SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
240.14a-11(c) or 240.14a-12
BALLARD MEDICAL PRODUCTS
(Name of Registrant as Specified in Its Charter)
PAUL W. HESS
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-
6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
(1) Title of each class of securities to which
transaction applies:
(2) Aggregate number of securities to which
transaction applies:
(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the filing
for which the offsetting fee was paid previously.
Identify the previous filing by a registration
statement number, or the Form or Schedule and the date
of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
BALLARD MEDICAL PRODUCTS
12050 Lone Peak Parkway
Draper, Utah 84020
_____________________________
PROXY STATEMENT
_____________________________
ANNUAL MEETING OF SHAREHOLDERS
To Be Held January 22, 1996
INTRODUCTION
This Proxy Statement is furnished to the shareholders
with the Notice of Annual Meeting of Shareholders of Ballard
Medical Products, a Utah corporation (the "Company"), in
connection with the solicitation of proxies by the Company.
The proxies solicited hereby are to be voted at the Annual
Meeting of Shareholders of the Company to be held at the
Company's executive offices, 12050 Lone Peak Parkway,
Draper, Utah 84020, on Monday, January 22, 1996, at 11:00
a.m. Mountain Standard Time, and at any and all adjournments
thereof. Stockholders of record at the close of business on
November 21, 1995 (the "Record Date") are entitled to notice
of and to vote at the meeting.
A form of proxy is enclosed for your use. The shares
represented by each properly executed, unrevoked proxy will
be voted as directed by the shareholder. The proxy will be
voted "for" each proposal on which no direction is made.
This proxy solicitation is being made by the Board of
Directors of the Company. Before signing the enclosed
proxy, shareholders are urged to carefully read, review, and
consider this Proxy Statement.
SOLICITATION AND REVOCATION OF PROXIES
It is contemplated that the solicitation of proxies
will be made exclusively by mail. Should it, however,
appear desirable in order to ensure adequate representation
of shares at the meeting, officers and employees of the
Company may, for no additional compensation, communicate
with shareholders, banks, brokerage houses and others by
telephone, telegraph, or in person to request that proxies
be furnished. This Proxy Statement and the accompanying
form of proxy are being first mailed or delivered to
shareholders on or about December 8, 1995. All expenses
incurred in connection with this solicitation will be borne
by the Company. In following up on the original
solicitation of proxies by mail, the Company may make
arrangements with brokerage houses and other custodians,
nominees and fiduciaries to send proxies and proxy material
to the beneficial owners of the shares and will reimburse
them for their reasonable expenses in so doing. The Company
has no present plans to hire special employees or paid
solicitors to assist in obtaining proxies, but reserves the
right to do so if it should appear that a quorum otherwise
might not be obtained.
Any proxy given may be revoked at any time prior to the
exercise thereof. To accomplish this, written notice of
revocation must be received by the Secretary of the Company
no later than 10:00 a.m. MST on the date of the Annual
Meeting, at the Company's executive offices, 12050 Lone Peak
Parkway, Draper, Utah 84020. Such written notice may be in
the form of a later-dated proxy or some other written signed
instrument. In addition, any shareholder present at the
meeting who has given a proxy may withdraw it and vote his
or her shares in person.
OUTSTANDING STOCK AND VOTING RIGHTS
Only holders of record of the Company's Common Stock at
the close of business on the Record Date are entitled to
notice of and to vote at the Annual Meeting. As of the
Record Date, the Company had issued and outstanding
26,843,643 shares of Common Stock, $.10 par value. Each
share of Common Stock is entitled to one vote on every
matter submitted at the meeting. There is no cumulative
voting. The presence at the meeting, in person or by proxy,
of a majority of the shares entitled to vote shall
constitute a quorum for the transaction of business. The
vote required for the election of Directors and approval of
the other proposals is set forth in the discussion of each
item to be voted upon.
All properly executed and returned proxies, as well as
shares represented in person at the meeting, will be counted
to determine if a quorum is present, whether or not the
proxies indicate abstentions or consist of broker non-votes
(defined below). Abstentions (but not broker non-votes)
will also be counted in the denominator to determine whether
a matter has been approved. Thus, abstentions (but not
broker non-votes) will have the same effect as a vote
"against" the matter. A "broker non-vote" refers to shares
of Common Stock represented at the meeting in person or by
proxy by a broker or nominee where such broker or nominee
(1) has not received voting instructions on a particular
matter from the beneficial owners or persons entitled to
vote, and (2) the broker or nominee does not have
discretionary voting power on such matter.
PRINCIPAL STOCKHOLDERS
So far as is known to management, as of the Record
Date, the following persons owned beneficially more than 5%
of the outstanding shares of the Company's Common Stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENTAGE OF
OF BENEFICIAL OF BENEFICIAL OUTSTANDING COMMON
OWNER OWNERSHIP STOCK (1)
<S> <C> <C>
Dale H. Ballard
12050 Lone Peak
Parkway, Draper UT
84020 (2) 2,000,240 6.85%
State Farm Mutual
Automobile
Insurance Company
One State Farm
Plaza,
Bloomington, IL
61710 (3) 1,852,502 6.34%
State of Wisconsin
Investment Board
P.O. Box 7842
Madison, WI 53707 1,820,800 6.23%
</TABLE>
(1) All percentages are calculated on the basis of
outstanding shares of common stock, plus shares (in the
denominator) which could be acquired within sixty days
of the Record Date by the exercise of outstanding stock
options.
(2) These shares are owned as follows: SHARES
Dale H. Ballard Family Living Trust 1,330,078
Alice B. Ballard Family Living Trust 621,518
Pamela A. Ballard 1992 Trust 48,284
Indirect ownership through
Ballard Family Properties, Ltd. 360
Total 2,000,240
(3) The shares held by State Farm are owned as follows:
State Farm Balanced Fund 427,751
State Farm Growth Fund, Inc. 820,000
State Farm Incentive and
Thrift Balanced Account 604,751
Total 1,852,502
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth, as of the Record Date,
the number of shares of Common Stock of the Company
beneficially owned by each of the Company's directors and
executive officers, and by all of the Company's directors
and executive officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE
NATURE OF OF
BENEFICIAL OUTSTANDING
BENEFICIAL OWNER, OWNERSHIP COMMON STOCK
POSITION WITH COMPANY (SHARES) (4) (1)
<S> <C> <C>
Dale H. Ballard, President, (2) Indirect
CEO and Chairman of the 2,000,240 6.85%
Board
John I. Bloomberg, Director Direct 40,000 (3)
J. Dallas VanWagoner, M.D. Direct 2,700 (3)
Director
Robert V. Petersen, Direct 676 (3)
Director
E. Martin Chamberlain, Exercisable
Director, Vice President of Options
Regulatory Affairs, and 33,000 0
Secretary
Dale H. Ballard, Jr., Direct 107,298
Director Indirect 34,076
Total 141,374 (3)
Paul W. Hess, Director, Indirect 1,466
General Counsel Exercisable
Options 48,000
Total 49,466 (3)
Harold R. ("Butch") Direct 1,100
Wolcott, Executive Vice Exercisable
President and General Options 55,667
Manager Total 56,767 (3)
Bradford D. Bell, Vice Direct 2,666
President of Sales and Exercisable
Marketing Options 36,333
Total 38,999 (3)
Kenneth R. Sorenson, Direct 7,316
Treasurer Exercisable
Options 69,000
Total 76,316 (3)
All directors and executive Direct 171,756
officers as a group (11 Indirect
persons) 2,035,782
Exercisable
Options 276,500
Total 2,484,038 8.51%
</TABLE>
(1) All percentages are calculated on the basis of
outstanding shares of common stock, plus shares which
could be acquired, within 60 days of the Record Date,
by the exercise of outstanding stock options.
(2) See note (2) in the previous table, "Principal
Stockholders."
(3) Percentage of shares owned does not exceed 1%.
(4) "Exercisable Options" listed indicate shares of common
stock which could be acquired by the exercise of
incentive stock options held by executive officers,
exercisable within 60 days of the Record Date.
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The full Board of Directors functions as the Company's
Compensation Committee. The Board has no separate
Compensation Committee. The following Board members are
also employees and executive officers of the Company:
Dale H. Ballard, Chairman of the Board, CEO, President
E. Martin Chamberlain, Vice President of Regulatory
Affairs, and Secretary
Paul W. Hess, General Counsel
Dale H. Ballard, Jr., also a Board member, is the son of
Dale H. Ballard.
During the last completed fiscal year, any deliberations in
Board meetings regarding executive officer compensation were
participated in by all members of the Board.
STOCK OPTION COMMITTEE
The Company's incentive stock option plans (the
"Plans") are administered by two stock option committees.
Stock Option Committee A ("Committee A") is authorized to
grant options only 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 Company.
Each Committee must be comprised of two persons, both
of whom must be members of the Board of Directors. However,
members of Committee B must be "disinterested persons",
within the meaning of Rule 16b-3(c)(2)(i) promulgated by the
Securities and Exchange Commission. A "disinterested
person" is a director who is not, during the one year prior
to service as an administrator of the applicable plan, or
during such service, granted or awarded options pursuant to
the applicable plan or any other incentive stock option plan
of the Company.
Committee A is currently comprised of Dale H. Ballard
(the President of the Company) and E. Martin Chamberlain
(the Vice President and Secretary of the Company).
Committee B is currently comprised of Dale H. Ballard and J.
Dallas VanWagoner, M.D., both of whom are "disinterested
persons". Dr. VanWagoner is not an employee or officer of
the Company.
NO EMPLOYMENT CONTRACTS
The Company has no written employment contract with any
executive officer. Like all but a very few of the Company's
employees, the executive officers are "at-will employees",
meaning either the employee or the Company can terminate the
employment relationship at any time for any reason or for no
reason.
COMPENSATION POLICIES
The Board of Directors establishes and periodically
reviews the compensation of the Chief Executive Officer.
Compensation of other executive officers has been left to
the judgment and discretion of Dale H. Ballard, Chief
Executive Officer. The Board has left such other
compensation to the discretion of the CEO because the
compensation levels of all such executive officers have
historically been reasonable in the judgment of the Board of
Directors, and because the Company has been successful under
Mr. Ballard's leadership and under this compensation system.
There is no specific relationship of corporate
performance to executive compensation. No formula or
specific evaluation procedure is followed. Rather, the
compensation policy is subjective and informal. However,
compensation for executives is based generally on the
principles that compensation must (1) be competitive with
other quality companies in order to help motivate and retain
the talent needed to grow Ballard Medical Products'
business; and (2) provide a strong incentive for key
personnel and sales representatives to achieve the Company's
goals.
The Company has a history of relying upon incentive
stock options as an important element of each executive's
compensation package. This program has generally enabled
the Company to keep salaries and bonuses at relatively
modest levels. The Company's successful sales and profit
record suggests, we believe, that these principles which
form the basis for our compensation program have delivered
the desired results. For example, on record sales of
$81,762,142 for the fiscal year ended September 30, 1995,
the Company reaped after-tax net income of $20,415,191,
representing 25% of net sales.
ELEMENTS OF EXECUTIVE COMPENSATION
It has been the Company's policy for many years that
the executive compensation program consists of base salary,
bonuses, and stock options. In addition, the Company has
provided automobiles to its executive officers and certain
other key employees.
The Company's salary levels are determined by
comparisons with companies of similar size and complexity in
the health care industry. Salary increases are determined
in view of the financial performance of the Company, the
individual performance of the executive, and any promotions
of, or increased responsibilities assumed by, the executive.
Bonuses are determined by the Chief Executive Officer at the
end of each fiscal year, based upon these same factors.
Bonuses are completely discretionary and are not based upon
any formula.
All employee stock options are granted pursuant to one
of the Company's incentive stock option plans. The Company
makes stock option grants periodically at no less than 100%
of the market price on the effective date of the grant. All
of the current incentive stock option plans of the Company
are summarized below. SEE "Summary of Stock Option Plans."
In addition to the above compensation, executive
officers, along with all employees of the Company, are
eligible to participate in the Company's 401(k) retirement
plan. This plan is available to all employees after they
have been employed by the Company for at least one year.
The plan allows employees to make contributions to the plan
from salary reductions each year, up to an annual limit
which is generally 15% of a participant's annual
compensation. Under the 401(k) plan, the Company matches a
participant's contribution up to 4% of his or her salary.
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.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The compensation of Dale H. Ballard, Chairman of the
Board and Chief Executive Officer, consists of a base
salary, typically an annual bonus, and the use of a vehicle.
At no time in the Company's history has Mr. Ballard received
incentive stock options under any incentive stock option
plan. In addition, in the past three fiscal years Mr.
Ballard has not participated in the Company's 401(k)
retirement plan.
There is no specific relationship between the Company's
performance and Mr. Ballard's compensation. Again, only a
subjective, informal policy is followed. The Board of
Directors periodically reviews Mr. Ballard's base salary and
bonus and approves his compensation based on the Board's
evaluation of his performance toward the achievement of the
Company's financial, strategic and other goals, his length
of service as Chief Executive Officer, and competitive Chief
Executive Officer pay information. Mr. Ballard has
historically determined his own salary and bonus. The
Company has enjoyed an overall strong performance, and Mr.
Ballard has been the Company's able Chief Executive Officer
from the Company's formation.
The Board feels that Mr. Ballard has been under
compensated over the years in view of his excellent
performance as Chief Executive Officer.
SECTION 162(m) POLICY.
Under Section 162(m) of the Internal Revenue Code,
effective January 1, 1994, no income tax deduction is
allowed to a publicly held corporation for remuneration paid
to certain executive officers (including the CEO) to the
extent that the amount of such remuneration with respect to
any given employee/executive officer for the taxable year
exceeds $1,000,000. The Board's current policy is that the
Company will not pay remuneration to any one employee during
a given tax year which would not be deductible by the
Company because of the Section 162(m) limits.
BOARD OF DIRECTORS
Dale H. Ballard, Chairman
John I. Bloomberg
J. Dallas VanWagoner
Robert V. Petersen
E. Martin Chamberlain
Dale H. Ballard, Jr.
Paul W. Hess
EXECUTIVE COMPENSATION
DIRECTORS
During the fiscal year ended September 30, 1995, each
of the outside members (i.e., non-employee directors) of the
Board of Directors received $1,000 in cash compensation for
his services as a director. Each inside director (i.e.,
directors who are also employees) received $500 in cash
compensation. There is no standard agreement pursuant to
which the directors are compensated for their services.
EXECUTIVE OFFICERS
The following table sets forth the compensation paid or
awarded by the Company to the Company's Chief Executive
Officer and all of the Company's other executive officers
who are considered "highly compensated" under regulations
promulgated by the Securities and Exchange Commission, for
each of the fiscal years ended September 30, 1995, 1994, and
1993:
SUMMARY COMPENSATION TABLES
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
OTHER
FISCAL ANNUAL
NAME AND PRINCIPAL YEAR COMPEN-
POSITION ENDED BONUS SATION
9/30 SALARY ($) ($) ($)
<S> <C> <C> <C> <C>
Dale H. Ballard, 1995 200,500 35,000 (4)
CEO 1994 200,500 0 (4)
1993 183,333 60,000 (4)
Harold R. "Butch" 1995 105,000 20,000 (4)
Wolcott, Executive 1994 95,000 10,000 (4)
Vice President 1993 74,538 0 (4)
Bradford D. Bell, 1995 95,000 10,000 (4)
Vice President for 1994 65,000 8,000 (4)
Sales and Marketing 1993 65,000 8,000 (4)
(1)
Kent W. Cherrey, 1995 95,000 10,000 (4)
Vice President for 1994 85,000 10,000 (4)
Strategic Accounts 1993 85,000 10,000 (4)
Paul W. Hess 1995 130,500 8,000 (4)
General Counsel 1994 130,500 0 (4)
(3) 1993 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION (5)
ALL OTHER
SECURITIES COMPEN-
FISCAL UNDERLYING SATION
NAME AND PRINCIPAL YEAR ENDED OPTIONS ($)(8)
POSITION 9/30 GRANTED (#)
<S> <C> <C> <C>
Dale H. Ballard, 1995 (6) N/A (9) 0
CEO 1994 (6) N/A (9) 0
1993 (6) N/A (9) 0
Harold R. ("Butch") 1995 20,000 3,150
Wolcott, Executive 1994 29,000 0
Vice President 1993 (7) 26,667 0
Bradford D. Bell, 1995 15,000 2,850
Vice President for 1994 23,000 0
Sales and Marketing (1) 1993 (7) 13,333 0
Kent W. Cherrey, 1995 10,000 2,875
Vice President for 1994 24,500 2,533
Strategic Accounts (2) 1993 (7) 21,000 2,191
Paul W. Hess, 1995 7,000 3,900
General Counsel (3) 1994 18,000 0
1993 30,000 N/A
</TABLE>
(1) Mr. Bell first became an officer in August, 1994.
(2) Mr. Cherrey first became an officer in April, 1995. He
resigned as an officer and employee on or about October
24, 1995.
(3) Mr. Hess joined the Company in August, 1993. He first
became an officer in October, 1993.
(4) The personal benefits and perquisites received by the
named executives were less than the reporting
thresholds established by the Securities and Exchange
Commission (the lesser of $50,000 or 10% of the
individual's cash compensation).
(5) The Company does not have benefit plans involving
Restricted Stock Awards, Stock Appreciation Rights
(SARs), or Long-Term Incentive Plans (LTIPs)
(6) No options have ever been granted to Mr. Ballard under
any of the Company's Incentive Stock Option Plans.
(7) Adjusted to reflect a stock split which occurred after
the date of grant.
(8) These figures represent the Company's contributions to
its 401(k) retirement plan for the benefit of the named
executives. None of the named executives who received
a Company contribution in the years shown are 100%
vested in their respective plan account balances.
Messrs. Wolcott and Bell are 20% vested, Mr. Cherrey is
100% vested, and Mr. Hess is 0% vested.
(9) During the past three fiscal years, Mr. Ballard has not
participated in the Company's 401(k) plan.
OPTION GRANTS IN FISCAL YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
INDIVIDUAL
GRANTS
Number of
Securities POTENTIAL
Underlying REALIZABLE VALUE
Options AT ASSUMED ANNUAL
Granted (#) RATES OF STOCK
and % of Total PRICE
Options APPRECIATION FOR
Granted to Exercise Option OPTION TERM (1)
Employees in Price Expiration
Name Fiscal Year ($/SH) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C>
Dale H.
Ballard N/A N/A N/A N/A N/A
Harold R.
("Butch") 20,000
Wolcott 2.7% 10.75 5/15/2002 87,600 204,000
Bradford D. 15,000
Bell 2.0% 10.75 5/15/2002 65,700 153,000
Kent W. 10,000
Cherrey 1.4% 10.75 5/15/2002 43,800 102,000
Paul W. 7,000
Hess .9% 10.75 5/15/2002 30,660 75,250
</TABLE>
(1) We recommend caution in interpreting the financial
significance of these "potential realized value"
figures. They are calculated by multiplying the number
of options granted by the difference between a future
hypothetical stock price and the option exercise price
and are shown pursuant to rules of the Securities and
Exchange Commission. They assume the value of Company
stock appreciates 5% to 10% each year, respectively,
compounded annually, for seven years (the life of each
option). They are not intended to forecast possible
future appreciation, if any, of such stock price or to
establish a present value of options. Also, if
appreciation does occur at the 5% or 10% per year rate,
the amounts shown would not be realized by the
recipients until the year 2002. Depending on inflation
rates, these amounts may be worth significantly less in
2002 in real terms, than their value today. The
Company has not used an alternative formula for
valuation since the Company is not aware of any formula
which will determine with reasonable accuracy a present
value of options based on future unknown or volatile
factors. The realized values shown are before the
payment of federal or state income taxes.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR
ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Number of
Shares Securities Value of
Acquired Underlying Unexercised
on Value Unexercised In-the-Money
Exercise Received Options at Year Options at
Name (#) ($) End (#) Year End ($) (1)
Exer- Unexer- Exer- Unexer-
cisable cisable cisable cisable
<S> <C> <C> <C> <C> <C> <C>
Dale H.
Ballard N/A N/A N/A N/A N/A N/A
Harold R.
("Butch")
Wolcott 0 N/A 55,667 20,000 413,544 112,500
Bradford
D. Bell 0 N/A 36,333 15,000 267,831 84,375
Kent W.
Cherrey 0 N/A 77,000 10,000 735,033 56,250
Paul W.
Hess 0 N/A 48,000 7,000 365,125 39,375
</TABLE>
(1) The fair market value of the Company's common stock on
September 30, 1995 (16 3/8 per share) minus the
exercise price.
STOCK PERFORMANCE GRAPH
The following graph shows the yearly percentage change
in cumulative total shareholder return on the Company's
Common Stock during the preceding five fiscal years ended
September 30, 1995, compared with the Standard & Poor's 500
Stock Index and the published Standard & Poor's Medical
Products and Supplies Industry Index. The comparison
assumes $100 were invested on September 30, 1990 in the
Company's Common Stock, and in each of the foregoing indices
the comparison assumes reinvestment of dividends.
WRITTEN DESCRIPTION OF THE STOCK PERFORMANCE GRAPH
FOR EDGAR FILING.
The graph line of each of these three securities is
described below:
BALLARD MEDICAL PRODUCTS. The graph shows that $100
invested in Ballard Medical Products Common Stock on
September 30, 1990 would be worth the following values on
the respective dates shown:
September 30, 1991 277
September 30, 1992 373
September 30, 1993 295
September 30, 1994 182
September 30, 1995 291
S&P 500. The graph shows that $100 invested in the S&P
500 Index on September 30, 1990 would be worth the following
values on the respective dates shown:
September 30, 1991 131
September 30, 1992 146
September 30, 1993 165
September 30, 1994 171
September 30, 1995 221
S&P MEDICAL PRODUCTS AND SUPPLIES. The graph shows
that $100 invested in the S&P Medical Products and Supplies
Index would be worth the following values on the respective
dates shown:
September 30, 1991 157
September 30, 1992 153
September 30, 1993 116
September 30, 1994 148
September 30, 1995 239
SUMMARY OF STOCK OPTION PLANS
GENERAL
The Company has nine open incentive stock option plans,
identified in the table below:
NAME OF PLAN MONTH OF APPROVAL OF PLAN
BY SHAREHOLDERS
1984 Plan January, 1985
1987 Plan January, 1988
1988 Plan January, 1989
1990 Plan January, 1990
1991 Plan January, 1992
1992 Plan January, 1993
1993 Plan January, 1994
1994 Plan January, 1995
1995 Plan Not yet approved
(All of the above-named incentive stock option plans are
sometimes referred to herein collectively as the "Plans".)
The purpose of each of the Plans is to attract and
retain qualified personnel for positions of responsibility
in the Company by providing additional compensation
incentives, thereby promoting the success of the Company.
Options granted under each of the Plans are intended to
qualify as incentive stock options under Section 422 of the
Internal Revenue Code (the "Code").
ADMINISTRATION
All of the Plans are administered by two Stock Option
Committees, by delegation of authority from the Board of
Directors. SEE "Compensation Committee Interlocks and
Insider Participation, Stock Option Committee."
The interpretation and construction of any provision of
the Plans is within the sole discretion of the applicable
Committee or the Board of Directors, whose determination is
final and conclusive. Members of each Committee are elected
by a majority vote of the Board, including the votes of the
directors thus elected to serve on the Committee. Committee
members hold office until the next regular meeting of the
Board and until their successors are elected and qualified.
Committee members may be removed at any time by a majority
vote of the Board, including the vote of the director whose
removal as a Committee member is sought.
ELIGIBILITY
Each of the Plans provides that options may be granted
to all employees of the Company and all employees of the
Company's subsidiaries. Under all of the Plans except the
1991 Plan, the 1992 Plan, the 1993 Plan, the 1994 Plan, and
the 1995 Plan, no further options are available for grant.
Under the Plans, the applicable Committee selects the
optionees and determines the number of shares to be subject
to each option. None of the Plans provide for a maximum or
minimum number of shares which may be granted under option
to any one employee.
TERMS OF OPTIONS
Each option granted under the Plans may extend for a period
of up to ten (10) years from the date the option is granted,
must be evidenced by a stock option agreement between the
Company and the employee to whom such option is granted, and
is subject to the following additional terms and conditions:
(a) CONTINUED EMPLOYMENT. An option granted may
not be exercised, in whole or in part, unless the optionee
continues to serve as an employee of the Company for at
least one full year after the effective date of the option
grant. The 1991, 1992, 1993, 1994 and 1995 Plans provide
that the President of the Company, in his discretion, may
extend this continued employment period from one year to up
to three years. The intervening death of the optionee
before the end of such vesting period removes any continued
employment condition. In addition, the continued employment
condition is removed upon the occurrence of a merger or
other business combination pursuant to which the Company is
acquired by or merged into another corporation.
(b) EXERCISE OF THE OPTION. Under all of the
Plans, payment for shares issued upon exercise of an option
may consist of cash or the exchange of other shares of the
Company's stock which have been held for more than one year
by the optionee. Under the 1984 Plan, no option granted
prior to January 1, 1987 may be exercised while there is
outstanding any previously granted incentive stock option.
(c) OPTION PRICE. The option exercise price of
options granted under the Plans is the fair market value of
the Company's Common Stock on the date of grant. However,
in the case of options granted to an optionee who owns more
than 10% of the voting power or value of all classes of
stock of the Company, the exercise price must not be less
than 110% of the fair market value on the date of grant.
For so long as the Company's stock is included in the New
York Stock Exchange, the Board of Directors or Stock Option
Committee will use the reported closing price on the last
trading day preceding the grant of the option, as the fair
market value for purposes of setting option prices.
(d) TERMINATION OF EMPLOYMENT. Each of the Plans
provides that if the optionee's employment by the Company is
terminated for any reason (other than permanent disability)
the option shall thereupon expire and any and all right to
purchase shares pursuant thereto shall terminate three
months after the optionee's employment terminates. However,
if the optionee is not vested in his or her options, the
optionee's options expire immediately upon termination of
his or her employment. If an optionee becomes permanently
disabled, the option may be exercised at any time within one
year after termination of employment by reason of
disability, so long as the optionee has been an employee of
the Company for at least the vesting period specified (one
year minimum) in the stock option agreement entered into by
the Company and the optionee.
(e) TRANSFER OF OPTIONS. Options granted under
any of the Plans are not transferable by an optionee other
than by will or the laws of descent and distribution and are
exercisable, during the optionee's lifetime, only by the
optionee.
(f) TERMINATION OF OPTIONS. No option is
exercisable by any person after ten (10) years from the date
the option was granted (five (5) years if the optionee owns
more than 10% of the voting power or value of all classes of
stock of the Company). The President of the Company has
discretion to shorten this period in stock option agreements
entered into by the Company with employees.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split, is made
in the Company's capitalization, which results in an
exchange of Common Stock for a greater or fewer number of
shares, appropriate adjustment is to be made under each of
the Plans in the option price and in the number of shares
subject to the option. In the event of a stock dividend,
each optionee is entitled to receive, upon exercise of the
option, the equivalent of any stock dividend which the
optionee would have received had the optionee been the
holder of record of the shares purchased upon such exercise.
OPTION SUMMARY
The following table sets forth certain information
related to the Plans and options granted thereunder, as of
September 30, 1995:
OPTION PLAN SHARE SUMMARY (1)
<TABLE>
<CAPTION>
TOTAL SHARES
SHARES STILL
RESERVED OPTIONS OPTIONS AVAILABLE
PLAN UNDER PLAN GRANTED OUTSTANDING FOR GRANT
<S> <C> <C> <C> <C>
1984 Plan 900,004 900,004 5,998 0
1987 Plan 750,112 750,112 103,969 0
1988 Plan 750,018 750,018 168,404 0
1990 Plan 1,125,021 1,125,021 550,807 0
1991 Plan 750,000 747,168 586,202 2,832
1992 Plan 200,000 198,833 194,500 1,167
1993 Plan 600,000 577,500 551,000 22,500
1994 Plan 600,000 528,426 518,810 71,574
1995 Plan 700,000 654,500 654,500 47,500
TOTALS 6,375,155 6,231,582 3,450,400 145,573
</TABLE>
(1) Appropriate adjustments have been made to reflect stock
splits which have occurred since the adoption of the
1984 Plan to the present.
MEETINGS AND COMMITTEES OF THE BOARD
BOARD OF DIRECTORS
The Board of Directors met January 23, 1995, at the
regular meeting of the Board of Directors, immediately
following the January 23, 1995 Annual Meeting of
Shareholders, with all members of the Board of Directors in
attendance. Special meetings of the Board were held on July
17, 1995 and September 9, 1995. All members of the Board
participated in said meetings either in person or by
conference telephone. All other Board of Directors action
taken during the 1995 fiscal year was conducted by eight
unanimous directors consent resolutions, approved and
executed by all of the directors.
STOCK OPTION COMMITTEE A
The Company has a standing Stock Option Committee A
whose function is to administer and grant options to
employees other than officers and directors under all of the
Company's incentive stock option plans. The Committee is
comprised of two members of the Board, currently Dale H.
Ballard and E. Martin Chamberlain. Three meetings were held
by Committee A during the 1995 fiscal year (with both
members present). The remaining actions of Committee A were
effected in sixteen Committee A consent resolutions,
approved and executed by both members of the Committee.
STOCK OPTION COMMITTEE B
The Company has a standing Stock Option Committee B
whose function is to administer and grant options to
employees who are also officers and directors under all of
the Company's incentive stock option plans. Committee B is
comprised of two members of the Board, currently Dale H.
Ballard and J. Dallas VanWagoner, M.D. All Committee B
action taken during the 1995 fiscal year was conducted in
one Committee B consent resolution, approved and executed by
both members of the Committee.
AUDIT COMMITTEE
The Company has a standing Audit Committee whose
functions are: (a) to conduct reviews of potential
conflict-of-interest situations as requested by the
President; (b) to select the Company's auditors; and (c) to
review the Company's annual report and other reports
prepared for the Company by the Company's auditors. The
Audit Committee is comprised of two members of the Board,
currently John I. Bloomberg and Robert V. Petersen. One
meeting (attended by both members) was held by the Audit
Committee during the 1995 fiscal year.
The Company has no standing compensation or nominating
committees of the Board of Directors.
PROXY CARD PROPOSALS
PROPOSAL NO. 1: ELECTION OF DIRECTORS
GENERAL
Directors are elected at each Annual Meeting of the
Shareholders and hold office until the next Annual Meeting
and until their successors are elected and qualified.
Currently, there are seven directors.
NOMINEES FOR ELECTION
The names of the nominees for election to the Board of
Directors, with respect to whom proxies are solicited
hereby, and each of their business backgrounds for at least
the last five years are set forth below:
<TABLE>
<CAPTION>
NAME, AGE AND DIRECTOR
POSITION WITH THE COMPANY SINCE PRINCIPAL OCCUPATION
<S> <C> <C>
Dale H. Ballard (72) 1978 President, Chief
President and Chairman Officer, and Chairman
of the Board of the Board
John I. Bloomberg (60) 1981 Managing General Partner,
Director private investment
companies (2)
J. Dallas VanWagoner (58) 1984 Practicing Physician,
Director Clinical Instructor with
the University of Utah
School of Medicine (3)
Robert V. Petersen (69) 1986 Professor Emeritus of
Director Pharmaceutics, University
of Utah (4)
E. Martin Chamberlain (55) 1988 Vice President of Regulatory
Director Affairs, Director of Quality
Assurance, and Secretary (5)
Dale H. Ballard, Jr. (48) 1993 President of Stratco, a
Director financial planning and
investment firm (6)
Paul W. Hess (41) 1994 General Counsel (7)
Director, General Counsel
</TABLE>
(1) Mr. Ballard has served as President, Chief
Executive Officer, and Chairman of the Board of Directors
since the formation of the Company in 1978. Mr. Ballard
holds a Bachelor of Science Degree in Pharmacy from the
University of Utah.
(2) From July, 1981 to the present, Mr. Bloomberg has
been a General Partner of J.I.B. Associates, Bricoleur
Partners, Olympic Growth Fund, and Utah Capital Corp.,
private investment companies. From 1963 to 1981, Mr.
Bloomberg's positions included Senior Drug Analyst at Kidder
Peabody (1963-1965), Associate Director of Research at
CBWL-Hayden Stone, now a part of Shearson/Lehman
(1965-1972), Director of Research and Senior Vice President
at Ladenberg, Thalmann & Co. (1972-1976), Security Analyst
at Alex Brown and Sons (1976-1979), and a Limited Partner
and Vice President of Bear Stearns & Co. (1979-1981). Mr.
Bloomberg graduated from Amherst College with a B.A. in
Chemistry and received an MBA in Business Administration
from Harvard Business School in 1962. Mr. Bloomberg is also
on the board of directors of Jabra Corporation of La Jolla,
California, a nonreporting company, and he is on the Board
of Directors of the John Moran Eye Center, University of
Utah.
(3) Dr. VanWagoner received his B.S.E.E. degree from
the University of Utah in 1961, and M.S.E.E. in 1964. He
graduated from St. Louis University School of Medicine in
1970. He is a board certified obstetrician and gynecologist
and a member of the American College of Obstetrics and
Gynecology. In addition to his private practice, Dr.
VanWagoner is a clinical instructor with the University of
Utah School of Medicine. Over the past twelve years, Dr.
VanWagoner has assisted companies in the health care
industry with numerous research projects.
(4) Dr. Petersen received a B.S. (Honors) in Pharmacy
from the University of Utah in 1950, and a Ph.D. in
Pharmaceutical Chemistry, with minors in Organic Chemistry
and Pharmacology, from the University of Minnesota in 1955.
Dr. Petersen has held various academic positions with the
University of Utah since 1957 and has been a Professor of
Pharmacy since 1967. He was Chairman of the Department of
Applied Pharmaceutical Sciences from 1965 to 1978 and
Chairman of the Department of Pharmaceutics from 1978 to
1982. He retired from the University of Utah July 1, 1992,
and now serves as a professor emeritus of pharmaceutics.
Dr. Petersen has acted as a consultant to various companies,
including Albion Laboratories (1964-1982), Deseret
Pharmaceutical Company, Inc. (1970-1989), Sorenco, Inc.
(1978-present), Kolmar Laboratories (1983-1987), Sorenson
Development (1983-1989, and 1993 - present), Pacific
Chemicals of Seoul, Korea (1989-91), and Ciba-Geigy
Corporation (1989-91). He served as a member of the board
of directors of the American Foundation for Pharmaceutical
Education from 1973 to 1975, since 1980 has served as a
member of the board of directors for the Drug Standards
Division of the United States Pharmacopeia - National
Formulary, and in 1990 was appointed to the board of
directors of the U.S.P. Committee of Revisions. Dr.
Petersen is past president of the American Association of
Colleges of Pharmacy and from 1972 to 1987 was the
University of Utah College of Pharmacy's liaison to the
board of trustees of the Utah Pharmaceutical Association.
(5) Dr. Chamberlain joined the Company in August,
1982, as a project manager. He received his B.S. degree in
Molecular and Genetic Biology in 1967, his Master of Arts
degree in Biological Science with a minor in Chemistry in
1969, and his Doctorate in Biology with Biochemistry as an
allied field in 1973. Between 1974 and 1981, he held a
faculty appointment with the University of Utah, working
with the Departments of Biology and the School of Medicine's
Department of Obstetrics and Gynecology, in biological and
medical research. Dr. Chamberlain became Vice President in
October, 1993 in addition to his appointment as Secretary of
the Company in 1983. In July, 1994 he became Vice President
of Regulatory Affairs. He has also served as Director of
Quality Assurance for the Company since 1986.
(6) Dale H. Ballard, Jr. is the son of Dale H.
Ballard, the Company's Chief Executive Officer. Dale
Ballard, Jr. graduated from Brigham Young University in
1970, with a Bachelor of Science Degree in Business
Management, with minors in Accounting and Economics. From
1972 until April, 1992, he owned and operated Ballard
Construction Company, a closely-held corporation engaged
principally in the business of road and asphalt
construction. From approximately 1977 to April, 1992, Mr.
Ballard also operated a property management business called
Empire Properties. Empire Properties was a wholly-owned
subsidiary of Ballard Construction Company. In April, 1992,
Mr. Ballard sold his construction and landscaping
businesses. Subsequently he formed a new financial planning
and investment company called Stratco.
(7) Paul W. Hess joined the Company as in-house
counsel in August, 1993. He had served as outside general
corporate counsel for the Company, through his former law
firm Strong & Hanni, since approximately 1985. In October,
1993, Mr. Hess was elected and appointed by the Board of
Directors as General Counsel. Mr. Hess worked as an
attorney for Strong & Hanni from 1981 until 1993. He
received his B.S. degree in Accounting from Brigham Young
University in 1978 and his Juris Doctorate degree from the
University of Utah College of Law in 1981. Mr. Hess is also
a Certified Public Accountant.
Should any of the nominees become unable or unwilling
to accept nomination or election, the persons named as
Proxies in the enclosed form of proxy will exercise their
voting power in favor of such person or persons as the Board
may recommend. All of the nominees have consented to being
named in this Proxy Statement and to serve if elected.
APPROVAL
If you return a proxy, but give no direction on this
Proposal No. 1, your proxy will be voted "for" all seven
nominees named above. The election of each director
requires the affirmative vote of a majority of the shares
represented at the Annual Meeting in person or by proxy.
PROPOSAL NO. 2: PROPOSAL TO APPROVE THE 1995 INCENTIVE
STOCK OPTION PLAN.
GENERAL
On or about May 12, 1995, by unanimous consent
resolution, the Board of Directors of the Company adopted
the 1995 Incentive Stock Option Plan (the "1995 Plan"),
reserving 700,000 shares of Common Stock for issuance to
employees. At the closing price on the Record Date of the
Company's stock, said 700,000 shares would have a value of
$12,075,000.
The purpose of the 1995 Plan is to attract and retain
the best available personnel for positions of responsibility
in the Company by providing additional compensation
incentives, thereby promoting the success of the Company.
Management feels that it is very important, for the
Company's continuing growth and success, that options
continue to be a significant portion of salaried employee
compensation.
The Company is seeking shareholder approval of the
1995 Plan, not because shareholder approval is required
under state or federal law, but in order to qualify options
granted under the 1995 Plan as incentive stock options under
Section 422 of the Internal Revenue Code (the "Code"), and
in order to qualify transactions under the Plan as exempt
transactions under Section 16(b) of the Securities Exchange
Act of 1934 (the "Exchange Act"), pursuant to Rule 16b-3
promulgated by the Securities and Exchange Commission. As
of September 30, 1995, 652,500 options had been granted
under the 1995 Plan.
ADMINISTRATION
The 1995 Plan is administered by two Stock Option
Committees, by delegation of authority from the Board of
Directors of the Company. Committee A is authorized to
grant options only to employees who are not also officers or
directors of the Company. Committee B is authorized to
grant options only to employees who are also officers or
directors of the Company.
Committee A is currently comprised of Dale H. Ballard
(the President of the Company) and E. Martin Chamberlain
(the Vice President and Secretary of the Company).
Committee B is currently comprised of Dale H. Ballard and J.
Dallas VanWagoner, M.D. All members of the Stock Option
Committees sit on the Company's Board of Directors.
All members of Committee B are "disinterested
persons", within the meaning of Rule 16b-3(c)(2)(i). A
"disinterested person" is a director who is not, during the
one year prior to service as an administrator of the Plan,
or during such service, granted or awarded options pursuant
to the Plan or any other incentive stock option plan of the
Company.
The interpretation and construction of any provision
of the Plan are within the sole discretion of the applicable
Committee or the Board of Directors, whose determinations
are final and conclusive. Members of each Committee are
elected by a majority vote of the Board, including the votes
of the directors thus elected to serve on the Committee.
Committee members hold office until the next regular meeting
of the Board and until their successors are elected and
qualified. Committee members may be removed at any time by
a majority vote of the Board, including the vote of the
director whose removal as a Committee member is sought.
ELIGIBILITY
The 1995 Plan provides that options may be granted to
any employees (including officers, whether or not they are
directors) of the Company and any of its subsidiaries. As
of September 30, 1995, the Company and its subsidiaries had
872 employees. Directors who are not employees are not
eligible to participate in the 1995 Plan, but Directors who
are also employees may participate in the 1995 Plan.
Committee A selects the optionees and determines the number
of shares to be subject to each option, except in the case
of officers and directors in which case Committee B makes
such selections and decisions. The 1995 Plan does not
provide for a maximum or minimum number of shares which may
be granted under option to any one employee.
TERMS OF OPTIONS
Each option granted under the 1995 Plan may extend for
a period of up to ten years (or only five years for an
optionee who immediately before the grant of the option,
owns more than 10% of the Company's stock) from the date the
option is granted, must be evidenced by a stock option
agreement between the Company and the employee to whom such
option is granted, and is subject to the following
additional terms and conditions:
(a) CONTINUED EMPLOYMENT. An option granted may not
be exercised, in whole or in part, unless the optionee
continues to serve as an employee of the Company for at
least one full year after the effective date of the option
grant. The President of the Company, in his discretion, may
extend this vesting period from one year to up to three
years. The intervening death of the optionee before the end
of such vesting period removes this continued employment
condition. In addition, the continued employment condition
is removed upon the occurrence of a merger or other business
combination pursuant to which the Company is acquired by or
merged into another corporation.
(b) EXERCISE OF THE OPTION. Payment for shares
issued upon exercise of an option may consist of cash or the
exchange of other shares of the Company's stock owned by the
optionee. The option price of options granted under the
1995 Plan is the fair market value of the Company's Common
Stock on the date of grant as determined by the applicable
Committee. However, in the case of options granted to an
optionee who owns more than 10% of the stock of the Company,
the exercise price must not be less than 110% of the fair
market value on the date of grant. For so long as the
Company's stock is listed on the New York Stock Exchange,
the Committee will use the reported closing price for the
stock on the last trading day preceding the grant of the
option as the fair market value, for purposes of
establishing option prices.
(c) TERMINATION OF EMPLOYMENT. The 1995 Plan
provides that if the optionee's employment by the Company is
terminated for any reason, other than disability, the option
shall thereupon expire and any and all right to purchase
shares pursuant thereto shall terminate three months after
the optionee's employment terminates. However, if the
optionee is not vested in his or her options, the optionee's
options expire immediately upon termination of his or her
employment. If an optionee becomes permanently disabled,
the option may be exercised at any time within twelve (12)
months after termination of employment by reason of
disability, so long as the optionee has been an employee of
the Company for at least the vesting period specified (one
year minimum) in the stock option agreement entered into by
the Company and the optionee.
(d) TRANSFER OF OPTIONS. Options granted under the
1995 Plan are not transferable by an optionee other than by
will or the laws of descent and distribution and are
exercisable, during the optionee's lifetime, only by the
optionee or by the optionee's guardian or legal
representative.
(e) TERMINATION OF OPTIONS. No option is exercisable
by any person after ten (10) years from the date the option
was granted, or five (5) years if the optionee owns more
than 10% of the voting power or value of the stock of the
Company. The President of the Company has discretion to
shorten this period in stock option agreements entered into
by the Company with employees.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split, is
made in the Company's capitalization which results in an
exchange of Common Stock for a greater or fewer number of
shares, appropriate adjustments are to be made in the option
price and in the number of shares subject to the option. In
the event of a stock dividend, each optionee is entitled to
receive, upon exercise of the option, the equivalent of any
stock dividend which the optionee would have received had
the optionee been the holder of record of the shares
purchased upon such exercise. Appropriate adjustments are
also to be made to the number of shares subject to the Plan
and the number and option price of shares subject to
outstanding options in the event the Company effects a
reorganization, merger, or recapitalization.
AMENDMENT AND TERMINATION
The Board of Directors may amend the 1995 Plan at any
time or from time to time, as necessary to comply with state
and federal laws or for the good of the Company or the
employees affected by the 1995 Plan.
BENEFITS TO EXECUTIVES
The number of options to be granted in the future to
executive officers and other employees under the 1995 Plan
is not yet determinable. The granting of options is
discretionary and not subject to any formula. However, non-
employee Directors are not eligible to receive options, and
the Stock Option Committees do not intend to grant any
options to the Company's current CEO, Dale H. Ballard.
The following table summarizes options already granted
under the 1995 Plan, as of the Record Date:
1995 PLAN OPTIONS GRANTED AS OF NOVEMBER 21, 1995
NAME AND POSITION OPTIONS GRANTED (#)(1)
Dale H. Ballard, CEO N/A
Harold R. ("Butch")
Wolcott, Executive 20,000
Vice President
Bradford D. Bell, 15,000
Vice President of
Sales and Marketing
Paul W. Hess,
General Counsel 7,000
All current executive officers as a group 52,000
All employees as a group 642,500
(1) All 642,500 options were granted effective May 15,
1995, at an exercise price of $10.75 per share. Thus,
the dollar value of such options fluctuates with the
market price of the Company's stock. None of such
options are exercisable earlier than May 14, 1996.
FEDERAL INCOME TAX CONSEQUENCES
Options granted pursuant to the 1995 Plan are intended
to qualify as "incentive stock options" under Section 422 of
the Internal Revenue Code (the "Code"). If an option
granted under the 1995 Plan is treated as an incentive stock
option, the optionee recognizes no taxable income upon the
granting of the option, nor does the Company get an income
tax deduction. Also, the optionee recognizes no taxable
income upon exercise of the incentive stock option.
However, the excess of the fair market value of shares
purchased pursuant to the exercise of an incentive stock
option over the exercise price is an item of tax preference
for purposes of computing the alternative minimum tax.
Subsequently, when such shares are sold, in determining the
amount of gain or loss to be recognized for purposes of
computing alternative minimum taxable income, the basis of
such shares is increased by the amount of such excess which
constituted an item of tax preference.
Upon the sale of the shares (assuming that the sale
occurs no sooner than two years after grant of the option
and one year after receipt of the shares by the optionee)
any gain will qualify as a long-term capital gain. If these
holding periods are not satisfied, the option will not
qualify as an incentive stock option, and the optionee will
recognize ordinary income at the time of disposition of the
shares, equal to the difference between the basis and the
lower of the fair market value of the stock at the date of
the option exercise or the selling price of the stock, and
the Company will get a corresponding income tax deduction.
To the extent that the aggregate fair market value of
stock with respect to which incentive stock options are
exercisable for the first time by any optionee during any
calendar year (under all of the Company's incentive stock
option plans) exceeds $100,000, such options are treated as
options which are not qualified as incentive stock options.
SECTION 16(b) EXEMPTION
Section 16(b) of the Exchange Act states that any
profit realized by insiders from the purchase and sale (or
sale and purchase) of any registered equity security (other
than an exempted security or exempted transaction) of an
issuer within a six-month period is subject to disgorgement,
i.e., the profiting insider can be required to disgorge or
pay his or her profit to the issuer. A transaction by an
officer or director pursuant to an employee benefit plan is
exempt from this "short-swing profit" liability if the plan
and the transaction meet the conditions of Rule 16b-3. One
of the conditions of Rule 16b-3 is that the plan be approved
by the issuer's shareholders. The Company desires to
qualify the 1995 Plan (as all other Plans have been
qualified) under Rule 16b-3.
APPROVAL
Shareholder approval of the 1995 Plan requires the
affirmative vote of a majority of the shares represented in
person or by proxy at the Annual Meeting. If the
shareholders do not approve the 1995 Plan, the 1995 Plan and
options granted thereunder will be void. If you return a
proxy but give no direction on Proposal No. 2, your proxy
will be voted "for" this Proposal.
PROPOSAL NO. 3: PROPOSAL TO APPROVE DELOITTE & TOUCHE
LLP AS THE INDEPENDENT AUDITORS OF THE
COMPANY
The Board of Directors of the Company, through its
standing Audit Committee, has selected Deloitte & Touche LLP
as the independent auditors of the Company for the fiscal
year ending September 30, 1996. The firm (and its
predecessor) has served the Company as auditors for the
fiscal years ended September 30, 1982 through 1995.
Shareholder approval of this selection requires the
affirmative vote of a majority of the shares represented in
person or by proxy at the Annual Meeting. If you return a
proxy but give no direction on Proposal No. 3, your proxy
will be voted "for" this Proposal.
Representatives of Deloitte & Touche LLP are expected
to attend the Annual Meeting of Shareholders and will be
available to respond to appropriate questions and will be
afforded the opportunity to make a statement if they desire
to do so.
OTHER MATTERS
The Board of Directors knows of no matters to come
before the shareholders' meeting other than as specified
herein. If other business should, however, properly come
before such meeting, the persons voting the proxies will
vote them in accordance with their best judgment.
PROPOSALS FROM SHAREHOLDERS
Shareholder proposals submitted for consideration at
the Company's 1997 Annual Meeting of Shareholders must be
received by the Company not later than August 16, 1996, in
order to be included in the proxy materials for the 1997
Annual Meeting.
ALL SHAREHOLDERS ARE URGED TO COMPLETE, SIGN, AND
RETURN PROMPTLY THE ACCOMPANYING PROXY CARD IN THE ENCLOSED
ENVELOPE.
By the Order of the Board of Directors
E. Martin Chamberlain
Secretary
Telephone No. (801) 572-6800
Telefax No. (801) 572-6869
Draper, Utah
December 8, 1995
APPENDIX
OMITTED MATERIAL
The required Stock Performance Graph has been omitted
in the EDGAR filing of this Proxy Statement and has been
replaced with a written description.
BALLARD MEDICAL PRODUCTS
12050 Lone Peak Parkway
Draper, Utah 84020
Telephone No. (801) 572-6800
Telefax No. (801) 572-6869
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 22, 1996
To the Shareholders of Ballard Medical Products:
NOTICE IS HEREBY GIVEN that the Annual Meeting of
Shareholders of Ballard Medical Products will be held at the
Company's executive offices, 12050 Lone Peak Parkway,
Draper, Utah 84020, on Monday, January 22, 1996, at 11:00
a.m. Mountain Standard Time, for the following purposes, all
of which are more fully set forth in the accompanying Proxy
Statement:
1. To elect seven (7) Directors of the Company to
serve until the next Annual Meeting of
Shareholders and until their successors have been
duly elected and qualified.
2. To approve the 1995 Incentive Stock Option Plan.
3. To approve Deloitte & Touche LLP as the
independent auditors of the Company.
4. To transact such other business as may properly
come before the Company or any adjournment
thereof.
Said meeting may be adjourned from time to time
without notice other than an announcement at said meeting or
at any adjournment thereof, and any and all business for
which said meeting is hereby noticed may be transacted by
any such adjournment.
Shareholders of record at the close of business
November 21, 1995 are entitled to notice of and to vote at
the meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
E. Martin Chamberlain
Secretary
Draper, Utah
December 8, 1995
IMPORTANT
You can help avoid the necessity and expense of sending
follow-up letters to ensure a quorum by promptly returning
the enclosed Proxy. Please complete, sign and return your
Proxy in the envelope provided. Such action will not
prevent you from voting in person at the meeting.
PROXY
BALLARD MEDICAL PRODUCTS
12050 Lone Peak Parkway
Draper, Utah 84020
Telephone (801) 572-6800
Telefax (801) 572-6869
ANNUAL MEETING OF SHAREHOLDERS
January 22, 1996
This Proxy is solicited on behalf of the Board of
Directors.
The undersigned, revoking any proxy heretofore given,
hereby appoints Dale H. Ballard and E. Martin Chamberlain,
and each of them, acting alone or together, Proxies, each
with power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, for the
undersigned, all the shares of common stock of BALLARD
MEDICAL PRODUCTS held of record by the undersigned on
November 21, 1995, at the Company's Annual Meeting of
Stockholders to be held on January 22, 1996, at 11:00 a.m.,
Mountain Standard Time, and at all adjournments thereof. In
their discretion, the Proxies are further authorized to vote
upon such other business as may properly come before the
Annual Meeting, and matters incident to the conduct of the
meeting.
PLEASE MARK BOXES [ ] OR [X] IN BLUE OR BLACK INK.
1. ELECTION OF DIRECTORS: [ ] FOR all nominees listed
below (except as marked
to the contrary below).
[ ] WITHHOLD AUTHORITY to
vote for all nominees
listed below
NOMINEES: Dale H. Ballard, John I. Bloomberg,
J. Dallas Van Wagoner,
Robert V. Petersen,
E. Martin Chamberlain,
Dale H. Ballard, Jr.,
and Paul W. Hess
INSTRUCTION: To withhold authority to vote for any
individual nominee, write that nominee's
name on the space provided:
2. PROPOSAL TO APPROVE 1995 INCENTIVE STOCK OPTION PLAN:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO APPROVE DELOITTE & TOUCHE LLP AS THE
INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S).
THE PROXY WILL BE VOTED "FOR" EACH PROPOSAL FOR WHICH NO
DIRECTION IS MADE.
Please sign exactly as name appears to the left. When
shares are held by joint tenants, both should sign. When
signing as attorney, executor, personal representative,
administrator, trustee, or guardian, please give full title
as such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized
person.
Please complete, sign and mail this proxy promptly in
the enclosed addressed envelope which requires no postage if
mailed in the United States.
Date
Signature
Signature if held jointly
BALLARD MEDICAL PRODUCTS
1995 INCENTIVE STOCK OPTION PLAN
Adopted effective May 12, 1995
1. GRANT OF OPTIONS. The two stock Option
Committees, appointed by the Board of Directors of BALLARD
MEDICAL PRODUCTS (the "Company"), 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 Company's behalf to any one
or more persons who, at the date of such grant, are
employees of the Company or a subsidiary of the Company and
meet the requirements contained in the remaining portions of
this 1995 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 Company. 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 700,000 shares of
the Company's Common Stock (the "Stock"), said number to be
automatically increased or decreased, as the case may be, by
any increase or decrease in the number of shares of Stock
outstanding because of any:
(a) change in par value;
(b) split up, or reverse split;
(c) reclassification, or
(d) distribution of a dividend payable in stock.
3. ELIGIBLE EMPLOYEES. This Plan is available, at
the discretion of the Stock Option Committees, to all
employees of the Company and all employees of the Company'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
Company, 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), promulgated
under the Securities Exchange Act of 1934.
6. NONTRANSFERABILITY. All options granted under
this Plan shall be nontransferable by the optionee, other
than by will or the laws of descent and distribution upon
death, and shall be exercisable during the optionee's
lifetime only by the optionee or by the optionee's guardian
or legal representative.
7. CONTINUED EMPLOYMENT REQUIREMENT. 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 other
provisions of this Plan. No option granted under this Plan
may be exercised in whole or in part unless the optionee
continues to be an employee of the Company or a subsidiary
for a period of at least one (1) year following the date
such option is granted. In his discretion, the President of
the Company may extend this one-year continued employment
period up to three years. However, the occurrence of either
of the following events will cause all of an optionee's
options to become immediately and fully exercisable,
notwithstanding the above requirement:
(a) The death of the optionee; or
(b) The occurrence of a Business Combination
which is not approved by a two-thirds vote of the Continuing
Directors.
For purposes of this paragraph, the following
definitions apply:
(c) "Acquiring Person" shall mean any individual,
corporation (other than this corporation or any of its
subsidiaries), partnership, other person or entity which,
together with its affiliates and associates (as defined in
the Exchange Act or the rules and regulations promulgated
thereunder), and together with any other individual,
corporation (other than the Company or any of its
subsidiaries), partnership, person or entity with which it
or they have any agreement, arrangement, or understanding
with respect to acquiring, holding, voting, or disposing of
the Company's stock, beneficially owns (within the meaning
of the Exchange Act or the rules and regulations promulgated
thereunder) in the aggregate 10% or more of the outstanding
Voting Stock of the Company. "Acquiring Person" shall also
include any assignee of, or person or entity which has
succeeded to any shares of the Company's stock which were at
any time prior to the date of assignment or succession
beneficially owned by, a 10% Voting Stock owner, or an
affiliate or associate of a 10% Voting Stock owner, if such
assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a
public offering within the meaning of the Securities Act of
1933, as amended. A person or entity, its affiliates and
associates, assignees and successors, and all such other
persons or entities with whom they have any such agreement,
arrangement, or understanding shall be deemed a single
Acquiring Person for purposes of this paragraph. Also for
purposes of this paragraph, the Continuing Directors shall
by majority vote have the power to determine, on the basis
of information known to the Board, if and when there is an
Acquiring Person. Any such determination shall be
conclusive and binding for all purposes of this paragraph,
provided such determination is reasonable and made in
accordance with applicable law.
(d) "Business Combination" shall mean:
(i) any merger, consolidation, or share
exchange of the Company or a subsidiary of the Company with
or into an Acquiring Person;
(ii) any purchase for cash and/or securities
by an Acquiring Person of 20% or more of the Company's
outstanding shares of Voting Stock (including the
purchase(s) which cause(s) the purchaser to become an
Acquiring Person hereunder);
(iii) any sale, lease, exchange, transfer or
other disposition (including without limitation, a mortgage
or other security device) in a single transaction or related
series of transactions, of all or any Substantial Part (as
hereinafter defined) of the assets either of the Company
(including without limitation, any voting securities of a
subsidiary) or of a subsidiary of the Company to or with an
Acquiring Person;
(iv) any merger or consolidation of an
Acquiring Person with or into the Company or a subsidiary of
the Company;
(v) any sale, lease, exchange, transfer or
other disposition (including without limitation, a mortgage
or other security device) in a single transaction or related
series of transactions, of all or any Substantial Part of
the assets of an Acquiring Person to the Company or a
subsidiary of the Company;
(vi) the issuance or transfer of any
securities of the Company or a subsidiary of the Company to
an Acquiring Person;
(vii) the adoption of any plan or proposal for
the liquidation or dissolution of the Company proposed,
directly or indirectly, by or on behalf of, or pursuant to
any agreement, arrangement or understanding (whether or not
in writing) with an Acquiring Person;
(viii) any merger or consolidation of the
Company with a subsidiary of the Company proposed by or on
behalf of an Acquiring Person;
(ix) any reclassification of securities
(including without limitation, any stock split, stock
dividend, or other distribution of stock in respect of
stock, or any reverse stock split), or recapitalization of
the Company or any merger or consolidation of the Company
with any subsidiary of the Company, or any other transaction
(whether or not with or into, or otherwise involving the
Acquiring Person), proposed by, on behalf of, or pursuant to
any agreement, arrangement or understanding (whether or not
in writing) with the Acquiring Person or any affiliate or
associate of the Acquiring Person which has the effect,
directly or indirectly, of increasing the proportionate
share of the outstanding shares of stock of the Company or
any subsidiary of the Company which is directly or
indirectly owned by the Acquiring Person, except as a result
of immaterial fractional share adjustments;
(x) any agreement, contract, or other
arrangement providing for any of the transactions described
in this definition of Business Combination; and
(xi) any other transaction with an Acquiring
Person which requires the approval of the Company's
stockholders under the Utah Revised Business Company Act.
A person who is an Acquiring Person as of:
(xii) the time any definitive agreement
relating to a Business Combination is entered into;
(xiii) the record date for the determination of
stockholders entitled to notice of and to vote on a Business
Combination; or
(xiv) immediately prior to the consummation of
a Business Combination,
shall be an Acquiring Person for purposes of this
definition.
(e) "Continuing Director" shall mean any
director of the Company who was a director prior to the time
the Acquiring Person became such, and any other director
whose election or appointment as a director was recommended
or approved by a majority vote of the Continuing Directors.
A majority or two-thirds vote of the Continuing Directors
shall mean, respectively, a vote of the majority of the
Continuing Directors, a vote of or two-thirds of the
Continuing Directors, then in office, provided that at least
two Continuing Directors are then in office and participate
in such vote.
(f) "Exchange Act" shall mean the Securities
Exchange Act of 1934.
(g) "Substantial Part" shall mean an amount of
assets having an aggregate fair market value of at least
$500,000.
(h) "Voting Stock" shall mean Common Stock and
all other securities of the Company entitled to vote
generally for the election of directors.
8. OTHER RESTRICTIONS.
(a) 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 Company's Stock.
(b) 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 Company.
However, if the optionee ceases employment with the Company
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 Company or
subsidiary for at least the period specified in the Stock
Option Agreement entered into by the Company 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.
(c) 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.
9. 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
Company's capital 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 Company'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 Company'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.
10. PAYMENT OF PURCHASE PRICE WITH COMPANY 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 Company'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 Company'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.
11. 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, or reverse split;
(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 Company 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.
12. 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 Company,
its subsidiaries, or their employees.
13. 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.
14. 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.
15. STOCKHOLDER APPROVAL; EFFECTIVE DATE. This Plan
is subject to approval by the Shareholders of the Company
and will not remain in force unless approved by the
Shareholders within twelve (12) months after the date the
Plan is adopted.
16. STOCK RESERVE. The Company 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 Company will pay all fees
and expenses incurred by the Company 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.
17. 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).
18. 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 Company, 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 1995 Incentive Stock Option
Plan was duly and regularly adopted as such by the Board of
Directors of the Company by unanimous Consent Resolution
dated , 1995; that said Plan, as
adopted by the Board, was duly approved by a majority of
Shareholders of the Company at the Annual Meeting of
Shareholders held January 22, 1996; and that the
above 1995 Incentive Stock Option Plan is now in full force
and effect.
Dated this day of , 1995.
Secretary
(Corporate Seal)
EXHIBIT 13
BALLARD MEDICAL PRODUCTS
ANNUAL REPORT
1995
ABOUT THE COMPANY
Ballard Medical Products ("Ballard") is a manufacturer
and marketer of specialized, niche medical products. Our
strategy for maintaining the Company's growth continues to
incorporate four directives:
- Developing innovative products through internal
research and development and through acquisitions.
- Maintaining the highest quality possible on
products.
- Increasing sales through a superior sales force,
through strategic accounts, 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"). (As used in this report, the term "Company" refers
to Ballard Medical Products and its subsidiaries.)
The Company's headquarters and principal manufacturing
plant (276,000 square feet) are located in Draper, Utah.
MIC has manufacturing facilities in Milpitas, California and
Ventura, California.
Our products are sold in 32 countries, and the
customers purchasing our products include more than 11,578
hospitals and other medical care facilities worldwide. At
September 30, 1995, Ballard and its subsidiaries employed
over 872 people in 6 countries.
The Company's common stock is traded on the New York
Stock Exchange under the symbol BMP.
1995 IN REVIEW
Fiscal year 1995 was the best year in the Company's
history, so far. Our net sales for the year were
$81,762,142, compared to $65,062,801 for fiscal year 1994,
which represents a 25.7% increase for the year. Even more
impressive was our 38.2% growth in net income (before
cumulative effect of change in accounting principle), from
$14,777,145 in fiscal year 1994 to $20,415,191 in fiscal
year 1995. Earnings per share for the year were 73 cents,
up 33.7% over 54 cents for fiscal year 1994.
During fiscal year 1995, sales of MIC products
increased by 64.7% and international sales of all Company
products grew by 32.1%. We now have eight international
sales representatives and approximately 47 international
distributors and look to the international markets as an
important, exciting frontier for all of the Company's
products.
Acquisitions continue to be an important part of our
strategic plan. In May, 1995, we acquired (through MIC) the
assets and ongoing business of Cox Medical Enterprises, Inc.
("Cox"), a Ventura, California-based manufacturer of
disposable endoscopic devices, for $4 million. In the
Ventura, California facility, we now produce disposable
cleaning brushes, polypectomy snares, cytology brushes,
biopsy forceps, grasping forceps, retrieval baskets, and a
reposable accessory BASICS endoscopy system, all for use in
connection with the GI (gastroenterology tract) and
pulmonary endoscopy. See "New Products." The Cox product
line, in and of itself, was an excellent addition to the
Company's product families. Also, we are confident that
Cox's products will strengthen even further the Company's
position in the GI and pulmonary market, by enabling us to
offer a broader range of products to existing customers.
In July, 1995, Ballard signed an agreement with Neuro
Navigational Corporation ("NNC") to purchase preferred stock
representing 19.5 percent of NNC's capital stock and an
option to acquire all of the assets of NNC. The closing of
this purchase occurred November 14, 1995. The total
purchase price for the Stock was $2,000,000, and Ballard
paid $500,000 for the option. If the option is exercised,
the purchase price for the assets will be $9,500,000 (less
the $500,000 previously paid for the option) if the option
is exercised during the first 12 months, or two times net
sales of NNC (for the 12 full calendar months immediately
preceding the date of option exercise) if the option is
exercised during the remainder of the option term. The
option term runs from November 14, 1995 through November 13,
1997.
Located in Costa Mesa, California, NNC develops,
manufactures, and markets fiberoptics imaging technology and
disposable microtools designed for minimally invasive brain
surgery. NNC is also developing products for vascular
surgery. NNC's principal products are disposable micro-
endoscopes, designed to allow a surgeon to perform delicate
surgical procedures through small incisions rather than the
larger incisions associated with traditional brain surgery,
e.g., procedures such as: 1. the treatment of
hydrocephalus (water on the brain); 2. tumor removal and
biopsy; 3. cyst drainage; 4. hematoma evacuation; and 5.
aneurysm repair. These minimally invasive procedures offer
many advantages to patients, surgeons, hospitals, and health
care reimbursers, such as reduced trauma, faster recovery
for the patient, shorter operating time for the surgeon, and
reduced hospital stays and overall medical costs.
We believe that the endoscope expertise and fiberoptics
imaging technology of NNC will provide significant
opportunities for product improvement and expansion for
Ballard with our existing product lines. We also believe
that the purchase of shares in NNC is an investment in the
Company's future, diversifying our technology base, and
offering the potential for the Company to be a market leader
in the rapidly growing minimally invasive segment of
Neurosurgery and Vascular surgery. The purchase contract
provides that two nominees of Ballard will serve on the 5-
person Board of Directors of NNC throughout the option term.
During the option term, Ballard intends to monitor the
progress of NNC, in order to determine whether to exercise
its asset purchase option.
In October, 1995, the Company broke ground for an
additional manufacturing facility (approximately 104,000
square feet) to be located in the Idaho State University
Business and Research Park in Pocatello, Idaho. The plant
will be located on a 20-acre parcel of land granted to the
Company at no charge. The total cost of development and
construction of the Pocatello facility is estimated at $6.8
million. The weather in Pocatello this fall has been very
mild, and development of this project is proceeding on
schedule. We believe this expansion will assist in
accommodating our projected continuing growth. Construction
is scheduled to be completed in June, 1996.
With over $113 million in total assets, no long-term
debt, continuing product development, and an active
acquisition program, we are confident about the future.
NEW PRODUCTS
During fiscal year 1995, our new product acquisitions
and releases included the following:
The TRACH CARE MAC product is a unique tool which
allows clinicians to administer exogenous surfactants
directly to an infant's lung tissue. This product provides
added safety and convenience to critically ill neonates.
In July, 1995, the Company received FDA approval to
market a pediatric version of its EASI-LAV gastric lavage
system. This allows for the use of the device to treat
childhood poisoning, which is an important segment of the
market.
A pediatric version of the MIC TRANSGASTRIC JEJUNAL
TUBE was released in August, 1995. This unique feeding tube
allows for simultaneous gastric decompression and jejunal
feeding. The prior, adult version has shown strong growth
in the adult arena.
The successful MIC-KEY SKIN LEVEL GASTROSTOMY FEEDING
KIT received a "face lift" during 1995. The MIC-KEY skin
level feeding tube was redesigned to be more cosmetically
pleasing, and certain kit components were added to be more
user friendly. The MIC-KEY device continues to be the
gastrostomy tube of choice for the pediatric patient,
because of its unique aesthetic appearance and its ease of
insertion and removal.
The MIC-PEG (percutaneous endoscopic gastrostomy) 24-
french feeding tube was released in September, 1995. Larger
than our prior 20-french version, the 24-french PEG feeding
tube allows for greater formula flow rates and minimizes the
possibility of clogging, a common problem encountered with
smaller feeding tubes.
ENDOSCOPY PRODUCTS ACQUIRED FROM COX MEDICAL ENTERPRISES
The CB-X1/X2 disposable cleaning brush is a versatile
device that offers maximum channel scrubbing power and the
ability to scrub endoscope components.
The THERMAL OPTION disposable biopsy/coagulating
forceps is a unique dual-purpose device enabling
endoscopists to obtain precision cut tissue samples as well
as providing "on demand" coagulating capability for patient
safety and cost efficiency.
The disposable CYTOLOGY BRUSH incorporates a unique
barium loaded "cap" at the distal end of the brush that
enables an endoscopist to obtain "site specific" cytological
samples while maximizing cell retention.
The BASICS endoscopy system incorporates the benefits
of disposable and reusable instrumentation into a
"reposable" system of reusable handles with attachable
disposable patient-contact components, thus addressing the
issues of cross-contamination and cost-efficiency.
CONTINUING PRODUCTS
The Company's strong commitment to research and
development and product enhancements has enabled the Company
to continue to be a significant 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 above, 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 the TRACH CARE
catheter to be used, among other things, as a drug delivery
system or to adapt it to specific patient needs.
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.
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 the TRACH CARE catheter, thus providing
additional safety for both clinician and patient.
HMEs (heat and moisture exchangers) have been offered
by the Company since December, 1993. The HMEs (manufactured
for Ballard by Engstrom Medical AB) provide a means of
humidifying the patient's airways during ventilation and are
sold with our TRACH CARE catheter. In July, 1995, the
Company became Engstrom Medical's exclusive HME distributor
in the United States and Canada.
MIC PRODUCTS
The chronic enteral feeding market is experiencing
rapid growth due to the aging of the population. 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, gastroenterologists,
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.
The MIC PEG (percutaneous endoscopic gastrostomy)
catheter line is a traction removable, enteral feeding
catheter. The MIC PEG's distinct advantage is that the
physician can remove the MIC PEG without a second endoscopic
procedure.
The MIC TRANSGASTRIC JEJUNAL TUBE 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
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.
OTHER
The EASI-LAV gastric lavage system is a closed gastric
lavage system. It is used to clean out the stomach in drug
overdose 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
bronchoalveolar 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
During fiscal year 1995, the Company continued to make
strides toward automation of its manufacturing processes.
For example, in June, 1995, the Company installed an
automated materials handling system for its DOUBLE SCRUB
scrub brush products. This system feeds materials
automatically (by vacuum) into molding machines, thus
obviating the need for additional employees. The Company
estimates that this system alone will save us approximately
$90,000 per year.
In addition, the Company expanded its injection molding
capacity and added a new clean room to MIC's facility in
Milpitas, California. In its Draper facility, the Company
purchased six new molding machines, at a cost of
approximately $100,000 each, and a second saline vial
machine (four cavity), at a total acquisition and
refurbishing cost of approximately $350,000. The Company
also installed additional sprue pickers, conveyers, part
separators, and a new grinder in its Draper facility.
In addition to our plans to expand into Pocatello,
Idaho, we are also in the process of reviewing plans for the
construction of a new facility in Milpitas, California. We
intend to consolidate our Ventura, California operations,
along with MIC operations already located in Milpitas, into
this new facility to be constructed in fiscal year 1996.
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.
FISCAL YEAR INTERNATIONAL SALES
9/30/95 $6,172,904
9/30/94 $4,672,611
9/30/93 $3,825,172
COMMON STOCK
TRADING
The Company's common stock is traded on the New York
Stock Exchange ("NYSE"). The following table sets forth,
for the respective periods indicated, the high and low sales
prices for the Company's common stock, as reported and
summarized by the NYSE for fiscal years 1995 and 1994:
<TABLE>
<CAPTION>
FISCAL YEAR 1995 FISCAL YEAR 1994
QUARTER HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First Quarter 11 1/8 9 18 3/8 11 1/4
Second Quarter 12 7/8 10 1/8 15 1/4 12 1/2
Third Quarter 13 5/8 10 3/4 13 7/8 9 1/8
Fourth Quarter 17 1/2 12 5/8 11 1/8 8 1/2
</TABLE>
On November 21, 1995, the closing quotation for the
Company's Common Stock, as reported by the WALL STREET
JOURNAL, was 17 3/8 high and 17 low. As of November 21,
1995, there were approximately 12,167 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:
DIVIDEND
RECORD DATE PAYMENT DATE PER SHARE
December 2, 1993 December 21, 1993 $.0497
December 12, 1994 December 28, 1994 .0600
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA (1)
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Sales $81,762,142 $65,062,801 $64,849,837 $49,787,199 $38,297,843
Other
Income, Net 4,078,702 3,519,586 3,716,649 2,492,363 1,317,908
Net Income 20,415,191 16,180,377 18,540,009 13,464,291 7,824,274
Net Income
Per Common
Share (2) .73 .54 .68 .48 .30
Total
Assets 113,019,373 92,639,225 80,291,809 58,801,704 37,509,132
Cash
Dividends
Declared
Per
Share .0600 .0497 .0375 .0300 .0233
</TABLE>
(1) 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, as
well as the accounts of Cox as of May 1, 1995, the date
of acquisition of its assets and ongoing business. 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.
(2) Does not include the cumulative effect of a change in
1994 in accounting for income taxes.
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA
(UNAUDITED)
FISCAL YEAR 1995
QUARTERS ENDED: 9/30/95 6/30/95 3/31/95 12/31/94
<S> <C> <C> <C> <C>
Net Sales $21,868,032 $21,353,249 $20,030,632 $18,510,229
Gross Margin 14,830,345 14,283,404 13,408,645 12,291,352
Net Income 5,599,545 5,269,166 4,980,016 4,566,464
Net Income Per
Common Share 0.198 0.190 0.180 0.167
FISCAL YEAR 1994
QUARTERS ENDED: 9/30/94 6/30/94 3/31/94 12/31/93
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 of
Accounting
Change 0.047 0.160 0.178 0.158
Cumulative
Effect of
Accounting
Change 0.052
Net Income 0.047 0.160 0.178 0.210
</TABLE>
See additional analysis of net sales, margins, and net
income in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended
September 30, 1995. 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years
in the period ended September 30, 1995 in conformity with
generally accepted accounting principles.
As discussed in Notes 1 and 2 to the consolidated
financial statements, effective October 1, 1994 the Company
changed its method of accounting for investment securities
to conform with Statement of Financial Accounting Standards
No. 115. 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 9, 1995
(November 14, 1995, as to the fourth
and fifth paragraph of Note 8)
<TABLE>
<CAPTION>
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
<S> <C> <C>
ASSETS 1995 1994
CURRENT ASSETS:
Cash (Note 1) $27,329,371 $15,109,682
Investments (Notes 1 and 2) 18,357,304 16,330,685
Accounts receivable - trade
(less allowance for doubtful
accounts: 1995 - $125,000,
1994 - $200,000; and allowance
for sales returns: 1995 -
$500,000, 1994 - $200,000) 13,504,572 13,505,173
Royalties receivable 447,282 542,616
Other receivable 1,173,871 1,181,021
Inventories (Note 1):
Raw materials 3,784,222 3,231,757
Work-in-process 2,286,542 2,088,350
Finished goods 5,220,882 4,353,529
Deferred income taxes
(Notes 1 and 4) 593,313 407,405
Income tax refund receivable
(Notes 1 and 4) 2,103,570 3,001,385
Prepaid expenses 232,315 35,789
Total current assets 75,033,244 59,787,392
PROPERTY AND EQUIPMENT
(Notes 1 and 6):
Land 1,849,511 1,849,511
Buildings 11,886,512 11,912,302
Molds 2,539,615 2,044,983
Machinery and equipment 8,077,753 7,401,870
Vehicles 535,547 441,135
Furniture and fixtures 1,408,169 1,067,148
Leasehold improvements 246,735 71,118
Construction in progress 1,234,998 729,922
Total 27,778,840 25,517,989
Less accumulated depreciation (5,832,822) (4,514,129)
Property and equipment - net 21,946,018 21,003,860
INTANGIBLE ASSETS
(less accumulated amortization:
1995 - $2,657,776; 1994 -
$1,577,991) (Notes 1 and 8) 15,106,614 11,568,397
OTHER ASSETS (Note 8) 933,497 20,624
DEFERRED INCOME TAXES
(Notes 1 and 4) 258,952
TOTAL $113,019,373 $92,639,225
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $1,114,607 $228,749
Accrued liabilities:
Employee compensation 2,301,755 1,114,092
Royalties (Note 6) 344,712 370,579
Other 448,236 492,306
Total current liabilities 4,209,310 2,205,726
DEFERRED INCOME TAXES
(Notes 1 and 4) 223,757
Total liabilities 4,433,067 2,205,726
COMMITMENTS AND CONTINGENT
LIABILITIES (Notes 6 and 8)
STOCKHOLDERS' EQUITY (Note 5):
Common stock - $.10 par value;
75,000,000 shares authorized;
issued and outstanding:
1995 - 26,561,287 shares,
1994 - 26,455,862 shares 2,656,129 2,645,586
Additional paid-in capital 29,213,647 28,291,261
Unrealized losses on investments -
net of tax (Notes 1 and 2) (142,728)
Retained earnings 76,859,258 59,496,652
Total stockholders' equity 108,586,306 90,433,499
TOTAL $113,019,373 $92,639,225
</TABLE>
See notes to consolidated financial statements.
<TABLE>
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994, AND 1993
1995 1994 1993
<S> <C> <C> <C>
NET SALES
(Notes 1 and 9) $81,762,142 $65,062,801 $64,849,837
COST OF PRODUCTS SOLD 26,948,396 21,251,579 19,319,895
GROSS MARGIN 54,813,746 43,811,222 45,529,942
OPERATING EXPENSES:
Selling, general and
administrative
(Notes 6 and 7) 23,665,400 21,063,809 17,669,488
Research and development 2,177,117 1,638,475 1,345,052
Royalties (Note 6) 1,385,841 1,404,681 1,401,542
Total operating
expenses 27,228,358 24,106,965 20,416,082
OPERATING INCOME 27,585,388 19,704,257 25,113,860
OTHER INCOME:
Interest income 1,900,922 772,645 1,580,872
Royalty income 2,147,620 2,204,347 1,693,354
Other 30,160 542,594 442,423
Total other income 4,078,702 3,519,586 3,716,649
INCOME BEFORE
INCOME TAX EXPENSE 31,664,090 23,223,843 28,830,509
INCOME TAX EXPENSE
(Notes 1 and 4) 11,248,899 8,446,698 10,290,500
INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 20,415,191 14,777,145 18,540,009
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE 1,403,232
(Notes 1 and 4)
NET INCOME $20,415,191 $16,180,377 $18,540,009
INCOME PER SHARE BEFORE
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE (Note 1):
Common and common
equivalent share $0.74 $0.55 $0.68
Common share assuming
full dilution $0.73 $0.54 $0.68
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 $0.74 $0.60 $0.68
Common share assuming
full dilution $0.73 $0.59 $0.68
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING
(Note 1):
Common and common
equivalent share 27,605,384 27,132,813 27,335,316
Common share assuming
full dilution 28,101,219 27,223,975 27,362,087
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994, AND 1993
Unrealized
Additional Losses on
Common Paid-in Invest- Retained
Shares Amount Capital ments Earnings
<S> <C> <C> <C> <C> <C>
BALANCE
OCTOBER
1, 1992 25,825,640 $2,582,564 $19,996,082 $31,646,164
Net
Income 18,540,009
Cash
divi-
dends
paid
($.0375
per
share)
(Note 1) (980,187)
Common
stock
issued
from
exer-
cise of
stock
options
(Note 5) 592,607 59,261 2,108,645
Acqui-
sition
and
retire-
ment of
trea-
sury
stock
(Note 5) (303,997) (30,400) (290,830) (4,334,145)
Tax
benefit
attri-
butable
to
appre-
ciation
in value
of stock
issued
in con-
junc-
tion
with the
exer-
cise and
quali-
fying
dispo-
sitions
of
incen-
tive
stock
options 2,908,205
Other 261,093
BALANCE
SEPTEM-
BER 30,
1993 26,114,250 2,611,425 24,983,195 44,871,841
Net
income 16,180,377
Cash
divi
dends
paid
($.050
per
share) (1,314,485)
Common
stock
issued
from
exer-
cise
of stock
options
(Note 5) 361,612 36,161 1,511,520
Acqui-
sition
and
retire-
ment
of
trea-
sury
stock
(Note
5) (20,000) (2,000) (241,081)
Tax
benefit
attri-
butable
to
appre-
ciation
in value
of stock
issued
in con-
junc-
tion
with the
exer-
cise and
dis-
quali-
fying
dispo-
sitions
of
incen-
tive
stock
options 1,796,546
BALANCE
SEPTEM-
BER 30,
1994 26,455,862 2,645,586 28,291,261 59,496,652
Net
income 20,415,191
Cash
divi-
dends
paid
($.060
per
share) (1,587,600)
Common
stock
issued
from
exer-
cise
of stock
options
(Note 5) 205,425 20,543 432,869
Acqui-
sition
and
retire-
ment of
trea-
sury
stock
(Note 5) (100,000) (10,000) (1,464,985)
Tax
benefit
attri-
butable
to
appre-
ciation
in value
of
stock
issued
in con-
junc-
tion
with the
exer-
cise
and
dis-
qual-
ifying
dispo-
sitions
of
incen-
tive
stock
options 489,517
Unre-
alized
losses
on
invest-
ment
secur-
ities -
net of
tax
(Notes
1 and 2) $(142,728)
BALANCE
SEPTEM-
BER 30,
1995 26,561,287 $2,656,129 $29,213,647 $(142,728) $76,859,258
</TABLE>
<TABLE>
<CAPTION>
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994, AND 1993
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING
ACTIVITIES:
Net income $20,415,191 $16,180,377 $18,540,009
Adjustments to
reconcile net
income to net
cash provided by
operating
activities:
Depreciation and
amortization 3,061,618 2,477,007 1,756,706
Loss on disposal
of property 7,044 110,479 108,752
Tax benefit from
disqualifying
dispositions of
incentive stock
options 489,517 1,796,546 2,908,205
Provision for
losses on
accounts
receivable -
trade and sales
returns 225,000 200,000 217,000
Cumulative effect
of change in
accounting
principle (Note 1) (1,403,232)
Deferred income
taxes 373,655 828,489 (146,552)
Changes in
operating assets
and liabilities-
net of effects
from purchase of
MIC in 1993 and
Cox in 1995 (Note
8):
Accounts
receivable -
trade 4,389 2,738,233 (8,372,887)
Royalties and
other receivables 102,484 (757,909) (341,571)
Inventories (1,374,419) (2,053,477) (2,782,180)
Income tax refund
receivable 897,815 929,232 1,714,055
Prepaid expenses (196,526) (430,813) (184,605)
Accounts payable 199,168 (1,579,876) 310,274
Accrued
liabilities 1,117,726 (3,695,745) 805,676
Total
adjustments 4,907,471 (841,066) (4,007,127)
Net cash
provided by
operating
activities 25,322,662 15,339,311 14,532,882
CASH FLOWS FROM
INVESTING
ACTIVITIES:
Capital
expenditures for
property and
equipment (2,769,625) (6,335,228) (3,998,999)
Proceeds from
sales of property
and equipment
45,250 5,899 21,110
Purchases of
investments (38,534,828) (29,744,216) (11,055,383)
Proceeds from
maturities of
investments 36,288,627 20,485,633 26,395,918
Purchases of
intangible assets (1,330,255) (245,685)
Purchases of
other assets (909,319)
Payments for
purchase of MIC
and Cox, net of
cash acquired (3,283,650) (500,000) (11,901,055)
Net cash used
in investing
activities (10,493,800) (16,333,597) (538,409)
CASH FLOWS FROM
FINANCING
ACTIVITIES:
Cash dividends
paid (1,587,600) (1,314,485) (980,187)
Proceeds from
issuance of
common stock and
exercise of
options 453,412 1,547,681 2,294,493
Purchase of
treasury stock (1,474,985) (243,081) (4,655,375)
Net cash used
in financing
activities (2,609,173) (9,885) (3,341,069)
NET INCREASE
(DECREASE) IN
CASH AND CASH
EQUIVALENTS 12,219,689 (1,004,171) 10,653,404
CASH AND CASH
EQUIVALENTS,
BEGINNING OF YEAR 15,109,682 16,113,853 5,460,449
CASH AND CASH
EQUIVALENTS, END
OF YEAR $27,329,371 $15,109,682 $16,113,853
SUPPLEMENTAL
DISCLOSURE OF
CASH FLOW
INFORMATION -
Cash paid during
the year for
income taxes $9,487,912 $7,571,800 $5,231,000
</TABLE>
See notes to consolidated financial statements.
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
On May 2, 1995, the Company acquired substantially all
of the net assets of Cox Medical Enterprises, Inc. for
approximately $3,313,000 cash (see Note 8). In conjunction
with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired
(including goodwill) $4,000,000
Cash paid 3,313,310
Liabilities assumed $686,690
During the year ended September 30, 1995, the Company
in conjunction with its adoption of Financial Accounting
Standards No. 115 (see Note 1), wrote down its short-term
investments in total by $219,582. The effect of this
adjustment was a decrease in stockholders' equity in the
amount of $142,728 and an increase in current deferred
income taxes in the amount of $76,854.
During the years ended September 30, 1995, 1994, and
1993, the Company increased additional paid-in capital by
$489,517, $1,796,546, and $2,908,205, 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 8).
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
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, Medical Innovations Corporation ("MIC")
(see Note 8), Ballard Real Estate Holdings ("BREH"), and
Ballard International, Inc. ("BI") (collectively, the
"Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
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.
INVESTMENTS - Investments consist principally of time
certificates of deposit, tax free municipal bonds, and U.S.
treasury securities with maturity dates of 1 to 12 months.
Through September 30, 1994, investments were recorded at
cost which approximated fair market value. As of September
30, 1995, investments are recorded at fair market value (see
Note 2).
Effective October 1, 1994, the Company adopted
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. Upon
adoption of SFAS 115, the Company reclassified all of its
investments as available-for-sale. The adoption of SFAS 115
had no material effect on the consolidated financial
statements.
INVENTORIES - Inventories are stated at the lower 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.
DIVIDENDS PER SHARE - Dividends per share are adjusted
retroactively to give effect to the stock split discussed in
Note 5.
STATEMENTS 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 1994 and 1993 consolidated financial statements
to conform to classifications adopted in 1995.
2. INVESTMENTS
Investments consist of the following at September 30,
1995 and 1994:
1995 1994
Time certificates
of deposit $3,901,262
U.S. Treasury
securities 293,045
Municipal bonds $18,357,304 12,136,378
Total
investments $18,357,304 $16,330,685
The amortized cost and fair value of investments at
September 30, 1995, which consisted of municipal bonds
classified as available-for-sale, is as follows:
Amortized cost $18,576,886
Gross unrealized gains None
Gross unrealized losses (219,582)
Fair value $18,357,304
As of September 30, 1995, all of the municipal bonds
had a contractual maturity of one year or less. During the
year ended September 30, 1995, there were no gross realized
gains or gross realized losses from sales of investments
classified as available for sale.
3. LINE OF CREDIT
At September 30, 1995, the Company had an unused,
unsecured line of credit with a bank totaling $4,000,000
which expires January 31, 1996. The line, if drawn upon,
bears interest at prime (8.75% at September 30, 1995). No
compensating cash balances are required. As of September
30, 1995 and during the year then ended, 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. The Company has recorded current
deferred tax assets and net long-term deferred tax assets
and (liabilities) at September 30, 1995 and 1994, as
follows:
<TABLE>
<CAPTION>
1995 1994
Current Long-Term Current Long-Term
<S> <C> <C> <C> <C>
Deferred income tax
assets $593,313 $452,323 $407,405 $821,451
Deferred income tax
liabilities (676,080) (562,499)
Net $593,313 $(223,757) $407,405 $258,952
</TABLE>
Net deferred income tax assets and liabilities at
September 30, 1995 and 1994 consisted of the following
temporary differences and carryforward items:
<TABLE>
<CAPTION>
1995 1994
Current Long-Term Current Long-Term
<S> <C> <C> <C> <C>
Deferred income tax
assets:
Allowance for
uncollectible
accounts receivable $47,513 $76,020
Allowance for
sales returns and
allowances 190,050 76,020
Allowance for
obsolete inventory 49,585
Accrued expenses 214,506 255,365
Accumulated
amortization $743
Unrealized losses on
investments 76,854
Net operating loss
carryforwards of
acquired subsidiaries 14,805 $341,097 709,482
Research and
development credits 111,226 111,226
593,313 452,323 407,405 821,451
Deferred income tax
liabilities -
differences between
tax basis and
financial reporting
basis of property and
equipment (676,080) (562,499)
Total $593,313 $(223,757) $407,405 $258,952
</TABLE>
The components of income tax expense (benefit) for the
years ended September 30, 1995, 1994, and 1993 are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current:
Federal $9,425,942 $6,685,047 $9,132,420
State 1,449,302 933,162 1,304,632
10,875,244 7,618,209 10,437,052
Deferred:
Federal 323,859 727,007 (128,233)
State 49,796 101,482 (18,319)
373,655 828,489 (146,552)
Total $11,248,899 $8,446,698 $10,290,500
</TABLE>
Income tax expense differed from amounts computed by
applying the statutory Federal tax rate to pretax income as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Computed
federal tax
expense at
statutory rate $11,082,432 $8,128,345 $10,090,678
State income
tax expense,
net of federal
benefit 990,493 661,806 672,163
Environmental
tax 30,000 25,000 25,000
Tax exempt
income (624,750) (210,000) (408,800)
Foreign sales
corporation (121,756) (126,000) (61,750)
Amortization
of goodwill 316,969 278,773 160,919
Utilization of
acquired
operating loss
carryforwards (275,375)
Other (424,489) (311,226) 87,665
Total $11,248,899 $8,446,698 $10,290,500
</TABLE>
As a result of the Company's acquisitions (see Note 8),
the Company has net operating loss carryforwards for federal
income tax purposes of approximately $940,000, which can
only be used to offset future taxable income of acquired
subsidiaries as of September 30, 1995. 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, 1995, 1994, and
1993, the Company repurchased 100,000, 20,000, and 303,997
shares of its outstanding common stock for $1,474,985,
$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 3,483,000 and 2,985,000 at September
30, 1995 and 1994, 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>
1995 Shares Price Range
Per Share
<S> <C> <C>
Granted 740,000 $9.38 - $14.25
Expired 101,666 $8.63 - $13.50
Exercised 205,425 $1.46 - $11.00
Outstanding at
September 30 3,331,162 $1.46 - $14.25
Exercisable 2,410,490 $1.46 - $14.25
1994
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 $1.46 - $13.50
Exercisable 766,486 $1.46 - $13.50
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
</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, $187,000, and
$108,800 for the years ended September 30, 1995, 1994, and
1993, respectively. The following represents MIC's future
commitments under such leases:
1996 $186,500
1997 140,000
Total $326,500
The Company has the option to extend the lease terms at
its discretion. As of September 30, 1995, 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.
In October, 1995, the Company began construction of an
additional manufacturing facility in Pocatello, Idaho. The
total anticipated cost of construction is estimated to be
$6,800,000. Construction of the facility is anticipated to
be completed in June, 1996.
7. PROFIT SHARING PLAN
In 1991, the Company's Board of Directors adopted the
Company's Employee Retirement and 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,
1995, 1994, and 1993, the Company expensed approximately
$545,000, $372,000, and $247,000, respectively, as matching
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 contributions within a group of designated
investment funds.
8. MERGERS AND ACQUISITIONS
Effective February 26, 1993, the Company acquired all
of the issued and outstanding common stock of MIC for
approximately $12,464,000 cash. 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 proforma results of operations of the Company for
the year ended September 30, 1993 (assuming the acquisition
of MIC had occurred as of October 1, 1992) are as follows:
Revenues $67,395,567
Net income 18,335,511
Income per share:
Common and common
equivalent share $0.67
Common share assuming
full dilution $0.67
On May 2, 1995, the Company acquired substantially all
of the assets of Cox for a purchase price of $4,000,000
consisting of $3,313,310 in cash and the assumption of
liabilities in the amount of $686,690. Cox is a
manufacturer of disposable endoscopic devices. The
acquisition has been accounted for using the purchase method
of accounting and, as such, Cox's results of operations have
been included in the accompanying consolidated financial
statements from the date of acquisition. The cost of this
acquisition exceeded the estimated fair value of the
acquired net assets by $423,000 which is being amortized
over 10 years. Pro forma consolidated results of operations
of the Company for the years ended September 30, 1995, 1994,
and 1993 are not presented as the effect on the Company's
consolidated financial position is immaterial.
On July 17, 1995, the Company entered into an agreement
with Neuro Navigational Corporation (Neuro) under which the
Company acquired on November 14, 1995, 200,000 shares of
Neuro's preferred stock representing a 19.5% equity interest
in Neuro for $2,000,000. As of September 30, 1995, the
Company had made advances to Neuro in the amount of
$800,000. These advances are included in other assets in
the accompanying consolidated balance sheet as of September
30, 1995 and were subsequently credited towards the
$2,000,000 purchase price on November 14, 1995.
In addition, on November 14, 1995, the Company paid
Neuro $500,000 for an option to purchase all of the assets
of Neuro during the first 12 months of the option period for
$9,500,000. If the option is exercised during the remainder
of the option term, the purchase price will be equal to two
times the net sales of Neuro for the 12 months immediately
preceding the exercise of the option. In either event, the
$500,000 option price will be credited towards the purchase
price. The option term expires two years following the
closing date of the preferred stock purchase by the Company.
9. SALES
During the years ended September 30, 1995, 1994, and
1993, the Company had foreign export sales of approximately
$6,200,000, $4,700,000, and $3,800,000, respectively.
10. EFFECT OF RECENTLY ISSUED FINANCIAL ACCOUNTING
STANDARDS
In October, 1995, the Financial Accounting Standards
Board issued SFAS No. 123. "Accounting for Stock-Based
Compensation." SFAS No. 123 defines a fair value based
method of accounting for an employee stock option. Fair
value of the stock option is determined considering factors
such as the exercise price, the expected life of the option,
the current price of the underlying stock and its
volatility, expected dividends on the stock, and the risk-
free interest rate for the expected term of the option.
Under the fair value based method, compensation cost is
measured at the grant date based on the fair value of the
award and is recognized over the service period. A company
may elect to adopt SFAS No. 123 or elect to continue
accounting for its stock option or similar equity awards
using the intrinsic method, where compensation cost is
measured at the date of grant based on the excess of the
market value of the underlying stock over the exercise
price. If a company elects not to adopt SFAS No. 123, then
it must provide pro forma disclosure of net income and
earnings per share, as if the fair value based method had
been applied.
SFAS No. 123 is effective for transactions entered into
for fiscal years that begin after December 15, 1995. Pro
forma disclosures for entities that elect to continue to
measure compensation cost under the old method must include
the effects of all awards granted in fiscal years that begin
after December 15, 1994. It is currently anticipated that
the Company will continue to account for stock-based
compensation plans under the intrinsic method and therefore,
SFAS No. 123 will have no effect on the Company's
consolidated financial statements.
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, 1995, 1994, and 1993,
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 the assets of Cox on May
1, 1995 and the purchase of MIC on February 26, 1993.
RESULTS OF OPERATIONS
SALES - For the year ended September 30, 1995,
consolidated net sales increased $16,699,341 or 25.7%, as
compared to fiscal year 1994. The solid growth of net sales
reflects the successful efforts of a more established, more
experienced sales force, as well as continued expansion and
market penetration of the TRACH CARE and MIC product lines,
both domestically as well as internationally. 1995
consolidated gross sales increased $19,989,929, an
impressive 29.4% increase over 1994 consolidated gross
sales, but increased pressures to reduce prices resulted in
an increase in price discounts and rebates from $2,927,064
in 1994 to $6,217,652 in 1995.
Domestic consolidated net sales totaled $75,589,238 for
the year ended September 30, 1995, compared with $60,390,190
for 1994, an increase of 25.2%. International consolidated
net sales totaled $6,172,904 for the year ended September
30, 1995, compared with $4,672,611 for 1994, an increase of
32.1%.
Near the end of the third quarter of fiscal year 1995,
pricing on several of the MIC products was increased by up
to 5%. Effective April 1, 1995, pricing on the Neonatal
products of the TRACH CARE line also increased by up to 5%.
No other price increases occurred during the year.
For the year ended September 30, 1994, consolidated net
sales totaled $65,062,801, a 3.3% 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
over 1993 consolidated gross sales, price discounts and
rebates also increased from $836,166 in 1993 to $2,927,064
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 reflected some
distribution restructuring and a reduction in existing
dealer inventories. The Company also attributes the 1994
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.
All sales of the Company and related receipts are in
U.S. dollars. Export sales to unaffiliated customers from
the Company's domestic operations did not exceed ten percent
(10%) of the Company's domestic consolidated net sales for
either of the years ended September 30, 1995 or 1994.
COST OF PRODUCTS SOLD - For the year ended September
30, 1995, consolidated cost of products sold totaled
$26,948,396, compared with $21,251,579 for fiscal year 1994,
an increase of 26.8% which is proportionate with the
increase in net sales over the same period. Gross margins
remained consistent between 1995 and 1994 with the margin as
a percent of net sales for 1995 of 67.0%, compared with
67.3% for fiscal year 1994. During the year the Company
continued to refine and automate its manufacturing
processes. In addition, the Company brought in-house
several previously out-sourced manufacturing operations and
expanded its injection molding capacity. Through these
efforts, the Company has achieved greater manufacturing
efficiencies and related cost savings to help offset the
ever-increasing costs of raw materials and labor.
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 was 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 were included in
1993 figures only from its acquisition date. Increased
costs were also attributed to start-up costs associated with
the significant expansion of both Ballard's and MIC's
manufacturing facilities.
OPERATING EXPENSES - Operating expenses consist of
selling, general, and administrative expenses, research and
development expenses, and royalties. Total consolidated
operating expenses for the year ended September 30, 1995
were $27,228,358, compared with $24,106,965 for fiscal year
1994, an increase of 12.9%. The increase is due principally
to increased selling costs resulting from the increased
level of sales, as well as to increased research and
development costs and general overall increases in operating
expenses over the prior year.
The primary increase in operating expenses occurred
with consolidated selling, general, and administrative
expenses. In fiscal year 1995, these expenses increased
$2,601,591, or 12.4%, over 1994. As a percentage of
consolidated net sales, consolidated selling, general, and
administrative expenses decreased 3.5%, from 32.4% in 1994
to 28.9% in 1995. Consolidated expenses related to research
and development and royalties, as a percentage of
consolidated net sales for fiscal year 1995, remained fairly
consistent with those in 1994.
Total consolidated operating expenses for the year
ended September 30, 1994 totaled $24,106,965, compared with
$20,416,082 for fiscal year 1993, an increase of 18.0%. The
increase was 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. Additional
increases were due to the purchase of MIC, whose comparable
costs were included in fiscal year 1993 starting from its
acquisition date.
OTHER INCOME - Other income consists principally of
interest income from short-term investments, royalty income
from the licensing of the TRACH CARE closed suction system,
and the netting of insignificant gains and losses from the
sale or retirement of property and equipment.
For the year ended September 30, 1995 consolidated
other income totaled $4,078,702, compared with $3,519,586
for fiscal year 1994. The increase is primarily due to
increased interest income earned from the Company's
investment of its excess cash reserves. Royalty income
remained consistent between the periods, at approximately
$2,200,000 for each of 1995 and 1994.
For the year ended September 30, 1994, consolidated
other income 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 (because of the 1993 cash
purchase of MIC), while royalty income increased
approximately $500,000 over 1993.
NET INCOME - Consolidated net income from operations
(before the cumulative effect of change in accounting
principle) for the year ended September 30, 1995 totaled
$20,415,191, an increase of $5,638,046, or 38.2%, over the
previous period. As a percent of net sales, net income for
the year ended September 30, 1995 was 25.0%, compared with
22.7% for the year ended September 30, 1994. The overall
increase in net income reflects the increase in net sales
and management's efforts to control the costs of products
and operations.
Consolidated net income from the Company's operations
(before the cumulative effect of change in accounting
principle) in fiscal year 1994 of $14,777,145 represented a
decrease of 20.3% from the consolidated net income of
$18,540,009 in fiscal year 1993. Despite the decrease,
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 previously
discussed above for 1994, the lower net income percentage
resulted in part from higher-than-expected backorders in
high margin products and increased overhead costs.
The cumulative effect of the change in accounting for
income taxes of $1,403,232 in 1994 represented a one-time
benefit (recorded as of October 1, 1993) from the adoption
of Financial Accounting Standards Board Statement No. 109.
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 and 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,
1995, cash and investments grew 45.3% to $45,686,675,
compared with $31,440,367 at September 30, 1994. 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,
1995 grew 65.1% to $25,322,662, compared with $15,339,311
for the year ended September 30, 1994. During fiscal year
1995 the Company paid cash dividends totaling $1,587,600, an
increase of 20.8% over the prior year's payout of
$1,314,485.
At September 30, 1995, the Company's current assets
exceeded its current liabilities by $70,823,934, an increase
of 23.0% over the September 30, 1994 total of $57,581,666.
The Company's current ratio at September 30, 1995 was 17.8
to 1.0. In addition to its strong current ratio, 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, 1995 or 1994.
During the year ended September 30, 1995, the Company
made a decision to develop a new, additional manufacturing
facility in Pocatello, Idaho. See discussion of Pocatello
facility under "1995 in Review." Total development and
construction costs of the proposed facility are expected to
approximate $6.8 million. Also during the year, the
Company expanded it injection molding capacity, added a new
clean room to its Milpitas, California facility, and
continued its overall capital investment program to expand
and upgrade operations to meet the growing needs of present
and new business. Other than the Pocatello Facility
mentioned above, no other material commitments for capital
expenditures exist as of September 30, 1995.
Following the signing of the Company's July, 1995
agreement with NNC, the Company advanced $1,275,000
($800,000 of which was advanced in fiscal year 1995) to NNC
to fund NNC's operations pending the closing of the
Company's purchase of the 19.5% equity interest in NNC.
This sum was advanced as a secured loan, in bi-weekly draws
ranging between $50,000 and $100,000. The entire balance of
$1,275,000, plus accrued interest (at 10% per annum) of
$20,637, was paid back to the Company out of the $2.5
million purchase price paid by the Company at the November
14, 1995 closing. See discussion of NNC under "1995 in
Review."
Also during the year ended September 30, 1995, the
Company purchased and retired 100,000 shares of its
outstanding common stock for $1,474,985. 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.
GLOSSARY OF TECHNICAL AND MEDICAL TERMS
1. Bronchoalveolar lavage is a medical procedure for
obtaining samples from smaller airways in the lungs. A
catheter is wedged into the bronchus. Then a lavage
fluid is injected into the airways. A fluid sample is
withdrawn to determine whether infectious organisms are
present in the airways or air sacs.
2. Biopsy is a procedure to remove living tissue from the
body for diagnostic examination.
3. Catheter is a flexible tube that is inserted into the
body to deliver or remove fluid or act as a conduit to
pass other devices.
4. Closed suction catheter is a sleeved catheter used to
suction the endotracheal tube of a patient receiving
mechanical ventilation. The catheter keeps the patient
oxygenated because the ventilator is not disconnected
during the suctioning procedure.
5. Coagulate means to solidify or change from a fluid
state to a semisolid mass.
6. Cytology brush is a brush used to collect cell samples
from the gastrointestinal or pulmonary tract.
7. Endoscope is an instrument used in the examination of a
hollow space or cavity in the human body.
8. Endoscopic refers to a procedure performed by means of
an endoscope.
9. Endoscopy is an examination of organs accessible to
observation through an endoscope.
10. Endotracheal tube is a tube inserted into the patient's
upper airway allowing medical ventilatory support.
11. Enteral feeding catheter is a catheter used for the
delivery of nutritional liquids into the
gastrointestinal tract of the patient.
12. Exogenous means originating outside an organ or part.
13. Fluoroscopy is the use of a fluoroscope for medical
diagnosis or for testing various materials by roentgen
rays.
14. Gastric means pertaining to the stomach.
15. Gastrostomy is a surgical opening through the skin into
the stomach.
16. Jejunal means pertaining to the jejunum (part of the
small bowel).
17. Jejunostomy is a surgical opening through the skin into
the jejunum.
18. Nosocomial infection is an infection acquired while a
patient is in a hospital.
19. Percutaneous Endoscopic Gastrostomy (PEG) catheter is a
flexible tube inserted through the mouth, esophagus,
and stomach to the outside of the body with the aid of
an endoscope. Name refers to the placement procedure
and is a variation of a gastrostomy tube.
20. Polypectomy is a medical procedure for removal of
polyps (growths).
21. Septic means pertaining to pathogenic organisms or
their toxins, i.e., putrid, rotten or decayed.
22. A surfactant is an agent that lowers surface tension.
23. Transgastric pertains to a bypass of the stomach.
Transgastric tubes are placed through the skin and into
the stomach, with the distal tip terminating in the
jejunum, or elsewhere in the digestive system.
24. A ventilator is a life support device used to assist
breathing.
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 and Corporate Secretary of
Ballard Medical Products
Dale H. Ballard, Jr. Owner of his own financial planning
business called Stratco
Paul W. Hess General Counsel of Ballard Medical
Products
OFFICERS
NAME TITLE
Dale H. Ballard President, Chief Executive Officer,
and Chairman of the Board.
Harold R. ("Butch") Executive Vice President and
Wolcott 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 and Chief Financial
Officer
Paul W. Hess General Counsel
SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS
Ballard Medical Products
12050 Lone Peak Parkway
Draper, Utah 84020
(801) 572-6800
(801) 572-6869
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 22, 1996, 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 21, 1995 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 1995, 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, Chief Financial Officer, 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
Bear Stearns - New York, New York
Hanifen, Imhoff, Inc. - Denver, Colorado
Olde Discount - Detroit, Michigan
Piper Jaffray - Minneapolis, Minnesota
AUDITORS
Deloitte & Touche LLP
50 South Main Street, Suite 1800
Salt Lake City, Utah 84144
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