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):
[ ] $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
Telephone (801) 572-6800
Telefax (801) 572-6869
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To Be Held January 27, 1997
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 27, 1997, 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 20, 1996 (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 13, 1996. 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
27,817,790 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) 1,746,040 5.92%
State Farm Mutual
Automobile
Insurance Company
One State Farm
Plaza,
Bloomington, IL
61710 (3) 2,264,502 7.68%
State of Wisconsin
Investment Board
P.O. Box 7842
Madison, WI 53707 1,661,500 5.63%
</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 60 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 1,075,878
Alice B. Ballard Family Living Trust 621,518
Pamela A. Ballard 1992 Trust 48,284
Indirect ownership through
Ballard Family Properties, Ltd. 360
Total 1,746,040
(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 516,751
State Farm Employees
Retirement Trust Fund 500,000
Total 2,264,502
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 1,746,040 5.92%
Board
John I. Bloomberg, Director Direct 28,675 (3)
J. Dallas VanWagoner, M.D. Direct 2,700 (3)
Director
Robert V. Petersen, Direct 676 (3)
Director
E. Martin Chamberlain,
Director, Vice President of Exercisable
Regulatory Affairs, and Options
Secretary 15,000 (3)
Dale H. Ballard, Jr., Direct 103,098
Director Indirect 14,454
Total 117,552 (3)
Paul W. Hess, Director, Indirect 1,466
General Counsel Exercisable
Options 20,000
Total 21,466 (3)
Harold R. ("Butch") Direct 1,100
Wolcott, Executive Vice Exercisable
President and General Options 42,667
Manager Total 43,767 (3)
Bradford D. Bell, Vice Direct 1,000
President of Sales and Exercisable
Marketing Options 39,600
Total 40,600 (3)
Kenneth R. Sorenson, Direct 5,856
Treasurer Exercisable
Options 47,500
Total 53,356 (3)
All directors and executive Direct 143,105
officers as a group (11 Indirect
persons) 1,761,960
Exercisable
Options 164,767
Total 2,069,832 7.01%
</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.
Committee B was originally formed in response to old
Rule 16b-3 promulgated by the Securities and Exchange
Commission ("SEC"). Section 16(b) enables an issuer (or one
of its shareholders) to bring suit to recover profits gained
by an insider from short-swing transactions. A transaction
which meets the requirements of Rule 16b-3 is exempt from
Section 16(b) of the Securities Exchange Act of 1934.
Rule 16b-3 was amended by the SEC, effective August 15,
1996. Old Rule 16b-3 required, among other things, that
option grants to officers and directors, be made by the full
Board of Directors (if each member is a "disinterested
person"), or by a committee of two or more directors, each
of whom is a "disinterested person". 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
any Plan.
The August, 1996 amendment to Rule 16b-3, among other
things, eliminated the need to have a committee of
"disinterested persons" for such option grants to officers
and directors. Nevertheless, in an August, 1996 Special
Meeting of the Company's Board of Directors, the Board voted
to continue the practice of administering the Company's
Plans through the existing Committee A and Committee B.
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 old Rule 16b-3(c)(2)(i). Committee A
is currently comprised of Dale H. Ballard (the President of
the Company) and E. Martin Chamberlain (a Vice President and
the 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 the Company's 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
$103,525,263 for the fiscal year ended September 30, 1996,
the Company reaped after-tax net income of $25,603,039,
representing 24.7% 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 incentive 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, Jr.
Dale H. Ballard, Jr.
Paul W. Hess
EXECUTIVE COMPENSATION
DIRECTORS
During the fiscal year ended September 30, 1996, 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 $500 in cash
compensation. There is no standard agreement pursuant to
which the directors are compensated for their services.
EXECUTIVE OFFICERS
The following table sets forth the compensation paid or
awarded by the Company to the Company's Chief Executive
Officer and all of the Company's other executive officers
who are considered "highly compensated" under regulations
promulgated by the Securities and Exchange Commission, for
each of the fiscal years ended September 30, 1996, 1995, and
1994:
SUMMARY COMPENSATION TABLES
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
OTHER
FISCAL ANNUAL
YEAR COMPEN-
NAME AND PRINCIPAL ENDED BONUS SATION
POSITION 9/30 SALARY ($) ($) ($)
<S> <C> <C> <C> <C>
Dale H. Ballard, 1996 200,000 40,595 (1)
CEO 1995 200,500 35,000 (1)
1994 200,500 0 (1)
Harold R. "Butch" 1996 132,500 35,038 (1)
Wolcott, Executive 1995 105,000 20,000 (1)
Vice President 1994 95,000 10,000 (1)
Bradford D. Bell, 1996 120,833 31,001 (1)
Vice President of 1995 95,000 10,000 (1)
Sales and 1994 65,000 8,000 (1)
Marketing
Kenneth R. 1996 84,750 20,867 (1)
Sorenson, Chief 1995 79,959 20,738 (1)
Financial Officer 1994 74,800 20,570 (1)
Paul W. Hess 1996 133,750 15,696 (1)
General Counsel 1995 130,500 8,000 (1)
1994 130,500 0 (1)
</TABLE>
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION (2)
SECURITIES ALL OTHER
FISCAL UNDERLYING COMPEN-
NAME AND PRINCIPAL YEAR ENDED OPTIONS SATION
POSITION 9/30 GRANTED (#) ($)(4)
<S> <C> <C> <C>
Dale H. Ballard, 1996 (3) N/A (5) 0
CEO 1995 (3) N/A (5) 0
1994 (3) N/A (5) 0
Harold R. ("Butch") 1996 6,000 6,225
Wolcott, Executive 1995 20,000 3,150
Vice President 1994 29,000 0
Bradford D. Bell, 1996 5,000 5,808
Vice President for 1995 15,000 2,850
Sales and Marketing 1994 23,000 0
Kenneth R. 1996 5,000 4,070
Sorenson, 1995 5,000 3,878
Chief Financial 1994 18,000 3,628
Officer
Paul W. Hess, 1996 4,000 5,515
General Counsel 1995 7,000 3,900
1994 18,000 0
</TABLE>
(1) 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 $50,000 or 10% of the
individual's cash compensation).
(2) The Company does not have benefit plans involving
Restricted Stock Awards, Stock Appreciation Rights
(SARs), or Long-Term Incentive Plans (LTIPs)
(3) No options have ever been granted to Mr. Ballard under
any of the Company's Incentive Stock Option Plans.
(4) These figures represent the Company's contributions to
its 401(k) retirement plan for the benefit of the named
executives. None of the named executives who received
a Company contribution in the years shown are 100%
vested in their respective plan account balances. Mr.
Sorenson is 100% vested, Messrs. Wolcott and Bell are
40% vested, and Mr. Hess is 20% vested.
(5) During the past three fiscal years, Mr. Ballard has not
participated in the Company's 401(k) plan.
OPTION GRANTS IN FISCAL YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
INDIVIDUAL
GRANTS
Number of
Securities POTENTIAL
Underlying REALIZABLE VALUE
Options AT ASSUMED ANNUAL
Granted (#) RATES OF STOCK
and % of Total PRICE
Options APPRECIATION FOR
Granted to Exercise Option OPTION TERM (1)
Employees in Price Expiration
Name Fiscal Year ($/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") 6,000
Wolcott 1.19% 16.75 8/7/2003 $40,914 $95,346
Bradford D. 5,000
Bell .99% 16.75 8/7/2003 34,096 79,455
Kenneth R. 5,000
Sorenson .99% 16.75 8/7/2003 34,096 79,455
Paul W. 4,000
Hess .9% 16.75 8/7/2003 27,276 63,564
</TABLE>
(1) We recommend caution in interpreting the financial
significance of these "potential realized value"
figures. They are calculated by multiplying the number
of options granted by the difference between a future
hypothetical stock price and the option exercise price
and are shown pursuant to rules of the Securities and
Exchange Commission. They assume the value of Company
stock appreciates 5% to 10% each year, respectively,
compounded annually, for seven years (the life of each
option). They are not intended to forecast possible
future appreciation, if any, of such stock price or to
establish a present value of options. Also, if
appreciation does occur at the 5% or 10% per year rate,
the amounts shown would not be realized by the
recipients until the year 2003. Depending on inflation
rates, these amounts may be worth significantly less in
2003 in real terms, than their value today. The
Company has not used an alternative formula for
valuation since the Company is not aware of any formula
which will determine with reasonable accuracy a present
value of options based on future unknown or volatile
factors. The realized values shown are before the
payment of federal or state income taxes.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED SEPTEMBER
30, 1996
<TABLE>
<CAPTION>
Number of
Shares Securities Value of
Acquired Underlying Unexercised
on Value Unexercised In-the-Money
Exercise Received Options at Year Options at
Name (#) ($) 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 33,000 340,500 42,667 6,000 403,628 16,500
Bradford
D. Bell 11,733 109,997 39,600 5,000 385,025 13,750
Kenneth R.
Sorenson 26,500 371,395 47,500 5,000 532,106 13,750
Paul W.
Hess 35,000 379,688 20,000 4,000 195,750 11,000
</TABLE>
(1) The fair market value (i.e., the closing price) of the
Company's common stock on September 30, 1996 (19 1/2
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, 1996, compared with the Standard & Poor's 500
Stock Index and the published Standard & Poor's Health Care
(Medical Products and Supplies) Industry Index. The
comparison assumes $100 were invested on September 30, 1991
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, 1991 would be worth the following values on
the respective dates shown:
September 30, 1992 135
September 30, 1993 107
September 30, 1994 66
September 30, 1995 105
September 30, 1996 125
S&P 500. The graph shows that $100 invested in the S&P
500 Index on September 30, 1991 would be worth the following
values on the respective dates shown:
September 30, 1992 111
September 30, 1993 125
September 30, 1994 130
September 30, 1995 169
September 30, 1996 203
S&P HEALTH CARE (MEDICAL PRODUCTS AND SUPPLIES). The
graph shows that $100 invested in the S&P Health Care
(Medical Products and Supplies) Index on September 30, 1991
would be worth the following values on the respective dates
shown:
September 30, 1992 97
September 30, 1993 74
September 30, 1994 94
September 30, 1995 153
September 30, 1996 183
SUMMARY OF STOCK OPTION PLANS
GENERAL
The Company has ten 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 January, 1996
1996 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 1994 Plan, the 1995 Plan, and
the 1996 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 1992, 1993, 1994, 1995, and 1996 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 listed on 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, 1996:
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 73,812 0
1988 Plan 750,018 750,018 88,737 0
1990 Plan 1,125,021 1,125,021 300,593 0
1991 Plan 750,000 748,968 277,444 1,032
1992 Plan 200,000 199,833 76,976 167
1993 Plan 600,000 600,000 351,833 0
1994 Plan 600,000 598,976 435,458 1,024
1995 Plan 700,000 692,800 606,150 7,200
1996 Plan 700,000 313,550 313,550 386,450
TOTALS 7,075,155 6,679,282 2,530,551 395,873
</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 22, 1996, at the
regular meeting of the Board of Directors, immediately
following the January 22, 1996 Annual Meeting of
Shareholders, with all members of the Board of Directors in
attendance. A special meeting of the Board was held on
August 13, 1996. All members of the Board participated in
said meeting either in person or by conference telephone.
All other Board of Directors action taken during the 1996
fiscal year was conducted by eighteen 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. Eight meetings were held
by Committee A during the 1996 fiscal year (with both
members present). The remaining actions of Committee A were
effected in ten 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 1996 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 three members of the Board,
currently John I. Bloomberg, Robert V. Petersen, and Dale H.
Ballard, Jr. One meeting (attended by all members) was held
by the Audit Committee during the 1996 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:
NAME, AGE AND DIRECTOR
POSITION WITH THE COMPANY SINCE PRINCIPAL OCCUPATION
Dale H. Ballard (73) 1978 President, Chief Executive
President, Chief Executive Officer, Chairman of the
Officer, Chairman of the Board
Board (1)
John I. Bloomberg (61) 1981 Managing General Partner,
Director private investment
companies (2)
J. Dallas VanWagoner (59) 1984 Practicing Physician,
Director Clinical Instructor with
the University of Utah
School of Medicine (3)
Robert V. Petersen (70) 1986 Professor Emeritus of
Director Pharmaceutics, University
of Utah (4)
E. Martin Chamberlain (56) 1988 Vice President of Regulatory
Vice President of Regulatory Affairs, Secretary (5)
Affairs, Secretary, Director
Dale H. Ballard, Jr. (49) 1993 President of Stratco, a
Director financial planning and
investment firm (6)
Paul W. Hess (42) 1994 General Counsel (7)
Director, General Counsel
(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. 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 (1990-1995).
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 served as Director of Quality
Assurance for the Company from 1986 to 1994.
(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 1996 INCENTIVE
STOCK OPTION PLAN.
GENERAL
On or about July 1, 1996, by unanimous consent
resolution, the Board of Directors of the Company adopted
the 1996 Incentive Stock Option Plan (the "1996 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
$11,462,500.
The purpose of the 1996 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 may be important, for the Company's
future growth and success, that options continue to be a
portion of salaried employee compensation.
The Company is seeking shareholder approval of the
1996 Plan, not because shareholder approval is required
under state or federal law, but in order to qualify options
granted under the 1996 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,
effective August 15, 1996. As of September 30, 1996,
313,550 options had been granted under the 1996 Plan.
ADMINISTRATION
The 1996 Plan is administered by two Stock Option
Committees, by delegation of authority from the Board of
Directors of the Company. See "Compensation Committee
Interlocks and Insider Participation, Stock Option
Committee."
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 1996 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, 1996, the Company and its subsidiaries had
987 employees. Directors who are not employees are not
eligible to participate in the 1996 Plan, but Directors who
are also employees may participate in the 1996 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 1996 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 1996 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
1996 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 1996 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
1996 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 1996 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 1996 Plan.
BENEFITS TO EXECUTIVES
The number of options to be granted in the future to
executive officers and other employees under the 1996 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 1996 Plan, as of the Record Date:
1996 PLAN OPTIONS GRANTED AS OF NOVEMBER 20, 1996
NAME AND POSITION OPTIONS GRANTED (#)(1)
All current executive officers as a group 0
All employees as a group 311,050
(1) All 311,050 options were granted effective August 7,
1996, at an exercise price of $16.75 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 August 7, 1997.
FEDERAL INCOME TAX CONSEQUENCES
Options granted pursuant to the 1996 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 1996 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 1996 Plan (as all other Plans have been
qualified) under Rule 16b-3.
APPROVAL
Shareholder approval of the 1996 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 1996 Plan, the 1996 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, 1997. The firm (and its
predecessor) has served the Company as auditors for the
fiscal years ended September 30, 1982 through 1996.
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 1998 Annual Meeting of Shareholders must be
received by the Company no later than August 17, 1997, in
order to be included in the proxy materials for the 1998
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 13, 1996
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 27, 1997
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 27, 1997, 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 1996 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 20, 1996 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 13, 1996
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 27, 1997
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 20, 1996, at the Company's Annual Meeting of
Stockholders to be held on January 27, 1997, 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 1996 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
EXHIBIT 13.1
BALLARD MEDICAL PRODUCTS
1996 INCENTIVE STOCK OPTION PLAN
Adopted effective July 1, 1996
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 1996 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 (3) 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 1996 Incentive Stock Option
Plan was duly and regularly adopted as such by the Board of
Directors of the Company by unanimous Consent Resolution
dated effective July 1, 1996; 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 27, 1997; and that the above 1996 Incentive Stock
Option Plan is now in full force and effect.
Dated this day of , 1997.
Secretary
(Corporate
Seal)
EXHIBIT 13.2
BALLARD MEDICAL PRODUCTS
ANNUAL REPORT
1996
ABOUT THE COMPANY
Ballard Medical Products ("Ballard") is a manufacturer
and marketer of specialized medical products. Our strategy
for maintaining the Company's growth continues to focus on
the following four objectives:
- 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 national contracts
with hospital buying groups, and through expansion
in the international marketplace.
- Reducing costs through production efficiencies.
Ballard has six wholly-owned subsidiaries, MEDICAL
INNOVATIONS CORPORATION ("MIC"), BALLARD REAL ESTATE
HOLDINGS, INC. ("BREH"), BALLARD INTERNATIONAL, INC. ("BI"),
BALLARD MEDICAL PRODUCTS (CANADA) INC. dba PREFERRED MEDICAL
PRODUCTS ("PMP"), MIST ASSIST, INC. ("Mist Assist"), and
PLASTIC ENGINEERED PRODUCTS COMPANY ("PEPCO"). (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) is located in Draper, Utah. The
Company is now also operating out of a manufacturing
facility (104,000 square feet) in Pocatello, Idaho. Product
lines moved this year to the Pocatello plant include SAFETY
DRAIN, READY CARE, our DOUBLE SCRUB brush line, EASI-LAV,
and our HMEs. MIC has manufacturing facilities in Milpitas,
California; however the Company intends to move its
California operations to the Pocatello facility during the
coming fiscal year.
The Company's products are sold in 47 countries, and
the customers purchasing our products include more than
16,000 hospitals and other medical care facilities
worldwide. At September 30, 1996, Ballard and its
subsidiaries employed over 987 people in 7 countries.
The Company's common stock is traded on the New York
Stock Exchange under the symbol BMP.
1996 IN REVIEW
Fiscal year 1996 was the best year in the Company's
history. Our net sales for the year were $103,525,263,
compared to $84,152,967 for fiscal year 1995, which
represents a 23.0% increase for the year. Just as
impressive was our 22.3% growth in net income, from
$20,942,616 in fiscal year 1995 to $25,603,039 in fiscal
year 1996. Earnings per share for the year were 88.4 cents,
up 19.6% over 73.9 cents for fiscal year 1995. Our results
for the year were particularly satisfying given the
increasing pricing and competitive pressures on many of our
products.
During fiscal year 1996, sales of Ballard and MIC
products worldwide increased by 15.2% and 56.6%,
respectively, while international sales of all Company
products grew by 27.5%. We now have 10 international sales
representatives and approximately 53 international
distributors and continue to look to the international
markets as an important, exciting frontier for all of the
Company's products.
This was an active acquisition year for us. The chart
below summarizes the acquisitions we made:
DATE ACQUISITION
November, 1995 Purchased a 19.5% preferred equity
interest in Neuro Navigational Corporation
in Costa Mesa, California ("NNC"), plus a
two-year option to acquire all of the
assets of NNC. The purchase price for the
preferred shares and the option was
$2,500,000.
April, 1996 Purchased for approximately $1,220,000
cash substantially all of the assets and
business of Endovations, Inc. (out of
Pennsylvania), a wholly-owned subsidiary
of Arrow Precision Products, Inc.
July, 1996 Purchased for approximately $673,600 cash
(plus future payments which are contingent
on net sales targets being met) all of the
outstanding shares of capital stock of
Mist Assist, Inc. (out of Camarillo,
California).
August, 1996 Purchased for $3,604,440 cash (through a
newly formed Canadian subsidiary, Ballard
Medical Products (Canada), Inc.) all of
the outstanding shares of capital stock of
691555 Ontario Limited (operating as
Preferred Medical Products), and for
approximately $875,000 PMP's Thorold,
Canada manufacturing plant.
September, 1996 Acquired, in exchange for 238,727 shares
of Ballard common stock (fair market value
of approximately $4,500,000), all of the
outstanding shares of capital stock of
Plastic Engineered Products Company
("PEPCO"), located in Canal Fulton, Ohio.
The combination was accounted for as a
pooling of interests.
The products obtained through these acquisitions are
described below in "New Products".
1996 was also a banner year for the Company in another
respect. In August and September, 1996 after many months of
hard work and refinement, Ballard in Draper, Utah and in
Milpitas, California received the important ISO 9001
certification, followed by receipt in September of the CE
marking of conformity at Draper. Management believes these
key certifications will enhance the Company's ability to
market and sell its products in Europe.
This past summer, we completed construction of the
first phase (104,000 square feet) of our new manufacturing
facility in Pocatello, Idaho. The Company intends to move
its California operations (in Milpitas, California) to our
Pocatello facility sometime within the current fiscal year,
and construction is underway on phase two of our Pocatello
facility (approximately 103,000 square feet).
The Company recently secured several additional
strategic agreements, whereby certain of Ballard's products
will be sole-source products for large hospital buying
groups. Securing national contracts with key hospital
groups has become a priority to the Company. This is due to
mergers of health care providers that have taken place over
the last 18 months or so, with resulting larger and larger
groups. The Company has a team of employees who concentrate
on this ever-changing area of health care. These
individuals analyze the opportunities available within each
group, submit proposals based on that analysis and respond
to numerous requests for proposals throughout the United
States.
NEW PRODUCTS
During fiscal year 1996, our new product acquisitions
and releases included the following (for definitions of
various terms, see "GLOSSARY OF TECHNICAL AND MEDICAL
TERMS"):
ACQUIRED FROM ENDOVATIONS, INC.:
* CAN-OPT Disposable Dual-Lumen ERCP Catheter - An
endoscopic accessory used to detect gallstones by
cannulating and injecting contrast media into the biliary
duct.
* CAN-OPT Disposable Needle-Knife Papillotome - An
endoscopic accessory used to remove gall stones by incising
stenosed papillas.
* Keen Edge Disposable Biopsy Forcep - An endoscopic
device used to obtain tissue samples from the
gastrointestinal system. This differs from our "Thermal
Option" coagulating/ biopsy forcep in that it is
noncoagulating and allows us to provide a low-end
competitive product without sacrificing margins on the
"Thermal Option".
* Disposable Injection/Washing-Injection Needle - An
endoscopic accessory used to deliver fluid to specific sites
in the gastrointestinal system. Particular procedures are:
(a) Sclerotherapy - The injection of medication
into the varix to reduce or eliminate potential esophageal
bleeds; especially prevalent in alcoholics.
(b) Lesion Injection - Direct injection of a
medication into a lesion to promote healing within the GI
tract.
(c) Hemostasis - Direct injection of a coagulant
(epinephrine) into a bleeding site.
(d) Tattooing - Injection of dye to specific
sites prior to a surgical resection of the GI tract.
(e) Saline Assisted Polypectomy - Injection of
saline into base of polyp to raise polyp off mucosal floor -
reduces chance of bowel perforation.
* Disposable Irrigation Catheter - Endoscopic
accessory that delivers concentrated stream of fluid to
specific sites, usually employed to remove adhesions or
residual fecal material from colon to enhance visual
examination of underlying mucosa.
* Endo-Guard Disposable Bite Block - Endoscopic
accessory placed between a patient's teeth to protect
physician's fingers, patient's teeth and endoscope, during
gastroscopies, ERCP procedures, or mechanical esophageal
dilations.
ACQUIRED THROUGH PURCHASE OF MIST ASSIST:
* The MIST ASSIST breathing exerciser (inspiratory
flow control device), which combines inspiratory breathing
exercises, medication delivery via inhalers or nebulizers,
and expiratory breathing exercises. This combination of
therapies into one device can provide significant cost
savings to hospitals.
ACQUIRED THROUGH PURCHASE OF PMP:
* Single Shot Epidural Trays - Trays specifically
designed for steroid injections in chronic pain management
clinics. Specialty needles, and custom packaging reduce
waste and lower costs.
* Specialty Needles - Specially designed needles
allow the physician to utilize the smallest needles feasible
in order to minimize pain and complications such as spinal
headache.
* Pediatric Trays and Mini-Kits - Allow the
physician to select special products specifically designed
for the pediatric population.
* Epidural Catheters, Trays and Mini-Kits - Provide
a choice of configuration to insure the most cost effective
choices for the physician based on patient needs.
ACQUIRED THROUGH ACQUISITION OF PEPCO:
* An array of sponge-tipped, oral swabs which allow
for routine oral care in patients admitted to oncology,
critical care, surgery, and alternate care sites. The swabs
are used to clean and refreshen the mouth as well as
stimulate the gums, oral mucosa and tongue. Proper oral
care is a cornerstone to preventing nosocomial pneumonia.
OTHER
In April, 1996, we introduced a combination HME (heat
and moisture exchanger) and filter (manufactured for Ballard
by Datex-Engstrom AB) to provide both effective
humidification and patient protection from airborne
bacteria.
CONTINUING PRODUCTS
The Company's strong commitment to acquisitions,
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 products (for definitions of
various terms, see "GLOSSARY OF TECHNICAL AND MEDICAL
TERMS"):
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 have been offered by the Company since
December, 1993. The HMEs (manufactured for Ballard by
Datex- Engstrom AB) provide a means of humidifying the
patient's airways during ventilation and are sold with our
TRACH CARE catheter. The Company is Engstrom'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 places
the Company firmly 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 successful MIC-KEY SKIN LEVEL GASTROSTOMY
FEEDING KIT 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.
* A pediatric version of the MIC TRANSGASTRIC
JEJUNAL TUBE allows for simultaneous gastric decompression
and jejunal feeding. The prior, adult version has shown
strong growth in the adult arena.
* The MIC-PEG (percutaneous endoscopic gastrostomy)
feeding tube allows for greater formula flow rates and
minimizes the possibility of clogging, a common problem
encountered with smaller feeding tubes.
* 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
forcep 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.
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 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
As noted above, the Company's first phase of
construction in Pocatello, Idaho (104,000 square feet) was
completed this past summer (at a total construction cost of
approximately $7,243,000), and construction of a second
phase (at an estimated construction cost of $5,200,000) is
now under way. Also during this past fiscal year, the
Company's Ventura, California operation was consolidated
into our MIC operations in Milpitas, California.
Also during fiscal year 1996 the Company continued to
upgrade and improve its manufacturing operations.
Expenditures in this area included the following (at a total
cost of approximately $1,700,000):
* 9 new automated assembly machines (designed and
constructed at our Draper, Utah facility), targeted (1) to
assist in labor-intensive assembly areas; (2) to improve
product quality; and/or (3) to improve ergonomics.
* 22 TRACH CARE manifold assembly machines,
constructed to address ergonomic issues.
* A new packaging machine for our FOAM CARE DOUBLE
SCRUB brush line.
* A new CNC lathe, intended to make certain
manufacturing processes more efficient.
* New Cad/Cam software, which enables designers to
improve manufacturing processes in several important
respects.
* Extrusion equipment, as a vertical integration
measure, intended to enable us to extrude our own smooth
bore and corrugated popoid tubing.
* New molding equipment, including molding presses,
resin dryers, grinders, conveyor separators, a sprue picker,
and an overhead crane.
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
9/30/96 $7,871,946
9/30/95 $6,172,904
9/30/94 $4,672,611
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 1996 and 1995:
<TABLE>
<CAPTION>
FISCAL YEAR 1996 FISCAL YEAR 1995
QUARTER HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First Quarter 18 1/8 15 3/8 11 1/8 9
Second Quarter 18 5/8 15 1/8 12 7/8 10 1/8
Third Quarter 20 5/8 18 13 5/8 10 3/4
Fourth Quarter 19 1/2 16 1/4 17 1/2 12 5/8
</TABLE>
On November 20, 1996, the closing quotation for the
Company's Common Stock, as reported by the WALL STREET
JOURNAL, was 16 3/4 high and 16 3/8 low. As of November 20,
1996, there were approximately 1,291 holders of the
Company's Common Stock (based upon the number of record
holders and including individual participants in security
position listings).
DIVIDENDS
Ballard has paid the following cash dividends during
the two most recent fiscal years:
DIVIDEND
RECORD DATE PAYMENT DATE PER SHARE
December 12, 1994 December 28, 1994 $.0600
December 18, 1995 January 3, 1996 $.0800
FINANCIAL HIGHLIGHTS
SELECTED CONSOLIDATED FINANCIAL DATA (1)(2)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net Sales $103,525,263 $84,152,967 $67,051,628 $66,532,017 $50,914,956
Other
Income,
Net 5,308,873 4,101,037 3,518,832 3,711,891 2,487,703
Net Income 25,603,039 20,942,616 16,594,198 18,906,755 13,659,533
Net Income
Per Common
Share (3) .88 .74 .55 .69 .48
Total
Assets 142,465,088 113,702,547 93,243,187 80,764,500 59,122,109
Cash
Dividends
Declared
Per Share
(4) .095 .074 .060 .045 .035
</TABLE>
(1) The consolidated financial data shown above includes
the accounts of Ballard and its wholly-owned
subsidiaries, MIC, BREH, BI, PMP, Mist Assist, and
PEPCO. The accounts of PMP are included as of August
28, 1996 and the accounts of Mist Assist are included
as of July 19, 1996, which reflect their respective
acquisition dates.
(2) The combination of Ballard and PEPCO was accounted for
as a pooling of interests. The selected consolidated
financial data have been prepared as if Ballard and
PEPCO had been combined for all periods presented.
(3) Does not include the cumulative effect of a change in
accounting for income taxes in fiscal year 1994.
(4) Includes dividends paid by PEPCO.
SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (1)(2)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR 1996 9/30/96 6/30/96 3/31/96 12/31/95
QUARTERS ENDED:
<S> <C> <C> <C> <C>
Net Sales $27,201,315 $26,845,811 $25,807,593 $23,670,544
Gross Margin 17,627,601 17,609,148 16,988,822 15,565,514
Net Income 6,764,594 6,676,160 6,445,696 5,716,589
Net Income Per
Common Share .236 .232 .225 .200
FISCAL YEAR 1995
QUARTERS ENDED: 9/30/95 6/30/95 3/31/95 12/31/94
Net Sales $22,417,272 $21,979,398 $20,683,206 $19,073,091
Gross Margin 15,106,576 14,645,937 13,770,825 12,559,279
Net Income 5,717,378 5,452,310 5,167,721 4,605,207
Net Income Per
Common Share .201 .195 .185 .167
</TABLE>
(1) See additional analysis of net sales, margins, and net
income in "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(2) See footnote explanations to "Selected Consolidated
Financial Data."
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, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended
September 30, 1996. 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years
in the period ended September 30, 1996 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 8, 1996
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $14,164,103 $27,555,330
Investments (Notes 1 and 2) 26,662,598 18,357,304
Accounts receivable - trade
(less allowance for doubtful
accounts: 1996 - $182,000,
1995 - $125,000; and allowance
for sales returns: 1996 -
$805,000, 1995 - $500,000) 19,944,055 13,773,277
Royalties receivable 1,351,885 447,282
Other receivables 636,291 1,223,871
Inventories (Note 1):
Raw materials 7,171,048 3,825,405
Work-in-process 3,913,804 2,291,374
Finished goods 2,760,008 5,245,852
Deferred income taxes (Notes 1 and 4) 1,057,303 593,313
Income tax refund receivable
(Notes 1 and 4) 3,274,000 2,103,570
Prepaid expenses 169,431 232,315
Total current assets 81,104,526 75,648,893
PROPERTY AND EQUIPMENT
(Notes 1 and 6):
Land 3,944,701 1,849,511
Buildings 20,131,728 11,886,512
Molds 3,608,228 2,539,615
Machinery and equipment 9,192,269 8,306,448
Vehicles 1,039,175 535,547
Furniture and fixtures 2,081,200 1,436,563
Leasehold improvements 302,394 258,488
Construction in process 3,053,296 1,234,998
Total 43,352,991 28,047,682
Less accumulated depreciation (8,058,401) (6,035,636)
Property and equipment - net 35,294,590 22,012,046
INTANGIBLE ASSETS:
Cost in excess of purchase price
(less accumulated amortization:
1996 - $3,212,520; 1995 -
$2,161,887) (Notes 1 and 8) 15,644,651 11,655,058
Patents and other intangibles
(less accumulated amortization:
1996 - $711,431; 1995 -
$495,889) 5,012,157 3,452,543
Total intangible assets 20,656,808 15,107,601
OTHER ASSETS (Note 8) 5,409,164 934,007
TOTAL $142,465,088 $113,702,547
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $2,273,674 $1,152,790
Accrued liabilities:
Employee compensation 1,985,135 2,314,504
Royalties 326,492 344,712
Other 845,183 465,926
Total current liabilities 5,430,484 4,277,932
DEFERRED INCOME TAXES (Notes 1 and 4) 1,110,764 223,757
Total liabilities 6,541,248 4,501,689
COMMITMENTS AND CONTINGENT
LIABILITIES (Notes 6 and 8)
STOCKHOLDERS' EQUITY (Notes 1, 5, and
8): Common stock - $.10 par value;
75,000,000 shares authorized;
issued and outstanding:
1996 - 27,702,323 shares,
1995 - 26,800,014 shares 2,770,232 2,680,002
Additional paid-in capital 38,935,892 29,209,774
Unrealized losses on investments
(Notes 1 and 2) (156,564) (142,728)
Retained earnings 94,374,280 77,453,810
Total stockholders' equity 135,923,840 109,200,858
TOTAL $142,465,088 $113,702,547
</TABLE>
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1995 1994
(Notes 1 (Notes 1
1996 and 8) and 8)
<S> <C> <C> <C>
NET SALES
(Notes 1, 8, and 9) $103,525,263 $84,152,967 $67,051,628
COST OF PRODUCTS SOLD 35,734,178 28,070,350 22,193,542
GROSS MARGIN 67,791,085 56,082,617 44,858,086
OPERATING EXPENSES:
Selling, general and
administrative 28,286,793 24,429,181 21,696,098
Research and development 2,903,805 2,177,117 1,638,475
Royalties (Note 6) 1,539,200 1,385,841 1,404,681
Total operating
expenses 32,729,798 27,992,139 24,739,254
OPERATING INCOME 35,061,287 28,090,478 20,118,832
OTHER INCOME:
Interest income 1,917,925 1,923,257 772,645
Royalty income 2,400,000 2,147,620 2,204,347
Other 990,948 30,160 541,840
Total other income 5,308,873 4,101,037 3,518,832
INCOME BEFORE
INCOME TAX EXPENSE 40,370,160 32,191,515 23,637,664
INCOME TAX EXPENSE
(Notes 1 and 4) 14,767,121 11,248,899 8,446,698
INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 25,603,039 20,942,616 15,190,966
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE (Notes 1
and 4) 1,403,232
NET INCOME (Note 8) $25,603,039 $20,942,616 $16,594,198
INCOME PER SHARE BEFORE
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE (Note 1):
Common and common
equivalent share $0.895 $0.752 $0.555
Common share assuming
full dilution $0.884 $0.739 $0.553
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE PER SHARE
(Note 1):
Common and common
equivalent share None None $0.051
Common share assuming
full dilution None None $0.051
NET INCOME PER SHARE
(Note 1):
Common and common
equivalent share $0.895 $0.752 $0.606
Common share assuming
full dilution $0.884 $0.739 $0.604
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING
(Note 1):
Common and common
equivalent share 28,614,136 27,844,111 27,371,540
Common share assuming
full dilution 28,968,855 28,339,946 27,462,702
</TABLE>
See notes to consolidated financial statements.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
Unrealized
Additional Losses on
Common Paid-in Invest- Retained
Shares Amount Capital ments Earnings
<S> <C> <C> <C> <C> <C>
BALANCE
OCTOBER
1, 1993
(as pre-
viously
reported) 26,114,250 $2,611,425 $24,983,195 $44,871,841
Pooling
of
interest
combina-
tion
(Notes 1
and 8) 238,727 23,873 (3,873) 324,647
BALANCE
OCTOBER
1, 1993
(as
restated) 26,352,977 2,635,298 24,979,322 45,196,488
Net
income 16,594,198
Cash
divi-
dends
paid (1,590,083)
Common
stock
issued
from
exercise
of stock
options
(Note 5) 361,612 36,161 1,511,520
Acqui-
sition
and
retire-
ment of
treasury
stock
(Note 5) (20,000) (2,000) (241,081)
Tax
benefit
attri-
butable
to appre-
ciation
in value
of stock
issued in
conjunc-
tion with
the exer-
cise and
disquali-
fying
dispo-
sitions
of incen-
tive
stock
options 1,796,546
BALANCE
SEPTEM-
BER 30,
1994 26,694,589 2,669,459 28,287,388 59,959,522
Net
income 20,942,616
Cash
divi
dends
paid (1,983,343)
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
conjunc-
tion with
the exer-
cise and
dis-
quali-
fying
dispo-
sitions
of incen-
tive
stock
options 489,517
Unre-
alized
losses on
invest-
ments
(Notes 1
and 2) $(142,728)
BALANCE
SEPTEM-
BER 30,
1995 26,800,014 2,680,002 29,209,774 (142,728) 77,453,810
Net
income 25,603,039
Cash
divi-
dends
paid (2,556,148)
Common
stock
issued
from
exer-
cise
of stock
options
(Note 5) 1,252,309 125,230 9,689,509
Acqui-
sition
and
retire-
ment of
trea-
sury
stock
(Note 5) (350,000) (35,000) (6,126,421)
Tax
benefit
attri-
butable
to appre-
ciation
in value
of
stock
issued
in con-
junc-
tion
with the
exercise
and
dis-
qual-
ifying
dispo-
sitions
of incen-
tive
stock
options 36,609
Unre-
alized
losses
on
invest-
ments
(Notes 1
and 2) (13,836)
BALANCE
SEPTEM-
BER 30,
1996 27,702,323 $2,770,232 $38,935,892 $(156,564) $94,374,280
</TABLE>
See notes to consolidated financial statements.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING
ACTIVITIES:
Net income $25,603,039 $20,942,616 $16,594,198
Adjustments to
reconcile net
income to net
cash provided by
operating
activities:
Depreciation and
amortization 3,932,373 3,116,862 2,477,007
(Gain) loss on
disposal of
property (446,320) 7,044 110,479
Tax benefit from
disqualifying
dispositions of
incentive stock
options 36,609 489,517 1,796,546
Provision for
losses on
accounts
receivable -
trade and sales
returns 355,000 225,000 200,000
Cumulative effect
of change in
accounting
principle (Note (1,403,232)
1)
Deferred income
taxes 442,122 373,655 828,489
Changes in
operating assets
and liabilities-
net of effects
from purchase of
subsidiaries in
1996 and 1995:
Accounts
receivable -
trade (6,150,608) (29,707) 2,686,146
Royalties and
other receivables (167,553) 52,484 (757,909)
Inventories (1,323,492) (1,398,153) (2,051,813)
Income tax refund
receivable <1,170,430> 897,815 929,232
Prepaid expenses 105,898 (196,526) (430,813)
Accounts payable 807,483 156,861 (1,525,061)
Accrued
liabilities 19,180 1,126,009 (3,707,205)
Total
adjustments (3,559,738) 4,820,861 (848,134)
Net cash
provided by
operating
activities 22,043,301 25,763,477 15,746,064
CASH FLOWS FROM
INVESTING
ACTIVITIES:
Capital
expenditures for
property and
equipment (15,292,194) (2,769,625) (6,366,900)
Proceeds from
sales of property
and equipment 564,418 45,250 5,899
Purchases of
investments (30,569,641) (38,534,828) (29,744,216)
Investment in
and advances to
affiliates
(Note 8) (4,462,625) (800,000)
Proceeds from
maturities of
investments 22,231,406 36,288,627 20,485,633
Purchases of
intangible assets (2,854,344) (1,330,188) (245,801)
Purchases of
other assets (12,532) (109,579)
Payments for
purchase of
subsidiaries,
net of cash
acquired (5,618,432) (3,283,650) (500,000)
Net cash used
in investing
activities (36,013,944) (10,493,993) (16,365,385)
CASH FLOWS FROM
FINANCING
ACTIVITIES:
Cash dividends
paid (2,556,148) (1,983,343) (1,590,083)
Proceeds from
issuance of
common stock and
exercise of
options 9,814,739 453,412 1,547,681
Purchase of
treasury stock (6,161,421) (1,474,985) (243,081)
Repayment of
long-term debt
assumed in
acquisitions (517,754) (18,446) (50,308)
Net cash
provided by
(used in)
financing
activities 579,416 (3,023,362) (335,791)
NET INCREASE
(DECREASE) IN
CASH AND CASH
EQUIVALENTS (13,391,227) 12,246,122 (955,112)
CASH AND CASH
EQUIVALENTS,
BEGINNING OF YEAR 27,555,330 15,309,208 16,264,320
CASH AND CASH
EQUIVALENTS, END
OF YEAR $14,164,103 $27,555,330 $15,309,208
SUPPLEMENTAL
DISCLOSURE OF
CASH FLOW
INFORMATION -
Cash paid during
the year for
income taxes $15,458,820 $9,487,912 $7,571,800
</TABLE>
See notes to consolidated financial statements.
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
On September 27, 1996, the Company entered into a
business combination with Plastic Engineered Products
Corporation in exchange for 238,727 shares of the Company's
common stock. This transaction has been accounted for by
the Company as a "pooling" and as such, the Company's
accompanying consolidated financial statements as of
September 30, 1996 and 1995 and for the three years in the
period ended September 30, 1996 have been restated as if
this transaction had occurred on October 1, 1993. In
addition, during the year ended September 30, 1996, the
Company entered into three acquisition transactions
accounted for as purchases as follows (see Note 8):
* On April 19, 1996, the Company acquired substantially
all of the assets of Endovations, Inc, for
approximately $1,220,000 cash. In conjunction with
this purchase, the Company recorded goodwill of
approximately $400,000 and the fair market value of
assets acquired approximately $820,000.
* On July 19, 1996, the Company purchased all of the
outstanding capital stock of Mist Assist, Inc. for
approximately $673,600 cash. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired
(including goodwill of $680,000) $800,000
Cash paid 673,600
Liabilities assumed $126,400
* On August 28, 1996, the Company purchased all of the
outstanding capital stock of Preferred Medical Products
for approximately $3,600,000 cash (see Note 8). In
conjunction with the acquisition, liabilities were
assumed as follows:
Fair value of assets acquired
(including goodwill of $2,900,000) $4,320,970
Cash paid 3,604,440
Liabilities assumed $716,530
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 years ended September 30, 1996 and 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 $32,941 and $219,582,
respectively. The effect of this adjustment in 1996 and
1995 was a decrease in stockholders' equity in the amount of
$13,836 and $142,728 and an increase in current deferred
income taxes in the amount of $19,105 and $76,854 for the
years ended September 30, 1996 and 1995, respectively.
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
specialized medical products.
BASIS OF PRESENTATION - The consolidated financial
statements include the accounts of Ballard and its wholly-
owned subsidiaries, Medical Innovations Corporation (MIC),
Ballard Real Estate Holdings (BREH), Ballard International,
Inc. (BI), Plastic Engineered Products Company (PEPCO),
Ballard Medical Products (Canada) Inc. dba Preferred Medical
Products (PMP), and Mist Assist, Inc. (MAI) (see Note 8)
(collectively, the "Company"). All significant intercompany
accounts and transactions have been eliminated in
consolidation.
During the year ended September 30, 1996, the Company
entered into a business combination with PEPCO, in exchange
for 238,727 shares of the Company's common stock. This
transaction has been accounted for by the Company as a
"pooling", and as such, the Company's accompanying
consolidated financial statements as of September 30, 1996
and 1995 and for the three years in the period ended
September 30, 1996 have been restated as if this transaction
had occurred on October 1, 1993 (see Note 8).
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS -
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
INVESTMENTS - Investments consist of tax free municipal
bonds. 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 of
cost (on a first-in, first-out basis) or market.
PROPERTY AND EQUIPMENT - Property and equipment are
stated at cost. Depreciation is computed on the straight-
line method over the estimated useful lives as follows:
Buildings 30 to 40 years
Molds 5 years
Machinery and equipment 5 to 10 years
Vehicles 3 to 5 years
Furniture and fixtures 3 to 5 years
Leasehold improvements 3 to 5 years
INTANGIBLE ASSETS - Intangible assets include goodwill,
patent rights, and license 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. The Company records an
allowance for estimated sales returns.
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.
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 for all periods presented for the
acquisition by the Company of PEPCO in 1996 (see Note 8).
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.
OTHER - Certain reclassifications have been made to the
prior year financial statements to conform to
classifications adopted in the current year.
2. INVESTMENTS
Investments at September 30, 1996 and 1995 consist of
municipal bonds.
The amortized cost and fair value of investments at
September 30, 1996 and 1995, classified as available-for-
sale, is as follows:
1996 1995
Amortized cost $26,915,121 $18,576,886
Gross unrealized
gains None None
Gross unrealized
losses (252,523) (219,582)
Fair value $26,662,598 $18,357,304
As of September 30, 1996 and 1995, all municipal bonds
had a contractual maturity of one year or less. During the
year ended September 30, 1996 and 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, 1996, the Company had an unused,
unsecured line of credit with a bank totaling $5,000,000
which expires February 15, 1997. The line, if drawn upon,
bears interest at the bank's base rate (8.25% at September
30, 1996). No compensating cash balances are required. As
of September 30, 1996 and during the year then ended, there
were no borrowings under the line of credit.
4. INCOME TAXES
The Company has recorded current deferred tax assets
and net long-term deferred tax liabilities at September 30,
1996 and 1995 as follows:
<TABLE>
<CAPTION>
1996 1995
Current Long-Term Current Long-Term
<S> <C> <C> <C> <C>
Deferred income
tax assets $1,057,303 $99,562 $593,313 $452,323
Deferred income
tax liabilities (1,210,326) (676,080)
Net $1,057,303 $(1,110,764) $593,313 $(223,757)
</TABLE>
Net deferred income tax assets and liabilities at
September 30, 1996 and 1995 consisted of the following
temporary differences and carryforward items:
<TABLE>
<CAPTION>
1996 1995
Current Long-Term Current Long-Term
<S> <C> <C> <C> <C>
Deferred income tax
assets:
Allowance for
uncollectible
accounts receivable $69,121 $47,513
Allowance for
sales returns and
allowances 305,729 190,050
Allowance for
obsolete inventory 185,277 49,585
Accrued expenses 168,549 214,506
Unrealized losses on
investments 95,959 76,854
Net operating loss
carryforwards of
acquired 121,442 $99,562 14,805 $341,097
subsidiaries
Research and
development credits 111,226 111,226
1,057,303 99,562 593,313 452,323
Deferred income tax
liabilities -
differences between
tax basis and
financial reporting
basis of property
and equipment (1,210,326) (676,080)
Total $1,057,303 $(1,110,764) $593,313 $(223,757)
</TABLE>
The components of income tax expense for the years
ended September 30, 1996, 1995, and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current:
Federal $12,421,679 $9,425,942 $6,685,047
State 1,903,320 1,449,302 933,162
14,324,999 10,875,244 7,618,209
Deferred:
Federal 402,473 323,859 727,007
State 39,649 49,796 101,482
442,122 373,655 828,489
Total $14,767,121 $11,248,899 $8,446,698
</TABLE>
Income tax expense differed from amounts computed by
applying the statutory Federal tax rate to pretax income as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Computed
Federal income
tax expense at
statutory rate $14,129,556 $11,082,432 $8,128,345
State income
tax expense,
net of federal
benefit 1,317,054 990,493 661,806
Environmental
tax 16,614 30,000 25,000
Tax exempt
income (553,876) (624,750) (210,000)
Foreign sales
corporation (236,250) (121,756) (126,000)
Amortization
of goodwill 335,763 316,969 278,773
Other (241,740) (424,489) (311,226)
Total $14,767,121 $11,248,899 $8,446,698
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 $578,000, which can
only be used to offset future taxable income of acquired
subsidiaries. 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
During the years ended September 30, 1996, 1995, and
1994, the Company repurchased 350,000, 100,000, and 20,000
shares of its outstanding common stock for $6,161,421,
$1,474,985, and $243,081, respectively. In accordance with
Utah State law, this treasury stock was accounted for as
retired common stock.
The Company has adopted several incentive stock option
plans for key employees and reserved shares of common stock
totaling approximately 2,926,400 and 3,483,000 at September
30, 1996 and 1995, 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>
<TABLE>
<CAPTION>
<S> <C> <C>
Price Range
1996 Shares Per Share
Granted 516,900 $15.25-$17.25
Expired 78,200 $8.63-$17.25
Exercised 1,252,309 $1.46-$11.63
Outstanding at
September 30 2,517,553 $1.46-$16.75
Exercisable 1,799,351 $1.46-$16.75
1995
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
</TABLE>
6. COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases office and production facilities and
office equipment under long-term operating lease agreements.
Rent expense on the above operating leases was approximately
$671,010, $456,990, and $316,469 for the years ended
September 30, 1996, 1995, and 1994, respectively. The
following represents the Company's future commitments under
such leases:
1997 $495,798
1998 335,406
1999 95,480
2000 85,200
2001 86,560
Thereafter 499,140
Total $1,597,584
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.
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
first phase of construction was completed during fiscal year
1996 at a total cost of approximately $7,200,000. The
second phase of construction began in August, 1996 with an
anticipated cost of construction of $5,200,000.
Construction of the second phase is anticipated to be
completed in May, 1997.
7. PROFIT SHARING PLAN
The Company sponsors an 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,
1996, 1995, and 1994, the Company expensed approximately
$621,000, $545,000, and $372,000, 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. BUSINESS COMBINATIONS
On September 27, 1996, the Company issued 238,727
shares of its common stock in exchange for all of the
outstanding common stock of PEPCO, a medical research and
manufacturing company incorporated in 1987 and headquartered
in Canal Fulton, Ohio. The assets and liabilities of PEPCO
at the date of combination were approximately $684,000 and
$88,000 respectively. The combination was accounted for as
a pooling of interests. The accompanying consolidated
financial statements have been prepared as if Ballard and
PEPCO had been combined for all periods presented. There
were no intercompany transactions between Ballard and PEPCO
prior to the date of merger. Net sales, net income, and net
income per share amounts of the previously separate
companies for the years ended September 30, 1995 and 1994 as
previously reported and combined are as follows:
The Company
as Previously
1995 Reported PEPCO As Restated
Net sales $81,762,142 $2,390,825 $84,152,967
Net income 20,415,191 527,425 20,942,616
Net income
per share 0.73 0.09 0.739
1994
Net sales $65,062,801 $1,988,827 $67,051,628
Net income 16,180,377 413,821 16,594,198
Net income
per share 0.59 0.014 0.604
On April 19, 1996, the Company acquired substantially
all of the assets of Endovations, Inc. ("Endovations") for
approximately $1,220,000 in cash. The acquisition has been
accounted for using the purchase method of accounting; as
such, Endovations' results of operations have been included
in the accompanying consolidated financial statements from
the date of acquisition. In conjunction with this
acquisition, the Company recorded goodwill of approximately
$400,000, which is being amortized on a straight-line basis
over 10 years.
Effective July 19, 1996, the Company acquired all of
the issued and outstanding common stock of MAI for
approximately $673,600 in cash and the assumption of
liabilities totally approximately $126,400. The acquisition
has been accounted for using the purchase method of
accounting; as such, results of operations have been
included in the accompanying consolidated financial
statements from the date of acquisition. In conjunction
with the acquisition, the Company recorded goodwill of
approximately $680,000, which is being amortized on a
straight-line basis over 15 years.
On August 28, 1996, the Company acquired all of the
issued and outstanding common stock of PMP for cash
approximately $3,600,000. The acquisition has been
accounted for using the purchase method of accounting; as
such, results of operations have been included in the
accompanying consolidated financial statements from the date
of acquisition. In conjunction with the acquisition, the
Company recorded goodwill of approximately $2,900,000 which
is being amortized on a straight-line basis over 15 years.
The pro forma results of operations of the Company for
the years ended September 30, 1996 and 1995 (assuming the
acquisitions of Endovations, MAI and PMP had occurred as of
October 1, 1994) are as follows:
1996 1995
Net sales $107,510,270 $87,881,669
Net income $26,400,040 $21,842,691
Net income per share $0.911 $0.771
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; 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.
On November 14, 1995, the Company acquired 200,000
shares of the preferred stock of Neuro Navigational
Corporation (Neuro) representing a 19.5% equity interest in
Neuro for $2,000,000. As of September 30, 1995, the Company
had made interest-bearing advances to Neuro in the amount of
$800,000. These advances are included 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, 1996.
During the year ended September 30, 1996, the Company
made advances to Neuro in the form of promissory notes
totaling $2,492,110. Interest accrues on the unpaid
principal balance at a rate of 10% per annum. The entire
unpaid principal balance and accrued, but unpaid, interest
are due on January 19, 1997. 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. The $2,000,000
purchase price of the preferred stock, the advances in the
amount of $2,492,110 and the $500,000 paid for the option
are included in the caption "Other Assets" in the
accompanying consolidated balance sheet as of September 30,
1996.
9. SALES
During the years ended September 30, 1996, 1995, and
1994, the Company had foreign export sales of approximately
$7,900,000, $6,200,000, and $4,700,000, 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, 1995. 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.
In March 1995, the FASB issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". This statement
addresses the accounting for the impairment of long-lived
assets, such as premises, furniture and equipment, certain
identifiable intangibles and goodwill related to those
assets. Long-lived assets and certain identifiable
intangibles are to be reviewed for impairment whenever
events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An
impairment loss is recognized when the sum of the future
cash flows (undiscounted and without interest charges
expected from the use of the asset and its eventual
disposition) is less than the carrying amount of the asset.
The statement also requires that long-lived assets and
identifiable intangibles, except for assets of a
discontinued operation held for disposal, be accounted for
at the lower of cost or fair value less cost to sell. SFAS
No. 121 is effective for fiscal years beginning after
December 15, 1995. The impact of SFAS No. 121 on the
Company is not expected to be material in relation to the
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, 1996, 1995, and 1994,
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 combination (treated as a pooling of
interests) with PEPCO on September 27, 1996, the purchase of
100% of the outstanding stock of PMP on August 28, 1996, the
purchase of 100% of the outstanding stock of Mist Assist on
July 19, 1996, the purchase of the assets of Endovations on
April 19, 1996, and the purchase of the assets of Cox
Medical Products, Inc. on May 1, 1995.
SUMMARY
Fiscal year 1996 was a another record year for the
Company in terms of sales and net income. Net sales were
$103.5 million, representing an increase of 23.0% over
fiscal 1995. Net income and net income per share were $25.6
million and $.88, respectively, increasing 22.3% and 19.6%,
respectively, over fiscal year 1995. The growth is the
result of an aggressive acquisition program, internal
development of new products, expansion in the international
marketplace, and the overall efforts of an outstanding sales
force.
It was an active acquisition year for the Company. In
April 1996, the Company acquired the assets of Endovations,
Inc., which included a line of products used in the hospital
GI environment. In July 1996, the Company acquired all of
the outstanding stock of Mist Assist, a manufacturer of the
MIST ASSIST inspiratory flow control device. Effective
August 1996, the Company acquired PMP, a Canadian
manufacturer of disposable pain therapy products. And in
September 1996 the Company combined (in a pooling of
interests) with PEPCO, a manufacturer of oral hygiene
products for critically ill patients.
The Company generally reports internally and focuses
its sales efforts on two separate business units: (1) TRACH
CARE/EASI-LAV ("TRACH CARE") which includes the TRACH CARE
and EASI-LAV families of products as well as the new
additions from the acquisitions of Mist Assist, Preferred
Medical and PEPCO; and (2) MIC/FOAM CARE ("MIC") which
includes the MIC, FOAM CARE and Cox families of products as
well as the new product line additions acquired from
Endovations.
RESULTS OF OPERATIONS
SALES - For the year ended September 30, 1996,
consolidated net sales increased $19,372,296, or 23.0%, over
fiscal year 1995. For the year ended September 30, 1995,
consolidated net sales increased $17,101,339 or 25.5%, over
fiscal year 1994. The solid growth in 1996 is due
principally to increases in volume, although prices on
isolated TRACH CARE and MIC products and accessories
increased from 3% to 5%. Despite these isolated price
increases, pricing for other products during 1996 was
reduced in order to meet competition and price reductions
required by hospitals and large buying groups. The Company
is receiving particular pricing pressure on its TRACH CARE
product line.
The Company's MIC enteral feeding catheters and related
products contributed significantly to the overall growth in
net sales, as did expansion of the Company's international
operations. Net sales within the MIC product line increased
37.1% in fiscal 1996 over fiscal 1995 while international
net sales (all products) increased 27.5% during the same
period.
The following table summarizes sales by product family
as a percentage of net sales:
Year ended September 30, 1996 1995 1994
Trach Care 64.8% 68.5% 70.8%
MIC 35.2% 31.5% 29.2%
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, 1996 or 1995.
COST OF PRODUCTS SOLD - For the year ended September
30, 1996, consolidated cost of products sold totaled
$35,734,178, compared with $28,070,350 for fiscal year 1995
and $22,193,542 for fiscal year 1994, increases of 27.3% and
26.5%, respectively. For the year ended September 30, 1996,
the increased costs are principally a result of start up
manufacturing costs associated with the Company's new Idaho
manufacturing facility, the impact of the combination with
PEPCO and other acquisitions with lower initial margins, and
continued increases in material and labor costs. Margins
continue to be impacted by the health market's focus on cost
restraints and competitive pricing resulting in increased
product rebates and price reductions. The increase in cost
of products sold for the year ended September 30, 1995 was
proportionate to the increase in net sales.
During the year the Company continued to refine and
automate its manufacturing processes as well as expand its
injection molding capacity. Gross margins will continue to
be impacted by pricing pressures, new product acquisitions,
and increases in labor and materials. Margins will also be
impacted in fiscal year 1997 by the Company's planned move
of its MIC operations to Pocatello, Idaho.
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, 1996
were $32,729,798, compared with $27,992,139 for fiscal year
1995 and $24,739,254 for fiscal year 1994. The following is
a summary of operating expenses by category as a percentage
of net sales:
Year ended September 30, 1996 1995 1994
Selling, general, and
administrative 27.3% 29.0% 32.4%
Research and development 2.8% 2.6% 2.4%
Royalties 1.5% 1.6% 2.1%
Selling, general, and administrative expenses as a
percentage of net sales decreased each of the last two years
due to increased product sales and efforts to control costs.
Consolidated expenses related to research and development
and royalties, as a percentage of consolidated net sales for
fiscal years 1996, 1995, and 1994, remained fairly
consistent.
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. In addition,
effective September 30, 1996, the Company sold its SAFETY
SHIELD product line to Tecnol Medical Products, Inc. for a
cash sales price of approximately $602,000.
For the year ended September 30, 1996 consolidated
other income totaled $5,308,873, compared with $4,101,037
for fiscal year 1995 and $3,518,832 for fiscal year 1994.
The increase each period is primarily due to increased
interest income earned from the Company's investment of its
excess cash reserves. Royalty income remained relatively
consistent between the periods at $2,400,000, $2,147,620,
and $2,204,347 for 1996, 1995, and 1994, respectively.
NET INCOME - Consolidated net income from operations
for the year ended September 30, 1996 totaled $25,603,039,
an increase of 22.3% over fiscal year 1995. The following
table reflects net income as a percent of net sales for each
of the reporting periods:
Year ended September 30, 1996 1995 1994
Net Income 24.7% 24.9% 24.7%
The overall increase in net income over the prior
period and the outstanding after-tax net income reflects the
increased sales volume, continued strong margins, and
management's efforts to control the costs of manufacturing
products and other operating costs.
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).
For the year ended September 30, 1996 the Company's
operating activities provided $22,043,301 in cash and cash
equivalents, comparable to the $25,763,477 provided during
fiscal year 1995. At September 30, 1996, working capital
totaled $75,674,042 compared with $71,370,961 at September
30, 1995. The Company's current ratio was 14.9 to 1 at
September 30, 1996 compared with 17.7 at September 30, 1995.
Available cash, which includes cash and cash equivalents and
investments available-for-sale, at September 30, 1996
totaled $40,826,701 compared with $45,912,634 at September
30, 1995. In addition to its strong liquid position, the
Company does not have any long-term debt nor does management
intend to utilize debt to fund future expansion. The
Company maintains a $5,000,000 unsecured line of credit with
its bank but has not drawn on this line during either of the
years ended September 30, 1996 or 1995.
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.
During the year ended September 30, 1996, the Company
completed the first phase of its manufacturing facility in
Pocatello, Idaho. See discussion of Pocatello facility
under "1996 in Review". Total development and construction
costs of the first phase of the facility totaled
approximately $7,243,000. The internal build-out of the
first phase of the Pocatello facility should be completed
during the second quarter of fiscal year 1997 at an
estimated construction cost of $800,000. The second phase
of construction of the Idaho facility is expected to cost
approximately $5,200,000 and should also be completed near
the end of the second quarter of fiscal year 1997.
Additionally, the Company expended approximately $8,049,000
million during fiscal year 1996 to expand and upgrade
existing facilities and operations in order to meet the
growing needs of present and new business. Other than the
construction projects mentioned above, no other material
commitments for capital expenditures existed as of September
30, 1996.
Cash outlays for acquisitions, net of cash acquired,
included approximately $673,600 for Mist Assist, $5,200,000
for PMP and the purchase of related assets, and $1,220,000
for Endovations. During 1996, the Company completed the
acquisition of a 19.5% equity interest in NNC by the
purchase of stock for $2,000,000. In addition, the Company
acquired, for $500,000, an option to acquire all of the
assets of NNC. Throughout the year, the Company advanced
$2,880,000 (an additional $800,000 had been advanced during
fiscal year 1995) to NNC to help fund NNC's operations.
This sum was advanced as a secured loan, in bi-weekly draws
ranging between $25,000 and $150,000. As of September 30,
1996 $1,275,000 plus accrued interest (at 10% per annum) of
$20,637 had been repaid to the Company. The balance owed by
NNC to the Company at September 30, 1996 was $2,492,110
($2,405,000 principal plus $87,100 in accrued interest).
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.
In addition to capital and acquisition expenditures,
other items which affected cash flows during fiscal year
1996 included the purchase of the Company's own stock for
$6.2 million, the payment of dividends of $2.6 million, and
net purchases of investments available-for-sale net of
maturities of $8.3 million.
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 an excision of a small piece of living tissue
for microscopic examination.
3. Cannulate is to introduce a cannula through a
passageway.
4. 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.
5. 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.
6. Coagulate means to solidify or change from a fluid
state to a semisolid mass.
7. Cytology brush is a brush used to collect cell samples
from the gastrointestinal or pulmonary tract.
8. Endoscope is an instrument consisting of a tube and
optical system used in the examination of a hollow
organ or cavity.
9. Endoscopic refers to a procedure performed by means of
an endoscope.
10. Endoscopy is an examination of organs or cavities by
use of an endoscope.
11. Endotracheal tube is a tube inserted into the patient's
upper airway allowing medical ventilatory support.
12. Enteral feeding catheter is a catheter used for the
delivery of nutritional liquids into the stomach of the
patient.
13. ERCP is an endoscopic technique for fluoroscopic
examination of the biliary and/or pancreatic ducts.
14. Exogenous means originating outside an organ or part.
15. Fluoroscopy is the use of a fluoroscope for medical
diagnosis or for testing various materials by roentgen
rays.
16. Gastric means pertaining to the stomach.
17. Gastrointestinal means pertaining to the stomach and
intestine.
18. Gastrostomy is an examination of the stomach and
abdominal cavity by use of a gastroscope.
19. Jejunal means pertaining to the jejunum, the second
portion of the small intestine extending from the
duodenum to the ileum.
20. Jejunostomy is a surgical creation of a permanent
opening through the skin into the jejunum.
21. Lesion is a circumscribed area of pathologically
altered tissue.
22. Mucosa is a mucus membrane or the moist tissue layer
that lines a hollow organ or body cavity.
23. Nebulizer is an apparatus for producing a fine spray or
mist.
24. Nosocomial infection is an infection acquired while a
patient is in a hospital.
25. Papilla is a small, nipple-like protuberance or
elevation.
26. 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.
27. Polyp means a tumor with a pedicle.
28. Polypectomy is a medical procedure for removal of
polyps (growths).
29. Resection means a partial excision of a bone or other
structure.
30. Stenosed means constricted.
31. Septic means pertaining to pathogenic organisms or
their toxins, i.e., putrid, rotten or decayed.
32. A surfactant is an agent that lowers surface tension.
33. 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.
34. Varix means an enlarged and tortuous vein or artery.
35. 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, N.A.
79 South Main
Salt Lake City, Utah 84111
ANNUAL MEETINGS
The Annual Meeting of Stockholders of Ballard Medical
Products will be held Monday, January 27, 1997, 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 20, 1996 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 1996, 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
D.A. Davidson - Great Falls, Montana
Olde Discount - Detroit, Michigan
Piper Jaffray - Minneapolis, Minnesota
Rodman & Renshaw - Boston, Massachusetts
AUDITORS
Deloitte & Touche LLP
50 South Main Street, Suite 1800
Salt Lake City, Utah 84144
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Annual Report and Form 10-K and is qualified in its entirety by
reference to such Annual Report and Form 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 14,164,103
<SECURITIES> 26,662,598
<RECEIVABLES> 20,931,055
<ALLOWANCES> 987,000
<INVENTORY> 13,844,860
<CURRENT-ASSETS> 81,104,526
<PP&E> 43,352,991
<DEPRECIATION> 8,058,401
<TOTAL-ASSETS> 142,465,088
<CURRENT-LIABILITIES> 5,430,484
<BONDS> 0
0
0
<COMMON> 2,770,232
<OTHER-SE> 133,153,608
<TOTAL-LIABILITY-AND-EQUITY> 142,465,088
<SALES> 103,525,263
<TOTAL-REVENUES> 103,525,263
<CGS> 35,734,178
<TOTAL-COSTS> 35,734,178
<OTHER-EXPENSES> 32,729,798
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 40,370,160
<INCOME-TAX> 14,767,121
<INCOME-CONTINUING> 25,603,039
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,603,039
<EPS-PRIMARY> 0.895
<EPS-DILUTED> 0.884
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