FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[FEE REQUIRED]
for the fiscal year ended
September 30, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
0-11493
Commission file number
BALLARD MEDICAL PRODUCTS
Exact name of registrant
as specified in its charter
UTAH
State or other jurisdiction of incorporation
or organization
87-0340144
I.R.S. Employer Identification No.
12050 Lone Peak Parkway, Draper, Utah 84020
Address and Zip Code
of principal executive offices
(801) 572-6800
Registrant's telephone number,
including area code
Securities registered to 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of
the Act:
Title of Class: Common
Par Value: $0.10 per share
[X] Yes Indicate by check mark whether the
Registrant (1) has filed all reports
[ ] No required to be
filed by Section 12 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.
[ ] Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K (Section 229.405 of this
chapter) is not contained herein, and will
not be contained, to the best of
registrant's knowledge, in definitive proxy
or information statements incorporated by
reference in Part III of this Form 10-K or
any amendment to this Form 10-K.
The aggregate market value of the voting stock
held by nonaffiliates of the registrant as of
11/30/94:
$242,354,800
The number of shares outstanding of the
registrant's class of common stock, as of
11/30/94:
26,467,745
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by
reference herein:
1. Annual Report to Shareholders for
fiscal year ended September 30, 1994:
Incorporated into Parts I and II
hereof.
2. Proxy Statement for Annual Meeting of
Shareholders to be held January 23,
1995: Incorporated into Part III
hereof.
BALLARD MEDICAL PRODUCTS
Cross Reference Sheet Showing Location
in Annual Report or Proxy Statement
of Information Required by Certain Form 10-K Items
<TABLE>
<CAPTION>
LOCATION IN
REFERENCE
FORM 10-K ITEMS MATERIALS
<S> <C> <C>
Part I
Item 1. Business Annual Report,
pp. 1-5
Item 2. Properties Annual Report,
p. 1
Part II.
Item 5. Market for
Registrant's
Common Equity
and Related
Stockholder Annual Report
Matters pp. 5, 6
Item 6. Selected
Consolidated Annual Report,
Financial Data pp. 6, 7
Item 7. Management's
Discussion and
Analysis of
Financial
Condition and Annual Report,
Results of pp. 23-25
Operations
Item 8. Consolidated
Financial
Statements and
Supplementary Annual Report,
Data pp. 8-22
Part III
Item 10. Directors and
Executive Proxy
Officers of the Statement, pp.
Registrant 3, 16-18
Item 11. Executive Proxy
Compensation Statement, pp.
4-10
Item 12. Security
Ownership of
Certain Proxy
Beneficial Statement, pp.
Owners and 2-4
Management
</TABLE>
DEFINITIONS
As used herein, the following terms have the
meanings indicated:
1. "Ballard" refers to Ballard Medical
Products.
2. The "Company" and the "Registrant"
refer to Ballard and its subsidiaries.
3. "MIC" refers to Medical Innovations
Corporation, a wholly-owned subsidiary
of Ballard.
4. "Code Blue" refers to Code Blue
Medical Corporation, a former wholly-
owned subsidiary of Ballard, which was
statutorily merged into Ballard in
May, 1993.
5. "BREH" refers to Ballard Real Estate
Holdings, Inc., a wholly-owned
subsidiary of Ballard.
6. "BI" refers to Ballard International,
Inc., a wholly-owned subsidiary of
Ballard.
7. The "Annual Report" refers to the
Company's Annual Report for the fiscal
year ended September 30, 1994, which
was mailed to its shareholders and to
the Commission on or about December 9,
1994.
8. The "Proxy Statement" refers to the
Company's Proxy Statement mailed to
its shareholders and to the Commission
on or about December 9, 1994, for the
Annual Shareholder Meeting to be held
January 23, 1995.
PART I
ITEM 1. BUSINESS
The information required by this item is
incorporated herein by reference from the
Company's Annual Report. In addition, the
following information is provided:
BUSINESS DEVELOPMENTS
The United States continues to be the
principal market for the Company's products. The
Company's 120-person sales force is complemented
by a distribution system comprised of specialty
and general line dealers.
During the 1994 fiscal year, the Company
restructured much of its distribution system. A
significant volume of distribution has been
shifted from specialty dealers to larger, general
line dealers. This restructuring results in one-
time deferrals by each new general line dealer in
orders, while previous specialty dealers reduce
existing inventories.
Internationally, the Company sells
principally through various independent
distributors, supported by a small sales force of
eleven. The Company intends to allocate more
resources to international sales and marketing
efforts during the next few years.
Sales by the Company are generated in many
areas within the hospital, such as intensive care
units, emergency services, gastrointestinal and
radiology procedures rooms, burn units, and
respiratory therapy, as well as the main hospital
operating room and outpatient/satellite surgi-
centers. A second important market for certain of
the Company's products is the alternate care
market. Alternate care site sales are improving
as patients are moved into these locations at an
increasing rate.
The Company's strategy will continue to be
to focus on the specialized critical care,
operating room, and alternate care sites. We
believe that the sale of the Company's TRACH CARE
products is somewhat seasonal, in that sales are
better during the winter months when there is a
greater incidence of respiratory illness.
RAW MATERIALS
The Company does not face any serious supply
shortage with respect to raw materials used in the
manufacture of its products. Many of the
Company's products are manufactured from various
resins and plastics. The Company purchases resins
and plastics from a number of different vendors.
One exception to this is that the Company
currently has only one supplier of resins used in
the Company's DOUBLE SCRUB scrub brush. Although
some resin companies are in short supply, the
Company so far has not had any serious problem
obtaining needed quantities of these resins.
The Company's Chlorhexidinegluconate ("CHG")
solutions used in its FOAM CARE products are
purchased from two different suppliers. The 4%
CHG is currently purchased from Xttrium
Laboratories, Inc., and the 2% CHG is currently
purchased from Huntington Laboratories, Inc.
There can be no assurance that the Company will be
able to continue to have access to sufficient
quantities of these CHG materials. CHG is heavily
regulated by the FDA.
Last year, the Company reported that it had
entered into a contract to purchase a 4% CHG
formula and an amended new drug application. The
Seller of that CHG formula was unable to deliver a
formula that was satisfactory to the Company.
Therefore, the $1 million contract was terminated.
The Company purchases significant amounts of
paper products and tubing, along with a number of
different chemicals used in the manufacture of
other hand wash solutions sold as part of the
Company's FOAM CARE product line. There are many
different suppliers of such chemicals, tubing, and
paper products. Some paper product companies have
been in short supply, but the Company has adjusted
lead times and made other adjustments so that this
has not presented a problem.
The Company also purchases different types
of silicone materials from various suppliers.
Depending upon the specific type of silicone
involved, there are anywhere from a few to many
sources. Some manufacturers have scaled back
their supply of silicone materials which are
implanted or placed in the human body for more
than thirty days, in part because of legal
problems surrounding silicone breast implants. So
far, the Company has not had any serious
difficulty obtaining needed silicone materials.
There are many potential sources of balloon
materials used by the Company in MIC's enteral
feeding product line, although MIC currently
purchases substantially all of such balloons from
one source.
PATENTS
The Company owns numerous patents with
respect to its products and feels that these
patents are extremely important to the Company's
ability to compete effectively in the market
place.
1. TRACH CARE
The Company owns 19 U.S. patents with
respect to its TRACH CARE family of products. The
expiration dates on these patents range from
February, 2003 to January, 2011. The Company also
has several U.S. and foreign patents pending
covering various TRACH CARE improvements.
2. FOAM CARE
The Company's FOAM CARE products are
protected by ten U.S. patents either owned or
licensed by the Company, along with a number of
foreign patents. The Company's U.S. patents
expire between January, 1997 and August, 2011.
The Company also has other U.S. and foreign
patents pending, covering its FOAM CARE
technology.
3. EASI-LAV
The Company owns five U.S. patents with
respect to its EASI-LAV products, with expiration
dates ranging from June, 2006 to July, 2011.
There are also other pending U.S. and foreign
patents.
4. BAL CATH
The Company's BAL Cath product is protected
by four U.S. patents, all owned by the Company.
Expiration dates range from August, 2009 to
September, 2010. Other U.S. and foreign patent
applications are also pending.
5. MIC
MIC's products are protected by ten U.S.
patents owned by the Company, along with various
foreign patents. The U.S. patents expire between
January, 1999 and October, 2011. The Company also
has other U.S. and foreign patents pending on MIC
products, and is a licensee of certain patented
technology under a License Agreement dated
effective July 28, 1991 with Martin J. Winkler,
M.D.
TRADEMARKS
1. BALLARD TRADEMARKS
Although patents and registered trademarks
do not provide guaranteed protection, the Company
believes that they are important to its
competitive position in the health care
marketplace. The Company's rights in a given
trademark should last indefinitely, so long as the
Company continues to use the mark to identify the
particular product involved. Ballard owns
numerous trademarks, including the following which
have been registered in the U.S. Patent and
Trademark Office:
<TABLE>
<CAPTION>
REGISTRATION REGISTRATION REGISTERED
NUMBER DATE TRADEMARK
<C> <C> <C>
1,325,596 March 19, 1985 FOAM CARE DOUBLE SCRUB
1,328,357 April 2, 1985 DOUBLE SCRUB
1,328,358 April 2, 1985 TRACH CARE
1,338,744 June 4, 1985 BALLARD MEDICAL PRODUCTS
1,358,803 September 10, 1985 FOAM CARE
(Blown up letters)
1,358,802 September 10, 1985 FOAM CARE
1,491,006 June 7, 1988 SAFETY SHIELD KIT
1,500,402 August 16, 1988 READY CARE
1,569,479 December 5, 1989 SAFETY DRAIN
1,608,110 July 31, 1990 TRACH CARE WET PAK
1,655,483 September 3, 1991 EASI-LAV
1,753,765 February 23, 1993 BALLARD EASI-LAV
1,793,553 September 21, 1993 BAL Cath
1,797,703 October 12, 1993 CODE BLUE EASI-LAV
1,818,717 February 1, 1994 CHAR-FLO
1,837,691 May 31, 1994 FLASH FOAM
1,840,243 June 21, 1994 FOAM CARE
</TABLE>
2. MIC TRADEMARKS
MIC has registered the following trademarks
with the United States Patent and Trademark
Office, in addition to others pending:
<TABLE>
<CAPTION>
REGISTRATION REGISTRATION REGISTERED
NUMBER DATE TRADEMARK
<C> <C> <C>
1,414,121 October 21, 1986 MIC (with Snake)
1,512,575 November 15, 1988 SECUR-LOK
1,548,136 July 18, 1989 MEDICAL INNOVATIONS
CORPORATION
1,713,379 September 8, 1992 MIC-KEY
1,746,978 January 19, 1993 SHUR-FORM <PAGE>
</TABLE>
The Company also maintains foreign trademark
registrations in Australia, Belgium/Luxembourg,
Canada, France, Germany, Spain, Switzerland and
the United Kingdom. In addition, the Company has
various other trademark registrations pending.
MANUFACTURING BACKLOG
Generally, all sales of product by the
Company include terms requiring payment within
thirty days. Product is typically not allowed to
be returned unless defective or shipped in error.
As of November 30, 1994, the Company had back
orders of approximately $422,042, in contrast to
approximately $440,600 in back orders at the same
time in 1993. Back orders are generally filled
within ten days. Most of these back orders are
custom kits.
COMPETITION
Each of the Company's products competes in
major markets within the health care industry.
Many of the Company's competitors are larger and
more established in the market place than the
Company, and many competitors have larger research
staffs, facilities, and marketing forces.
However, the aggressive marketing and unique
qualities of the Company's product lines continue
to be well received and are helping the Company
maintain, and in some cases, increase its portion
of the market. The Company's market share and
competition vary from product to product. The
Company estimates there are approximately ten to
fifteen competing companies for its FOAM CARE
products and three or four competitors for its
TRACH CARE products. Depending upon the specific
product line, there are anywhere from no
competitors to three or four competitors for MIC
products. Each year, there are an increasing
number of competitors for each of these product
lines.
EMPLOYEES
The Company currently has 692 full-time
employees, 420 of whom are hourly production
employees.
During fiscal year 1993, the Company created
two specialized sales forces with the goal being
to increase market penetration. During the 1994
fiscal year, much training and stabilizing of the
sales force took place. The total sales force now
numbers 122 U.S. sales representatives, split into
a TRACH CARE/EASI-LAV sales force with 56
representatives and a FOAM CARE/MIC sales force
with 51 representatives. In addition, there are
15 full-time Division Sales Managers and 11
international sales representatives.
MANUFACTURING AND WORKING CAPITAL
All of Ballard's products are assembled, and
many component parts are manufactured, at the
Company's premises, located in Draper, Utah, where
Ballard has complete facilities for the design and
construction of the Company's own tooling,
prototype molds, and production molds. MIC's
products are manufactured at its plant in
Milpitas, California. The Company uses plastic
injection molding and assembly techniques in the
manufacture of each of its products.
RESEARCH AND DEVELOPMENT
The Company maintains a staff of design
engineers, project managers, and other employees
for continuing research and development of
products. We are committed to constantly
searching for new products and for improvements to
existing products, and we are committed to
allocating sufficient resources to meet these
important objectives. The following table sets
forth the amounts expended by the Company in the
last three fiscal years for Company-sponsored, in-
house research and development activities:
<TABLE>
<CAPTION>
9/30/94 9/30/93 9/30/92
<S> <C> <C> <C>
Company-sponsored in-house
research and development $1,638,475 $1,345,052 $1,047,048
expenses
</TABLE>
ITEM 2. PROPERTIES
The Company owns a 276,000 square foot plant
on approximately twenty acres of land in Draper,
Salt Lake County, Utah. The Draper plant has
housed our executive offices since March, 1991 and
provides space needed for our current production.
Through BREH, the Company also owns approximately
one hundred acres of ground surrounding the
original twenty acres.
MIC's plant (approximately 21,000 square
feet) is a leased facility located at McCandless
Technology Park, Milpitas, California. The plant
is leased pursuant to a written lease whose term
expires in July, 1998.
ITEM 3. LEGAL PROCEEDINGS
GUARDIANSHIP OF CARMEN MARIE SMOOT
v. BALLARD MEDICAL PRODUCTS, ET AL.
No material developments have occurred in
this litigation since the filing of the Company's
Form 10-Q for the quarter ended June 30, 1994.
The parties continue to engage in the discovery
process.
BALLARD MEDICAL PRODUCTS
v. HUNTINGTON LABORATORIES, INC.
On or about December 15, 1994, Judge Bruce
Jenkins, sitting in the United States District
Court for the District of Utah, Central Division,
denied the cross-motions for partial summary
judgment filed by Huntington and Ballard on the
grounds that he felt there was insufficient
relevant evidence in the record to enable the
court to rule. Judge Jenkins has given the
parties thirty days to supplement the record and
to request the court to reconsider their cross-
motions for summary judgment. In the meantime,
both parties are proceeding with discovery, in
preparation for trial.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
During the fourth quarter of the fiscal year
ended September 30, 1994, no matters were
submitted to a vote of shareholders.
RISK FACTORS
The following risks should be considered in
evaluating the Company and its shares and the
financial information presented herein:
COMPETITION. A number of well-established
medical products companies, both in the United
States and abroad, with substantially greater
capital resources and larger research and
development staffs and facilities, and with
substantially greater marketing systems, are
engaged in the manufacture and sale of products
which compete with products of Ballard and its
subsidiaries, and such other companies are engaged
in research designed to reach similar goals as the
Company. Such companies may succeed in developing
and marketing similar products which are better
than those of the Company and also may prove to be
more successful than the Company in the
manufacturing and marketing of their products. In
recent months, the Company has reduced pricing for
certain products in order to meet competition and
the price reductions demanded by hospitals. In
the future the results of the Company's operations
could continue to be impacted by increased
competition and continuing pricing pressures.
PATENTS. The Company owns certain patents
and proprietary information acquired while
developing their products, and they are licensees
of certain other technology. One of the Company's
early U.S. TRACH CARE patents has expired. As
patents expire, more competing products may be
released into the marketplace by other companies.
The ability of the Company to continue to compete
effectively with other medical device companies
may be materially dependent upon the protection
afforded by its patents and the confidentiality of
certain proprietary information. There is no
assurance that patents will be issued for products
recently released into the marketplace or for
products presently being developed. If patents of
the Company are challenged, an adverse ruling
could materially adversely affect the Company's
sales and profits.
HEALTH CARE REFORM. Threatened government-
mandated reforms continue to cause concern and
uncertainty throughout the health care industry.
The Company's future results of operations could
be severely impacted by government reforms such as
strict cost controls and other possible
restrictions being considered by federal and state
law makers.
RESEARCH AND DEVELOPMENT. In the continuing
development of products, the Company spent
$1,638,475, $1,345,052, and $1,047,048, for
research and development in the fiscal years ended
September 30, 1994, 1993, and 1992, respectively.
The Company plans to continue spending substantial
sums for research, development, and improvement of
existing products and for research and development
of new products. There is no assurance that
research and development expenditures in the past
or in the future will result in products which are
commercially viable so as to recoup related
research and development costs or to allow the
Company to continue to grow and be profitable.
TECHNOLOGICAL CHANGE. The medical
technology as utilized by the Company has been
subject to rapid advances. While the Company
feels that it currently possesses the technology
necessary to carry on its business, its commercial
success will depend on its ability to remain
current with respect to such technological
advances and to retain experienced technical
personnel. Furthermore, there can be no assurance
that other technological advances will not render
the Company's technology and certain products
uneconomical or obsolete.
FDA REGULATION. Certain Company products
are regulated by the United States Food and Drug
Administration (FDA). The Company is required to
adhere to existing standards for good
manufacturing practices and to engage in extensive
record keeping and reporting. The Company may be
subject to additional FDA rules and regulations
depending on the future products it develops.
While the Company believes it will be able to
satisfy FDA requirements with respect to its
proposed and existing products, there can be no
assurance that difficulties or excessive costs
will not be encountered in the Company's efforts
to secure necessary FDA approvals which would
delay or preclude the Company from releasing and
marketing such products. In addition, the extent
of governmental regulation which may arise from
future legislative or administrative action cannot
be predicted.
PRODUCT LIABILITY. The Company's products
are intended to be used on or around humans by
competent medical personnel. In the event a
patient develops medical problems in connection
with the Company's products, the Company could be
liable for substantial damages. The Company has
product liability insurance, but there is no
assurance that the Company would not be materially
adversely affected from any claim which may be
made, or judgment which may be entered, against
it.
LACK OF DIVIDENDS. Prior to January, 1990,
no dividends had been paid by the Company on its
shares of Common Stock. The Company has paid
dividends since January, 1990. However, there can
be no assurance that dividends will be paid on
shares in the future.
UNCERTAINTY OF FINANCIAL RESULTS AND CAPITAL
NEEDS. There may be substantial fluctuations in
the Company's results of operations because of the
timing and receipt of revenues and market
acceptance of existing Company products. The
ability of the Company to expand its manufacturing
and marketing operations cannot be predicted with
certainty. If revenues do not continue to
increase as rapidly as they have in the past few
years, or if manufacturing, marketing, research
and development are not successful or require more
money than is anticipated, the Company may have to
scale back product marketing, development and
production efforts and attempt to obtain
additional financing. There can be no assurance
that the Company would be able to obtain timely
additional financing in the amounts required or
that such financing, if available, would be on
terms advantageous to the Company.
SUPPLY OF RAW MATERIALS. Certain of the
Company's products are dependent upon raw
materials for which there are single or few
sources. So far, the Company has not had any
serious problems obtaining needed raw materials.
However, there can be no assurance that the
Company will be able to continue to depend on
existing sources of certain materials. SEE "RAW
MATERIALS" in Part I.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The information required by Item 5 of this
Part II is incorporated herein by reference from
the Company's Annual Report.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The information required by Item 6 of this
Part II is incorporated by reference from the
Company's Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The information required by Item 7 of this
Part II is incorporated herein by reference from
the Company's Annual Report.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
The Company's consolidated balance sheets as
of September 30, 1994 and 1993 and the related
consolidated statements of operations,
stockholders' equity and cash flows for each of
the three years in the period ended September 30,
1994 are incorporated herein by reference from the
Company's Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There are no disagreements on accounting and
financial disclosure to be disclosed under this
Item 9.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT
DIRECTORS
The information required by Item 10 related
to Directors of the Company is incorporated herein
by reference from the Proxy Statement.
EXECUTIVE OFFICERS
The President, Executive Vice President,
Vice Presidents, Secretary, Treasurer, and General
Counsel of Ballard Medical Products are elected
annually at the regular meeting of the Board of
Directors following the Annual Meeting of
Shareholders and serve at the discretion of the
Board of Directors. There is no arrangement or
understanding between any executive officer and
any other person pursuant to which he was or is to
be selected as an officer. The business
background for at least the past five years of
each executive officer is as follows:
<TABLE>
<CAPTION>
NAME AND AGE BACKGROUND
<C> <C>
Dale H. Ballard (71) President, Chief Executive Officer,
Chairman of the Board (1)
Harold R. ("Butch") Executive Vice President,
Wolcott (47) General Manager (2)
E. Martin Chamberlain (54) Director, Vice President of Regulatory
Affairs, Secretary (3)
Bradford D. Bell (45) Vice President of Sales and Marketing
(4)
Kenneth R. Sorenson (51) Treasurer (5)
Paul W. Hess (40) Director, General Counsel (6)
</TABLE>
(1) See Proxy Statement, p. 16.
(2) Mr. Wolcott was appointed by the Board of
Directors as Executive Vice President of
Ballard in June, 1994. He was hired by the
Company as General Manager in December,
1992. Prior to joining Ballard, he was
employed by Pilot Cardiovascular Systems,
Inc. in San Clemente, California, from
April, 1991 until December, 1992, where he
worked initially as Vice President of
Operations and later as Chief Operating
Officer. From April, 1990 to April, 1991,
Mr. Wolcott provided consulting services to
various medical device companies. From
January, 1987 until April, 1990, Mr. Wolcott
worked for Catheter Technology Corporation
of Salt Lake City, Utah, as Vice President
of Manufacturing.
(3) See Proxy Statement, p. 17.
(4) Mr. Bell was appointed Vice President of
Sales and Marketing on August 1, 1994. He
served as Director of Marketing for Ballard
since October, 1991. Prior to coming to
work for Ballard, Mr. Bell worked for Bard
Access Systems (formerly named Davol/Cath
Tech, Inc.), where he served as Director of
Marketing from the fall of 1988 until
October, 1991.
(5) Mr. Sorenson joined the Company in July,
1985. He has worked in the Company's
accounting department since joining the
Company. He became Treasurer of the Company
in August, 1985. Mr. Sorenson is a graduate
of Brigham Young University in Accounting.
(6) See Proxy Statement, p. 17.
ITEMS 11, 12, and 13.
The information required by Items 11, 12 and
13 of this Part III is incorporated herein by
reference from the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL
STATEMENTS, CONSOLIDATED FINANCIAL
STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) DOCUMENTS FILED AS PART OF REPORT
1. CONSOLIDATED FINANCIAL
STATEMENTS
The following are included in the Annual
Report incorporated by reference into Parts I and
II of this report:
Independent Auditor's Report, dated
November 11, 1994;
Consolidated Statements of Operations
for the Years Ended September 30,
1994, 1993, and 1992;
Consolidated Balance Sheets as of
September 30, 1994 and 1993;
Consolidated Statements of Cash Flows
for the Years Ended September 30,
1994, 1993 and 1992;
Consolidated Statements of
Stockholders' Equity for the Years
Ended September 30, 1994, 1993, and
1992;
Notes to Consolidated Financial
Statements.
2. CONSOLIDATED FINANCIAL STATEMENT
SCHEDULES
The following are included in this report:
Independent Auditors' Report dated
November 11, 1994;
Supplemental Schedule I - Short-Term
Investments as of September 30, 1994;
Supplemental Schedule VIII - Valuation
Accounts for the Three Years Ended
September 30, 1994;
Supplemental Schedule X - Supplemental
Income Statement Information for the
Three Years Ended September 30, 1994;
Other schedules required by Rule 5.04
of Regulation S-X are omitted because
of the absence of the conditions under
which they are required or because the
required information is included in
the consolidated financial statements
or related notes.
3. EXHIBITS
See "Ballard Medical Products Index to
Exhibits" attached to this report.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the
quarter ended September 30, 1994.
(c) EXHIBITS
See "Ballard Medical Products Index to
Exhibits" attached to this report.
(d) SEPARATE FINANCIAL STATEMENT
SCHEDULES
Not applicable.
INDEMNIFICATION UNDERTAKING
For the purpose of complying with the
amendments to the rules governing Form S-8
(effective July 13, 1990) under the Securities Act
of 1933, the undersigned registrant hereby
undertakes as follows, which undertaking shall be
incorporated by reference into registrant's
Registration Statements on Form S-8 No. 2-90684
(filed April 24, 1984); No. 2-94306 (filed
November 9, 1984); No. 33-0840 (filed October 17,
1985); No. 33-17698 (filed October 9, 1987); No.
33-25628 (filed November 8, 1988); No. 33-36851
(filed September 17, 1990; No. 33-41720 (filed
July 10, 1991); No. 33-56302 (filed December 24,
1992); and No. 33-73194 (filed December 20, 1993).
Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling
persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the
Securities and Exchange Commission such
indemnification is against public policy as
expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a
claim for indemnification against such liabilities
(other than the payment by the registrant of
expenses incurred or paid by a director, officer
or controlling person of the registrant in the
successful defense of any action, suit or
proceeding) is asserted by such director, officer
or controlling person in connection with the
securities being registered, the registrant will,
unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the
question whether such indemnification by it is
against public policy as expressed in the Act and
will be governed by the final adjudication of such
issue.
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.
Date: 12/15/94 BALLARD MEDICAL PRODUCTS
By: Dale H. Ballard
President, Director
Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has
been signed below by the following persons on
behalf of the Registrant and in the capacities and
on the dates indicated.
Date: December 15, 1994 By: Dale H. Ballard
Director
Date: December 15, 1994 By: E. Martin Chamberlain
Director
Date: December 15, 1994 By: Dale H. Ballard, Jr.
Director
Date: December 15, 1994 By: Paul W. Hess
Director
Date: December 15, 1994 By: Kenneth R. Sorenson
Treasurer
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Ballard Medical Products:
We have audited the consolidated financial
statements of Ballard Medical Products and
subsidiaries as of September 30, 1994 and 1993,
and for each of the three years in the period
ended September 30, 1994, and have issued our
report thereon dated November 11, 1994, which
report includes an explanatory paragraph as to the
change in the Company's method of accounting for
income taxes; such consolidated financial
statements and report are included in your 1994
Annual Report to Stockholders and are incorporated
herein by reference. Our audits also included the
consolidated financial statement schedules of
Ballard Medical Products and subsidiaries, listed
in Item 14. These consolidated financial
statement schedules are the responsibility of the
Company's management. Our responsibility is to
express an opinion based on our audits. In our
opinion, such consolidated financial statement
schedules, when considered in relation to the
basic consolidated financial statements taken as a
whole, present fairly in all material respects,
the information set forth therein.
Deloitte & Touche LLP
Salt Lake City, Utah
November 11, 1994
SUPPLEMENTAL SCHEDULE I
BALLARD MEDICAL PRODUCTS
SHORT-TERM INVESTMENTS
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
PRINCIPAL MARKET CARRYING
AMOUNT COST VALUE AMOUNT
<S> <C> <C> <C> <C>
Tax-free cash
management funds $10,194,584 $10,194,584 $10,194,584 $10,194,584
Time certificates
of deposit 3,901,262 3,901,262 3,901,262 3,901,262
U.S. Treasury
securities 293,045 293,045 293,045 293,045
Municipal bonds 12,136,378 12,136,378 12,136,378 12,136,378
Total $26,525,269 $26,525,269 $26,525,269 $26,525,269 <PAGE>
</TABLE>
SUPPLEMENTAL SCHEDULE VIII
BALLARD MEDICAL PRODUCTS
VALUATION ACCOUNTS
FOR THE THREE YEARS ENDED
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING ADDITION TO CHARGED TO BALANCE AT
OF YEAR ALLOWANCE COSTS END OF YEAR
<S> <C> <C> <C> <C>
ALLOWANCE FOR
DOUBTFUL ACCOUNTS:
1994 $242,747 NONE $(42,747) $200,000
1993 $169,558 $172,284 $(99,095) $242,747
1992 $169,558 NONE NONE $169,558
ALLOWANCE FOR
SALES RETURNS:
1994 $122,000 $200,000 $(122,000) $200,000
1993 $77,284 $44,716 NONE $122,000
1992 $150,000 NONE $(72,716) $77,284
</TABLE>
SUPPLEMENTAL SCHEDULE X
BALLARD MEDICAL PRODUCTS
SUPPLEMENTARY INCOME STATEMENT
INFORMATION FOR THE THREE YEARS
ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Amounts Charged to Costs and Expenses
ITEMS 1994 1993 1994
<S> <C> <C> <C>
Depreciation and amortization $2,477,007 $1,622,200 $830,445
Royalty expense 1,404,681 1,401,542 1,113,577
Repairs and maintenance 799,699 399,000 107,075 <PAGE>
</TABLE>
BALLARD MEDICAL PRODUCTS
Index to Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION SEQUENTIALLY NUMBERED PAGE
<S> <C> <C>
3.1 Restated Certificate of Incorporated herein by reference
Incorporation, dated to Exhibit 3.1 to Form 10-K,
June 18, 1987 filed December 29, 1989.
3.2 July 10, 1991 Articles Incorporated herein by reference
of Amendment to Articles to Exhibit 4.2 to the
of Incorporation Registration Statement on Form
S-3, filed November 13, 1991,
Registration No. 33-43910.
3.3 September 20, 1993 Incorporated herein by reference
Articles of Amendment to to Exhibit 3.3 to Form 10-K
Articles of filed December 16, 1993.
Incorporation
3.4 Articles of Merger of Incorporated herein by reference
Subsidiary (Code Blue to Exhibit 3.4 to Form 10-K
Medical Corporation) filed December 16, 1993.
3.5 Amended and Restated Incorporated herein by reference
Bylaws, dated October to Exhibit 3.3 to Form 10-K,
12, 1992 filed December 24, 1992.
4.1 See Exhibits 3.1, 3.2,
3.3, 10.1, 10.2, 10.3,
10.4, 10.5, 10.6, 10.7,
and 10.8
9 None
10.1 Material Contract: Incorporated herein by reference
1984 Incentive Stock to the Registration Statement on
Option Plan Form S-8, filed November 9,
1984, Registration No. 2-94306.
10.2 Material Contract: Incorporated herein by reference
1987 Incentive Stock to the Registration Statement on
Option Plan Form S-8, filed October 9, 1987,
Registration No. 33-17698.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION SEQUENTIALLY NUMBERED PAGE
<S> <C> <C>
10.3 Material Contract: Incorporated herein by reference
1988 Incentive Stock to the Registration Statement on
Option Plan Form S-8, filed November 18,
1988, Registration No. 33-25628.
10.4 Material Contract: Incorporated herein by reference
1990 Incentive Stock to the Registration Statement on
Option Plan Form S-8, filed September 17,
1990, Registration No. 33-36851.
10.5 Material Contract: Incorporated herein by reference
1991 Incentive Stock to Exhibit 4.2 to Registration
Option Plan Statement on Form S-8, filed
July 10, 1991, Registration No.
33-41720.
10.6 Material Contract: Incorporated herein by reference
1992 Incentive Stock to Exhibit 4.3 to Registration
Option Plan Statement on Form S-8, filed
with Post-Effective Amendment
No. 1 on April 9, 1993,
Registration No. 33-56302.
10.7 Material Contract: Incorporated herein by reference
Amended and Restated to Exhibit 4.5 to Registration
1993 Incentive Stock Statement on Form S-8, filed
Option Plan December 20, 1993, Registration
No. 33-73194.
10.8 Material Contract: p.
1994 Incentive Stock
Option Plan
10.9 Material Contract: Incorporated herein by reference
Agreement of Settlement to Exhibit 19 to Form 10-Q,
dated March 1, 1990, filed May 15, 1990.
with Smiths Industries
Medical Systems, Inc.
and Smiths Industries
PLC
10.10 Material Contract: Incorporated herein by reference
Development Agreement, to Exhibit 10.25 to Form 10-K,
dated June 11, 1990 with filed December 28, 1990.
Draper City
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION SEQUENTIALLY NUMBERED PAGE
<S> <C> <C>
10.11 Material Contract: Incorporated herein by reference
Noncompete and to Exhibit 10.25 to Form 10-K,
Nondisclosure Agreement filed December 28, 1990.
between the Company and
Domenick P. Treschitta
made effective September
1, 1993
10.12 Material Contract: Incorporated herein by reference
Stock Purchase Agreement to Exhibit 10.1 to Form 8-K,
Concerning the Purchase filed March 13, 1993.
by Ballard Medical
Products of All Stock of
Medical Innovations
Corporation
10.13 Material Contract: Incorporated herein by reference
Employment Agreement to Exhibit 10.17 to Form 10-K,
dated February 26, 1993, filed December 16, 1993.
among Stephen K. Parks,
Medical Innovations
Corporation, and Ballard
Medical Products
10.14 Material Contract: Incorporated herein by reference
Employment Agreement to Exhibit 10.18 to Form 10-K,
dated February 26, 1993, filed December 16, 1993.
among Damon Nuckolls,
Medical Innovations
Corporation, and Ballard
Medical Products
10.15 Material Contract: Incorporated herein by reference
Lease dated September 8, to Exhibit 10.19 to Form 10-K,
1986 between Medical filed December 16, 1993.
Innovations Corporation,
as Tenant, and
McCandless Technology
Park, Milpitas, Phase I,
as Landlord, with Fourth
Amendment
10.16 Material Contract: Incorporated herein by reference
Agreement dated to Exhibit 10.21 to Form 10-K,
effective October 1, filed December 16, 1993.
1993 between Ballard
Medical Products and H.
Earl Wright and The
Wright Foamer Co.
11 Computation of Income p.
Per Common Share and
Common Equivalent Share
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION SEQUENTIALLY NUMBERED PAGE
<S> <C> <C>
12 Not Applicable
13 Ballard Medical Products p.
1994 Annual Report for
the year ended September
30, 1993
16 Not Applicable
18 Not Applicable
21 Subsidiaries of Ballard p.
Medical Products
22 Not Applicable
23 Independent Auditor's
Consent p.
24 Not Applicable
25 Not Applicable
26 Not Applicable
27 Financial Data Schedule p.
28 Not Applicable
</TABLE>
EXHIBIT 10.8
BALLARD MEDICAL PRODUCTS
1994 INCENTIVE STOCK OPTION PLAN
Adopted September 15, 1994
1. GRANT OF OPTIONS. The two stock
Option Committees, appointed by the Board of
Directors of BALLARD MEDICAL PRODUCTS (the
"Corporation"), a corporation organized under the
laws of the State of Utah, with its principal
place of business located at 12050 Lone Peak
Parkway, Draper, Utah 84020, are hereby
authorized to issue stock options from time to
time on the Corporation's behalf to any one or
more persons who, at the date of such grant, are
employees of the Corporation or a subsidiary of
the Corporation and meet the requirements
contained in the remaining portions of this 1994
Incentive Stock Option Plan (the "Plan"). Stock
Option Committee A ("Committee A") is authorized
to grant options to employees who are not also
officers or directors of the Company. Stock
Option Committee B ("Committee B") is authorized
to grant options only to employees who are also
officers or Directors of the Corporation. Any
option to be granted pursuant to this Plan must
be granted within ten (10) years from the date
hereof.
2. AMOUNT OF STOCK AVAILABLE TO THIS
PLAN. The aggregate amount of stock which may be
purchased pursuant to options granted under this
Plan shall be 600,000 shares of the Corporation's
Common Stock (the "Stock").
3. ELIGIBLE EMPLOYEES. This Plan is
available, at the discretion of the Stock Option
Committees, to all employees of the Corporation
and all employees of the Corporation's
subsidiaries.
4. PARTICIPATION. Subject to the
express provisions of the Plan, the Stock Option
Committees shall:
a. select from employees the
individuals to whom options shall be granted;
b. determine the number of shares
to be subject to each option granted; and
c. grant such options to such
individuals.
5. PARTICIPATION BY DIRECTORS AND
OFFICERS. With respect to any and all options
granted under the Plan to employees who are
either officers or Directors of the Corporation,
the decisions as to the selection of the officer
or Director to whom stock options may be granted
and the number or maximum number of shares which
may be covered by stock options granted to any
such officer or Director shall be made only by
Committee B. All the members of which Committee
B shall be "disinterested persons" within the
meaning of Reg. Section 240.16b-3(c)(2)(i), promul-
gated under the Securities Exchange Act of 1934.
6. NONTRANSFERABILITY. The terms of any
option granted under this Plan shall include a
provision making such option nontransferable by
the optionee, other than by will or the laws of
descent and distribution upon death, and
exercisable during the optionee's lifetime only
by the optionee or by the optionee's guardian or
legal representative.
7. EXERCISE OF OPTIONS. Any option
granted pursuant to this Plan may contain such
provisions established by the applicable Stock
Option Committee as the Committee deems
appropriate and desirable regarding the manner of
exercise of such option, subject to the following
provisions:
a. No option granted under this
Plan may be exercised in whole or in part unless
the optionee continues to be an employee of the
Corporation or a subsidiary for a period of at
least one (1) year from the date such option is
granted. The intervening death of the optionee
before the end of such year will remove this one-
year-of-employment requirement. In his
discretion, the President may extend the one-year
continued employment period under this paragraph
(a) to up to three years.
b. In no event will any option
granted to a person be, by its terms, exercisable
after the expiration of ten (10) years from the
date such option is granted, and any option
granted pursuant to this Plan and not exercised
within said ten (10)-year period shall be void;
provided, however, that such period shall be only
five (5) years, instead of ten (10), for an
optionee who, immediately before the grant of the
option, owns more than ten percent (10%) of the
voting power of all classes of the Corporation's
Stock.
c. No option granted under this
Plan or any part hereof may be exercised more
than three (3) months after the optionee ceases
to be an employee of the Corporation. However,
if the optionee ceases employment with the
Corporation or subsidiary because of permanent
and total disability, then an option granted
under this Plan may be exercised within one (1)
year of such cessation of employment so long as
the optionee has been an employee of the
Corporation or subsidiary for at least the period
specified in the Stock Option Agreement entered
into by the Corporation and said optionee. For
purposes of this Plan, the term "permanent and
total disability" shall mean that the optionee is
unable to engage in any substantial gainful
activity by reason of any medically determinable
physical or mental impairment which can be
expected to result in death or which has lasted
or can be expected to last for a continuous
period of not less than twelve months.
d. No option or installment
thereof shall be exercisable except in respect of
whole shares, and fractional share interests
shall be disregarded. No fewer than one hundred
(100) shares may be purchased at one time unless
the number purchased is the total number which
may be purchased at said time under the option.
8. PURCHASE PRICE. For any option
granted hereunder, the purchase price for a share
of Stock shall be determined by the applicable
Stock Option Committee but shall not be less than
(but may be greater than) the fair market value
of the Stock on the date such option is granted.
The fair market value of such stock shall be
determined in accordance with any reasonable
valuation method, including the valuation methods
described in Treasury Regulations. However, in
the case of any person then owning more than ten
percent (10%) of the voting power of all classes
of the Corporation's stock, options will be
granted at a purchase price of not less than one
hundred ten percent (110%) of the fair market
value of the Stock on the date such option is
granted. In either case, the applicable Stock
Option Committee will use good faith to determine
the fair market value of the Stock.
For so long as the Corporation's stock is
traded on the New York Stock Exchange, the fair
market value shall mean the reported closing
price on the last trading day preceding the grant
of the option. If the Corporation's stock is
traded in the over-the-counter market, the fair
market value shall mean the reported closing
price on the last trading day preceding the grant
of the option.
9. PAYMENT OF PURCHASE PRICE WITH
CORPORATION STOCK. The optionee may, if the
optionee chooses, pay the purchase price to
exercise an option granted under this Plan with
other shares of the Corporation's stock which the
optionee owns. In such cases, credit will be
given the optionee for the fair market value of
such outstanding shares used in payment, as of
the date of payment, less any applicable
brokerage fees. The Corporation's Board of
Directors will use good faith to determine the
fair market value of the stocks thus used in
payment as of the date of such payment.
10. RECLASSIFICATION, CONSOLIDATION, OR
MERGER.
a. If options issued under this
Plan are outstanding when the total number of
issued shares of the stock is increased or
decreased by any:
(i) change in par value;
(ii) split up;
(iii) reclassification; or
(iv) distribution of a dividend
payable in stock;
then the number of shares subject to such options
and the option price per share shall be
proportionately adjusted.
b. If the Corporation is
reorganized, consolidated, or merged with another
corporation (regardless of which entity will be
the surviving corporation), the optionees of any
options then outstanding pursuant to this Plan
shall be entitled to receive options covering
shares of the surviving corporation:
(i) in substantially the same
proportion;
(ii) at a substantially
equivalent option price; and
(iii) subject to the same
conditions as their prior, outstanding options
granted under this Plan.
11. AMENDMENTS TO THIS PLAN. The Board
of Directors is hereby authorized to amend this
Plan as necessary to comply with state and
federal laws or as the Board deems to be
necessary or appropriate for the benefit of the
Corporation, its subsidiaries, or their
employees.
12. DATE OF GRANT OF OPTIONS. The date
of grant of an option shall be the day of the
grant of the option by the applicable Stock
Option Committee; provided, however, that if the
appropriate resolution of the Stock Option
Committee indicates that an option is to be
granted as of and on some future date, then the
date of grant shall be such future date. The
applicable Stock Option Committee may also select
a past effective date for option grants, so long
as the Committee action is within a reasonable
period of time following the effective date of
the grant.
13. STOCK OWNERSHIP. No optionee shall
be entitled to the privileges of Stock ownership
as to any shares of Stock not actually issued and
delivered to such optionee in certificate form.
14. STOCKHOLDER APPROVAL; EFFECTIVE DATE.
This Plan is subject to approval by the
Shareholders of the Corporation and will not
remain in force unless approved by the
Shareholders within twelve (12) months after the
date the Plan is adopted.
15. STOCK RESERVE. The Corporation will,
at all times during the term of this Plan,
reserve and keep available such number of
authorized but unissued shares of its Stock
and/or Treasury Stock as will be sufficient to
satisfy the requirements of this Plan. The
Corporation will pay all fees and expenses
incurred by the Corporation in connection with
the exercise of options granted under this Plan.
If any option shall expire for any reason without
having been exercised in full, the unpurchased
shares subject thereto shall again be available
for purposes of the Plan.
16. INTERPRETATION OF PLAN. Options
granted pursuant to the Plan are intended to be
"Incentive Stock Options" within the meaning of
Section 422 of the Internal Revenue Code (the
"Code"), and the Plan shall be construed to
implement that intent. If all or any part of an
option shall not be deemed an "Incentive Stock
Option" within the meaning of Section 422 of the
Code, said option shall nevertheless be valid and
carried into effect.
It is also intended that the Plan and its
provisions satisfy the conditions and
requirements of Reg. Section 240.16b-3 promulgated by
the Securities and Exchange Commission under
Section 16(b) of the Securities Exchange Act of
1934, both before and after May 1, 1991 (the
effective date of Release No. 34-28869).
17. OTHER TERMS. Any option granted
under this Plan may contain such other and
additional terms as are deemed necessary or
desirable by the applicable Stock Option
Committee, or the President of the Corporation,
so long as such terms do not materially differ
from the terms of this Plan.
CERTIFICATE OF SECRETARY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned does hereby certify
that he is the Secretary of BALLARD MEDICAL
PRODUCTS, a Utah corporation; that the above and
foregoing 1994 Incentive Stock Option Plan was
duly and regularly adopted as such by the Board
of Directors of the Corporation by unanimous
Consent Resolution dated September 15, 1994; that
said Plan, as adopted by the Board, was duly
approved by a majority of Shareholders of the
Corporation at the Annual Meeting of Shareholders
held January 23, 1995; and that the above 1994
Incentive Stock Option Plan is now in full force
and effect.
Dated this 15th day of September, 1994.
Secretary
(Corporate Seal)
EXHIBIT 11
BALLARD MEDICAL PRODUCTS
COMPUTATION OF INCOME PER COMMON SHARE
AND COMMON EQUIVALENT SHARE FOR THE
THREE YEARS ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Cumulative Period Income
Shares Out- Average Per
Standing Shares Net Income Share
Primary income
per share:
<S> <C> <C> <C> <C> <C>
1994 9,903,476,745 365 27,132,813 $16,180,377 $0.60
1993 9,977,390,340 365 27,335,316 18,540,009 0.68
1992 9,947,415,080 365 27,253,192 13,464,291 0.49
</TABLE>
<TABLE>
<CAPTION>
Fully diluted
income per
share:
<S> <C> <C> <C> <C>
1994 9,936,750,875 365 27,223,975 $16,180,377 $0.59
1993 9,987,161,755 365 27,362,087 18,540,009 0.68
1992 10,229,904,275 365 28,027,135 13,464,291 0.48
</TABLE>
EXHIBIT 13
BALLARD MEDICAL PRODUCTS
ANNUAL REPORT
1994
ABOUT THE COMPANY
Ballard Medical Products ("Ballard") is a
manufacturer and marketer of specialized, niche
medical products. Our strategy for guiding the
Company's continuing growth incorporates four
directives:
- Developing innovative products
through internal research and
development and through
acquisitions.
- Maintaining the highest quality
possible on products.
- Increasing sales through a top-
notch sales force, and through
expansion in the international
marketplace.
- Reducing costs through
production efficiencies.
Ballard has three wholly-owned subsidiaries,
MEDICAL INNOVATIONS CORPORATION ("MIC"), BALLARD
REAL ESTATE HOLDINGS, INC. ("BREH"), and BALLARD
INTERNATIONAL, INC. ("BI"). Code Blue Medical
Corporation ("Code Blue"), a former subsidiary,
was merged into Ballard Medical Products during
the fiscal year ended September 30, 1993 and no
longer exists as a separate entity. (As used in
this report, the term "the Company" refers to
Ballard Medical Products and its subsidiaries.)
The Company's headquarters and principal
manufacturing plant are located in Draper, Utah,
where we completed our $3.2 million plant
expansion and remodelling during fiscal year 1994,
increasing the total Draper plant size to 276,000
sq.ft. MIC's manufacturing facility is located in
Milpitas, California.
Our products are sold in 32 countries, and
the customers purchasing our products include more
than 10,300 hospitals and other medical care
facilities world-wide. At September 30, 1994,
Ballard and its subsidiaries employed over 600
people in six countries.
The Company's common stock is traded on the
New York Stock Exchange under the symbol BMP.
1994 IN REVIEW
Fiscal year 1994 was a difficult year for
the Company in some respects. But we believe the
Company is back on track and hope to return to a
pattern of renewed sales growth in fiscal year
1995 and future years. In August, 1994, we
announced that the Company was restructuring its
distribution system to adjust to changes occurring
in the hospital industry. In many areas of the
United States, the Company has been in the process
of shifting from specialty dealers to larger,
general line dealers while hospitals move toward
prime vendors and "just-in-time" inventory
delivery systems. In other areas, general line
dealers are being added to specialty dealer
distribution. These changes result in a one-time
deferral by each new dealer in orders, while
specialty dealers delete their existing
inventories. This distribution restructuring,
along with other factors, such as the significant
expansion and restructuring of the Company's sales
force, price cutting to meet competition, delays
in receiving certain FDA approvals, increases in
hospital group purchasing alliances, and the
specter of health care reforms throughout most of
the year, resulted in relatively flat sales and
lower profits in fiscal year 1994.
Net sales of Ballard and its subsidiaries
for its fiscal year ending September 30, 1994 were
$65,062,801, compared to $64,849,837 in fiscal
year 1993. The Company had net income of
$14,777,145 ($16,180,377 after the cumulative
effect of the change in accounting for income
taxes of $1,403,232 required by FASB 109), for
fiscal year 1994, compared to $18,540,009 for
fiscal year 1993. Earnings per share for the year
were $.54, compared to $.68 for fiscal year 1993.
Although earnings were down from the previous
year, our net income for the year remained very
strong, at 22.7% of net sales.
During fiscal year 1994, sales of MIC's
enteral feeding tubes increased by more than 200%
over 1993, and international sales of all Company
products grew by 22%. We have stabilized and
increased the size of our sales force and sales
management team, and we expect this impressive
sales team to produce improved results. With
strong earnings, over $57 million in liquid
assets, $90 million in stockholders' equity, no
long-term debt, and continuing product
development, we are optimistic about the future of
the Company and our shareholders' investment.
NEW PRODUCTS
During fiscal year 1994, the Company
released a number of new products, including the
following:
The NEONATAL "Y" TRACH CARE catheter is an
improved suction catheter, engineered for use on
sophisticated neonatal ventilators. It provides a
side stream catheter approach, which not only
gives greater patient flexibility, but also
couples closed suction with high frequency
oscillators, high frequency jet ventilators, and
volume and physiologic monitors.
The TRACH CARE DOUBLE SWIVEL ELBOW is a
calibrated closed suction catheter which has low
dead space, provides more patient comfort and
flexibility, and gives the clinician a better
"feel" for the catheter inside the new envelope
material. Sales of the Neonatal "Y" and the
Double Swivel Elbow are brisk and are exceeding
our expectations.
The MIC PEG (percutaneous endoscopic
gastrostomy) catheter line is a new, traction
removable, enteral feeding catheter. Since the
introduction of the new PEG in February, 1994,
sales have increased significantly over comparable
1993 PEG sales. The MIC PEG's distinct advantage
is that the physician can remove the MIC PEG
without a second endoscopic procedure.
The MIC-KEY Skin Level Gastrostomy Feeding
Kit was re-released in December, 1993, after
having been off the market for approximately six
months (while awaiting FDA approval of our
510(k)). This kit contains a skin level
gastrostomy tube that can be placed by surgeons,
RNs, or trained care givers in alternate care and
home settings. Home care eliminates costly,
inconvenient trips back to the hospital or
physician for a tube change. The MIC-KEY is the
gastrostomy tube of choice for the pediatric
patient, because of its unique aesthetic
appearance and its ease of insertion and removal.
Physicians have told us that the MIC-KEY tube
"treats" the whole family. A new stoma measuring
device, used in conjunction with the MIC-KEY, was
successfully introduced in August, 1994.
The MIC TRANSGASTRIC JEJUNAL TUBE (released
in November, 1994) allows for simultaneous gastric
decompression and jejunal feeding. The TGJ TUBE
is very easy to place. Its design minimizes
jejunal dislodgement and tube clogging experienced
with competitive tubes on the market. The TGJ
TUBE is placed surgically, endoscopically, or
fluoroscopically.
FOAM CARE Lotion Soap is a mild lotion soap
with collagen and aloe. The market acceptance of
this product has been very favorable. The Company
also released a medicated version of this lotion
soap.
HMEs (heat and moisture exchangers) have
been offered by the Company since December, 1993.
The HMEs (manufactured for Ballard by Gambro
Engstrom) provide a means of humidifying the
patient's airways during ventilation and are sold
with our TRACH CARE catheter.
CONTINUING PRODUCTS
The Company's strong commitment to research
and development and product enhancements has
enabled the Company to continue to be a strong
player in certain domestic markets, such as the
closed suctioning market and the chronic enteral
feeding market. In addition to the new product
releases described earlier, the Company continues
to sell the following principal products:
TRACH CARE
The TRACH CARE closed endotracheal suction
catheter system continues to be the Company's
flagship product in the intensive care/critical
care arena. It enables patients with endotracheal
tubes, on ventilators, to have their airways
suctioned while maintaining ventilator support,
thus improving patient care. Further, this
product reduces infection risks due to its
"closed" design, keeping both users and the
environment from contaminating the suction
catheter and from being contaminated.
The TRACH CARE system is available in sizes,
from adult to neonatal, as well as in several
variations such as WET PAK and DOUBLE LUMEN. This
family of products also includes a line of
accessories used to complement TRACH CARE such as
METERED DOSE INHALER adapters, BALLARD UNIT DOSE,
START KIT, etc. These accessories are designed to
allow TRACH CARE to be used, among other things,
as a drug delivery system or to adapt it to
specific patient needs.
The SAFETY DRAIN closed drain provides
clinicians with a way to empty the ventilator
circuit of condensate without opening it. Users
are thereby able to complete the closed system
started with TRACH CARE, thus providing additional
safety for both clinician and patient.
FOAM CARE
FOAM CARE foamers and solutions are designed
for use throughout the hospital and are the
Company's principal product in the operating room.
FOAM CARE is one of our franchise products,
affording us unique opportunities in the operating
room, and providing additional avenues for the
sale of MIC products. FOAM CARE foamers utilize a
unique, patented, foaming device that turns the
soap solution into rich foam lather.
FOAM CARE products provide users with cost
savings when compared to common liquid soaps.
FOAM CARE products are gentle on the hands and, in
the operating room, are complemented by our DOUBLE
SCRUB brush, a soft-on-the-hands surgical scrub
brush.
MIC PRODUCTS
The chronic enteral feeding market is
experiencing rapid growth due to the greying of
America, which is creating an older population
base. There is also an emerging physician
consensus that early post operative enteral
support benefits the high risk surgical patient by
decreasing septic morbidity, maintaining
immunocompetence, and improving wound healing and
recovery time. MIC's full range of specialty
feeding tubes firmly places the Company in a
position to take advantage of the growing enteral
feeding market.
The MIC GASTROSTOMY TUBE is the first tube
specifically designed for the gastrostomy
procedure. The MIC GASTROSTOMY TUBE can be placed
by surgeons, gastro-enterologists, interventional
radiologists and replaced by qualified registered
nurses at bedside in the hospital, and in home
care and alternate care settings. The unique
design of the MIC GASTROSTOMY TUBE becomes a
problem solver for the physician and other care
givers. The MIC GASTROSTOMY TUBE virtually
eliminates inadvertent tube dislodgement, controls
gastric leakage, and is provided in several sizes
and versions, to accommodate a wide range of
patient needs.
The MIC JEJUNAL TUBE is a large bore, easy
to place tube for direct jejunal feeding when
bypassing the stomach is indicated. The MIC
JEJUNAL TUBE can be placed surgically,
endoscopically or under fluoroscopy.
The MIC JEJUNOSTOMY TUBE is a surgically
placed tube that accommodates liquid enteral
formulas delivered into the small intestine. Its
design minimizes irritation and increases patient
comfort.
The MIC BOWEL MANAGEMENT KIT is designed to
control fecal incontinence, provide predictable
bowel management, and promote patient
independence.
OTHER
The EASI-LAV gastric lavage system is a
closed gastric lavage system. It is used to clean
out the stomach in over-dose patients or those
with gastric bleeding. It makes the lavage
process cleaner, faster and more effective while
providing additional clinician protection. This
product is used in the hospital emergency room and
gastrointestinal labs.
The CHAR FLO activated charcoal system is a
unique charcoal delivery system designed for use
with our EASI-LAV system in over-dose patients.
It enables faster, more accurate and
environmentally clean charcoal delivery.
The SAFETY SHIELD mask is a surgical grade
mask which includes a plastic shield for eye
protection. This product's design provides users
with complete facial splash protection, while also
providing excellent filtration characteristics.
It is available in various styles for use
everywhere in the hospital.
The BAL CATH catheter product is designed to
obtain broncho alveolar lavage samples for use in
the diagnosis of nosocomial and opportunistic
respiratory infections. Because it is used
without a bronchoscope, it is much more cost
effective for the hospital.
CAPITAL EXPENDITURES
In addition to our major plant expansion and
remodelling during the 1994 fiscal year, Ballard
also completed construction of its liquid vial
manufacturing area in March, 1994, giving us the
ability to manufacture our own sterile water and
saline solutions. This installation will provide
significant manufacturing cost savings to the
Company.
The Company expended approximately $750,000
at MIC throughout the year, in our ongoing efforts
to more fully automate its manufacturing
processes and reduce manufacturing costs. These
expenditures included expansion and improvements
to in-house molding and balloon manufacturing, and
general improvements in the manufacturing
operation. We estimate that these expenditures
will significantly reduce manufacturing costs for
MIC's products.
We are in the process of installing a new
computer system at Ballard, which will allow us to
better manage the entire business, from order
entry through inventory control. The Company also
expanded its already formidable engineering and
research and development departments in fiscal
year 1994, with additional equipment and personnel
needed, to maintain our speed and efficiency in
bringing new products to the marketplace.
MANAGEMENT CHANGES
Several key changes occurred in the
Company's executive management during fiscal year
1994. In December, 1993, Kent W. Cherrey was
promoted to Director of Domestic Sales. In June,
1994, Harold ("Butch") R. Wolcott was appointed by
the Board as Executive Vice President of the
Company. He also continues to serve as General
Manager. In August, 1994, the Board appointed
Bradford D. Bell to the position of Vice President
of Sales and Marketing. In this newly created
position, Mr. Bell oversees domestic and
international sales, marketing, and customer
service.
We believe that these promotions will
consolidate and strengthen the Company's
management for the future and increase
coordination and cooperation among departments.
FOREIGN OPERATIONS
The following table sets forth the dollar
amount of sales by the Company internationally
during the last three fiscal years. All sales
shown are denominated in U.S. dollars and all
payments are received in U.S. dollars. No foreign
currency is received by the Company. The amount
of export sales to unaffiliated customers does not
exceed 10% of the Company's domestic consolidated
net sales.
<TABLE>
<CAPTION>
FISCAL YEAR INTERNATIONAL
SALES
<C> <C>
9/30/94 $4,672,611
9/30/93 3,825,172
9/30/92 3,517,329
</TABLE>
COMMON STOCK
TRADING
The Company's common stock has been traded
on the New York Stock Exchange ("NYSE") since
September 9, 1993. Prior to that date, the
Company's stock traded in the National Association
of Securities Dealers Automated Quotation Service
("NASDAQ") National Market System. The following
table sets forth, for the respective periods
indicated, the prices of the Company's common
stock in the over-the-counter market, based upon
interdealer prices, without retail mark-up, mark-
down, or commissions (which do not represent
actual transactions), as reported and summarized
by the NYSE for fiscal year 1994 and NASDAQ for
fiscal year 1993:
<TABLE>
<CAPTION>
FISCAL YEAR 1994 FISCAL YEAR 1993
QUARTER HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First Quarter 18 3/8 11 1/4 24 15/16 19 5/16
Second Quarter 15 1/4 12 1/2 22 7/8 11 3/4
Third Quarter 13 7/8 9 1/8 17 1/2 11 1/2
Fourth Quarter 11 1/8 8 1/2 17 3/4 13 3/4
</TABLE>
Note that the prices shown in the above table have
been modified to give retroactive effect to the
February, 1993 stock split. On November 23, 1994,
the closing quotation for the Company's Common
Stock, as reported by the WALL STREET JOURNAL, was
10 high and 9 3/4 low. As of November 23, 1994,
there were approximately 14,600 holders of the
Company's Common Stock (based upon the number of
record holders and including individual
participants in security position listings).
DIVIDENDS
The Company has paid the following cash
dividends during the two most recent fiscal years
(these figures have been adjusted to give
retroactive effect to the January, 1992 and
February, 1993 stock splits):
<TABLE>
<CAPTION>
DIVIDEND
RECORD DATE PAYMENT DATE PER SHARE
<C> <C> <C>
December 2, 1992 December 21, 1992 $.0375
December 2, 1993 December 21, 1993 .0497
</TABLE>
FINANCIAL HIGHLIGHTS
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net Sales $65,062,801 $64,849,837 $49,787,199 $38,297,843 $29,151,103
Other
Income, 3,519,587 3,716,649 2,492,363 1,317,908 1,894,409
Net
Net Income 16,180,377 18,540,009 13,464,291 7,824,274 5,718,154
Net Income
Per Common
Share .60 .68 .49 .30 .23
Total Assets 92,639,225 80,291,809 58,801,704 37,509,132 24,962,052
Cash
Dividends
Declared
Per Share None .0497 .0375 .0300 .0233
</TABLE>
All per share income and dividend
information has been adjusted to give effect to
stock splits which have occurred. The
consolidated financial data shown above includes
the accounts of Ballard Medical Products and its
wholly-owned subsidiaries, MIC, BI, and BREH. The
consolidated financial data for 1993 includes the
accounts of MIC as of February 26, 1993, its date
of acquisition. The subsidiary accounts of BI and
BREH did not materially affect the consolidated
financial data shown above.
SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR 1994
QUARTERS ENDED: 9/30/94 6/30/94 3/31/94 12/31/93
<S> <C> <C> <C> <C>
Net Sales $12,534,754 $18,445,692 $18,047,000 $16,035,355
Gross Margin 7,099,945 12,626,642 12,898,597 11,186,038
Income Before
Cumulative Effect
of Change in
Accounting for
Income Taxes 1,287,145 4,338,014 4,860,000 4,291,986
Cumulative Effect
of Change in
Accounting for
Income Taxes 1,403,232
Net Income 1,287,145 4,338,014 4,860,000 5,695,218
Per Common Share:
Income Before
Cumulative Effect 0.047 0.160 0.178 0.158
of Accounting
Change
Cumulative Effect
of Accounting 0.052
Change
Net Income 0.047 0.160 0.178 0.210
</TABLE>
<TABLE>
FISCAL YEAR 1993
QUARTERS ENDED: 9/30/93 6/30/93 3/31/93 12/31/92
<S> <C> <C> <C> <C>
Net Sales $17,128,947 $16,681,105 $16,287,999 $14,751,786
Gross Margin 12,108,694 11,901,544 11,631,531 9,888,173
Net Income 5,011,673 4,795,118 4,615,398 4,117,820
Net Income Per
Common Share 0.183 0.175 0.168 0.150
</TABLE>
The quarterly data for the quarters
beginning 3/31/93 includes the accounts of
Ballard's subsidiary, MIC, which was acquired
February 26, 1993.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Ballard Medical Products:
We have audited the accompanying
consolidated balance sheets of Ballard Medical
Products and subsidiaries as of September 30, 1994
and 1993, and the related consolidated statements
of operations, stockholders' equity, and cash
flows for each of the three years in the period
ended September 30, 1994. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an
opinion on these financial statements based on our
audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those
standards require that we plan and perform the
audit to obtain reasonable assurance about whether
the financial statements are free of material
misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit
also includes assessing the accounting principles
used and significant estimates made by management,
as well as evaluating the overall financial
statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial
statements present fairly, in all material
respects, the financial position of Ballard
Medical Products and subsidiaries as of September
30, 1994 and 1993, and the results of their
operations and their cash flows for each of the
three years in the period ended September 30, 1994
in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 4 to the
consolidated financial statements, the Company
changed its method of accounting for income taxes,
effective October 1, 1993, to conform with
Statement of Financial Accounting Standards No.
109.
Deloitte & Touche LLP
Salt Lake City, Utah
November 11, 1994
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993, AND
1992
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
NET SALES (Notes 1 and 10) $65,062,801 $64,849,837 $49,787,199
COST OF PRODUCTS SOLD 21,251,579 19,319,895 15,714,717
GROSS MARGIN 43,811,222 45,529,942 34,072,482
OPERATING EXPENSES:
Selling, general, and
administrative
(Notes 6 and 8) 21,063,809 17,669,488 12,941,933
Research and development 1,638,475 1,345,052 1,047,048
Royalties (Note 6) 1,404,681 1,401,542 1,113,577
Total operating expenses 24,106,965 20,416,082 15,102,558
OPERATING INCOME 19,704,257 25,113,860 18,969,924
OTHER INCOME (EXPENSE):
Interest income 772,645 1,580,872 1,030,887
Royalty income 2,204,347 1,693,354 1,531,734
Other 542,594 442,423 (70,258)
Total other income - net 3,519,586 3,716,649 2,492,363
INCOME BEFORE INCOME TAX
EXPENSE 23,223,843 28,830,509 21,462,287
INCOME TAX EXPENSE (Notes 1
and 4) 8,446,698 10,290,500 7,997,996
INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE 14,777,145 18,540,009 13,464,291
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (Notes 1
and 4) 1,403,232
NET INCOME $16,180,377 $18,540,009 $13,464,291
INCOME PER SHARE BEFORE
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (Note 1):
Common and common
equivalent share $0.55 $0.68 $0.49
Common share assuming
full dilution $0.54 $0.68 $0.48
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE PER SHARE
(Note 1):
Common and common
equivalent share $0.05
Common share assuming
full dilution $0.05
NET INCOME PER SHARE (Note 1):
Common and common
equivalent share $0.60 $0.68 $0.49
Common share assuming
full dilution $0.59 $0.68 $0.48
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (Note 1):
Common and common
equivalent share 27,132,813 27,335,316 27,253,192
Common share assuming
full dilution 27,223,975 27,362,087 28,027,135
</TABLE>
See notes to consolidated financial statement.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
ASSETS 1994 1993
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments (Notes 1
and 2) $31,440,367 $23,185,955
Accounts receivable - trade (less allowance
for doubtful accounts: 1994 - $200,000,
1993 - $242,747; and allowance for sales
returns: 1994 - $200,000, 1993 - $122,000) 13,505,173 16,443,406
Other receivables 1,723,637 965,728
Inventories (Note 1):
Raw materials 3,231,757 2,986,603
Work-in-process 2,088,350 1,216,610
Finished goods 4,353,529 3,416,946
Deferred income taxes (Notes 1 and 4) 407,405 435,250
Income tax refund receivable
(Notes 1 and 4) 2,347,031 3,276,628
Prepaid expenses 690,143 259,330
Total current assets 59,787,392 52,186,456
PROPERTY AND EQUIPMENT (Notes 1 and 6):
Land 1,849,511 2,024,511
Buildings 11,912,302 8,191,067
Molds 2,044,983 1,799,140
Machinery and equipment 7,401,870 5,577,615
Vehicles 441,135 516,881
Furniture and fixtures 1,067,148 846,306
Leasehold improvements 71,118 50,260
Construction in progress 729,922 1,165,623
Total 25,517,989 20,171,403
Less accumulated depreciation (4,514,129) (3,762,266)
Property and equipment - net 21,003,860 16,409,137
INTANGIBLE ASSETS (less accumulated
amortization: 1994 - $1,577,991; 1993 -
$726,439) (Notes 1 and 9) 11,568,397 11,673,092
OTHER ASSETS 20,624 23,124 <PAGE>
DEFERRED INCOME TAXES (Notes 1 and 4) 258,952
TOTAL $92,639,225 $80,291,809
</TABLE>
See notes to consolidated financial statements.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $228,749 $1,808,625
Accrued liabilities:
Employee compensation (Note 8) 1,114,092 1,866,909
Income taxes payable
(Notes 1 and 4) 2,307,238
Royalties (Note 6) 370,579 353,898
Other 492,306 1,144,678
Total current liabilities 2,205,726 7,481,348
DEFERRED INCOME TAXES (Notes 1 and 4) 344,000
Total liabilities 2,205,726 7,825,348
COMMITMENTS AND CONTINGENT LIABILITIES
(Notes 6 and 9)
STOCKHOLDERS' EQUITY
(Notes 5, 9, and 11):
Common stock - $.10 par value;
75,000,000 shares authorized;
issued and outstanding:
1994 - 26,455,862 shares,
1993 - 26,114,250 shares 2,645,586 2,611,425
Additional paid-in capital 28,291,261 24,983,195 <PAGE>
Retained earnings 59,496,652 44,871,841
Total stockholders' equity 90,433,499 72,466,461
TOTAL $92,639,225 $80,291,809
</TABLE>
See notes to consolidated financial statements.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993, AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $16,180,377 $18,540,009 $13,464,291
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 2,477,007 1,622,200 830,445
Amortization of noncompete
covenant 134,506 403,517
Loss on disposal of property 110,479 108,752
Tax benefit from
disqualifying
dispositions of incentive
stock options 1,796,546 2,908,205 6,719,112
Provision for losses on
accounts receivable - trade
and sales returns 200,000 217,000 72,716
Cumulative effect of change
in accounting principle (Note
1) (1,403,232)
Deferred income taxes 828,489 (146,552) (22,780)
Changes in operating assets
and liabilities - net of
effects from purchase of MIC
in 1993 (Note 9):
Accounts receivable - trade 2,738,233 (8,372,887) (3,133,138) <PAGE>
Other receivables (757,909) (341,571) (429,558)
Inventories (2,053,477) (2,782,180) (1,195,027)
Income tax refund receivable 929,232 1,714,055 (4,990,683)
Prepaid expenses (430,813) (184,605) 22,248
Accounts payable (1,579,876) 310,274 101,452
Accrued liabilities (3,695,745) 805,676 (419,029)
Adjustment to conform
year-end of pooled company 251,306
Total adjustments (841,066) (4,007,127) (1,789,419)
Net cash provided by
operating activities 15,339,311 14,532,882 11,674,872
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures for
property and equipment (6,335,228) (3,998,999) (5,273,450)
Proceeds from sales of
property and equipment 5,899 21,110
Purchases of short-term
investments (29,744,216) (11,055,383) (38,493,400)
Proceeds from maturities of
short-term investments 20,485,633 26,395,918 32,255,970
Purchases of intangible
assets (Note 9) (245,685)
Payments for purchase of MIC,
net of cash acquired (500,000) (11,901,055)
Net cash used in investing
activities (16,333,597) (538,409) (11,510,880)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments on long-
term product rights
obligation (120,848)
Cash dividends paid (1,314,485) (980,187) (759,169)
Proceeds from issuance of
common stock and exercise of
options 1,547,681 2,294,493 1,757,610
Purchase of treasury stock (243,081) (4,655,375)
Net cash provided by
(used in) financing
activities (9,885) (3,341,069) 877,593
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (1,004,171) 10,653,404 1,041,585
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 16,113,853 5,460,449 4,418,864
CASH AND CASH EQUIVALENTS,
END OF YEAR 15,109,682 16,113,853 $5,460,449
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the year
for:
Income taxes 7,571,800 5,231,000 6,733,250
Interest NONE 13,400 10,732
</TABLE>
See notes to consolidated financial statements.
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
During the years ended September 30, 1994,
1993, and 1992, the Company increased additional<PAGE>
paid-in capital by $1,796,546, $2,908,205, and
$6,719,112, respectively, which represents the tax
benefit attributable to the compensation received
by employees from the exercise and disqualifying
dispositions of incentive stock options (see Note
5).
Effective February 26, 1993, the Company
purchased all of the outstanding capital stock of
Medical Innovations Corporation for approximately
$12,464,000 cash (see Note 9). In conjunction
with the acquisition, liabilities were assumed as
follows:
Fair value of assets acquired
(including goodwill) $14,558,483
Cash paid 12,464,228
Liabilities assumed $2,094,255
See notes to consolidated financial statements.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993, AND
1992
<TABLE>
<CAPTION>
NON-
COMPETE
COVENANT
ADDITIONAL ACQUIRED
COMMON PAID-IN FOR STOCK RETAINED
SHARES AMOUNT CAPITAL EARNINGS
<S> <C> <C> <C> <C> <C>
BALANCE,
10/1/91 25,270,100 $2,527,010 $11,709,420 $(538,023) $18,689,736
Net
income 13,464,291
Cash
dividends
paid
($.030
per share)
(Note 1) (759,169)
Common
stock
issued
from
exercise
of stock
options
(Note 5) 548,729 54,873 1,580,574
Amorti-
zation
of non-
compete
covenant
(Note 7) 403,517
Tax
benefit
attribut-
able
to appreci-
ation
in value
of stock
issued in
conjunc-
tion with
the
exercise
and dis-
qualifying
disposi-
tions of
incentive
stock
options
(Note 5)
6,719,112
Trans-
action of
pooled
company
(Notes 1
and 9) 6,811 681 121,482
Adjust-
ment to
conform
year-end
of pooled
company
(Notes 1
and 9) 251,306
BALANCE,
9/30/92 25,825,640 2,582,564 20,130,588 (134,506) 31,646,164
Net income 18,540,009
Cash
dividends
paid
($.0375 per
share)
(Note 1) (980,187)
Common
stock
issued from
exercise of
stock
options
(Note 5)
592,607 59,261 2,108,645
Acquisi-
tion and
retire-
ment of
treasury
stock (Note
5) (303,997) (30,400) (290,830) (4,334,145)
Amorti-
zation of
non-
compete
covenant
(Note 7) 134,506
Tax benefit
attribut-
able to
appreci-
ation in
value of
stock
issued in
conjunc-
tion with
the
exercise
and dis-
qualifying
disposi-
tions of
incentive
stock
options
(Note 5)
2,908,205
Other 126,587
BALANCE,
9/30/93 26,114,250 2,611,425 24,983,195 NONE 44,871,841
Net Income
16,180,377
Cash
dividends
paid ($.050
per share)
(Note 1)
(1,314,485)
Common
stock
issued from
exercise of
stock
options
(Note 5)
361,612 36,161 1,511,520
Acquisi-
tion and
retirement
of treasury
stock (Note
5)
(20,000) (2,000) (241,081)
Tax benefit
attribut-
able to
appreci-
ation in
value of
stock
issued in
conjunc-
tion with
the
exercise
and dis-
qualifying
disposi-
tions of
incentive
stock
options
(Note 5)
1,796,546
BALANCE,
9/30/94 26,455,862 $2,645,586 $28,291,261 NONE $59,496,652
</TABLE>
See notes to consolidated financial statements.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Ballard Medical Products
("Ballard") and its subsidiaries develop,
manufacture, and market medical products.
BASIS OF PRESENTATION - The consolidated
financial statements include the accounts of
Ballard and its wholly-owned subsidiaries, Code
Blue Medical Corporation (see Note 9), Medical
Innovations Corporation ("MIC") (see Note 9),
Ballard Real Estate Holdings ("BREH"), and Ballard
International, Inc. ("BI") (collectively, the
"Company"). During the year ended September 30,
1993, Code Blue was merged into Ballard and no
longer exists as a separate entity. All
significant intercompany accounts and transactions
have been eliminated in consolidation.
The accompanying consolidated financial
statements of the Company have been prepared to
give retroactive effect to the combination with
Code Blue on April 21, 1992, which has been
accounted for as a pooling of interests (see Note
9). Prior to the combination, Code Blue's year
end was December 31. Effective October 1, 1991,
Code Blue's results are reported on a September
30, 1992 fiscal year basis along with the results
of Ballard. The net loss of Code Blue for the
three-month period ended December 31, 1991 is
reflected as an adjustment to retained earnings
during the year ended September 30, 1992.
On April 21, 1992, the Company formed BREH
by purchasing 1,500,000 shares of BREH's common
stock in exchange for $1,600,000 cash.
Substantially all of such cash was used by BREH to
purchase approximately 100 acres of unimproved
land adjacent to Ballard's principal manufacturing
facility.
On February 19, 1993, the Company formed BI
by purchasing 1,000 shares of BI's common stock
for $1,000. BI is a foreign sales corporation
incorporated in the Virgin Islands. BI's primary
purpose is to conduct business for the Company in
foreign countries.
SHORT-TERM INVESTMENTS - Short-term
investments consist principally of cash management
accounts, time certificates of deposit, and tax
free municipal bonds and U.S. treasury securities
with maturity dates of 1 to 12 months.
Investments are recorded at cost which
approximates fair market value.
INVENTORIES - Inventories are stated at the
lower of cost (on a first-in, first-out basis) or
market.
PROPERTY AND EQUIPMENT - Property and
equipment are stated at cost. Depreciation is
computed on the straight-line method over the
estimated useful lives of the related assets.
INTANGIBLE ASSETS - Intangible assets
include goodwill, patent rights, and
organizational costs which are stated at cost and
are being amortized using the straight-line method
over their estimated lives, which range from four
to seventeen years.
REVENUE RECOGNITION - Revenues are
recognized when the related product is shipped.
INCOME TAXES - Effective October 1, 1993,
the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109 (the
"Statement"), "Accounting for Income Taxes." The
Statement requires an asset and liability approach
for financial accounting and reporting for income
taxes. The cumulative effect in 1994 of the
change in accounting principle of $1,403,232 is
reflected in the 1994 consolidated statement of
operations. The adoption of the Statement had no
effect on the pre-tax income from continuing
operations. Prior to October 1, 1993, the Company
accounted for income taxes under Accounting
Principles Board Opinion No. 11.
INCOME PER SHARE - Income per share is
computed on the basis of the weighted average
number of shares outstanding plus the common stock
equivalents which would arise from the exercise of
stock options. Such income per share amounts are
adjusted to give retroactive effect to the stock
split described in Note 5 and the pooling of
interests described in Note 9.
DIVIDENDS PER SHARE - Dividends per share
are adjusted retroactively to give effect to the
stock split and the pooling of interests.
STATEMENT OF CASH FLOWS - For purposes of
the consolidated statements of cash flows, the
Company considers cash and interest bearing
securities with original maturities of less than
three months to be cash equivalents.
RECLASSIFICATIONS - Certain
reclassifications have been made to the 1993 and
1992 consolidated financial statements to conform
to classifications adopted in 1994.
2. CASH AND SHORT-TERM INVESTMENTS
Cash and short-term investments consist of
the following at September 30, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Cash on deposit $4,915,098 $4,019,048
Tax-free cash
management funds 10,194,584 12,094,805
Total cash and
cash equivalents 15,109,682 16,113,853
Time certificates of
deposit 3,901,262 1,699,102
U.S. Treasury
securities 293,045 1,699,102
Municipal bonds 12,136,378 5,373,000
Short-term
investments 16,330,685 7,072,102
Total cash and
short-term
investments $31,440,367 $23,185,955
</TABLE>
In May, 1993, the Financial Accounting
Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting
for Certain Investments in Debt and Equity
Securities." SFAS No. 115 requires the
classification of investment securities as either
held-to-maturity securities, trading securities,
or available-for-sale securities. The accounting
for unrealized gains and losses differs for each
of these categories. The Company will adopt SFAS
No. 115 during the fiscal year ending September
30, 1995. The impact of SFAS No. 115 on the
Company is not expected to be material in relation
to the consolidated financial statements.
3. LINE OF CREDIT
At September 30, 1994, the Company had an
unused, unsecured line of credit with a bank
totaling $4,000,000 which expires January 31,
1995. The line, if drawn upon, bears interest at
prime (7.75% at September 30, 1994). No
compensating cash balances are required. As of
September 30, 1994, there were no borrowings under
the line of credit.
4. INCOME TAXES
As described in Note 1, the Company adopted
Statement of Financial Accounting Standards No.
109 during the year ended September 30, 1994. In
connection with the application of the Statement,
the Company recorded current deferred tax assets
and net long-term deferred tax assets at September
30, 1994 as follows:
<TABLE>
<CAPTION>
CURRENT LONG-TERM
<S> <C> <C>
Deferred income tax
assets $407,405 $821,451
Deferred income tax
liabilities (562,499)
Net $407,405 $258,952
</TABLE>
Net deferred income tax assets at September
30, 1994 consisted of the following temporary
differences and carryforward items:
<TABLE>
<CAPTION>
CURRENT LONG-TERM
<S> <C> <C>
Deferred income tax
assets:
Allowance for
uncollectible accounts
receivable $76,020
Allowance for sales
returns and allowances 76,020
Accrued expenses 255,365
Accumulated amortization $743
Net operating loss
carryforwards of
acquired subsidiaries 709,482
Research and develop
ment credits 111,226
407,405 821,451
Deferred income tax
liabilities-differences
between tax basis
and financial reporting
basis of property and
equipment (562,499)
Total $407,405 $258,952
</TABLE>
The components of income tax expense (benefit) for
the years ended September 30, 1994, 1993, and 1992
are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
CURRENT:
Federal $6,685,047 $9,132,420 $6,949,456
State 933,162 1,304,632 1,071,320
Subtotal 7,618,209 10,437,052 8,020,776
DEFERRED:
Federal 727,007 (128,233) (19,726)
State 101,482 (18,319) (3,054)
Subtotal 828,489 (146,552) (22,780)
Total $8,446,698 $10,290,500 $7,997,996
</TABLE>
Deferred tax expense (benefit) for the years ended
September 30, 1993 and 1992 results from timing
differences in the recognition of expenses for
income tax and financial reporting purposes. The
sources of timing differences and the tax effects
of each are as follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Compensation expense
related to issuance of
noncompete agreement $(51,448) $(150,511)
Accelerated
depreciation 38,250 39,806
Other reserves (133,354) 87,925
Total $(146,552) $(22,780)
</TABLE>
Income tax expense differed from amounts
computed by applying the statutory Federal tax
rate to pretax income as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Computed Federal income tax
expense at statutory rate $8,128,345 $10,090,678 $7,297,178
State income tax expense, net of
Federal benefit 661,806 672,163 704,685
Environmental tax 25,000 25,000 13,500
Tax exempt income (210,000) (408,800) (163,156)
Foreign sales corporation (126,000) (61,750)
Amortization of goodwill 278,773 160,919
Utilization of acquired
operating loss carryforwards (275,375)
Utilization of tax credits (30,000)
Losses of pooled company (see
Notes 1 and 9) 191,758
Other (311,226) 87,665 (15,969)
Total $8,446,698 $10,290,500 $7,997,996
</TABLE>
As a result of the Company's acquisition of
MIC and the combination with Code Blue (see Note
9), the Company has net operating loss
carryforwards for Federal income tax purposes of
approximately $650,000 and $1,217,000,
respectively, which can only be used to offset
future taxable income of each subsidiary at
September 30, 1994. The utilization of the tax
loss carryforwards is subject to certain
limitations and the carryforwards expire through
the year 2007.
5. COMMON STOCK AND STOCK OPTIONS
A 4 for 3 stock split was approved for
stockholders of record on February 8, 1993. The
effect of this stock split is retroactively
reflected in all share and per share amounts in
the accompanying consolidated financial
statements.
During the years ended September 30, 1994
and 1993, the Company repurchased 20,000 and
303,997 shares of its outstanding common stock for
$243,081 and $4,655,375, respectively. In
accordance with Utah State law, this treasury
stock was accounted for as retired common stock.
The Company has adopted several incentive
stock option plans for key employees and reserved
shares of common stock totaling approximately
2,985,000 and 2,617,000 at September 30, 1994 and
1993, respectively, for issuance under the plans.
Options are granted at a price not less than the
fair market value on the date of grant, become
exercisable between one to two years following the
date of grant, and expire in ten years.
Changes in stock options are as follows for
the years ended September 30:
<TABLE>
<CAPTION>
Price Range
1994 Shares Per Share
<S> <C> <C>
Granted 3,747,340 $8.63 - $16.50
Expired 2,582,256 $11.00 - $19.79
Exercised 361,612 $.67 - $11.00
Outstanding at
September 30 2,898,253 $.67 - $22.22
Exercisable 766,486 $.67 - $22.22
1993
Granted 367,533 $12.00 - $19.79
Expired 37,322 $11.00 - $19.79
Exercised 592,607 $.99 - $11.00
Outstanding at
September 30 2,094,781 $.67 - $22.22
Exercisable 1,944,136 $.67 - $22.22
1992
Granted 85,800 $1.01 - $22.22
Expired 43,337 $5.64 - $15.62
Exercised 548,729 $.90 - $11.00
Outstanding at
September 30 2,357,177 $.67 - $22.22
Exercisable 1,544,104 $.67 - $11.00
</TABLE>
6. COMMITMENTS AND CONTINGENT LIABILITIES
MIC leases office and production facilities
under long-term operating lease agreements. Rent
expense on the above operating leases was
approximately $187,000, $108,800, and $26,700 for
the years ended September 30, 1994, 1993, and
1992, respectively. The following represents
MIC's future commitments under such leases:
1995 $186,500
1996 186,500
1997 140,000
Total $513,000
The Company has the option to extend the
lease terms at its discretion. As of September
30, 1994, the Company has not exercised its option
to extend the leases.
The Company has agreements with the
inventors of certain of its products which provide
for the payment of royalties ranging from 2% to
6.5% of defined net sales or a fixed rate per unit
sold of the related products.
During the year ended September 30, 1993,
the Company entered into an approximate $3,200,000
construction contract to expand its production
facilities. The construction on the facilities
was completed during the year ended September 30,
1994.
The Company is involved in certain
litigation matters in the normal course of
business which, in the opinion of management, will
not result in any material adverse effects on the
Company.
7. NONCOMPETE COVENANT
On March 30, 1990, Ballard issued 209,250
shares of restricted common stock to an officer
for $6,200 cash (representing the par value (pre-
split) of the shares) plus a covenant by the
officer not to compete with Ballard or to disclose
certain trade secrets of Ballard for a period of
36 months. The noncompete covenant, valued at
$1,210,550 based on the fair value of the stock
issued, was shown as a reduction to stockholders'
equity and was amortized on the straight-line
basis over the 36-month period. Amortization
during the years ended September 30, 1993 and 1992
was approximately $134,500 and $403,500,
respectively. As of September 30, 1993, the
noncompete covenant was fully amortized.
8. PROFIT SHARING PLAN
In 1991, the Company's Board of Directors
adopted the Company's Employee Retirement Savings
Plan (the Plan) under Section 401(k) of the
Internal Revenue Code. The Plan is designed to
allow participating employees to accumulate
savings for retirement or other purposes. Under
the Plan, all employees, who have completed at
least one year of service and have reached age 21,
are eligible to participate. The Plan allows
employees to make contributions to the plan from
salary reductions each year, up to a maximum of
15% of a participant's annual compensation. Under
the Plan, the Company matches up to 4% of a
participant's contribution. The Company may, if
it desires, make additional contributions to the
401(k) Plan on behalf of its employees. For the
years ended September 30, 1994, 1993, and 1992,
the Company expensed approximately $372,000,
$247,000 and $295,000, respectively, as matching
and additional contributions to the Plan.
Employees are always fully vested in their own
contributions and become fully vested in any
contributions made by the Company after six years
of service. Employees are allowed to direct the
investment of their Plan contribution within a
group of designated investment funds.
9. MERGER AND ACQUISITIONS
On April 21, 1992, Ballard issued 211,786
shares of its common stock in exchange for all of
the outstanding common stock of Code Blue, a
medical research and manufacturing company
incorporated in 1989 and headquartered in
Clearwater, Florida. The assets and liabilities
of Code Blue at the date of the combination were
approximately $508,000 and $294,000, respectively.
The combination was accounted for as a pooling of
interest. The accompanying consolidated financial
statements have been prepared as if Ballard and
Code Blue had been combined for all periods
presented. During the year ended September 30,
1993, Code Blue was merged into Ballard and no
longer exists as a separate entity.
Effective February 26, 1993, the Company
acquired all of the issued and outstanding common
stock of MIC for approximately $12,464,000 cash.
Additional consideration (up to $2,732,000) may be
paid to two of the former MIC shareholders, who
are also MIC employees (the Principal
Shareholders), contingent upon MIC's reaching
certain annual sales performance criteria
determined at each fiscal year ending November 30,
1993, 1994, and 1995. The acquisition was
accounted for as a purchase. In conjunction with
the acquisition, the Company recorded goodwill of
approximately $11,823,000 which is being amortized
on a straight-line basis over 15 years. The
accompanying consolidated financial statements
include MIC's net assets at their estimated fair
values at the date of acquisition and the results
of operations of MIC from the date of acquisition.
The pro forma results of operations of the
Company for the years ended September 30, 1993 and
1992 (assuming the acquisition of MIC had occurred
as of October 1, 1992 and 1991) are as follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Revenues $67,395,567 $54,580,602
Net income 18,335,511 13,987,299
Income per share:
Common and common
equivalent share $0.67 $0.51
Common share
assuming full
dilution $0.67 $0.50
</TABLE>
Based upon MIC's sales performance for the
fiscal year ended November 30, 1993 (the first
measurement period), the Company paid an
additional $500,000 in contingent consideration to
the Principal Shareholders during the year ended
September 30, 1994. Based upon the Company's
preliminary analysis of expected MIC sales
performance for the fiscal year ending November
30, 1994 (the second measurement period), the
Company expects to pay an additional $1,000,000 in
contingent consideration to the Principal
Shareholders. When such amount is finalized and
paid, it will be added to goodwill as additional
purchase price and amortized over the remaining
life of the goodwill.
10. SALES
During the years ended September 30, 1994,
1993, and 1992, the Company had foreign export
sales of approximately $4,700,000, $3,800,000, and
$2,100,000, respectively, and sales to one major
customer of approximately $5,750,000, $6,100,000,
and $4,700,000, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This analysis of the Company's operations
encompassing the fiscal years ended September 30,
1994, 1993, and 1992, should be considered in
conjunction with the consolidated balance sheets,
statements of operations, and statements of cash
flows. All of the figures discussed herein have
been adjusted to reflect the purchase of MIC on
February 26, 1993 and the combination (treated as
a pooling of interests) with Code Blue on April
21, 1992.
RESULTS OF OPERATIONS
REVENUES - For the year ended September 30,
1994, consolidated net sales totaled $65,062,801,
a slight increase of $212,964 over consolidated
net sales of $64,849,837 in 1993. While the
Company's 1994 consolidated gross sales increased
$2,303,862, or 3.5%, over 1993 consolidated gross
sales, price discounts and rebates also increased
from $836,166 in 1993 to $2,090,898 in 1994,
reflecting the increased pressures on the
providers of medical products to reduce prices.
The basically flat net sales between 1994 and 1993
also reflect the Company's decision in the fourth
quarter of 1994 to restructure its sales
distribution system, whereby the Company began
shifting a significant volume of its distribution
from specialty dealers to larger, general line
dealers. This restructuring results in one-time
deferrals by each new general line dealer in
orders, while previous specialty dealers reduce
existing inventories. As a result of this and
other factors, net sales for the fourth quarter of
fiscal year 1994 totaled $12,534,754, a decrease
of over 36% from the fourth quarter of 1993 and a
decrease of over 47% from the previous quarter of
1994. In addition to the restructuring of its
sales distribution system, the Company also
attributes the decline in net sales growth to the
uncertainty of possible Federal Health Care Reform
mandates debated throughout most of the fiscal
year, delays in receiving FDA approvals for
certain of its new products, trends by hospitals
toward "Just in Time" inventory reductions, and
increases in hospital group purchasing alliances.
Despite the Company's slowed growth of sales
overall, MIC's products continue to show strong
growth and acceptance since its acquisition in
February, 1993. Net sales of MIC's products for
the year ended September 30, 1994 increased over
200% over net sales for the period February 26,
1993 (date of MIC acquisition) to September 30,
1993.
Effective January 1, 1994, there was a 3% to
5% price increase on substantially all FOAM CARE
products.
For the year ended September 30, 1993,
consolidated net sales increased $15,062,638 or
30.3% over net sales in 1992. The increase was
due primarily to the increasing acceptance of the
Company's products and to the acquisition of MIC,
whose sales were added to the Company's
consolidated net sales. During 1993, the Company
increased prices on all products by approximately
2%, but for the most part the increase in Company
sales was attributable to increased volume of
product sold and not to higher prices. In
addition, near the end of fiscal year 1993 the
Company significantly increased it sales force in
various regions of the United States to provide
greater concentration in favorable market areas.
The expanding and stabilizing of the sales force
continued in 1994.
COST OF PRODUCTS SOLD - For the year ended
September 30, 1994, consolidated cost of products
sold totaled $21,251,579, an increase of 9.9% over
consolidated cost of products sold in 1993. The
increase in costs is due to an unfavorable sales
mix and to rising costs of raw materials and
labor, as well as to the purchase of MIC, whose
comparable costs are included in 1993 only from
its acquisition date. Increased costs can also be
attributed to start up costs associated with the
significant expansion of both Ballard's and MIC's
manufacturing facilities.
For the year ended September 30, 1993,
consolidated cost of products sold increased
$3,605,178 or 22.9% over cost of products sold in
1992. The increase is principally due to the
increase and mixture of sales and to the
acquisition of MIC, which added $1,010,835 of cost
of products sold to the Company's consolidated
cost of products sold. As a percentage of
consolidated net sales, consolidated cost of
products sold decreased from 31.6% in fiscal year
1992 to 29.8% for the fiscal year ended September
30, 1993.
OPERATING EXPENSES - Operating expenses
consist of selling, general, and administrative
expenses, research and development expenses, and
royalty expense. Total consolidated operating
expenses for the year ended September 30, 1994
were $24,106,965 which represents an increase of
18.0% over the corresponding period of fiscal year
1993. The increase is due principally to
increased selling costs resulting from the
expansion of the sales force, as well as to
increased research and development costs and
general overall increases in operating expenses
over the prior year. Additional increases are due
to the purchase of MIC, whose comparable costs are
included in fiscal year 1993 only from its
acquisition date.
The primary increase in operating expenses
occurred with consolidated selling, general, and
administrative expenses. In fiscal year 1994,
these expenses increased $3,394,321, or 19.2%,
over 1993. As a percentage of consolidated net
sales, in fiscal year 1994 consolidated selling,
general, and administrative expenses increased
5.1% over 1993. Consolidated expenses related to
research and development and royalties, as a
percentage of consolidated net sales for fiscal
year 1994, remained consistent with those in 1993.
Total consolidated operating expenses for
the year ended September 30, 1993 increased
$5,313,524 or 35.2% over total consolidated
operating expenses in 1992. The increase was due
primarily to the hiring of additional management
level employees and sales representatives to meet
the demands of increasing sales levels, and to the
acquisition of MIC, which added $1,598,007 in
additional operating expenses to the Company's
consolidated operating expenses.
OTHER INCOME AND EXPENSE - Other income and
expense consist principally of interest income
from investments and tax refunds, royalty income
from the licensing of the closed suction system,
and insignificant gains and losses from the sale
or retirement of assets and from the recovery of
trade receivables previously written off.
For the year ended September 30, 1994
consolidated other income net of expense decreased
to $3,519,586 compared with $3,716,649 in fiscal
1993. During 1994 interest income decreased
approximately $800,000 resulting from decreased
cash and investment reserves from the 1993 cash
purchase of MIC, while royalty income increased
approximately $500,000 over 1993.
For the year ended September 30, 1993,
consolidated other income increased $1,224,286
over fiscal year 1992 as a result of increased
interest from the Company's cash and investment
reserves and increased royalties.
NET INCOME - Consolidated net income from
the Company's operations in fiscal year 1994 of
$14,777,145 represents a decrease of 25.4% from
the consolidated net income of $18,540,009 in
fiscal year 1993. Despite the decrease, net
income, as a percentage of net sales, for the year
ended September 30, 1994 was still strong at
22.7%. In addition to the slower growth and price
reductions as previously discussed above, the
lower net income percentage results in part from
higher-than-expected backorders in high margin
products and increasing overhead costs.
The cumulative effect of the change in
accounting for income taxes of $1,403,232
represents a one-time benefit (recorded as of
October 1, 1993) from the adoption of Financial
Accounting Standards Board Statement No. 109.
Consolidated net income from the Company's
operations in fiscal year 1993 of $18,540,009
represents an increase of 37.6% over the
consolidated net income of $13,464,291 in fiscal
year 1992. The acquisition of MIC resulted in an
addition to consolidated net income of $497,808 in
fiscal year 1993. The increase was attributable
to significantly higher sales and continued
improved efficiencies in manufacturing and other
aspects of the Company's operations.
INFLATION - Inflation can be expected to
have an effect on most of the Company's operating
costs and expenses. The extent to which
inflationary cost increases can be offset by price
increases depends on competition and other
factors. The effect of inflation has been
insignificant during the periods reported herein.
LIQUIDITY AND CAPITAL RESOURCES
The Consolidated Balance Sheet presents the
Company's financial position at the end of each of
the last two years. The statement lists the
Company's assets and liabilities, and the equity
of its stockholders. Major changes in the
Company's financial position are summarized in the
Consolidated Statement of Cash Flows. This
statement summarizes the changes in the Company's
cash and cash equivalents balance for each of the
last three years and helps to show the
relationship between operations (presented in the
Consolidated Statement of Operations) and
liquidity and financial resources (presented in
the Consolidated Balance Sheets).
Continued growth in cash, cash equivalents,
and short-term investments provides the Company
financial stability and flexibility to fund
current operations, acquisitions, future growth,
and expansion, and to continue its dividend
payment policy. At September 30, 1994, cash, cash
equivalents, and short-term investments grew 35.6%
to $31,440,367 compared with $23,185,955 at
September 30, 1993. The Company's primary source
of liquidity comes from cash provided by
operations. The net cash provided to the Company
by operations during the year ended September 30,
1994 grew 5.6% to $15,339,311 compared with
$14,532,882 for the year ended September 30, 1993.
During fiscal year 1994 the Company paid cash
dividends totaling $1,314,485, an increase of
34.1% over the prior year's payout of $980,187.
At September 30, 1994, the Company's current
assets exceeded its current liabilities by
$57,581,666, an increase of 29.8% over the
September 30, 1993 total of $44,358,108. In
addition to its strong current ratios, the Company
does not have any long-term debt nor does it
intend to utilize debt to fund future expansion.
The Company maintains a $4,000,000 unsecured line
of credit with its bank but has not drawn on this
line during either of the years ended September
30, 1994 or 1993.
During the year ended September 30, 1994,
the Company completed expansion and remodelling of
both its Draper, Utah and Milpitas, California
manufacturing facilities. Total cost of the
expansion and remodelling, including cost of
related new machinery and equipment approximated
$5,500,000. This capital investment reflects the
Company's continued program to expand and upgrade
operations, including new equipment and operations
to meet the growing needs of present and new
customers. No material commitments for capital
expenditures exist as of September 30, 1994.
Also during the year ended September 30,
1994, the Company repurchased 20,000 shares of its
outstanding common stock for $243,081. A
valuation allowance has not been provided on
deferred tax asset balances due to the Company's
projection of future taxable income in excess of
such tax assets.
DIRECTORS
NAME TITLE
Dale H. Ballard Chairman of the Board,
Chief Executive Officer,
and President of Ballard
Medical Products.
John I. Bloomberg General Partner of J.I.B.
Associates, Bricoleur
Partners, Olympic Growth
Fund, and Utah Capital
Corp., all private
investment companies.
J. Dallas VanWagoner Practicing Physician,
Clinical Instructor at the
University of Utah School
of Medicine.
Robert V. Petersen Professor Emeritus of
Pharmaceutics at the
University of Utah.
E. Martin Chamberlain Vice President of
Regulatory Affairs,
Corporate Secretary, and
Director of Quality
Assurance at Ballard
Medical Products.
Dale H. Ballard, Jr. Owner of his own financial
planning business called
Stratco.
Paul W. Hess General Counsel at Ballard
Medical Products.
OFFICERS
NAME TITLE
Dale H. Ballard President, Chief Executive
Officer, and Chairman of
the Board.
Harold R. ("Butch") Executive Vice President
Wolcott and General Manager
E. Martin Chamberlain Vice President of
Regulatory Affairs and
Corporate Secretary
Bradford D. Bell Vice President of Sales
and Marketing
Kenneth R. Sorenson Treasurer
Paul W. Hess General Counsel
SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS
BALLARD MEDICAL PRODUCTS
12050 Lone Peak Parkway
Draper, Utah 84020
TRANSFER AGENT
First Security Bank
of Utah, N.A.
79 South Main
Salt Lake City, Utah
84111
CO-TRANSFER AGENT
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
ANNUAL MEETINGS
The Annual Meeting of Stockholders of
Ballard Medical Products will be held Monday,
January 23, 1995, at the Company's executive
offices, 12050 Lone Peak Parkway, Draper, Utah,
beginning at 11:00 a.m., Mountain Standard Time.
Shareholders of record on November 23, 1994 are
entitled to notice of and to vote at the meeting.
A notice of meeting and proxy statement are
enclosed with the Annual Report.
FORM 10-K
Any shareholder who sends a written request
to the Company's Secretary, E. Martin Chamberlain,
at Ballard Medical Products, 12050 Lone Peak
Parkway, Draper, Utah 84020, may obtain without
charge a copy of the Company's Form 10-K for
fiscal year 1993, including the financial
statements and the financial schedules.
SHAREHOLDER/ANALYST INQUIRIES
Shareholders, analysts, and others seeking
information about the Company, are encouraged to
contact Kenneth R. Sorenson, Treasurer, Ballard
Medical Products, 12050 Lone Peak Parkway, Draper,
Utah 84020, with any questions or comments.
RESEARCH COVERAGE
The following firms currently provide
research coverage of Ballard Medical Products:
AG Edwards - St. Louis, Missouri
Barrett & Company - Providence, Rhode Island
Hanifen, Imhoff, Inc. - Denver, Colorado
Montgomery Securities - San Francisco, CA
Olde Discount - Detroit, Michigan
Piper Jaffray - Minneapolis, Minnesota
Prudential - New York, New York
The Principal - Dallas, Texas
AUDITORS
DELOITTE & TOUCHE LLP
50 South Main Street, Suite 1800
Salt Lake City, Utah 84144
EXHIBIT 21
SUBSIDIARIES OF BALLARD MEDICAL PRODUCTS
JURISDICTION OF
SUBSIDIARY INCORPORATION BUSINESS NAMES
Medical Innovations California Medical Innovations
Corporation Corporation
Ballard Real Estate Utah Ballard Real Estate
Holdings, Inc. Holdings, Inc.
Ballard Virgin Islands Ballard
International, Inc. International, Inc.
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by
reference in Registration Statement Nos. 33-
23232, 33-34384, 33-43910, and 33-50040 on Form
S-3 and in Registration Statement Nos. 2-90684,
2-94306, 33-0840, 33-17698, 33-25628, 33-36851,
33-41720, 33-56302, and 33-73194 on Form S-8 of
our reports dated November 11, 1994, appearing in
and incorporated by reference in this Annual
Report on Form 10-K of Ballard Medical Products
for the year ended September 30, 1994.
Deloitte & Touche LLP
Salt Lake City, Utah
November 11, 1994<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the 10-K
filed for the period ending September 30, 1994 and is qualified in its entirety
by reference to such 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<CASH> 31,440,367
<SECURITIES> 0
<RECEIVABLES> 13,905,173
<ALLOWANCES> 400,000
<INVENTORY> 9,673,636
<CURRENT-ASSETS> 59,787,392
<PP&E> 25,517,989
<DEPRECIATION> (4,514,129)
<TOTAL-ASSETS> 92,639,225
<CURRENT-LIABILITIES> 2,205,726
<BONDS> 0
<COMMON> 2,645,586
0
0
<OTHER-SE> 87,787,913
<TOTAL-LIABILITY-AND-EQUITY> 92,639,225
<SALES> 65,062,801
<TOTAL-REVENUES> 65,062,801
<CGS> 21,251,579
<TOTAL-COSTS> 21,251,579
<OTHER-EXPENSES> 24,106,965
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 23,223,843
<INCOME-TAX> 8,446,698
<INCOME-CONTINUING> 14,777,145
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1,403,232
<NET-INCOME> 16,180,377
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.59
</TABLE>
