As filed with the Securities and Exchange Commission
on August 14, 1995
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
JUNE 30, 1995
(for quarterly period ended)
1-12318
Commission File Number
BALLARD MEDICAL PRODUCTS
(Exact name of registrant as specified in its charter)
UTAH
(State or other jurisdiction of incorporation or organization)
87-0340144
(I.R.S. Employer Identification Number)
12050 LONE PEAK PARKWAY, DRAPER, UTAH 84020
(Address and zip code of principal executive offices)
(801) 572-6800
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
The registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the
issuer's classes of stock, as of the latest practicable date:
26,633,805 - all common, August 11, 1995
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
FORM 10-Q INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Unaudited Consolidated
Balance Sheets as of June 30, 1995 and
September 30, 1994
Condensed Unaudited Consolidated
Statements of Operations for the three
and nine months ended June 30, 1995 and
1994
Condensed Unaudited Consolidated
Statements of Cash Flows for the
nine months ended June 30,
1995 and 1994
Notes to Condensed Unaudited
Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Risk Factors
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote
of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Index to Exhibits
DEFINITIONS
As used herein, the following terms have the meanings
indicated:
GENERAL DEFINITIONS
1. "Ballard" refers to Ballard Medical Products.
2. The "Company" and the "Registrant" refer to Ballard
and its subsidiaries.
3. "MIC" refers to Medical Innovations Corporation, a
wholly-owned subsidiary of Ballard.
4. "Code Blue" refers to Code Blue Medical
Corporation, a former wholly-owned subsidiary of
Ballard, which was statutorily merged into Ballard
in May, 1993.
5. "BREH" refers to Ballard Real Estate Holdings,
Inc., a wholly-owned subsidiary of Ballard.
6. "BI" refers to Ballard International, Inc., a
wholly-owned subsidiary of Ballard.
GLOSSARY OF TECHNICAL AND MEDICAL TERMS
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.
BIOPSY FORCEPS is an instrument that is used to take a sample
of tissue for laboratory testing.
CATHETER is a flexible tube that is inserted into the body to
deliver or remove fluid, retrieve blood, or act as a conduit to
pass other devices.
CLOSED SUCTION CATHETER is a sleeved catheter used with
endotracheal tubes, on patients receiving mechanical
ventilation, enabling the airways to be suctioned while
maintaining mechanical ventilatory support.
CYTOLOGY BRUSH is a brush used to collect cell samples from the
gastrointestinal or pulmonary tract.
DISPOSABLE MICROENDOSCOPES are small diameter visualization
catheters that are used to image and perform therapy in
difficult to reach areas such as the brain. These devices are
designed as single-use devices that are disposable after first
use.
ENDOSCOPE is an instrument used in the examination of a hollow
space or cavity in the human body.
ENDOSCOPIC refers to a procedure performed by means of an
endoscope.
ENDOSCOPY is an examination of organs accessible to observation
through an endoscope.
ENDOTRACHEAL TUBE is a tube inserted into the patient's upper
airway allowing medical ventilatory support.
ENTERAL FEEDING CATHETER is a catheter used for the delivery of
nutritional liquids into the gastrointestinal tract of the
patient.
GASTROSTOMY is a surgical opening through the skin into the
stomach.
JEJUNAL means pertaining to the jejunum (part of the small
bowel).
JEJUNOSTOMY is a surgical opening through the skin into the
jejunum.
MICROTOOLS are small precise instrumentation typically used for
endoscopic or microscopic procedures.
MINIMALLY INVASIVE SURGERY is surgery that is performed with
minimal patient trauma via a small incision into the required
area, and in neurosurgery, that area would be the cranial area.
NOSOCOMIAL INFECTION is an infection acquired while a patient
is in a hospital.
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.
POLYPECTOMY is a medical procedure for removal of polyps
(growths).
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.
VARICOSE VEINS are veins that are unnaturally distended and
appear bluish at the skin surface.
VENTILATOR is a life support device used to assist breathing.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS 6/30/95 9/30/94
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $23,315,170 $15,109,682
Investments available-
for-sale (cost: $18,684,733) 18,399,192
Investments 16,330,685
Trade accounts receivable - net 14,537,708 13,505,173
Other receivables 1,829,717 1,723,637
Inventories:
Raw materials 3,038,688 3,231,757
Work-in-progress 1,402,134 2,088,350
Finished goods 5,034,504 4,353,529
Deferred income taxes 547,564 407,405
Income tax refunds receivable 1,284,997 2,347,031
Prepaid expenses 173,259 690,143
Total current assets 69,562,933 59,787,392
PROPERTY AND EQUIPMENT:
Land 1,849,512 1,849,511
Building 11,860,790 11,912,302
Molds 2,345,708 2,044,983
Machinery and equipment 7,766,982 7,401,870
Vehicles 514,741 441,135
Furniture and fixtures 1,364,099 1,067,148
Leasehold improvements 215,533 71,118
Construction-in-progress 1,125,222 729,922
Total 27,042,587 25,517,989
Less accumulated depreciation 5,308,482 4,514,129
Property and
equipment - net 21,734,105 21,003,860
INTANGIBLE ASSETS - net 15,346,308 11,568,397
OTHER ASSETS 24,178 20,624
DEFERRED INCOME TAXES 128,533 258,952
TOTAL $106,796,057 $92,639,225
</TABLE>
See Notes to Condensed Unaudited Consolidated Financial Statements.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
6/30/95 9/30/94
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $723,748 $228,749
Accrued liabilities:
Employee compensation 1,118,897 1,114,092
Income taxes payable 814,314
Royalties 374,344 370,579
Other 482,121 492,306
Total current liabilities 3,513,424 2,205,726
STOCKHOLDERS' EQUITY:
Common stock 2,653,601 2,645,586
Additional paid-in capital 28,084,157 28,291,261
Retained earnings 72,730,477 59,496,652
Net unrealized loss on
investments available-for-sale
(net of taxes) (185,602)
Total stockholders' equity 103,282,633 90,433,499
TOTAL $106,796,057 $92,639,225
</TABLE>
See Notes to Condensed Unaudited Consolidated Financial Statements.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
6/30/95 6/30/94 6/30/95 6/30/94
<S> <C> <C> <C> <C>
NET SALES $21,353,249 $18,445,692 $59,894,110 $52,528,047
COST OF PRODUCTS
SOLD 7,069,845 5,819,050 19,910,709 15,816,770
GROSS MARGIN 14,283,404 12,626,642 39,983,401 36,711,277
OPERATING EXPENSES:
Selling, general
and administrative 6,116,932 5,730,789 17,151,373 15,969,087
Research and
development 572,050 457,640 1,561,906 1,213,565
Royalties 357,660 360,386 1,036,140 1,011,570
Total operating
expenses 7,046,642 6,548,815 19,749,419 18,194,222
OPERATING INCOME 7,236,762 6,077,827 20,233,982 18,517,055
OTHER INCOME - net 975,941 807,280 2,845,701 2,796,941
INCOME BEFORE
INCOME TAX EXPENSE 8,212,703 6,885,107 23,079,683 21,313,996
INCOME TAX EXPENSE 2,943,537 2,547,093 8,264,037 7,823,996
INCOME BEFORE
CUMULATIVE EFFECT
OF CHANGE IN
ACCOUNTING FOR
INCOME TAXES 5,269,166 4,338,014 14,815,646 13,490,000
CUMULATIVE EFFECT
OF CHANGE IN
ACCOUNTING FOR
INCOME TAXES 1,403,232
NET INCOME $5,269,166 $4,338,014 $14,815,646 $14,893,232
</TABLE>
See Notes to Condensed Unaudited Consolidated Financial Statements.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(continued)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
6/30/95 6/30/94 6/30/95 6/30/94
<S> <C> <C> <C> <C>
INCOME PER COMMON
AND COMMON
EQUIVALENT SHARE:
Income before
cumulative effect of
change in accounting $0.191 $0.160 $0.539 $0.497
for income taxes
Cumulative effect of
change in accounting
for income taxes 0.052
Net income $0.191 $0.160 $0.539 $0.549
INCOME PER COMMON
SHARE ASSUMING
FULL DILUTION:
Income before
cumulative effect of
change in accounting
for income taxes $0.190 $0.160 $0.535 $0.494
Cumulative effect of
change in accounting
for income taxes 0.051
Net income $0.190 $0.160 $0.535 $0.545
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING:
Common and common
equivalent share 27,646,414 27,071,956 27,469,379 27,149,772
Common share assuming
full dilution 27,747,830 27,072,147 27,715,290 27,328,319
</TABLE>
See Notes to Condensed Unaudited Consolidated Financial Statements.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
6/30/95 6/30/94
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $18,263,080 $8,262,369
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property
and equipment (1,317,939) (5,611,492)
Purchase of investments available- (16,279,778)
for-sale
Purchase of investments (12,025,378)
Purchase of intangible assets (1,254,597) (707,859)
Net cash paid for acquisition (3,970,340)
Redemption of matured investments
available-for-sale 13,925,730
Redemption of matured investments 7,338,708
Net cash used in investing
activities (8,896,924) (11,006,021)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from exercise of options 421,153 1,508,347
Cash dividends paid (1,581,821) (1,314,484)
Purchase of treasury stock (243,077)
Net cash used in financing
activities (1,160,668) (49,214)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 8,205,488 (2,792,866)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 15,109,682 16,113,853
CASH AND CASH EQUIVALENTS,
END OF PERIOD $23,315,170 $13,320,987
</TABLE>
See Notes to Condensed Unaudited Consolidated Financial Statements.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period
for taxes $6,477,900 $5,807,600
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
During the nine months ended June 30, 1995 and 1994, the
Company increased additional paid-in capital by $171,500 and
$1,762,000, respectively, which represents the tax benefit
attributable to the compensation received by employees from the
exercise and disqualifying disposition of incentive stock
options.
During the nine months ended June 30, 1995, the Company
included in equity $185,602 of net unrealized losses on
investments available-for-sale (net of taxes). See Note 3
below.
See Notes to Condensed Unaudited Consolidated Financial Statements.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. In management's opinion, the accompanying condensed
unaudited consolidated financial statements contain all
adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial
condition of Ballard Medical Products and Subsidiaries as
of June 30, 1995 and September 30, 1994, the results of
operations for the three and nine months ended June 30,
1995 and 1994, and the cash flows for the nine months
ended June 30, 1995 and 1994.
2. The results of operations for the three and nine months
ended June 30, 1995 are not indicative of the results to
be expected for the full year ended September 30, 1995.
3. On October 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115 (SFAS 115),
"Accounting for Certain Investments in Debt and Equity
Securities". SFAS 115 requires the Company to classify
its investment securities as either held to maturity,
available-for-sale, or trading. At June 30, 1995, the
Company considers all of its investment securities to be
available-for-sale and, as such, accounts for its
investments at fair value with any tax-affected
unrealized holding gain or loss reported as a separate
component of stockholders' equity. Implementation of
SFAS 115 will result in additions to or deductions from
total stockholders' equity as the result of fluctuations
in fair value.
As of October 1, 1994, the adoption of SFAS 115 resulted
in a decrease in the carrying values of investments
available-for-sale of approximately $1,036,000, with a
corresponding decrease in stockholders' equity and
increase in deferred taxes receivable of approximately
$659,000 and $377,000, respectively.
The amortized cost and fair value of investments
available-for-sale as of June 30, 1995 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Debt securities issued
by states and political
subdivisions $18,684,733 None $285,541 $18,399,192
</TABLE>
The amortized cost and fair value of debt securities
classified as available-for-sale as of June 30, 1995 by
contractual maturity were as follows:
Amortized Cost Fair Value
Due in one year
or less $18,684,733 $18,399,192
Redemption of matured investments available-for-sale for
the three and nine months ended June 30, 1995 were as
follows:
Three Months Ended Nine Months Ended
June 30, 1995 June 30, 1995
Redemptions $5,349,290 $13,925,730
There were no gross realized gains or losses on sales of
investments available-for-sale for the three or nine
months ended June 30, 1995. The change in unrealized
holding loss on investments available-for-sale (net of
taxes) that has been included as a separate component of
shareholders' equity as of June 30, 1995 totaled
$185,602.
4. On December 28, 1994, the Company paid a cash dividend of
$.06 per share to shareholders of record as of December
12, 1994.
5. On May 2, 1995, the Company acquired substantially all of
the assets of Cox Medical Enterprises, Inc. ("Cox") for a
cash purchase price of $4,000,000. 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 financial information is not presented as the
effect on the Company's financial position and earnings
was not significant.
6. Effective July 17, 1995, Ballard signed a Stock Purchase
and Option Agreement with Neuro Navigational Corporation
("NNC") to purchase 200,000 shares of convertible Series
A Preferred Stock representing 19.5% of NNC's capital
stock and an option to acquire all of the assets of NNC
and its subsidiary, Endovascular, Inc. Although this
transaction does not involve acquisition of a significant
amount of assets at this point in time, Ballard is
summarizing the Stock Purchase and Option Agreement
herein because management believes it will be of interest
to shareholders.
The total purchase price for the preferred stock is
$2,000,000 ($10 per share), and Ballard will pay $500,000
for the option. The purchase price for the assets will
be $9,500,000 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 continues until 24
months following the closing of Ballard's purchase of the
option and the preferred shares.
The transactions contemplated by the purchase contract
are subject to approval by the shareholders of NNC. A
special meeting is expected to take place within the next
sixty days.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's 1994 Annual Report to Shareholders contains
management's discussion and analysis of financial condition and
results of operations at and for the year ended September 30,
1994. The following discussion and analysis describes material
changes in the Company's financial condition and position from
September 30, 1994. Trends of a material nature are discussed
to the extent known and considered relevant. The analysis of
results of operations compares the three and nine months ended
June 30, 1995 with the corresponding period of 1994. This
analysis should be considered in conjunction with the condensed
unaudited consolidated balance sheets, condensed unaudited
consolidated statements of operations, and condensed unaudited
consolidated statements of cash flows.
RESULTS OF OPERATIONS
OVERVIEW - The Company's net sales through the third
quarter of fiscal year 1995 continue to show solid growth and
record levels, primarily reflecting the efforts of a more
established, more experienced sales force and sales management
team. New business is being generated in many hospitals and
other accounts, and there is greater product consistency in
Company accounts. In addition, the MIC product line continues
to show tremendous growth.
The Company's after-tax profit margin for the first nine
months of 1995 remained strong at 24.7%, compared with an
industry average for similar mid-sized medical supply companies
of approximately 7.5% (according to Standard & Poors Research
Report, dated January 21, 1995).
This high after-tax profit margin added over $18,000,000
in cash flows from operations for the first nine months of
1995, increasing the Company's total cash, cash equivalents,
and investments to approximately $42,000,000 as of June 30,
1995. The Company utilized these cash reserves to fund the Cox
acquisition (see Note 5 above) and intends to utilize these
reserves to fund future growth and expansion, both domestically
and internationally, through new product development and
acquisitions. See Item 5 - "Other Information."
SALES - Net sales for the three months ended June 30,
1995 increased 15.8% to $21,353,249, compared with $18,445,692
for the corresponding three month period in fiscal year 1994.
Net sales for the nine months ended June 30, 1995 increased
14.0% to $59,894,110, compared with $52,528,047 for the
corresponding period in fiscal year 1994. Net sales have
increased during 1995 principally due to expanding market
penetration of the TRACH CARE and MIC product lines. The
Company's MIC enteral feeding catheters continue to show
especially strong sales growth, with increases over 1994 of
81.2% and 62.6%, respectively, for the three and nine month
periods ended June 30, 1995.
Throughout the period, pricing for several products was
reduced in order to meet competition and price reductions
demanded by hospitals. Effective March 15, 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 increased by up to 5%. No other price
increases occurred during the three months covered by this
report; therefore, substantially all of the increase in net
sales is attributable primarily to an increased volume of
products sold.
All sales of the Company and related receipts were in
U.S. dollars. Export sales to unaffiliated customers from the
Company's domestic operations did not exceed 10 percent of the
Company's domestic consolidated net sales.
COST OF PRODUCTS SOLD - Cost of products sold for the
three months ended June 30, 1995 was $7,069,845 compared to
$5,819,050 for the corresponding period of 1994. Cost of
products sold for the nine months ended June 30, 1995 was
$19,910,709 compared to $15,816,770 for the corresponding
period of 1994. As a percentage of net sales, cost of products
sold for the three months ended June 30, 1995, compared to
1994, increased 1.6% from 31.5% to 33.1%. For the nine months
ended June 30, 1995 compared to 1994, cost of products sold as
a percentage of net sales increased 3.1% from 30.1% to 33.2%.
The increase in cost of goods sold during 1995 reflects several
factors, including increased price discounts due to pricing
pressures, the initially higher costs of introducing new
products to the market, increased labor and raw material costs,
higher than anticipated manufacturing overhead costs, and
variable changes in sales mix. The Company expects cost of
products sold to remain fairly constant at approximately 33.0%
to 34.0% of net sales for the remainder of fiscal year 1995.
OPERATING EXPENSES - Operating expenses consist of
selling, general, and administrative expenses, research and
development expenses, and royalty expenses. Total operating
expenses for the three months ended June 30, 1995 were
$7,046,642, which represents an increase of 7.6% over the
corresponding period of 1994. For the nine months ended June
30, 1995, total operating expenses were $19,749,419,
representing an 8.5% increase over the corresponding period in
1994.
The increase in operating expenses during 1995 is due
primarily to selling, general, and administrative expenses
which increased from $5,730,789 in the quarter ended June 30,
1994 to $6,116,932 in the quarter ended June 30, 1995. For the
nine months ended June 30, 1995, selling, general, and
administrative expenses totaled $17,151,373, compared with
$15,969,087 for the same period in 1994. These increased costs
are attributable primarily to increased wages, commissions, and
other selling costs associated with the increased levels of
sales. As a percentage of net sales, selling, general, and
administrative expenses decreased from 31.1% and 30.4% in the
three and nine months ended June 30, 1994 to 28.6% and 28.6%,
respectively, in the three and nine months ended June 30, 1995.
As a percentage of net sales, these decreases during 1995
reflect the Company's efforts to control these variable selling
expenses.
Research and development expenses and royalty expenses,
as a percentage of net sales, remained relatively consistent
between the periods, approximating 2.5% and 1.7%, respectively,
for the three and nine months ended June 30, 1995.
OTHER INCOME - Other income consists principally of
interest income from investments and royalty income from the
licensing of the TRACH CARE closed suction system. For the
three months ended June 30, 1995, other income totaled
$975,941, compared to $807,280 for the three months ended June
30, 1994. For the nine months ended June 30, 1995, other
income totaled $2,845,701, compared to $2,796,941 for the nine
months ended June 30, 1994. The increase primarily reflects
the increase in interest income from the Company's increased
investment balances. As the Company utilizes its cash reserves
to acquire other companies and technology, it is expected that
other income from interest will decrease.
NET INCOME - Net income after taxes for the three months
ended June 30, 1995 increased 21.5% to $5,269,166, compared to
$4,338,014 for the three months ended June 30, 1994. For the
nine months ended June 30, 1995, net income increased 9.8% to
$14,815,646, compared to $13,490,000 for the nine months ended
June 30, 1994 (excluding the $1,403,232 effect of the change in
accounting for income taxes required by FASB 109 in fiscal
1994). The increase in net income during 1995 reflects the
growth in net sales, notwithstanding decreased profit margins
related to higher labor and raw material costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet and financial condition
continue to be strong. At June 30, 1995 the Company's working
capital totaled $66,049,509, compared with $57,581,666 at
September 30, 1994 and $55,814,624 at June 30, 1994. The
Company had $41,714,362 in cash, cash equivalents, and
investments available-for-sale at June 30, 1995. Cash flows
from operations totaled $18,263,080 for the nine months ended
June 30, 1995. Stockholders' equity increased $12,849,134
during the nine months ended June 30, 1995, going from
$90,433,499 at September 30, 1994 to $103,282,633 at June 30,
1995.
In addition to its strong liquid position and equity
balance, the Company does not have any long-term debt nor does
management intend to utilize debt to fund future expansion.
The Company maintains a $4,000,000 unsecured line of credit
with its bank but has never drawn on this line. Continued
growth in cash, cash equivalents, 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 June 30, 1995, net trade accounts receivables totaled
$14,537,708, compared to $13,505,173 at September 30, 1994 and
$21,471,877 at June 30, 1994. The overall decrease over the
last twelve months, in part reflects the Company's increased
efforts in collecting past due accounts and in controlling the
extending of unfavorable credit terms. The increase since
September 30, 1994 reflects the increased level of sales.
Inventories at June 30, 1995 were $9,475,326 compared
with $9,673,636 at September 30, 1994 and $10,052,811 at June
30, 1994. The decrease in inventory levels, in part reflects a
normalizing of hospital and distributor purchasing, and efforts
by the Company to better manage and maintain inventory.
Property and equipment, net of accumulated depreciation,
totaled $21,734,105 at June 30, 1995, compared with $21,003,860
at September 30, 1994 and $21,199,328 at June 30, 1994. The
increase in net property and equipment over the last twelve
months reflects normal purchasing to sustain the growth in
operations.
No significant commitments for the purchase of inventory
or property or equipment existed as of June 30, 1995. However,
see Item 5 - "Other Information."
RISK FACTORS
The following risks should be considered in evaluating
the Company and its shares and the foregoing financial
information:
COMPETITION. A number of well-established medical
products companies, both in the United States and abroad, with
substantially greater capital resources and larger research and
development staffs and facilities, and with substantially
greater marketing systems, are engaged in the manufacture and
sale of products which compete with products of the Company,
and such other companies are engaged in research designed to
reach goals similar to the Company's. Such companies may
succeed in developing and marketing similar products which are
better or more cost effective than those of the Company and its
subsidiaries and also may prove to be more successful than the
Company in the manufacturing and marketing of their products.
In recent months, the Company has reduced pricing for certain
products in order to meet competition pricing and the price
reductions demanded by hospitals. In the future, the results
of the Company's operations could continue to be impacted by
increased competition and continuing pricing pressures.
PATENTS. The Company owns certain patents and
proprietary information acquired while developing its products
or through acquisitions, and the Company is the licensee of
certain other technology. One of the Company's early U.S.
TRACH CARE patents has expired. As patents expire, more
competing products may be released into the marketplace by
other companies. The ability of the Company to continue to
compete effectively with other medical device companies may be
materially dependent upon the protection afforded by its
patents and the confidentiality of certain proprietary
information. There is no assurance that patents will be issued
for products and product improvements recently released into
the marketplace or for products presently being developed. If
a significant patent of the Company were challenged, an adverse
ruling could materially adversely affect the Company's sales
and profits.
HEALTH CARE REFORM. Threatened government-mandated
reforms continue to cause concern and uncertainty throughout
the health care industry. The Company's future results of
operations could be severely impacted by government reforms
such as strict cost controls and other possible restrictions
being considered by some federal and state law makers.
RESEARCH AND DEVELOPMENT. In the continuing discovery
and development of products, the Company spent $572,050 and
$1,561,906 for research and development in the three and nine
months, respectively, ended June 30, 1995, and $1,638,475,
$1,345,052 and $1,047,048 in the years ended September 30,
1994, 1993, and 1992, respectively. The Company plans to
continue spending substantial sums for discovery, research and
development of products and improvements of existing products.
There is no assurance that research and development
expenditures in the past or in the future will result in
products which are commercially viable so as to recoup related
research and development costs or to allow the Company to
continue to grow and be profitable.
TECHNOLOGICAL CHANGE. The medical technology as utilized
by the Company has been subject to rapid advances. While the
Company feels that it currently possesses the technology
necessary to carry on its business, its commercial success will
depend on its ability to remain current with respect to such
technological advances and to retain experienced technical
personnel. Furthermore, there can be no assurance that other
technological advances will not render the Company's technology
and certain products uneconomical or obsolete.
FDA REGULATION. Certain Company products are regulated
by the United States Food and Drug Administration (FDA). The
Company is required to adhere to existing standards for good
manufacturing practices and to engage in extensive record
keeping and reporting. The Company may be subject to
additional FDA rules and regulations depending on the future
products it develops. While the Company believes it will be
able to satisfy FDA requirements with respect to its proposed
and existing products, there can be no assurance that
difficulties or excessive costs will not be encountered in the
Company's efforts to secure necessary FDA approvals which would
delay or preclude the Company from releasing and marketing such
products. In addition, the extent of governmental regulation
which may arise from future legislative or administrative
action cannot be predicted.
FOREIGN REGULATION. Company products face a wide variety
of existing difficult regulations and a changing regulatory
environment in foreign countries. For example, in Europe,
there is significant pressure to achieve compliance with
international quality standards and to obtain various
certifications which are available at great effort and expense
to the Company. There can be no assurance that the Company
will be successful at obtaining such certifications so as to be
able to continue to sell and distribute its products in
international markets such as Europe, or that the Company will
be able to satisfy international standards and regulations.
Failure to do so may severely impair the Company's sales growth
in international markets.
PRODUCT LIABILITY. The Company's products are intended
to be used on or around humans by competent medical personnel.
In the event a patient develops medical problems in connection
with the Company's products, the Company could be liable for
substantial damages. The Company has product liability
insurance, but there is no assurance that the Company would not
be materially adversely affected from any claim which may be
made, or judgment which may be entered, against it.
LACK OF DIVIDENDS. Prior to January, 1990, no dividends
had been paid by the Company on its shares of Common Stock.
The Company has paid dividends since January, 1990. However,
there can be no assurance that dividends will be paid on shares
in the future, particularly since the Company prefers to
reserve its cash and liquid assets for growth and possible
business acquisitions.
UNCERTAINTY OF FINANCIAL RESULTS AND CAPITAL NEEDS.
There may be substantial fluctuations in the Company's results
of operations because of the timing and receipt of revenues and
market acceptance of existing Company products. The ability of
the Company to expand its manufacturing and marketing
operations cannot be predicted with certainty. If revenues do
not continue to increase as rapidly as they have in the past
few years, or if manufacturing, marketing, research and
development are not successful or require more money than is
anticipated, the Company may have to scale back product
marketing, development and production efforts and attempt to
obtain additional financing. There can be no assurance that
the Company would be able to obtain timely additional financing
in the amounts required or that such financing, if available,
would be on terms advantageous to the Company.
SUPPLY OF RAW MATERIALS. Certain of the Company's
products are dependent upon raw materials for which there are
single or few sources. So far, the Company has not had any
serious problems obtaining needed raw materials. However,
there can be no assurance that the Company will be able to
continue to depend on existing sources of certain materials.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
GUARDIANSHIP OF CARMEN MARIE SMOOT
v. BALLARD MEDICAL PRODUCTS, ET AL.
No material developments have occurred in this litigation
since the filing of the Company's Form 10-Q for the quarter
ended March 31, 1995, or the Company's Form 10-Q/A filed June
14, 1995 for the quarter ended December 31, 1994. The parties
continue to engage in the discovery process.
BALLARD MEDICAL PRODUCTS
v. HUNTINGTON LABORATORIES, INC.
As previously reported, on or about April 25, 1995,
Ballard filed with the United States District Court for the
District of Utah, Central Division, a motion asking the court,
among other things, to enter (1) a permanent injunction
enjoining Huntington from making, using or selling the foaming
device which Huntington was manufacturing and selling before
the February 3, 1995 ruling, and (2) a preliminary injunction
precluding Huntington from making using or selling its "new"
foamer. The motion also asks the court to require Huntington
in the future to seek court approval before marketing any
modified foamers.
A hearing has been scheduled before Judge Jenkins on
August 21, 1995, for oral argument on Ballard's motion. In the
meantime, the parties continue to engage in the process of
discovery and information exchange, in anticipation of a trial
on damages related to the court's February 3, 1995 summary
judgment in favor of Ballard.
LINDA MADSEN V. BALLARD MEDICAL PRODUCTS
In June, 1995, a lawsuit was filed against Ballard by
Linda Madsen, a former sales rep of the Company. The case was
filed in the Superior Court of the State of California for the
County of Los Angeles, Case No. LC032477. Ms. Madsen has made
numerous claims against the Company, arising out of the
Company's termination of her employment in June, 1994. Her
complaint against the Company includes claims for: (1) breach
of an implied-in-fact employment contract; (2) unlawful
discrimination based upon physical disability; (3) intentional
infliction of emotional distress; (4) defamation; (5) fraud;
and (6) negligent misrepresentation. Ms. Madsen's complaint
seeks general damages of $1,000,000, loss of earnings in excess
of $85,000, punitive damages, and costs of suit. The Company
believes strongly that Ms. Madsen's complaint is without any
merit whatsoever. The Company has retained California counsel
who will shortly be filing an answer to Ms. Madsen's complaint
and who will then proceed with the process of discovery and
information exchange.
OTHER LITIGATION
The Company is also a party to ordinary routine
litigation incidental to the Company's business.
ITEM 2. CHANGES IN SECURITIES
There are no changes in the rights of the holders of
common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There are no senior securities of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Since the Company's January, 1995 Annual Meeting of
Shareholders, no matters have been submitted to a vote of the
shareholders.
ITEM 5. OTHER INFORMATION
NEURO NAVIGATIONAL CORPORATION
Effective July 17, 1995, Ballard signed a Stock Purchase
and Option Agreement with Neuro Navigational Corporation
("NNC") to purchase 200,000 shares of convertible Series A
Preferred Stock representing 19.5% of NNC's capital stock and
an option to acquire all of the assets of NNC and its
subsidiary, Endovascular, Inc. Although this transaction does
not involve acquisition of a significant amount of assets at
this point in time, Ballard is summarizing the Stock Purchase
and Option Agreement herein because management believes it will
be of interest to shareholders.
The total purchase price for the preferred stock is
$2,000,000 ($10 per share), and Ballard will pay $500,000 for
the option. The purchase price for the assets will be
$9,500,000 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 continues until 24 months following the
closing of Ballard's purchase of the option and the preferred
shares.
Located in Costa Mesa, California, NNC develops,
manufactures, and markets fiberoptic 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 microendoscopes,
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.
NNC has 17 neurosurgery products which have been cleared
for sale by the FDA, and is in the early stages of marketing
its products. In addition, NNC is developing products for less
invasive treatment of complex varicose veins and in situ
bypass. These vascular surgery products are in early
development and may enter human feasibility studies before the
end of the year.
Ballard is under no obligation to exercise the option.
In the event that Ballard does not exercise the option before
the end of the option term, the option will expire. In the
event that Ballard does not exercise the option, the $500,000
option fee is not refundable.
The transactions contemplated by the purchase contract
are subject to approval by the shareholders of NNC. A special
meeting is expected to take place within the next sixty days.
Ballard believes the purchase of the preferred shares and
the asset option is an investment in Ballard's future,
diversifying its technology base, and offering the potential
for Ballard and NNC to become the market leader in the rapidly
growing minimally invasive segment of neurosurgery and vascular
surgery. However, there can be no assurance that NNC sales and
profitability will improve sufficiently for Ballard to want to
exercise the option during the option term. If Ballard does
not exercise the option, Ballard will remain as a minority
shareholder in NNC. During the option term, Ballard intends to
monitor the progress of NNC, in order to determine whether to
exercise its asset purchase option.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Statements concerning computation of income per
share are included in the financial information provided in
Item 1 of Part I and are incorporated by reference into this
Item 6 of Part II of this report.
(b) No reports on Form 8-K were filed during the period
covered by this Form 10-Q.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned there unto duly author-
ized.
BALLARD MEDICAL PRODUCTS
(Registrant)
Date: 8/14/95 Dale H. Ballard, President
(Principal Executive Officer)
Date: 8/14/95 Kenneth R. Sorenson,
Treasurer
(Principal Accounting Officer)
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE NO.
27 Financial Data Schedule
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the 10-Q for
the period ending June 30, 1995 and is qualified in its entirety by reference to
such 10-Q.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> QTR-3 9-MOS
<FISCAL-YEAR-END> SEP-30-1995 SEP-30-1995
<PERIOD-END> JUN-30-1995 JUN-30-1995
<CASH> 23,315,170 23,315,170
<SECURITIES> 18,399,192 18,399,192
<RECEIVABLES> 15,137,708 15,137,708
<ALLOWANCES> 600,000 600,000
<INVENTORY> 9,475,326 9,475,326
<CURRENT-ASSETS> 69,562,933 69,562,933
<PP&E> 27,042,587 27,042,587
<DEPRECIATION> 5,308,482 5,308,482
<TOTAL-ASSETS> 106,796,057 106,796,057
<CURRENT-LIABILITIES> 3,513,424 3,513,424
<BONDS> 0 0
<COMMON> 2,653,601 2,653,601
0 0
0 0
<OTHER-SE> 100,629,032 100,629,032
<TOTAL-LIABILITY-AND-EQUITY> 106,796,057 106,796,057
<SALES> 21,353,249 59,894,110
<TOTAL-REVENUES> 21,353,249 59,894,110
<CGS> 7,069,845 19,910,709
<TOTAL-COSTS> 7,069,845 19,910,709
<OTHER-EXPENSES> 7,046,642 19,749,419
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 8,212,703 23,079,683
<INCOME-TAX> 2,943,537 8,264,037
<INCOME-CONTINUING> 5,269,166 14,815,646
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,269,166 14,815,646
<EPS-PRIMARY> 0.191 0.539
<EPS-DILUTED> 0.190 0.535
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