, these translate
into net income per share of $.35 and $.41 in 1997 and 1996, respectively. It is
the opinion of management that these amounts may be compared, and are
attributable to the factors discussed below.
Net sales in fiscal 1997 decreased by $1,994,028, or by 6.9% when compared to
fiscal 1996. The drop in sales was experienced both in the domestic and the
international marketplaces. The decreases were predominantly due to decreased
sales of our handheld products and our other oximetry products. Sales of the
Model 3300/3301 hand-held oximeter during this fiscal year were approximately
$7.5 million versus $9.7 million world-wide in fiscal 1996. The Company believes
that the industry-wide market demand for first generation hand-held pulse
oximeters is flattening in the institutional hospital market.
Domestic BCI label sales decreased 9.5% from fiscal 1996. The decline was
primarily in the hand-held pulse oximeter as mentioned above, and in its sales
to the U.S. Government. In late fiscal 1997, however, the Company was awarded a
new contract with the Department of Defense, which should increase its
governmental sales in fiscal 1998. The award is for its Model 3303 Pulse
Oximeter, for use in aeromedical and other applications. Sales to hospitals
declined, but sales to the alternate care market (physicians' offices, clinics,
emergency medical and home health care companies) increased, due to the
Company's shift in marketing to these areas. Domestic OEM sales increased by
5.5% over fiscal 1996 sales, due to sales of our Model
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3301 and 3303 handheld pulse oximeters being sold into the home health care
market. International dealer sales of BCI-labeled products decreased by 9.1% and
international OEM sales decreased by 9.3% when compared to fiscal 1996 due to
decreased sales of oximetry products as well. Selling prices have not fluctuated
significantly during these time periods.
Cost of goods sold as a percentage of net sales decreased slightly in fiscal
1997 going from 44.5% in fiscal 1996 to 44.4% in fiscal 1997. The decrease is
primarily due to decreased raw material costs.
Selling, general and administrative expenses increased by approximately $182,000
when comparing 1997 to 1996. The increase is primarily attributable to continued
investment in the domestic sales and engineering departments. During fiscal
1996, BCI began focusing more on the alternate care markets, and increased the
amount spent on marketing to those areas. That spending continued in fiscal
1997. BCI feels these increases were needed to strengthen the domestic sales
efforts and position the Company for the future. Additional investments were
continued from fiscal 1996 in BCI's OEM sales efforts.
Research and development expenses increased by approximately $335,000 when
comparing fiscal 1997 to 1996. The engineering staff grew in fiscal 1997 to
twenty employees, who continued to focus their time and efforts on new product
releases. As a result, payroll and related expenses increased. Work continues on
several new product releases scheduled for fiscal 1998 and beyond.
Interest expense was not incurred in fiscal 1997 or fiscal 1996 due to the
long-term debt and related accrued interest being paid off in full during the
third quarter of fiscal 1995.
During fiscal 1996, BCI utilized the balance of the net operating loss
carryforwards and various federal credit carryforwards available. BCI
International set up a foreign sales corporation (FSC) subsidiary in fiscal 1996
in order to help defray the cost of income taxes on its foreign sales. Federal
and state income tax paid in fiscal 1997 amounted to approximately $2.6 million,
versus $1.7 million in fiscal 1996. BCI's effective tax rate is 35.4% in fiscal
1997 versus 36.6% in fiscal 1996. The drop is due to the Company enjoying a full
year of benefit from the FSC in fiscal 1997.
Liquidity and Capital Resources
Net income recorded in the current year continued to improve the Company's
working capital position. The additional working capital
14
<PAGE> 16
provided by the income helped to finance the purchase of the new facility and
fund the build out as well as the growth in expenses discussed above.
Additionally, the Company increased its investment in cash and cash equivalents
by $2.4 million during the fiscal 1998 and $4.8 million in fiscal 1997. The
Company intends to use the cash and cash equivalents and funds generated in
fiscal 1997 and 1998 to support its growth into fiscal 1999 and beyond.
In comparing the year end receivable balances in fiscal 1998 versus fiscal 1997,
the accounts receivable balance decreased by approximately $500,000. This
decrease is largely due to decreased sales in the months of May and June when
comparing them to the previous year. Additionally, the Company had several large
international shipments in June with cash in advance terms, thus, these sales
did not increase the receivables balance. As a result of sales decreases
experienced in fiscal 1997 versus 1996, the accounts receivable balance
decreased by approximately $800,000, or 16%. Additionally, a $500,000 payment on
a past due receivable was received in fiscal 1997 from a large customer which
helped improve days sales outstanding. Notwithstanding selective credit
extensions, the Company continues to place emphasis on tight credit monitoring
and collection procedures.
Inventory levels increased by $108,000 in fiscal 1998 versus fiscal 1997. This
increase is due to increased levels of finished goods inventory in anticipation
of the down time the Company would experience when it moved its facility in
July, 1998. Inventory levels increased by $450,000 in fiscal 1997 versus fiscal
1996 primarily due to increased inventories of demonstration equipment used by
the domestic sales force and increased inventories for new products being
released in the first half of fiscal 1997. No products were discontinued in
fiscal 1998 or fiscal 1997. It is expected that inventory balances will remain
at the current level during fiscal 1999.
The increase in property, plant and equipment in fiscal 1998 from fiscal 1997 is
primarily due to the purchase of the new land and building and the build out of
this new facility. The land and building were purchased for $1,975,000, and the
build out cost approximately $1,200,000. The decrease in property, plant and
equipment in fiscal 1997 from 1996 is principally due to depreciation of
underlying assets. No major purchases were made in fiscal 1997.
Trade accounts payable and accrued liabilities increased by $311,000 when
comparing fiscal 1998 to fiscal 1997. This increase is primarily due to
increased trade payables relating to expenses of the new division, SurgiVet.
Trade accounts payable and accrued liabilities decreased by approximately
$107,000 when comparing fiscal 1997 to 1996. This decrease is primarily related
to trade payables and the timing of the year end payment cycle.
15
<PAGE> 17
The Company continues to experience improved liquidity over the past fiscal
years. Operating activities of the Company have been the main source of this
liquidity. It is the belief of management that if operations continue at the
same level, funds generated from operations will be adequate to fund working
capital requirements, both in the short and long term.
The Company currently has in place a bank loan and security agreement that
provides for demand borrowings under a line of credit not to exceed the lesser
of the borrowing base or $10,000,000. The borrowing base, as defined in the
agreement is the sum of 80% of eligible accounts receivable and 25% of eligible
inventory. Interest is calculated based on the LIBOR rate. The borrowing base
currently exceeds $10,000,000, and there is no loan balance outstanding at June
30, 1998, so the available credit is $10,000,000.
It is the belief of management that if continued success in the achievement of
the above-noted goals is experienced, funds generated from future operations and
borrowing potential under the bank line of credit will be adequate to fund the
Company's working capital requirements during 1999.
BCI does not anticipate paying dividends on its common stock.
Impact of Recently Issued Accounting Standards
In June, 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." In February 1998 the FASB
issued SFAS No. 132, "Disclosures about Pensions and other Postretirement
Benefits." These statements will be adopted by the Company, as required, for the
periods beginning after December 15, 1997. These standards expand or modify
disclosures and, accordingly, will not have an effect on the Company's
liquidity, financial position, or results of operations. In June 1998, the FASB
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement will be adopted by the Company, as required, for the
periods beginning after June 15, 1999. Implementation of this statement is not
expected to have a material impact on the financial statements of the Company.
16
<PAGE> 18
Subsequent Event
Effective July 1, 1998, SurgiVet, Inc., a wholly owned subsidiary of the
Company, purchased the assets of Anesco, Inc. for $4,000,000 cash. Upon
completion of the purchase, the Company recorded $3,258,000 of goodwill.
Forward Looking Statements
Except for the historical information contained herein, this report contains
certain forward-looking statements that are subject to certain risks and
uncertainties that could cause actual future results and developments to differ
materially from those currently projected. Such risks and uncertainties include,
but are not limited to, the timing of new product introductions, the current
uncertainties surrounding the Company's principal market segments including the
effect of consolidation of hospital groups and the move toward managed care, and
general economic conditions affecting the Company's market segments.
Quantitative and Qualitative Information about Market Risk
The Company has limited exposure to market risks. All export sales are
denominated in U.S. currency and, therefore, the Company is not exposed to
foreign currency risk. The Company does hold an investment held for trust that
is subject to interest rate risk. The investment is a U.S. Treasury note that
matures in August, 1999 and has a stated interest rate of 5.875%. The Company
classifies this security as held-to-maturity. At June 30, 1998 the fair value
is $1,852,565.
Year 2000
The Company has reviewed its computer and other systems to identify those areas
that could be adversely affected by Year 2000 software failures. It has been
determined that the Company's products are fully Year 2000 compliant. Many of
the off-the-shelf variety of software programs the Company uses are already
compliant, the few that are not will be upgraded to compliant versions or
replaced at minimal cost. We have determined that our business system is not
Year 2000 compliant, as a result, we have begun the research and analysis needed
to replace the current system. Based on this initial analysis, the Company
estimates that it will cost approximately $300,000 to replace this system. The
Company is also currently verifying the Year 2000 compliance of our computer
hardware and operating systems. This review is expected to be completed by the
end of the calendar year. Additionally, the Company has assessed the compliance
of its office equipment (fax machines, copiers, telephone system, etc.) and
determined that these systems are fully compliant. The Company plans to begin
its review of the Year 2000 compliance of its customers and vendors and intends
to complete this assessment by the end of fiscal 1999.
Beyond the above review procedures, the Company is in the process of developing
a Year 2000 contingency plan, should a Year 2000 compliance issue arise.
However, there can be no assurance that customers, suppliers and service
providers on which the Company relies will resolve their Year 2000 issues.
Failure to complete the Year 2000 project in a timely manner could have a
material adverse effect on future operating results or financial condition.
17
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of
Biochem International Inc. and Subsidiaries
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, changes in stockholders' equity and cash
flows present fairly, in all material respects, the financial position of
Biochem International Inc. and Subsidiaries at June 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
August 7, 1998
18
<PAGE> 20
BIOCHEM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,323,922 $ 10,892,915
Accounts receivable, net of allowance for
doubtful accounts of $100,000 and $125,000,
respectively 3,656,363 4,158,002
Inventories 3,856,206 3,747,955
Deferred income taxes 295,000 320,000
Income taxes recoverable 327,382 --
Prepaid expenses and other 71,632 43,376
------------ ------------
Total current assets 21,530,505 19,162,248
Investment, held for trust 1,845,000 1,847,739
Property, plant and equipment, net 4,552,103 1,599,679
Intangible asset 22,916 --
Other 8,104 5,987
------------ ------------
Total assets $ 27,958,628 $ 22,615,653
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 2,147,765 $ 1,813,985
Accrued liabilities:
Salaries, wages and commissions 775,060 754,165
Other 203,279 212,018
Income taxes payable -- 35,000
------------ ------------
Total current liabilities 3,126,104 2,815,168
Stockholders' equity:
Preferred stock, $1.00 par value,
authorized 1,000,000 shares; none issued -- --
Common stock, $.02 par value, authorized
14,000,000 shares; 13,100,282 issued,
13,050,282 outstanding as of June 30,
1998, and 13,091,284 shares issued, 13,041,284
outstanding as of June 30, 1997 262,006 261,826
Additional paid-in capital 11,744,179 11,707,975
Retained earnings 13,166,764 8,162,954
------------ ------------
25,172,949 20,132,755
Less Treasury Stock at cost, 50,000 shares (187,500) (187,500)
Receivable from shareholders (152,925) (144,770)
------------ ------------
Total stockholders' equity 24,832,524 19,800,485
------------ ------------
Total liabilities and stockholders' equity $ 27,958,628 $ 22,615,653
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE> 21
BIOCHEM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $28,532,251 $27,006,210 $29,000,238
Cost of goods sold 12,418,275 11,977,951 12,903,308
----------- ----------- -----------
Gross profit 16,113,976 15,028,259 16,096,930
Selling, general and
administrative expenses 7,106,695 6,537,099 6,355,041
Research and development expenses 2,414,103 1,983,817 1,647,651
----------- ----------- -----------
Income from operations 6,593,178 6,507,343 8,094,238
Other income, net 786,354 671,969 377,256
----------- ----------- -----------
Income before income tax expense 7,379,532 7,179,312 8,471,494
Provision for income taxes 2,375,722 2,539,515 3,101,825
----------- ----------- -----------
Net income $ 5,003,810 $ 4,639,797 $ 5,369,669
=========== =========== ===========
Basic earnings per share $ 0.38 $ 0.35 $ 0.41
Diluted earnings per share $ 0.38 $ 0.35 $ 0.41
Weighted average common shares
outstanding - Basic 13,097,254 13,086,784 13,083,284
Effect of dilutive securities 79,265 114,187 103,665
----------- ----------- -----------
Weighted average common shares
outstanding - Dilutive 13,176,519 13,200,971 13,186,949
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE> 22
BIOCHEM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Retained Treasury Stock
Common Stock Additional Earnings/ at Cost
---------------------------- Paid-in (Accumulated ----------------------------
Shares Amount Capital Deficit) Shares Amount
---------- ------------ ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances, July 1, 1995 13,083,284 $ 261,666 $ 11,698,173 $ (1,846,512) -- $ --
Net income -- -- -- 5,369,669 -- --
Exercise of common stock
options at $.375 to $.625
per share 3,500 70 1,478 -- -- --
Payments made on
behalf of shareholder -- -- -- -- -- --
---------- ------------ ------------ ------------ ---------- ------------
Balances, June 30, 1996 13,086,784 261,736 11,699,651 3,523,157 -- --
Net income -- -- -- 4,639,797 -- --
Exercise of common stock
options at $.625 to $4.29
per share 4,500 90 8,324 -- -- --
Purchase of treasury stock -- -- -- -- 50,000 (187,500)
Payments made on behalf of
shareholder -- -- -- -- -- --
---------- ------------ ------------ ------------ ---------- ------------
Balances, June 30, 1997 13,091,284 261,826 11,707,975 8,162,954 50,000 (187,500)
Net income -- -- -- 5,003,810 -- --
Exercise of common stock
options at $3.31 to $5.25
per share 9,000 180 36,204 -- -- --
Payments made on behalf of
shareholder -- -- -- --
Cancellation of DS
Medical shares at par (2) -- -- -- -- --
---------- ------------ ------------ ------------ ---------- ------------
Balances, June 30, 1998 13,100,282 $ 262,006 $ 11,744,179 $ 13,166,764 50,000 $ (187,500)
<CAPTION>
Receivable Total
from Stockholders'
Shareholder Equity
------------ ------------
<S> <C> <C>
Balances, July 1, 1995 $ (101,828) $ 10,011,499
Net income -- 5,369,669
Exercise of common stock
options at $.375 to $.625
per share -- 1,548
Payments made on
behalf of shareholder (41,920) (41,920)
------------ ------------
Balances, June 30, 1996 (143,748) 15,340,796
Net income -- 4,639,797
Exercise of common stock
options at $.625 to $4.29
per share -- 8,414
Purchase of treasury stock -- (187,500)
Payments made on behalf of
shareholder (1,022) (1,022)
------------ ------------
Balances, June 30, 1997 (144,770) 19,800,485
Net income -- 5,003,810
Exercise of common stock
options at $3.31 to $5.25
per share -- 36,384
Payments made on behalf of
shareholder (8,155) (8,155)
Cancellation of DS
Medical shares at par -- --
------------ ------------
Balances, June 30, 1998 $ (152,925) $ 24,832,524
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 23
BIOCHEM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,003,810 $ 4,639,797 $ 5,369,669
Adjustments to reconcile to net cash provided
by operating activities:
Deferred income taxes 25,000 20,000 1,310,000
Amortization of U.S. Treasury Note premium 2,739 16,143 5,334
Depreciation and amortization 376,417 353,442 316,776
Change in assets and liabilities:
Receivables 501,639 615,316 (1,209,441)
Inventories (108,251) (451,320) (610,134)
Prepaid expenses and other (30,373) 5,713 (6,055)
Income taxes (362,382) (45,000) 80,000
Accounts payable and accrued liabilities 345,936 (61,653) 650,286
------------ ------------ ------------
Net cash provided by operating activities 5,754,535 5,092,438 5,906,435
------------ ------------ ------------
Cash flows from investing activities:
Property, plant and equipment additions (3,347,310) (241,201) (591,006)
Proceeds from sale of equipment 20,553 -- --
Investment in U.S. Treasury Notes -- -- (1,869,216)
Intangible asset additions (25,000) -- --
------------ ------------ ------------
Net cash (used in)
investing activities (3,351,757) (241,201) (2,460,222)
------------ ------------ ------------
Cash flows from financing activities:
Loan to shareholder (8,155) (1,022) (41,920)
Proceeds from exercise of stock options 36,384 8,414 1,548
------------ ------------ ------------
Net cash provided by (used in) financing activities 28,229 7,392 (40,372)
------------ ------------ ------------
Net increase in cash and cash equivalents 2,431,007 4,858,629 3,405,841
Cash and cash equivalents:
Beginning of year 10,892,915 6,034,286 2,628,445
------------ ------------ ------------
End of year $ 13,323,922 $ 10,892,915 $ 6,034,286
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 2,713,154 $ 2,564,515 $ 1,711,825
</TABLE>
Non-cash activity:
The Company acquired 50,000 shares of its common stock owned by a major customer
during 1997 in satisfaction of the customer's $187,500 outstanding accounts
receivable balance.
The accompanying notes are an integral part of these financial statements.
22
<PAGE> 24
BIOCHEM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Biochem International Inc. (the "Company") designs and manufactures medical
equipment used in the monitoring of respiration, blood gases, exhaled
gases, anesthetic agent gases and related cardiovascular functions. The
following is a summary of significant accounting policies of the Company:
a. REVENUE RECOGNITION: The Company recognizes revenue from product sales
upon shipment to the customer.
b. CONSOLIDATION PRINCIPLES: The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries,
SurgiVet, Inc. and BCI International Foreign Sales Corporation. All
intercompany transactions have been eliminated. Effective October 1,
1997, the Company incorporated SurgiVet, Inc. as a wholly-owned
subsidiary to design and distribute monitoring equipment to the
veterinary market.
c. ESTIMATES: The Company prepares its consolidated financial statements
in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities and the reported amounts of revenues
and expenses during the reported period. Actual results could differ
from those estimates.
d. CONCENTRATION OF CREDIT RISK: Financial instruments which potentially
subject the Company to concentrations of credit risk consist
principally of temporary cash investments and trade receivables. The
Company places its temporary cash investments with a high credit
quality financial institution. The Company's trade receivables subject
it to credit risk. Its customers are primarily health care providers,
both domestically and internationally. The Company's international
receivables are generally supported by letters of credit denominated
in U.S. dollars. The domestic receivables are generally not
collateralized.
e. CASH EQUIVALENTS: All highly liquid investments purchased with a
maturity of three months or less are considered cash equivalents.
f. INVENTORIES: Inventories are valued at the lower of cost (determined
on a first-in, first-out basis) or market. Loaner and demonstration
equipment is recorded at cost and included in inventory until sold.
23
<PAGE> 25
g. INVESTMENT, HELD FOR TRUST: Investment, held for trust at June 30,
1998 represents an investment in a U.S. government security which
matures in August, 1999. The investment is classified as
held-to-maturity and is stated at amortized cost. The fair market
value of this security at June 30, 1998 is $1,852,565.
h. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are
stated at cost. Depreciation is provided on the straight-line method
over the estimated useful lives of these assets. The estimated useful
lives are principally 25 years for building and 3 to 10 years for
machinery and equipment. Upon sale or retirement of depreciable
assets, the related cost and accumulated depreciation are removed from
the accounts and any resultant gain or loss is reflected in
operations.
i. INCOME TAXES: Deferred income tax assets and liabilities are
determined based on the difference between the financial statement and
tax bases of assets and liabilities using enacted income tax rates in
effect for the year in which the differences are expected to reverse.
j. NET INCOME PER SHARE: During the second quarter of 1998, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share", which establishes new standards for reporting
earnings per share. The earnings per share computations for prior
periods have been restated to conform with the provisions of SFAS 128.
Basic earning per share is computed by dividing net earnings by the
weighted average shares outstanding during each period. Diluted
earnings per share is computed similar to basic earnings per share
except that the weighted average shares outstanding is increased to
include the number of additional shares that would have been
outstanding if stock options were exercised and the proceeds from such
exercise were used to acquire shares of common stock at the average
market price during the period.
k. OTHER INCOME: Other income is comprised primarily of interest received
from the Company's interest-bearing cash accounts.
24
<PAGE> 26
l. RECENT ACCOUNTING PRONOUNCEMENTS: In June 1997, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." In February 1998, the FASB
issued SFAS No. 132, "Disclosures about Pensions and other
Postretirement Benefits." These statements will be adopted by the
Company, as required, for the periods beginning after December 15,
1997. These standards expand or modify disclosures and, accordingly,
will not have an effect on the Company's liquidity, financial
position, or results of operations. In June 1998, the FASB issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement will be adopted by the Company, as
required, for the periods beginning after June 15, 1999.
Implementation of this statement is not expected to have a material
impact on the financial statements of the Company.
m. RECLASSIFICATION: Certain reclassifications were made to the 1997
consolidated financial statements to conform to the 1998 presentation
2. INVENTORIES:
Inventories are comprised of:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Finished goods $ 561,440 $ 230,390
Loaner and demonstration equipment 935,367 920,734
Work-in-process 1,043,103 1,070,564
Purchased material 1,316,296 1,526,267
---------- ----------
$3,856,206 $3,747,955
========== ==========
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Land $ 583,943 $ 342,262
Building 724,699 724,699
Leasehold improvements 126,841 126,841
Machinery and equipment 2,121,650 1,605,481
Office furniture and equipment 227,024 184,295
Construction in progress 2,502,690 --
---------- ----------
6,286,847 2,983,578
Less accumulated depreciation 1,734,444 1,383,899
---------- ----------
$4,552,103 $1,599,679
========== ==========
</TABLE>
25
<PAGE> 27
4. INVESTMENT, HELD FOR TRUST:
A U.S. government security is held in a restricted trust as part of a
compensation agreement entered into between the Company and its president
in January 1996. The balance of this restricted trust as of June 30, 1998
and 1997 was $1,845,000 and $1,847,739, respectively. Under the terms of
the agreement, the president will receive earnings of the trust assets
currently and, should he remain employed by the Company for a period of one
year following a change in control, the assets in trust will become the
property of the president. The principal shareholders of the Company have
guaranteed the Company's obligation to its president.
5. BORROWING ARRANGEMENT:
The Company has a bank loan and security agreement which, as amended
January 16, 1996, provides for borrowings not to exceed $10,000,000 that
are due on demand under a revolving line of credit. No amounts were
outstanding under this arrangement at June 30, 1998 or 1997. Interest is at
the London Interbank Offered Rate (LIBOR) plus 1.75%. The bank has a
security interest in all the assets of the Company. Under the terms of the
agreement, any borrowings under the line of credit must be used for working
capital or acquisition purposes. The terms of the agreement also subject
the Company to certain covenants, including restriction on paying dividends
without prior written consent of the bank, maintaining a minimum tangible
net worth of $7,500,000 and restriction of Company acquisitions to the
medical products industry.
6. COMMON STOCK AND STOCK OPTIONS:
Effective October 1, 1992, the Company adopted the 1992 Stock Program which
includes a Stock Option Plan and a Restricted Stock Rights Plan. This
program provides for the issuance of common stock options to officers,
employees and independent consultants. An aggregate of 250,000 shares were
originally reserved for issuance under the program. All options available
for grant at June 30, 1998 relate to the 1992 stock program. Stock purchase
rights granted under the Restricted Stock Rights Plan are exercisable for a
period of 30 days at a price equal to 10% of the stock's fair market value
at the date of grant. No stock purchase rights had been granted at June 30,
1998 under this plan.
At June 30, 1998, the Company also has outstanding options to purchase
3,000 shares of common stock under a Stock Option Plan which was terminated
in 1991.
26
<PAGE> 28
Options granted under the Stock Option Plans are exercisable for a period
of 10 years at a price equal to market value, as defined, on the date of
grant. Participants are fully vested in their options when granted.
The following is a summary of the stock option shares and the weighted
average exercise price per share:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
Shares Price Shares Price Shares Price
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding and exercisable
beginning of year 171,500 $ 3.013 181,000 $ 2.248 133,500 $ 1.557
Granted -- -- 26,000 5.250 51,000 3.931
Exercised (9,000) 4.043 (4,500) 1.870 (3,500) 0.442
Purchased -- -- (30,500) 0.586 -- --
Forfeited -- -- (500) 0.625 -- --
----------- ----------- -----------
Outstanding and exerciseable
end of year 162,500 2.957 171,500 3.013 181,000 2.248
=========== =========== ===========
Available for grant,
end of year 73,000 73,000 68,000
=========== =========== ==========
</TABLE>
Options outstanding and exercisable as of June 30, 1998:
<TABLE>
<CAPTION>
Weighted-Average
Range of Weighted-Average Exercise Price
Exercise Prices Remaining Life per Share Shares
--------------- ---------------- ---------------- -------
<S> <C> <C> <C> <C>
$0.250 - 0.346 3.87 $0.334 23,500
$0.625 - 1.359 5.31 0.855 25,500
$3.313 - 5.250 7.45 3.971 113,500
-------
2.957 162,500
=======
</TABLE>
6. COMMON STOCK AND STOCK OPTIONS, CONTINUED:
In March, 1997, the Company purchased from the president of the Company his
option rights to purchase 30,500 shares of the Company's stock. These
rights were granted to the president during the years 1989 through 1994.
The value paid for the options was $163,211, determined as the average
between the prices bid and asked for the stock on the date of the
authorization to purchase ($5.9375 per share) less the aggregate underlying
options exercise price of $17,883. After this transaction, the president
owned options to purchase up to 20,000 shares of the Company's stock at
exercise prices ranging from $3.3125 to $4.29 per share.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" (the "standard"). The Company adopted the new standard
effective July 1, 1996. The Company has continued to measure compensation
expense for its stock - based compensation plans under Accounting
Principles Board Opinion No. 25; therefore, the new standard has no effect
on the Company's operating results.
27
<PAGE> 29
6. COMMON STOCK AND STOCK OPTIONS, CONTINUED:
Had the Company recognized compensation expense based on the fair value at
the grant for awards under the plan, consistent with the method prescribed
by the standard, the Company's net income and basic and diluted net income
per share for the years ended June 30, 1998 and 1997 would have been as
follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Net earnings as reported $ 5,003,810 $ 4,639,797
Net earnings pro forma $ 5,003,810 $ 4,567,076
Net earnings per share as reported-Basic and diluted $ 0.38 $ 0.35
Net earnings per share pro forma-Basic and diluted $ 0.38 $ 0.35
</TABLE>
There were no stock options granted during the year ended June 30, 1998.
The following assumptions were used to compute the fair value of the option
grants for the year ended 1997, using the Black-Scholes option-pricing
model: a risk-free interest rate ranging from 5.88% to 6.43%; stock
volatility of 40%; dividend yield of 0% and expected option life of seven
years.
7. INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $ 2,089,360 $ 2,266,635 $ 1,763,623
State 261,362 252,880 28,202
----------- ----------- -----------
Total current 2,350,722 2,519,515 1,791,825
----------- ----------- -----------
Deferred:
Federal 16,375 45,961 1,067,000
State 8,625 (25,961) 243,000
----------- ----------- -----------
Total deferred 25,000 20,000 1,310,000
----------- ----------- -----------
$ 2,375,722 $ 2,539,515 $ 3,101,825
=========== =========== ===========
</TABLE>
The following reconciles the Federal statutory income tax rate with the
Company's effective tax rate:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Statutory Federal income tax rate 34.0% 34.0% 34.0%
FSC benefit (3.4) (1.7) (0.9)
State income taxes, net of federal benefit 1.8 2.1 2.1
Nondeductible expenses and other (0.2) 1.0 1.4
------ ------ ------
32.2% 35.4% 36.6%
====== ====== ======
</TABLE>
28
<PAGE> 30
7. INCOME TAXES, CONTINUED:
Deferred income taxes reflected in the balance sheet at June 30, 1997 and
1996 relate to the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Current:
Inventories and receivables $ 136,110 $ 130,257
Accrued employee benefits 95,150 109,405
Other 63,740 80,338
--------- ---------
Total net deferred tax assets $ 295,000 $ 320,000
--------- ---------
</TABLE>
8. EXPORT SALES:
Export sales to various regions for the years ended June 30, 1998, 1997,
and 1996 approximate:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Western Europe $ 6,309,000 $ 5,832,000 $ 7,727,000
Far East 3,394,000 3,698,000 3,485,000
Central and South America 1,982,000 1,811,000 1,412,000
Other 1,568,000 2,182,000 2,248,000
----------- ----------- -----------
$13,253,000 $13,523,000 $14,872,000
=========== =========== ===========
</TABLE>
The Company's export sales are denominated in U.S. currency.
9. EMPLOYEE BENEFIT PLAN:
The Company sponsors a defined contribution retirement plan for all
eligible employees of the Company. An employee becomes eligible to
participate in the plan upon completion of one full calendar month of
employment. Employees may contribute up to 12% of their compensation and
the Company provides a matching contribution of 50% of the employees'
contributions up to 6% of the employees' compensation. The Company's
contributions to the Plan were $142,277, $139,384, and $125,805 in 1998,
1997 and 1996, respectively.
The Company is not obligated to provide any postretirement medical or life
insurance benefits to employees.
29
<PAGE> 31
10. RELATED PARTY TRANSACTIONS:
In July 1984, DS Medical Products Co. ("DS Medical") was formed for the
exclusive purpose of acquiring up to an 80% interest in the Company for
investment purposes. A former president of the Company, and a principal
shareholder of DS Medical, had an interest in the common stock of the
Company which is held by DS Medical. On August 1, 1993, the Company paid
$101,828 to the former president on behalf of DS Medical in exchange for
those securities. In addition, the Company paid approximately $40,000 in
state taxes in March 1996 and approximately $11,000 in other expenses in
1997 and 1998 on behalf of DS Medical. The Company has recorded these
transactions as a reduction of stockholders' equity.
On March 2, 1998, DS Medical was merged with and into the Company, thus
dissolving DS Medical. At that time, 9,984,998 shares of the Company's
common stock held by DS Medical were transferred to the principal
shareholders of DS Medical. The remaining two shares of the Company's
common stock held by DS Medical were cancelled.
The receivable from DS Medical of $152,925, recorded as a reduction of
stockholders' as of June 30, 1998, was assumed by the principal
shareholders of DS Medical on the date DS Medical was dissolved.
11. SUBSEQUENT EVENT:
Effective July 1, 1998, SurgiVet, Inc., a wholly-owned subsidiary of the
Company, purchased the assets of Anesco Inc. for $4,000,000 cash. Upon
completion of the purchase, the Company recorded $3,258,000 of goodwill.
30
<PAGE> 32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and principal executive officers of the Company and their offices
are:
<TABLE>
<CAPTION>
Name Age Office
---- --- ------
<S> <C> <C>
David H. Sanders(1) 67 Director - Class I, Chairman of the Board of
Directors, Chief Executive Officer, Treasurer and
Assistant Secretary
Lee J. Knirko 75 Director - Class II
Frank A. Katarow 37 President and Chief Operating Officer
Keith R. Harper 49 Senior Vice President, Sales
Ann M. Johnson 36 Executive Vice President and General Manager,
SurgiVet, Inc. Vice President, BCI International
Robert H. Wesel 39 Vice President, International Sales
Mark S. Geisler 46 Vice President, Engineering
Donald Alexander 43 Vice President, Regulatory Affairs
Paul F. Pujanauski 47 Vice President, Sales and Marketing
</TABLE>
(1) Member of the Executive Committee
All directors are elected for two (2) year terms and serve until their
respective successors are duly elected and qualified. Mr. Kenneth Davee was a
Class I Director, Vice Chairman of the Board of Directors and Secretary of the
Company until his death on August 13, 1998. His position as an officer and
director of the Company has not been filled. The terms for Classes I and II
expire as of the date set for the annual stockholders' meeting for fiscal years
ending June 30, 1998 and June 30, 1997, respectively. Officers are appointed for
a one (1) year term unless sooner replaced. Each of the above individuals has
served in the capacities indicated since September 14, 1984, except as stated
below.
31
<PAGE> 33
MR. SANDERS received an undergraduate degree and, in 1956, a Masters in Business
Administration from the University of Wisconsin. Prior to his employment in 1973
by MEC, Mr. Sanders was with Pfizer International for four (4) years, and
Sandoz, Inc., for fifteen (15) years, at which companies he was involved in
marketing and general management. In 1973, he became President and Chief
Executive Officer of MEC, a position he held through December of 1984. Mr.
Sanders served as President of the Company from September 4, 1984 to October 4,
1984 at which time he commenced serving as Chairman and Assistant Secretary.
MR. KNIRKO, a certified public accountant, is a former treasurer of the Dr.
Scholl Foundation, a non-profit organization. He is a former audit manager of
Peat, Marwick, Main & Co. (now KPMG Peat Marwick), an accounting firm.
MR. KATAROW has been employed by the Company since October, 1980 serving in
various capacities including Mechanical Designer, Manager of Product Design,
Manufacturing Manager, Director of Operations and was then promoted to Vice
President of Operations in June, 1990. Responsibility for OEM Sales was added in
January, 1991. He was promoted to Senior Vice President and General Manager on
March 1, 1992 and further promoted to Executive Vice President effective January
1, 1993. On November 1, 1993 he became President and Chief Operating Officer of
the Company.
MR. HARPER has been employed by the Company since October, 1981, serving in
various capacities including National Service Manager, General Manager-Quality
Assurance and Service, Director of Regulatory Affairs, Director of Operations,
and Vice President of Operations since December, 1986. In 1990 he became Vice
President of International Sales. On November 1, 1993 he commenced serving as
Senior Vice President, Sales.
MS. JOHNSON, a certified public accountant, received a Bachelor of Business
Administration degree in Accounting and in Risk Management and Insurance from
the University of Wisconsin in Madison. She received her Masters of Business
Administration degree in May, 1997 from the University of Wisconsin in
Milwaukee. Prior to her employment at BCI, she worked on the audit staff at
Deloitte, Haskins & Sells (now Deloitte & Touche) from 1984 to 1987 and at
Coopers & Lybrand (now PricewaterhouseCoopers) from 1987 to 1990. She joined BCI
in April, 1990 and has been Vice President of Finance and Personnel since
December, 1991. On November 1, 1993 she was promoted to Vice President of
Finance and Operations. On November 1, 1997 she was promoted to Executive Vice
President and General Manager of SurgiVet, Inc., BCI's new veterinary division.
Ms. Johnson is also a Vice President of BCI.
MR. WESEL worked in the health care field for over ten years before starting at
BCI in January, 1991. He received an associates degree from Milwaukee Area
Technical College in Business Management and is also a certified cardiopulmonary
technologist and a pulmonary functions technologist. His most recent clinical
position was as Technical Director/Business Manager of Anesthesia at a 400 bed
hospital. Since
32
<PAGE> 34
coming to BCI, he has held several positions, including Manager of Clinical
Applications, Territory Sales Manager and Director of Marketing Services. After
a brief hiatus from the company in fiscal 1994, he became Vice President of
International Sales effective January 4, 1994.
MR. GEISLER came to BCI in November, 1994 as Vice President of Engineering from
Marquette Electronics. He worked at Marquette for 14 years at various positions
in the areas of Research and Development, most recently as Director of Research
and Development. He received his undergraduate degree in Electrical Engineering
from the University of Wisconsin in Madison and his masters degree in Electrical
Engineering from Marquette University. He is currently attending Marquette
University in pursuit of a Doctorate Degree in Electrical Engineering.
MR. ALEXANDER started at BCI in August, 1992 as Engineering Manager. In August,
1994 he transferred to the regulatory affairs department, becoming Regulatory
Affairs Manager, and was promoted to Vice President, Regulatory Affairs in May,
1995. Before coming to BCI, Mr. Alexander was a project leader at Life Fitness
Corp., an equipment manufacturer in Illinois. He has a Bachelors Degree in
Electrical Engineering from the University of Maine.
MR. PUJANAUSKI started at BCI in August, 1996 as National Sales Manager. In
July, 1997 he was promoted to Director of Domestic Sales and Marketing. He
accepted the position of Vice President of Domestic Sales and Marketing in May
1998. His prior experience includes 18 years in sales management for various
medical equipment companies. He has a Bachelors Degree in Business
Administration from the University of Wisconsin-Oshkosh.
33
<PAGE> 35
Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's executive officers and directors and persons holding ten percent or
more of the Company's equity securities to file reports of ownership and changes
in ownership with the Securities and Exchange Commission. Based solely on its
review of copies of such reports furnished to the Company, the Company believes
that all of its executive officers, directors and greater than ten percent
beneficial owners were in compliance with their Section 16 filing requirements.
34
<PAGE> 36
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning all cash, cash-equivalent
and non-cash forms of remuneration for services to the Company for the past
three fiscal years for the Chief Executive Officer of the Company and each of
the Company's four other most highly compensated executive officers:
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
--------------------------------- ------------
Stock All Other
Name and Capacity Year Salary Bonus Other(1) Options(#) Compensation(2)
- ----------------- ---- ------ ----- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
David H. Sanders 1998 $200,000 $ -0- $ -0- -0- $ 4,750
Chairman and CEO 1997 200,000 -0- -0- -0- 4,750
1996 200,000 -0- -0- -0- 4,600
Frank A. Katarow 1998 $188,500 $ 24,500 $ -0- -0- $114,297
President and COO 1997 169,308 18,200 -0- 5,000 115,450
1996 153,134 30,050 -0- 10,000 10,218
Keith R. Harper 1998 $120,280 $ -0- $ -0- -0- $ 3,639
Senior Vice President 1997 125,973 -0- -0- 2,000 3,869
1996 117,367 8,500 -0- 4,000 3,776
Robert H. Wesel 1998 $127,221 $ -0- $ -0- -0- $ 2,591
Vice President 1997 122,088 -0- -0- 2,000 3,663
1996 113,520 -0- -0- 4,000 3,406
Paul F. Pujanauski 1998 $122,589 $ -0- $ -0- -0- $ 3,551
Vice President(3) 1997 80,301 -0- -0- 1,000 2,793
1996 -0- -0- -0- -0- -0-
</TABLE>
(1) While the above named Executive Officers enjoy certain perquisites, for the
year ended June 30, 1998, these did not exceed $50,000 or ten percent of any
officer's salary and bonus.
(2) These figures represent the amount of the Company's contribution to its
401(k) Plan allocated to the officer. Additionally, the amount for the year
ended June 30, 1998 allocated to Mr. Katarow includes a $109,546 payment
representing interest earned on the funds held in trust relating to the
Compensation Agreement in effect for Mr. Katarow, as discussed below.
(3) Mr. Pujanauski began employment with the Company on August 5, 1996, and was
promoted to Vice President on May 15, 1998.
Directors receive no fees or expense reimbursement allowances.
35
<PAGE> 37
STOCK OPTIONS
For the fiscal year ended June 30, 1998, there were no stock options issued.
There were no options exercised by directors or officers of the Company during
fiscal 1998. The following table shows the value of unexercised options on an
aggregated basis at June 30, 1998 for each of the executive officers and
directors:
<TABLE>
<CAPTION>
Shares Number of Value of
Acquired on Value Unexercised Unexercised
Exercise Realized Options at Options at
Fiscal 1998 Fiscal 1998 6/30/98 6/30/98 (1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
D.H. Sanders -0- -0- -0- N/A
K.M. Davee -0- -0- -0- N/A
L.J. Knirko -0- -0- -0- N/A
F.A. Katarow -0- -0- 25,000 $ 29,175
K.R. Harper -0- -0- 25,000 72,987
A.M. Johnson -0- -0- 34,500 101,644
R.H. Wesel -0- -0- 14,000 22,827
M.S. Geisler -0- -0- 14,000 18,920
D.J. Alexander -0- -0- 6,500 5,326
P.F. Pujanauski -0- -0- 1,000 375
</TABLE>
(1) Value of unexercised options is calculated by determining the difference
between the fair market value of the securities underlying the options and the
exercise price of the options at fiscal year end.
In March, 1997, the Company purchased from the president of the Company his
option rights to purchase 30,500 shares of the Company's stock. These rights
were granted to the president during the years 1989 through 1994. The value paid
for the options was $163,211, determined as the average between the prices bid
and asked for the stock on the date of the authorization to purchase ($5.9375
per share) less the aggregate underlying options exercise price of $17,883.
After this transaction, the president owned options to purchase up to 20,000
shares of the Company's stock at exercise prices ranging from $3.3125 to $4.29
per share.
On January 24, 1996, the Company entered into a Compensation Agreement with its
President, Frank A. Katarow ("Katarow"). Under the terms of that Compensation
Agreement, Katarow has undertaken to remain in the employ of the Company for a
period of at least one (1) year following a change of control of the Company
(defined as a change of control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A under the
Securities Exchange Act of 1934). The intention of the Agreement is to retain
Katarow's services in the event of a sale, transfer or
36
<PAGE> 38
other disposition of the business or ownership of the Company, for the benefit
of any acquiring party, in order to provide for continuity of management of the
Company, if so desired by any such acquiror.
Under the terms of the Agreement, for the one (1) year period following a change
of control, Katarow would be entitled to receive base salary at a rate at least
equal to the rate in effect immediately prior to such a change of control,
together with an annual bonus equal to the average bonus paid in the three (3)
years preceding such change of control. In addition, at the end of the one (1)
year period (or sooner if Katarow's employment with the Company or its successor
is earlier terminated without cause, as defined), Katarow would be entitled to
receive an amount equal to the amount remaining in a trust fund concurrently
established to provide for payment under the Compensation Agreement. That trust
fund, established pursuant to a complementary Trust Agreement and funded with a
cash deposit of $1,870,200.00, is intended to constitute a grantor trust as
described in Section 671 et. seq. of the Internal Revenue Code of 1986, as
amended (the "Code"). As such, all income earned by the trust is attributable to
the Company. Nevertheless, the trust instrument provides for payment of earnings
of the trust to Katarow on an annual basis. This amount, attributable to the
Company as income and deductible by it as an employee salary expense, is to be
treated as earned income to Katarow, who is responsible for payment of
individual income tax on such amount. Payment of these annual earnings to
Katarow will constitute a material increase in Katarow's salary payments from
the Company on a current basis. While earnings from the trust fund are payable
to Katarow on an annual basis commencing immediately, payment of the principal
of the trust fund is payable only upon his satisfaction of his continuing
post-change of control employment undertaking.
Until actually paid to Katarow, the assets of the trust are subject to
intervening claims of general creditors of the Company, including Katarow, whose
rights therein are no greater than those of other general creditors. Katarow may
not assign, anticipate, alienate or encumber his rights in the trust. David H.
Sanders, Chairman of the Board of the Company, has been designated as trustee
under the Trust Agreement.
Katarow concurrently entered into a similar Compensation Agreement with DS
Medical Products Co. ("DS Medical"), the principal shareholder of the Company.
This Agreement was amended January 12, 1998, in relation to the Merger of DS
Medical with and into the Company. Pursuant to this Amendment, Mr. Sanders and
Mr. Davee
37
<PAGE> 39
jointly and severally assumed this Obligation. Under the terms of the respective
Compensation Agreements, to the extent that payments otherwise due Katarow from
the Company would be considered (I) "excess parachute payments" under Section
280G or 4999 of the Code, or (ii) not deductible by the Company by reason of
Section 162(m) of the Code, such payments become the obligation of the principal
shareholders, and the Trustee is directed to return to the Company the balance
of the assets in the trust that would otherwise be available to make those
payments.
The intention of the foregoing arrangement with Katarow is to assure his
continuing service to the Company on a current basis, and his availability to
any potential acquiror of the Company or its business or assets into the future.
The Company, its management and Board of Directors have determined that the
existence of continuity of present management would be an important aspect in
the valuation of the Company by any potential acquiror, and the Company and its
Board of Directors, deem it, in their best business judgment, to be important to
provide for retention of management in order to enhance the value of the Company
for the benefit of its shareholders. As disclosed in the Report on Form 8-K,
dated September 9, 1998, and previously mentioned herein, the Company is
currently negotiating a possible sale of the Company to Smiths Industries plc, a
United Kingdom-based avionics, medical systems and specialized industrial
products manufacturer. Management and ownership believe that the value of the
Company, will be enhanced in any sales discussions by the foregoing Compensation
Agreements.
The Company entered into employment contracts with four of its officers,
including Mssrs. Wesel and Harper, in April, 1995. The contracts have a three
year term, and are renewable for one year periods thereafter with agreement by
both parties. In the event employment is terminated without cause, the employee
shall be entitled to: severance pay for the greater of 12 months or one month
for each year of service, and continuation of employee benefits for the
severance period. The severance period terminates when the employee has found
other work if that occurs sooner than the predefined end of the severance
period. No other long term incentive plans or change-in-control arrangements are
currently in force at the Company.
38
<PAGE> 40
COMPENSATION COMMITTEE REPORT
The objectives of the Company's compensation program are to attract and retain
the best available executives, to motivate these executives to achieve the
Company's goals, and to recognize individual contributions as well as overall
business results. To achieve these objectives, the Company reviews its
compensation program on a regular basis and attempts to tie a portion of each
executive's potential compensation to Company performance.
The key elements of the Company's executive compensation program consist of
fixed salary plus variable pay, taking the form of annual incentive compensation
directly tied to Company performance, and long-term compensation via stock
option awards. In determining each element of compensation to be awarded to each
executive, the Compensation Committee considers the executive's benefits
package, his/her responsibilities and experience, as well as the competitive
marketplace for executive talent. Whenever possible, a comparison to
compensation packages for executives with similar experience and
responsibilities was made when determining the packages at the Company.
In determining the compensation package for Mr. Sanders, the Company's Chairman
of the Board and Chief Executive Officer, the Committee took into consideration
both the compensation packages of CEOs at companies the Committee deemed
comparable, and the Committee's assessment of Mr. Sanders and the Company's
overall performance. Because of his substantial stock holdings, Mr. Sanders is
not eligible to participate in the stock option plan. Additionally, due to his
position, he is not eligible for any incentive compensation awards. Mr. Sanders
took no part in the determination of his compensation.
The Compensation Committee reviewed the proposed 1998 salaries and bonuses for
the executive officers. The Committee believed the proposed salary levels were
in line with or below the salary levels of executives in comparable positions of
responsibility. In an effort to tie a substantial portion of an executive's
compensation to Company performance, the Committee approved an incentive
compensation program in which all of the executive officers, other than Mr.
Sanders, Mr. Harper, Mr. Wesel and Mr. Pujanauski, are eligible to participate.
The program provides for a percentage of the participant's salary to be paid to
that officer if operating profits are above specified levels. Mr. Harper, Mr.
Wesel, and Mr. Pujanauski receive commission based on the sales performance of
their divisions. All executive officers, other than Mr. Sanders as
39
<PAGE> 41
mentioned above, are eligible for discretionary stock option awards. The
committee believes that selective grants of stock options, along with the
performance-based cash compensation described above promote a commonality of
interest between the Company's officers and its stockholders.
The Compensation Committee is of the opinion that the compensation levels for
the executive officers are reasonable when compared to similar positions of
responsibility and scope in similar sized companies and in similar industries,
and that an appropriate amount of total compensation is based on the performance
of the Company, and therefore provides sufficient incentive for these
individuals to attain improved results in the future.
Compensation Committee:
David H. Sanders
Ken M. Davee (1)
(1) Mr. Davee's position on the Compensation Committee, made vacant upon his
death, has not been filled at this time.
40
<PAGE> 42
COMPANY STOCK PRICE PERFORMANCE
The following table tracks the value of $100 invested on June 30, 1993 in
Biochem International Inc. Common Stock as compared to the change in the
Standard & Poor's 500 Index and the Standard & Poor's Health Care Composite
Index. The table shows that $100 invested five years ago in the Company's stock
was worth $351 at June 30, 1998, compared to $272 for the S&P 500 Index and $335
for the Health Care Composite Index.
<TABLE>
<CAPTION>
MEASUREMENT HEALTH CARE
DATE BCI STOCK S & P 500 COMPOSITE
----------- --------- --------- -----------
<S> <C> <C> <C> <C>
6/30/93 $ 100 $ 100 $ 100
6/30/94 250 99 100
6/30/95 223 125 145
6/30/96 314 157 202
6/30/97 342 212 262
6/30/98 351 272 335
</TABLE>
The following graph depicts a five-year comparison of cumulative total
stockholder returns for the Company, the Standard & Poor's 500 Stock Index and
the Standard & Poor's Health Care Composite Index from June 30, 1993 through
June 30, 1998.
[CHART]
41
<PAGE> 43
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the beneficial ownership of common stock, $.02 par
value, of the Company by each person who is known by the Company to be the
beneficial owner of five (5) percent or more of such stock as of August 31,
1998:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class (3)
- ------------------- -------------------- ----------
<S> <C> <C>
Mrs. Ruth Davee 4,992,500 shares 37.79%
180 East Pearson 4,992,500 of record
Chicago, IL 60611
David H. Sanders 5,222,498 shares 39.53%
BCI International 4,636,566 of record
N7 W22025 Johnson Road 585,932 beneficially (1)(2)
Waukesha, WI 53186
</TABLE>
(1) Includes 355,932 shares owned indirectly by Mr. Sanders through family
members. Therefore, for the purposes of Rule 13d-3 of the Securities and
Exchange Commission, he may be deemed to beneficially own the BCI stock.
Such beneficial ownership is disclaimed.
(2) 230,000 shares are held of record by the Sanders Family Benefit Trust.
(3) The percent of class calculations above are based on a total of 13,212,782
shares consisting of 13,050,282 shares outstanding, and 162,500 shares
issuable upon exercise of options granted under the Company's Incentive
Stock Option Plans. See ITEM 8. Financial Statements and Supplementary
Data, Note 6, Common Stock and Stock Options.
42
<PAGE> 44
The following table shows the ownership of common stock of the Company held
beneficially by each director and officer holding shares, and by all directors
and officers of the Company as a group, as of August 31, 1998:
<TABLE>
<CAPTION>
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class (3)
- ---------------- -------------------- ----------
<S> <C> <C>
David H. Sanders 5,222,498 shares- 39.38%
4,636,566 of record
585,932 beneficially (1)(2)
Frank A. Katarow 30,700 shares-5,700 of .23%
record and beneficially,
and 25,000 beneficially as
options
Keith R. Harper 25,000 shares-25,000 .19%
beneficially as options
Ann M. Johnson 34,500 shares-34,500 .26%
beneficially as options
Robert H. Wesel 16,000 shares-2,000 of .12%
record and beneficially,
and 14,000 beneficially
as options
Mark S. Geisler 14,000 shares-14,000 .11%
beneficially as options
Donald Alexander 28,360 shares-21,860 of .21%
record and beneficially
and 6,500 beneficially
as options
Paul F. Pujanauski 1,000 shares-1,000 .01%
beneficially as options
All directors and 5,372,058 shares-4,666,126 40.50%
officers as a group of record and beneficially,
(8 persons) 585,932 beneficially, and
120,000 as options (1)(3)
</TABLE>
(1) See footnote 1 to the preceding table.
(2) See footnote 2 to the preceding table.
(3) See footnote 3 to the preceding table.
The above beneficial ownership information is based on the information furnished
by the specified persons and has been determined in accordance with Rule 13d-3.
It is not intended to be an admission of beneficial ownership for any other
purpose and includes shares as to
43
<PAGE> 45
which beneficial ownership has been disclaimed. BCI has not received any
Schedule 13D or Schedule 13G statements indicating that any person is a
beneficial owner of more than 5% of its common stock except as disclosed above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As previously discussed, in July, 1984, D.S. Medical Products Company ("DS
Medical"), was formed for the exclusive purpose of acquiring up to an 80%
interest in BCI for investment purposes. On March 2, 1998, DS Medical was merged
with and into BCI, thus dissolving DS Medical. Ken M. Davee and David H.
Sanders, the principal shareholders of DS Medical, then directly owned their
shares in BCI. Mr. Sanders and Mr. Davee are also directors and executive
officers of the Company. On August 13, 1998, Mr. Davee passed away; his spouse,
Mrs. Ruth Davee, is now a principal shareholder of the Company. At this time,
the Company has not filled this open Director and Officer position. (see ITEM
10. Directors and Executive Officers of the Registrant).
Prior to June 30, 1995, Mr. Davee owned the building which the company occupied
prior to moving into its new facility in July, 1998. BCI purchased the previous
building from Mr. Davee on that date, based upon an Option to Purchase (the
"Option") agreement relating to the property sold. Under the terms of the
Option, BCI had the right to purchase the leased property at any time after the
initial term of the Lease for $670,000 plus increases in the consumer price
index as defined in the agreement. The purchase price plus filing fee costs was
$812,899. The Company closed on the sale of this property on July 24, 1998 for a
selling price of $785,000, which constitutes a small gain over book value.
The former president of the Company had an interest in the common stock of the
Company which was held by DS Medical Products Co. On August 1, 1993, the Company
paid $101,828 to the former president on behalf of DS Medical Products Co. in
exchange for those securities. As a result, the Company has recorded these
transactions as a reduction of stockholders' equity in the same amount at June
30, 1997 and 1996.
The Company paid approximately $40,000 in state taxes in March 1996 on behalf of
DS Medical Products Co., a related party. The Company has recorded this payment
as a reduction of stockholders' equity at June 30, 1996.
The Company paid approximately $8,000 in legal bills in January 1998 on behalf
of DS Medical Products Co., a related party. The Company has added this payment
to the reduction in stockholders' equity at June 30, 1998.
44
<PAGE> 46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Included in Part II of this report:
Report of Independent Accountants.......................................................................19
Consolidated Balance Sheets at June 30, 1998 and 1997...................................................20
Consolidated Statements of Income for the years
ended June 30, 1998, 1997 and 1996......................................................................21
Consolidated Statements of Changes in Stockholders'
Equity for the years ended June 30, 1998, 1997 and 1996.................................................22
Consolidated Statements of Cash Flows for the years
ended June 30, 1998, 1997 and 1996......................................................................23
Notes to Consolidated Financial Statements..............................................................24
2. Included in Part IV of this report:
Independent Accountants' Report on Financial Statement Schedule for the
years ended June 30, 1998, 1997
and 1996................................................................................................53
Schedule II - Valuation and Qualifying Accounts.........................................................54
</TABLE>
Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in ITEM 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, or in ITEM 8. Financial Statements and Supplementary Data.
(b) REPORTS ON FORM 8-K
The following Forms 8-K were filed with the Commission during the quarter ended
June 30, 1998 and the period following up to the date of this report:
(1) Form 8-K dated July 8, 1998:
Item 2. Acquisition of Assets: The Company's wholly-owned subsidiary, SurgiVet,
Inc., acquired substantially all of the assets of Anesco, Inc., pursuant to an
Asset Purchase Agreement effective July 1, 1998.
(2) Form 8-K dated September 9, 1998:
Item 5. Other Events: The Company announced it has entered into discussions with
Smiths Industries plc, for the acquisition of the Company .
45
<PAGE> 47
<TABLE>
<CAPTION>
(c) EXHIBITS FILED WITH THIS FORM 10-K: Page
----
<S> <C>
3(i)(a) Certificate of Incorporation of registrant
filed April 27, 1976...............................................(1)
3(i)(b) Amendment to Certificate of Incorporation
filed June 8, 1976.................................................(1)
3(i)(c) Amendment to Certificate of Incorporation
filed June 30, 1977................................................(1)
3(i)(d) Amendment to Certificate of Incorporation
filed July 31, 1979................................................(1)
3(i)(e) Amendment to Certificate of Incorporation
filed October 22, 1980.............................................(2)
3(i)(f) Amendment to Certificate of Incorporation
filed September 13, 1984...........................................(3)
3(ii) By-Laws of Registrant as amended through December 19, 1988.........(12)
4.1 BCI Stock Purchase Warrant to purchase 8,000,000 shares of
common stock exercisable after 5:00 p.m., Chicago Time,
December 31, 1986,
through December 31, 1992..........................................(4)
10.1 Mortgage Loan and Security Agreement dated as
of December 1, 1980, between Registrant and
Town of Pewaukee, Wisconsin........................................(5)
10.2 1981 Stock Program as amended through June 30, 1989................(13)
10.3 Loan Agreement dated July 18, 1984, by and
between Biochem International Inc. and
DS Medical Products Co.............................................(6)
10.4 Amended 10% Debenture due April 1, 1990............................(3)
10.5 Biochem 10% Debenture, face amount $1,500,000 dated September
14, 1984, and due December 31, 1992................................(4)
</TABLE>
46
<PAGE> 48
<TABLE>
<CAPTION>
Page
----
<S> <C>
10.6 Security Agreement by and between DS Medical and
Biochem dated September 14, 1984, assigning DS Medical a
security interest in Biochem's accounts, chattel paper,
contracts, contract rights, documents, equipment, fixtures,
general intangibles, goods, instruments, inventory,
trademarks, trade names, trade secrets and good-will products
thereof and certain other assets
described therein.............................................................................(4)
10.7 Second Mortgage to BCI's principal offices and manufacturing
facility commonly known as W238 N1650 Rockwood Drive, Waukesha, Wisconsin.....................(4)
10.8 Assignment of Rents to BCI's principal offices and
manufacturing facility commonly known as W238 N1650
Rockwood Drive, Waukesha, Wisconsin, 53188-1199...............................................(4)
10.9 Patent Collateral Assignment dated September 18, 1984 between
BCI and DS Medical with respect to all of BCI's
patent applications and patents...............................................................(4)
10.10 Trademark Collateral Assignment dated September 14, 1984
between BCI and DS Medical with respect to all of BCI's
trademark applications and trademarks.........................................................(4)
10.11 First Amendment to Mortgage, Loan and Security
Agreement, Biochem International Inc. and Town of
Pewaukee (or Pewaukee City), Wisconsin, dated as of
March 1, 1985.................................................................................(7)
10.12 First Supplemental Indenture of Trust, Town of Pewaukee
(or Pewaukee City), Wisconsin, and The Marine Trust
Company N.A., as Trustee, dated as of March 1, 1985...........................................(7)
10.13 Confirmation of Real Estate Mortgage Subordination
by DS Medical Products Company dated as of
March 1, 1985.................................................................................(7)
10.14 BCI 10% Debenture, Face Amount $500,000, dated
September 13, 1985, and due December 31, 1992.................................................(8)
</TABLE>
47
<PAGE> 49
<TABLE>
<CAPTION>
Page
----
<S> <C>
10.15 Waiver of Defaults by IDRB Bondholder...........................................................(8)
10.16 January 1986 Waiver of Default by IDRB Bondholder...............................................(9)
10.17 Promissory Notes, dated July 17, 1986, between
Ken M. Davee and David H. Sanders, and BCI.....................................................(10)
10.18 Commercial Offer to Purchase, dated July 21, 1987..............................................(11)
10.19 Lease, dated August 7, 1987....................................................................(11)
10.20 Option to Purchase, dated August 7, 1987.......................................................(11)
10.22 1992 Stock Option Program, dated October 1, 1992...............................................(14)
10.23 Compensation Agreement between Frank A. Katarow
and Biochem International Inc..................................................................(15)
10.24 Compensation Agreement between Frank A. Katarow
and DS Medical Products Co.....................................................................(15)
10.25 Trust Agreement for Katarow Employment Trust...................................................(15)
24.0 Consent of Independent Accountants with
respect to Company's Form S-8..................................................................55
</TABLE>
48
<PAGE> 50
Footnotes to ITEM 14
(1) Previously filed as Exhibits 3(a) through 3(d) respectively to
Registrant's Registration Statement on Form S-1 No. 2-65273, and
incorporated herein by reference.
(2) Previously filed as Exhibit 20(a) to Registrant's Form 10-Q for the
quarter ended September 30, 1980, and incorporated herein by reference.
(3) Previously filed as Exhibits 3(f) and 10.34 respectively to
Registrant's Form 10-K for the period ended June 30, 1984, and
incorporated herein by reference.
(4) Previously filed as Exhibits 28.2, 28.1, 28.3, 28.4, 28.5, 28.7 and
28.8 respectively to Registrant's Form 8-K dated September 13, 1984,
and incorporated herein by reference.
(5) Previously filed as Exhibit 10(g) to Registrant's Registration
Statement on Form S-1 No. 2-70811, and incorporated herein by
reference.
(6) Previously filed as Exhibit 28.1 to Registrant's Form 8-K dated July
18, 1984, and incorporated herein by reference.
(7) Previously filed as Exhibits 10.51, 10.52 and 10.53 respectively to
Registrant's Form 10-Q for the quarter ended March 31, 1985, and
incorporated herein by reference.
(8) Previously filed as Exhibits 10.45 and 10.47 respectively to
Registrant's Form 10-K for the period ended June 30, 1985, and
incorporated herein by reference.
(9) Previously filed as Exhibit 10.48 to Registrant's Form 10-Q for the
quarter ended December 31, 1985, and incorporated herein by reference.
(10) Previously filed as Exhibit 10.50 to Registrant's Form 10-K for the
period ended June 30, 1986, and incorporated herein by reference.
(11) Previously filed as Exhibits 10.1, 10.2 and 10.3 respectively to
Registrant's Form 8-K dated August 7, 1987, and incorporated herein by
reference.
(12) Previously filed as Exhibit 3(g) to Registrant's Form 10-Q for the
period ended December 31, 1988, and incorporated herein by reference.
(13) Previously filed as Exhibit 10.2 to Registrant's Form 10-K for
49
<PAGE> 51
the period ended June 30, 1989, and incorporated herein by reference.
(14) Previously filed as Exhibit 10.22 to Registrant's Form 10-K for the
period ended June 30, 1993, and incorporated herein by reference.
(15) Previously filed as Exhibit 10.23 through 10.25 to Registrant's Form
10-Q for the period ended December 31, 1995, and incorporated by
reference.
50
<PAGE> 52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BIOCHEM INTERNATIONAL INC.
Dated: September 28, 1998. By: /s/ David H. Sanders
-----------------------------
David H. Sanders, Chairman
of the Board of Directors and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the 28th day of September, 1998.
By: /s/ David H. Sanders By: /s/ Frank A. Katarow
------------------------------ ----------------------------
David H. Sanders, Chairman Frank A. Katarow,
of the Board of Directors President and Chief
and Chief Executive Officer Operating Officer
By: /s/ Lee J. Knirko. By: /s/ Mary K. Hamkins
------------------------------ ----------------------------
Lee J. Knirko, Director Mary K. Hamkins,
Director of Finance
(Chief Accounting Officer)
51
<PAGE> 53
INDEPENDENT ACCOUNTANT'S REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Directors of
Biochem International Inc. and Subsidiaries
Our report on the consolidated financial statements of Biochem International
Inc. and Subsidiaries is included on page 19 of this Form 10-K. In connection
with our audits of such financial statements, we have also audited the related
financial statement schedule listed in the index on page 46 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
August 7, 1998
52
<PAGE> 54
BIOCHEM INTERNATIONAL INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- ------------ ---------- ---------- -------------
Additions
Balance at Charged to
Beginning of Costs and (a) Balance at
Description Period Expenses Deductions End of Period
----------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
1998
Allowance for doubtful accounts $ 125,000 $ 205,650 $ 230,650 $ 100,000
Allowance for inventory obsolescence 175,000 139,885 199,885 115,000
--------- --------- --------- ---------
Total $ 300,000 $ 345,535 $ 430,535 $ 215,000
========= ========= ========= =========
1997
Allowance for doubtful accounts $ 140,000 $ (1,506) $ 13,494 $ 125,000
Allowance for inventory obsolescence 175,000 55,308 55,308 175,000
--------- --------- --------- ---------
Total $ 315,000 $ 53,802 $ 68,802 $ 300,000
========= ========= ========= =========
1996
Allowance for doubtful accounts $ 110,000 $ 48,491 $ 8,491 $ 140,000
Allowance for inventory obsolescence 150,000 74,568 49,568 175,000
--------- --------- --------- ---------
Total $ 250,000 $ 123,059 $ 58,059 $ 315,000
========= ========= ========= =========
</TABLE>
(a) Deductions consist solely of doubtful accounts and inventory written off.
53
<PAGE> 55
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Biochem International Inc. on Form S-8 (File No. O-10005) of our report dated
August 7, 1998 on our audits of the consolidated financial statements and
financial statement schedule of Biochem International Inc. and Subsidiaries as
of June 30, 1998 and 1997, and for each of the three years in the period ended
June 30, 1998, which report is included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
September 21, 1998
54
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 13,324
<SECURITIES> 0
<RECEIVABLES> 3,656
<ALLOWANCES> 0
<INVENTORY> 3,856
<CURRENT-ASSETS> 21,531
<PP&E> 6,287
<DEPRECIATION> 1,734
<TOTAL-ASSETS> 27,959
<CURRENT-LIABILITIES> 3,126
<BONDS> 0
0
0
<COMMON> 262
<OTHER-SE> 24,571
<TOTAL-LIABILITY-AND-EQUITY> 27,959
<SALES> 28,532
<TOTAL-REVENUES> 29,319
<CGS> 12,418
<TOTAL-COSTS> 12,418
<OTHER-EXPENSES> 7,107
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,380
<INCOME-TAX> 2,376
<INCOME-CONTINUING> 5,004
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,004
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
