FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
for the fiscal year ended
September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
1-12318
Commission file number
BALLARD MEDICAL PRODUCTS
Exact name of registrant
as specified in its charter
UTAH
State or other jurisdiction of incorporation
or organization
87-0340144
I.R.S. Employer Identification No.
12050 Lone Peak Parkway, Draper, Utah 84020
Address and Zip Code
of principal executive offices
(801) 572-6800
Registrant's telephone number,
including area code
Securities registered to 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class: Common
Par Value: $0.10 per share
[X] Yes Indicate by check mark whether the Registrant (1)
[ ] No has filed all reports required to be filed by
Section 12 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for
such shorter period that the registrant was
required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days.
[ ] No Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K
(Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or
information statements incorporated by reference
in Part III of this Form 10-K or any amendment to
this Form 10-K.
The aggregate market value of the voting stock held by
nonaffiliates of the registrant as of 11/20/96:
$424,320,872
The number of shares outstanding of the registrant's class
of common stock, as of 11/20/96:
27,817,790
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference
herein:
1. Annual Report to Shareholders for fiscal year
ended September 30, 1996: Incorporated into Parts
I and II hereof.
2. Proxy Statement for Annual Meeting of Shareholders
to be held January 27, 1997: Incorporated into
Part III hereof.
BALLARD MEDICAL PRODUCTS
Cross Reference Sheet Showing Location
in Annual Report or Proxy Statement
of Information Required by Certain Form 10-K Items
LOCATION IN
FORM 10-K ITEMS REFERENCE
MATERIALS
Part I
Item 1. Business Annual Report,
pp. 1-7
Item 2. Properties Annual Report,
pp. 1, 2
Part II.
Item 5. Market for Registrant's Common Annual Report
Equity and Related Stockholder p. 7
Matters
Item 6. Selected Consolidated Financial Annual Report,
Data pp. 8, 9
Item 7. Management's Discussion and
Analysis of Financial Condition Annual Report,
and Results of Operations pp. 27-32
Item 8. Consolidated Financial
Statements and Supplementary Annual Report,
Data pp. 10-26
Part III
Item 10. Directors and Executive
Officers of the Registrant Proxy Statement,
pp. 3,4, 16-18
Item 11. Executive Compensation Proxy Statement,
pp. 5-10
Item 12. Security Ownership of Certain
Beneficial Owners and Proxy Statement,
Management pp. 2-4
DEFINITIONS
As used herein, the following terms have the meanings
indicated:
1. "Annual Report" refers to the Company's Annual
Report for the fiscal year ended September 30,
1996, which was EDGAR-filed with the Commission on
or about December 3, 1996 and which will be mailed
to shareholders on or about December 13, 1996.
2. "Ballard" refers to Ballard Medical Products.
3. "BI" refers to Ballard International, Inc., a
wholly-owned subsidiary of Ballard.
4. "BREH" refers to Ballard Real Estate Holdings,
Inc., a wholly-owned subsidiary of Ballard.
5. The "Company" and the "Registrant" refer to
Ballard and its subsidiaries.
6. "MIC" refers to Medical Innovations Corporation, a
wholly-owned subsidiary of Ballard.
7. "MIST ASSIST" refers to Mist Assist, Inc., a
wholly-owned subsidiary of Ballard.
8. "PEPCO" refers to the Plastic Engineered Products
Company, a wholly-owned subsidiary of Ballard.
9. "PMP" refers to Ballard Medical Products (Canada)
Inc. dba Preferred Medical Products, a wholly-
owned subsidiary of Ballard.
10. The "Proxy Statement" refers to the Company's
Proxy Statement which was EDGAR-filed with the
Commission on or about December 3, 1996 and which
will be mailed to shareholders on or about
December 13, 1996, for the Annual Shareholder
Meeting to be held January 27, 1997.
PART I
ITEM 1. BUSINESS
The information required by this item is incorporated
herein by reference from the Company's Annual Report. In
addition, the following information is provided:
BUSINESS DEVELOPMENTS
The United States continues to be the principal market
for the Company's products. The Company's 137-person sales
force is complemented by a distribution system comprised of
specialty and general line dealers.
Sales by the Company are generated in many areas within
the hospital, such as intensive care units, emergency
services, anesthesiology departments, oncology departments,
gastrointestinal and radiology procedure rooms, burn units,
respiratory therapy, bone marrow transplant units, general
nursing floors, and post-anesthesia care units, as well as
the main hospital operating room and outpatient/satellite
surgical centers. A second important market for certain of
the Company's products is the alternate care market.
Alternate care site sales continue to improve as patients
are moved into these locations at an increasing rate. The
Company's strategy will continue to be to focus on the
specialized critical care, operating room, and alternate
care sites.
The sale of the Company's TRACH CARE products is
somewhat seasonal, in that sales are better during the
winter months when there is a greater incidence of
respiratory illness. Other product sales are not subject to
seasonal differences.
INDUSTRY SEGMENTS
All products of the Company are deemed to be of the
same class and are sold in the same industry segment.
RAW MATERIALS
The Company does not face any serious supply shortage
with respect to raw materials used in the manufacture of its
products. Many of the Company's products are manufactured
from various resins and plastics. The Company purchases
resins and plastics from a number of different vendors.
Resin availability is adequate for our needs.
The Company's Chlorhexidinegluconate ("CHG") solutions
used in its FOAM CARE products are purchased from two
different suppliers. The 4% CHG is currently purchased from
Xttrium Laboratories, Inc., and the 2% CHG is currently
purchased from Huntington Laboratories, Inc. The Company
has written supply contracts with Xttrium and Huntington.
However, there can be no assurance that the Company will be
able to continue to have access to sufficient quantities of
these CHG materials. CHG is heavily regulated by the FDA.
The Company purchases significant amounts of paper
products and tubing, along with a number of different
chemicals used in the manufacture of other hand wash
solutions sold as part of the Company's FOAM CARE product
line. There are many different suppliers of such chemicals,
tubing, and paper products. Occasionally, paper product
companies are in short supply, but the Company has adjusted
lead times and made other adjustments so that this has not
presented a problem.
The Company also purchases different types of silicone
materials from various suppliers. Depending upon the
specific type of silicone involved, there are anywhere from
a few to many sources. Some manufacturers have scaled back
their supply of silicone materials which are implanted or
placed in the human body for more than thirty days, in part
because of legal problems surrounding silicone breast
implants. So far, the Company has not had any serious
difficulty obtaining needed silicone materials.
There are many potential sources of balloon materials
used by the Company in MIC's enteral feeding product line,
although MIC currently purchases substantially all of such
balloons from one source. There are also multiple vendors
of needles and syringes needed for PMP products, and foam
needed for PEPCO products.
PATENTS
The Company owns numerous patents with respect to its
products and feels that these patents are extremely
important to the Company's ability to compete effectively in
the market place.
1. TRACH CARE
The Company owns 19 U.S. patents with respect to its
TRACH CARE family of products. The expiration dates on
these patents range from February, 2003 to January, 2011.
The Company also has several U.S. and foreign patents
pending covering various TRACH CARE improvements.
2. MIC
The MIC family of products (including products added
from the April, 1996 acquisition of the assets of
Endovations, Inc.) are protected by 26 U.S. patents owned by
the Company, along with various foreign patents. The U.S.
patents expire between January, 1999 and November, 2014.
The Company also has other U.S. and foreign patents pending
on MIC products, and is a licensee of certain patented
technology under license agreements.
3. FOAM CARE
The Company's FOAM CARE products are protected by 10
U.S. patents either owned or licensed by the Company, along
with a number of foreign patents. The Company's U.S.
patents expire between January, 1997 and August, 2011. The
Company also has other U.S. and foreign patents pending,
covering its FOAM CARE technology.
4. EASI-LAV
The Company owns 5 U.S. patents with respect to its
EASI-LAV products, with expiration dates ranging from June,
2006 to July, 2011. There are also other pending U.S. and
foreign patents.
TRADEMARKS
1. BALLARD TRADEMARKS
Although patents and registered trademarks do not
provide guaranteed protection, the Company believes that
they are important to its competitive position in the health
care marketplace. The Company's rights in a given trademark
should last indefinitely, so long as the Company continues
to use the mark to identify the particular product involved.
Ballard owns numerous trademarks, including the following
which have been registered in the U.S. Patent and Trademark
Office:
REGISTRATION REGISTRATION REGISTERED
NUMBER DATE TRADEMARK
1,274,743 April 24, 1984 QUIK-PREP
1,277,803 May 15, 1984 LAC-TOL
1,286,773 July 24, 1984 XYLO-TOL
1,325,596 March 19, 1985 FOAM CARE DOUBLE SCRUB
1,328,357 April 2, 1985 DOUBLE SCRUB
1,328,358 April 2, 1985 TRACH CARE
1,330,753 April 16, 1985 ENDO-GUARD (with design)
1,338,744 June 4, 1985 BALLARD MEDICAL PRODUCTS
1,358,803 September 10, 1985 FOAM CARE
(Blown up letters)
1,358,802 September 10, 1985 FOAM CARE
1,403,724 August 5, 1986 ENDOCAINE
1,491,006 June 7, 1988 SAFETY SHIELD KIT
1,500,402 August 16, 1988 READY CARE
1,509,875 October 25, 1988 DENTASWAB
1,569,479 December 5, 1989 SAFETY DRAIN
1,608,110 July 31, 1990 TRACH CARE WET PAK
1,639,354 March 26, 1991 JAW-BLOCKER
1,655,483 September 3, 1991 EASI-LAV
1,662,948 October 29, 1991 PEPCO
1,690,024 June 2, 1992 ENDO-GUARD
1,753,765 February 23, 1993 BALLARD EASI-LAV
1,757,543 March 9, 1993 DENTASWAB POLY-PLUS
1,793,553 September 21, 1993 BAL Cath
1,797,703 October 12, 1993 CODE BLUE EASI-LAV
1,818,717 February 1, 1994 CHAR-FLO
1,837,691 May 31, 1994 FLASH FOAM
1,840,243 June 21, 1994 FOAM CARE
1,970,481 April 23, 1996 MIST ASSIST
1,987,599 July 16, 1996 TRACH CARE MAC
2. MIC TRADEMARKS
MIC has registered the following trademarks with the
United States Patent and Trademark Office, in addition to
others pending:
REGISTRATION REGISTRATION REGISTERED
NUMBER DATE TRADEMARK
1,414,121 October 21, 1986 MIC (with Snake)
1,512,575 November 15, 1988 SECUR-LOK
1,548,136 July 18, 1989 MEDICAL INNOVATIONS
CORPORATION
1,607,979 July 31, 1990 ENDOVATIONS
1,713,379 September 8, 1992 MIC-KEY
1,746,978 January 19, 1993 SHUR-FORM
1,853,026 September 6, 1994 CAN-OPT
1,897,441 June 6, 1995 WE MAKE LIFE A LITTLE EASIER
1,912,396 August 15, 1995 THERMAL OPTION
2,004,268 October 1, 1996 LARIAT
The Company also maintains foreign trademark
registrations in various foreign countries and has other
trademark registrations pending.
MANUFACTURING BACKLOG
Generally, all sales of product by the Company include
terms requiring payment within thirty days. Product is
typically not allowed to be returned unless defective or
shipped in error. As of November 20, 1996, the Company had
back orders (believed to be firm) of approximately $159,155,
in contrast to approximately $103,335 in back orders at the
same time in 1995. Back orders are generally filled within
ten days. Most of these back orders are custom kits.
COMPETITION
Each of the Company's products competes in major
markets within the health care industry. Many of the
Company's competitors are larger and more established in the
market place than the Company, and many competitors have
larger research staffs, facilities, and marketing forces.
However, the aggressive marketing and unique qualities of
the Company's product lines continue to be well received and
are helping the Company maintain, and in some cases,
increase its portion of the market. The Company's market
share and competition vary from product to product. The
Company estimates there are approximately ten to fifteen
competing companies for its FOAM CARE products and three or
four competitors for its TRACH CARE products. Depending
upon the specific product line, there are anywhere from no
competitors to three or four competitors for MIC products.
Each year, there are an increasing number of competitors for
each of these product lines.
EMPLOYEES
The Company currently has 987 full-time employees, 592
of whom are hourly production employees. The total U.S. and
foreign sales force now numbers 137, split into a TRACH
CARE/EASI-LAV sales force with 59 representatives and a FOAM
CARE/MIC sales force with 50 representatives. In addition,
there are 17 full-time division and national sales managers,
3 sales trainers, and 7 international sales representatives
and 1 director of international sales.
MANUFACTURING AND WORKING CAPITAL
All of Ballard's products are assembled, and many
component parts are manufactured, at the Company's premises,
located in Draper, Utah and Pocatello, Idaho, where Ballard
has complete facilities for the design and construction of
the Company's own tooling, prototype molds, and production
molds. MIC's products are manufactured at its plants in
Milpitas and Ventura, California. The Company uses plastic
injection molding and assembly techniques in the manufacture
of many of its products.
RESEARCH AND DEVELOPMENT
The Company maintains a staff of design engineers,
project managers, and other employees for continuing
research and development of products. We are committed to
constantly searching for new products and for improvements
to existing products, and we are committed to allocating
sufficient resources to meet these important objectives.
The following table sets forth the amounts expended by the
Company in the last three fiscal years for Company-
sponsored, in-house research and development activities:
9/30/96 9/30/95 9/30/94
Company-sponsored
in-house research and
development expenses $2,903,805 $2,177,117 $1,638,475
ITEM 2. PROPERTIES
Information required by this item is incorporated
herein by reference from the Company's Annual Report. In
addition, the following information is provided:
The Company owns a 276,000 square-foot plant on
approximately twenty acres of land in Draper, Salt Lake
County, Utah. The Draper plant has housed our executive
offices since March, 1991. Through BREH, the Company also
owns approximately one hundred acres of ground surrounding
the original twenty acres.
The Company is presently planning to build a finished
goods warehouse addition, to be constructed adjacent to
(west of) our Draper, Utah facility. It is estimated that
this addition will be completed by September, 1997, at a
total construction cost of approximately $6,000,000.
MIC's Milpitas, California plant (approximately 21,000
square feet) is located at McCandless Technology Park,
Milpitas, California. The plant is leased pursuant to a
written lease whose term expires in July, 1998.
The first phase of the Company's Pocatello, Idaho
facility (104,000 square feet) was completed at a total
construction cost of approximately $7,200,000. It is
estimated that building out the interior of this first phase
will cost an additional $800,000 and that the second phase
of the Pocatello plant (approximately 103,000 square feet)
will cost approximately $5,200,000. It is further estimated
that moving the Company's Milpitas, California operations to
Pocatello will cost approximately $800,000. The second
phase of the Pocatello plant should be completed by
September, 1997.
We estimate, given the current product mix being
manufactured in Pocatello, the existing plant has a current
single-shift volume of approximately $13 millon. After the
MIC operations are relocated to Pocatello, we estimate that
the plant will then have a capacity of approximately $30
million to $40 millon.
In March, 1996, the Company purchased (through MIC)
approximately 6.5 acres of land in Fremont, California, then
intending to construct a new MIC facility. Subsequently,
management decided to move the MIC operations to Pocatello.
The Fremont land was purchased at a price of $2,158,456
(approximately $7.60 per square foot). Management believes
that the land has continued to appreciate in a strong
Alameda County real estate market. The land has been listed
by the Company for resale at $9.75 per square foot.
In August, 1996, the Company acquired, indirectly
through a Canadian subsidiary, a small building (on 2 acres
of land) in Thorold, Canada, at a total cost of U.S.
$886,069. This real estate purchase was made in conjunction
with the acquisition of PMP.
ITEM 3. LEGAL PROCEEDINGS
GUARDIANSHIP OF CARMEN MARIE SMOOT v. BALLARD MEDICAL
PRODUCTS, ET AL. - This case was settled out of court on or
about November 1, 1996. Ballard has been dismissed as a
defendant.
LINDA MADSEN v. BALLARD MEDICAL PRODUCTS - This matter
was also settled and dismissed by means of a Confidential
Settlement Agreement and General Release of All Claims
(signed by all parties) on or about November 1, 1996.
At present, the Company is not a party to any other
legal proceeding that management is aware of.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
During the fourth quarter of the fiscal year ended
September 30, 1996, no matters were submitted to a vote of
shareholders.
RISK FACTORS
The Company is an FDA regulated business operating in
the rapidly changing health care industry. From time to
time the Company may report, through its press releases
and/or SEC filings, certain matters that would be
characterized as forward-looking statements that are subject
to risks and uncertainties that could cause actual results
to differ materially from those projected. Such risks and
uncertainties may include, among other things, the following
items. Certain of these risks and uncertainties are beyond
management's control.
COMPETITION. The medical device industry is
characterized by rapidly evolving technology and increased
competition. There are a number of companies that currently
offer, or are in the process of developing, products that
compete with products offered by the Company. Some of these
competitors have substantially greater capital resources,
research and development staffs and experience in the
medical device industry, including with respect to
regulatory compliance in the development, manufacturing and
sale of medical products similar to those offered by the
Company. These competitors may succeed in developing
technologies and products that are more effective than those
currently used or produced by the Company or that would
render some products offered by the Company obsolete or
noncompetitive. Competition based on price is becoming an
increasingly important factor in customer purchasing
patterns as a result of cost containment pressures on, and
consolidation in, the health care industry. Such
competition has exerted, and is likely to continue to exert,
downward pressure on the prices the Company is able to
charge for its products. The Company may not be able to
offset such downward price pressure through corresponding
cost reductions. Any failure to offset such pressure could
have an adverse impact on the business, results of
operations or financial condition of the Company.
INTELLECTUAL PROPERTY RIGHTS. From time to time, the
Company has received, and in the future may receive, notices
of claims with respect to possible infringement of the
intellectual property rights of others or notices of
challenges to its intellectual property rights. In some
instances such notices have given rise to, or may in the
future give rise to, litigation. Any litigation involving
the intellectual property rights of the Company may be
resolved by means of a negotiated settlement or by
contesting the claim through the judicial process. There
can be no assurance that the business, results of operations
or the financial condition of the Company will not suffer an
adverse impact as a result of intellectual property claims
that may be commenced against the Company in the future.
The Company owns certain patents and proprietary information
acquired while developing its products or through
acquisitions, and the Company is the licensee of certain
other technology. As patents expire, more competing
products may be released into the marketplace by other
companies. The ability of the Company to continue to
compete effectively with other medical device companies may
be materially dependent upon the protection afforded by its
patents and the confidentiality of certain proprietary
information. There can be no assurance that patents will be
issued for products and product improvements recently
released into the marketplace or for products presently
being developed.
MANAGED CARE AND OTHER HEALTH CARE PROVIDER
ORGANIZATIONS. Managed care and other health care provider
organizations have grown substantially in terms of the
percentage of the population in the United States that
receives medical benefits through such organizations and in
terms of the influence and control that they are able to
exert over an increasingly large portion of the health care
industry. These organizations are continuing to consolidate
and grow, increasing the ability of these organizations to
influence the practices and pricing involved in the purchase
of medical devices, including the products sold by the
Company.
HEALTH CARE REFORM/PRICING PRESSURE. The health care
industry in the United States is experiencing a period of
extensive change. Health care reform proposals have been
formulated by the current administration and by members of
Congress. In addition, state legislatures periodically
consider various health care reform proposals. Federal,
state and local government representatives will, in all
likelihood, continue to review and assess alternative health
care delivery systems and payment methodologies, and ongoing
public debate of these issues can be expected. Cost
containment initiatives, market pressures and proposed
changes in applicable laws and regulations may have a
dramatic effect on pricing or potential demand for medical
devices, the relative costs associated with doing business
and the amount of reimbursement by both government and
third-party payors. In particular, the industry is
experiencing market-driven reforms from forces within the
industry that are exerting pressure on health care companies
to reduce health care costs. These market-driven reforms
are resulting in industry-wide consolidation that is
expected to increase the downward pressure on health care
product margins, as larger buyer and supplier groups exert
pricing pressure on providers of medical devices and other
health care products. Both short-term and long-term cost
containment pressures, as well as the possibility of
regulatory reform, may have an adverse impact on the
Company's results of operations. The Company's products
consist primarily of disposable medical devices. Cost
containment pressures on hospitals are leading some
facilities to use certain disposable devices longer than
they have been used in the past, even longer than permitted
by product labelling. This phenomenon could result in a
reduction in Company sales, because extended use means fewer
unit purchases.
GOVERNMENT REGULATION. There has been a trend in
recent years, both in the United States and outside the
United States, toward more stringent regulation of, and
enforcement of requirements applicable to, medical device
manufacturers. The continuing trend of more stringent
regulatory oversight in product clearance and enforcement
activities has caused medical device manufacturers to
experience longer approval cycles, more uncertainty, greater
risk and greater expense. At the present time, there are no
meaningful indications that this trend will be discontinued
in the near-term or the long-term either in the United
States or abroad. The Company expects to continue to incur
additional operating expenses associated with its ongoing
regulatory compliance program, but the amount of these
incremental costs cannot be completely predicted and will
depend upon a variety of factors, including future changes
in statutes and regulations governing medical device
manufacturers. There can be no assurance that such
compliance requirements and quality assurance programs will
not have an adverse impact on the business, results of
operations or financial condition of the Company or that the
Company will not experience problems associated with FDA
regulatory compliance.
NEW PRODUCT INTRODUCTIONS. As the existing products of
the Company become more mature and its existing markets more
saturated, the importance of developing or acquiring new
products will increase. The development of any such
products will entail considerable time and expense,
including research and development costs and the time and
expense required to obtain necessary regulatory approvals,
which could adversely affect the business, results of
operations or financial condition of the Company. There can
be no assurance that such development activities will yield
products that can be commercialized profitably, or that any
product acquisition can be consummated on commercially
reasonable terms or at all. Any failure to acquire or
develop new products to supplement more mature products
could have an adverse impact on the business, results of
operations or financial condition of the Company.
TECHNOLOGICAL CHANGE. The medical technology as
utilized by the Company has been subject to rapid advances.
While the Company feels that it currently possesses the
technology necessary to carry on its business, its
commercial success will depend on its ability to remain
current with respect to such technological advances and to
retain experienced technical personnel. Furthermore, there
can be no assurance that other technological advances will
not render the Company's technology and certain products
uneconomical or obsolete.
PRODUCT LIABILITY EXPOSURE. Because its products are
intended to be used in health care settings on patients who
are physiologically unstable and may also be seriously or
critically ill, the Company is exposed to potential product
liability claims. From time to time, patients using the
Company's products have suffered serious injury or death,
which has led to product liability claims against the
Company. The Company does not believe that any of these
claims, individually or in the aggregate, will have a
material adverse impact on its business, results of
operations or financial condition. However, the Company
may, in the future, be subject to product liability claims
that could have such an adverse impact.
The Company maintains product liability coverage in
amounts that it deems sufficient for its business. However,
there can be no assurance that such coverage will ultimately
prove to be adequate, or that such coverage will continue to
remain available on acceptable terms or at all.
ACQUISITIONS. In order to continue increasing sales
volume and profits, the Company relies heavily on a program
of acquiring business and new product lines from other
companies. There is always a significant risk that a given
acquisition by the Company will prove to be unsuccessful or
end up not contributing sufficiently to sales and profit
growth of the Company. There is also a risk that
undiscovered or contingent liabilities of an acquired
company could negatively impact the Company's financial
position or even the acquisition transaction itself. The
integration of any businesses that the Company might acquire
could require substantial management resources. There can
be no assurance that any such integration will be
accomplished without having a short or potentially long-term
adverse impact on the business, results of operations or
financial condition of the Company or that the benefits
expected from any such integration will be fully realized.
LACK OF DIVIDENDS. Prior to January, 1990, no
dividends had been paid by the Company on its shares of
Common Stock. The Company has paid dividends since January,
1990. However, there can be no assurance that dividends
will be paid on shares in the future, particularly since the
Company prefers to reserve its cash and liquid assets for
growth and possible business acquisitions.
UNCERTAINTY OF FINANCIAL RESULTS AND CAPITAL NEEDS.
There may be substantial fluctuations in the Company's
results of operations because of the timing and recording of
revenues and market acceptance of existing Company products.
The ability of the Company to expand its manufacturing and
marketing operations cannot be predicted with certainty. If
revenues do not continue to increase as rapidly as they have
in the past few years, or if manufacturing, marketing, or
research and development are not successful or require more
money than is anticipated, the Company may have to scale
back product marketing, development and production efforts
and attempt to obtain external financing. There can be no
assurance that the Company would be able to obtain timely
external financing in the amounts required or that such
financing, if available, would be on terms advantageous to
the Company.
SUPPLY OF RAW MATERIALS. Certain of the Company's
products are dependent upon raw materials for which there
are single or few sources. So far, the Company has not had
any serious problems obtaining needed raw materials.
However, there can be no assurance that the Company will be
able to continue to depend on existing sources of certain
materials.
IMPACT OF CURRENCY FLUCTUATIONS; IMPORTANCE OF FOREIGN
SALES. Because sales of products by the Company outside the
United States typically are denominated in local currencies,
the results of operations of the Company are expected to
continue to be affected by changes in exchange rates between
certain foreign currencies and the United States Dollar.
There can be no assurance that the Company will not
experience currency fluctuation effects in future periods,
which could have an adverse impact on its business, results
of operation or financial condition. The operations and
financial results of the Company also may be significantly
affected by other international factors, including changes
in governmental regulations or import and export
restrictions, and foreign economic and political conditions
generally.
POSSIBLE VOLATILITY OF STOCK PRICE. The market price
of the Company's stock is, and is expected to continue to
be, subject to significant fluctuations in response to
variations in quarterly operating results, trends in the
health care industry in general and the medical device
industry in particular, and certain other factors beyond the
control of the Company. In addition, broad market
fluctuations, as well as general economic or political
conditions and initiatives, may adversely impact the market
price of the Company's stock, regardless of the Company's
operating performance.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by Item 5 of this Part II is
incorporated herein by reference from the Company's Annual
Report.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The information required by Item 6 of this Part II is
incorporated by reference from the Company's Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required by Item 7 of this Part II is
incorporated herein by reference from the Company's Annual
Report.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
The Company's consolidated balance sheets as of
September 30, 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 are incorporated herein by reference from
the Company's Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There are no disagreements on accounting and financial
disclosure to be disclosed under this Item 9.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The information required by Item 10 related to
Directors of the Company is incorporated herein by reference
from the Proxy Statement.
EXECUTIVE OFFICERS
The President, Executive Vice President, Vice
Presidents, Secretary, Treasurer, and General Counsel of
Ballard Medical Products are elected annually at the regular
meeting of the Board of Directors following the Annual
Meeting of Shareholders and serve at the discretion of the
Board of Directors. There is no arrangement or
understanding between any executive officer and any other
person pursuant to which he was or is to be selected as an
officer. The business background for at least the past five
years of each executive officer is as follows:
NAME AND AGE BACKGROUND
Dale H. Ballard (73) President, Chief Executive
Officer, Chairman of the Board
(1)
Harold R. ("Butch") Executive Vice President,
Wolcott (50) General Manager (2)
E. Martin Chamberlain (56) Director, Vice President of
Regulatory Affairs, Secretary
(3)
Bradford D. Bell (47) Vice President of Sales and
Marketing (4)
Kenneth R. Sorenson (53) Treasurer and Principal
Financial Officer (5)
Paul W. Hess (42) Director, General Counsel (6)
(1) See Proxy Statement, p. 16.
(2) Mr. Wolcott was appointed by the Board of Directors as
Executive Vice President of Ballard in June, 1994. He
was hired by the Company as General Manager in
December, 1992. Prior to joining Ballard, he was
employed by Pilot Cardiovascular Systems, Inc. in San
Clemente, California, from April, 1991 until December,
1992, where he worked initially as Vice President of
Operations and later as Chief Operating Officer. From
April, 1990 to April, 1991, Mr. Wolcott provided
consulting services to various medical device
companies. From January, 1987 until April, 1990, Mr.
Wolcott worked for Catheter Technology Corporation of
Salt Lake City, Utah, as Vice President of
Manufacturing.
(3) See Proxy Statement, p. 17.
(4) Mr. Bell was appointed Vice President of Sales and
Marketing on August 1, 1994. He served as Director of
Marketing for Ballard since October, 1991. Prior to
coming to work for Ballard, Mr. Bell worked for Bard
Access Systems (formerly named Davol/Cath Tech, Inc.),
where he served as Director of Marketing from the fall
of 1988 until October, 1991.
(5) Mr. Sorenson joined the Company in July, 1985. He has
worked in the Company's accounting department since
joining the Company. He became Treasurer of the
Company in August, 1985. Mr. Sorenson is a graduate of
Brigham Young University in Accounting.
(6) See Proxy Statement, p. 18.
ITEMS 11, 12, and 13.
The information required by Items 11, 12 and 13 of this
Part III is incorporated herein by reference from the Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS,
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF REPORT
1. CONSOLIDATED FINANCIAL
STATEMENTS
The following are included in the Annual Report
incorporated by reference into Parts I and II of this
report:
Independent Auditor's Report, dated November 8,
1996;
Consolidated Balance Sheets as of September 30,
1996 and 1995;
Consolidated Statements of Operations for the
Years Ended September 30, 1996, 1995, and 1994;
Consolidated Statements of Stockholders' Equity
for the Years Ended September 30, 1996, 1995, and
1994;
Consolidated Statements of Cash Flows for the
Years Ended September 30, 1996, 1995 and 1994;
Notes to Consolidated Financial Statements.
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
The following are included in this report:
Independent Auditors' Report dated November 8,
1996;
Supplemental Schedule II - Valuation Accounts for
the Three Years Ended September 30, 1996;
Other schedules required by Rule 5.04 of
Regulation S-X are omitted because of the absence
of the conditions under which they are required or
because the required information is included in
the consolidated financial statements or related
notes.
3. EXHIBITS
See "Ballard Medical Products Index to Exhibits"
attached to this report.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter
ended September 30, 1996.
(c) EXHIBITS
See "Ballard Medical Products Index to Exhibits"
attached to this report.
(d) SEPARATE FINANCIAL STATEMENT
SCHEDULES
Not applicable.
INDEMNIFICATION UNDERTAKING
For the purpose of complying with the amendments to the
rules governing Form S-8 (effective July 13, 1990) under the
Securities Act of 1933, the undersigned registrant hereby
undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration
Statements on Forms S-8 No. 2-90684 (filed April 24, 1984);
No. 2-94306 (filed November 9, 1984); No. 33-0840 (filed
October 17, 1985); No. 33-17698 (filed October 9, 1987); No.
33-25628 (filed November 8, 1988); No. 33-36851 (filed
September 17, 1990; No. 33-41720 (filed July 10, 1991); No.
33-56302 (filed December 24, 1992); No. 33-73194 (filed
December 20, 1993); No. 33-57735 (filed February 16, 1995);
and No. 333-01941 (filed March 25, 1996).
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act of 1933 (the "Act") and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: December 6, 1996 BALLARD MEDICAL PRODUCTS
By: Dale H. Ballard
President, Director
(Principal Executive
Officer)
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Date: December 6, 1996 By: Dale H. Ballard
Director
Date: December 6, 1996 By: E. Martin Chamberlain
Director
Date: December 6, 1996 By: Dale H. Ballard, Jr.
Director
Date: December 6, 1996 By: Paul W. Hess
Director
Date: December 6, 1996 By: Kenneth R. Sorenson
Treasurer (Principal
Accounting Officer)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Ballard
Medical Products:
We have audited the consolidated financial statements
of Ballard Medical Products and subsidiaries as of September
30, 1996 and 1995, and for each of the three years in the
period ended September 30, 1996, and have issued our report
thereon dated November 8, 1996; such consolidated financial
statements and report are included in your 1996 Annual
Report to Stockholders and are incorporated herein by
reference. Our audits also included the consolidated
financial statement schedule of Ballard Medical Products and
subsidiaries, listed in Item 14. This consolidated
financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such
consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements
taken as a whole, presents fairly in all material respects,
the information set forth therein.
Deloitte & Touche LLP
Salt Lake City, Utah
November 8, 1996
<TABLE>
<CAPTION>
SUPPLEMENTAL SCHEDULE II
BALLARD MEDICAL PRODUCTS
VALUATION ACCOUNTS
FOR THE THREE YEARS IN THE PERIOD
ENDED SEPTEMBER 30, 1996
BALANCE AT ADDITION BALANCE AT
BEGINNING TO CHARGED TO END OF
OF YEAR ALLOWANCE COSTS YEAR
<S> <C> <C> <C> <C>
ALLOWANCE FOR
DOUBTFUL ACCOUNTS:
1996 $125,000 $57,000 NONE $182,000
1995 $200,000 NONE $(75,000) $125,000
1994 $242,747 NONE $(42,747) $200,000
ALLOWANCE FOR
SALES RETURNS:
1996 $500,000 $305,000 NONE $805,000
1995 $200,000 $300,000 NONE $500,000
1994 $122,000 $200,000 $(122,000) $200,000
ALLOWANCE FOR
INVENTORY
OBSOLESCENCE:
1996 $130,453 $522,464 NONE $652,917
1995 NONE $130,453 NONE $130,453
1994 NONE NONE NONE NONE
BALLARD MEDICAL PRODUCTS
Index to Exhibits
EXHIBIT NO. EXHIBIT DESCRIPTION SEQUENTIALLY NUMBERED PAGE
3.1 Restated Certificate Incorporated herein by
of Incorporation, reference to Exhibit 3.1 to
dated June 18, 1987 Form 10-K, filed December
29, 1989.
3.2 July 10, 1991 Incorporated herein by
Articles of reference to Exhibit 4.2 to
Amendment to the Registration Statement
Articles of on Form S-3, filed November
Incorporation 13, 1991, Registration No.
33-43910.
3.3 September 20, 1993 Incorporated herein by
Articles of reference to Exhibit 3.3 to
Amendment to Form 10-K filed December
Articles of 16, 1993.
Incorporation
3.4 Amended and Restated Incorporated herein by
Bylaws, dated reference to Exhibit 3.3 to
October 12, 1992 Form 10-K, filed December
24, 1992.
4.1 See Exhibits 3.1,
3.2, 3.3, 10.1,
10.2, 10.3, 10.4,
10.5, 10.6, 10.7,
10.8, 10.9, and
10.10
9 None
10.1 Material Contract: Incorporated herein by
1984 Incentive Stock reference to the
Option Plan Registration Statement on
Form S-8, filed November 9,
1984, Registration No. 2-
94306.
10.2 Material Contract: Incorporated herein by
1987 Incentive Stock reference to the
Option Plan Registration Statement on
Form S-8, filed October 9,
1987, Registration No. 33-
17698.
10.3 Material Contract: Incorporated herein by
1988 Incentive Stock reference to the
Option Plan Registration Statement on
Form S-8, filed November
18, 1988, Registration No.
33-25628.
10.4 Material Contract: Incorporated herein by
1990 Incentive Stock reference to the
Option Plan Registration Statement on
Form S-8, filed September
17, 1990, Registration No.
33-36851.
10.5 Material Contract: Incorporated herein by
1991 Incentive Stock reference to Exhibit 4.2 to
Option Plan Registration Statement on
Form S-8, filed July 10,
1991, Registration No. 33-
41720.
10.6 Material Contract: Incorporated herein by
1992 Incentive Stock reference to Exhibit 4.3 to
Option Plan Registration Statement on
Form S-8, filed with Post-
Effective Amendment No. 1
on April 9, 1993,
Registration No. 33-56302.
10.7 Material Contract: Incorporated herein by
Amended and Restated reference to Exhibit 4.5 to
1993 Incentive Stock Registration Statement on
Option Plan Form S-8, filed December
20, 1993, Registration No.
33-73194.
10.8 Material Contract: Incorporated herein by
1994 Incentive Stock reference to Exhibit 10.8
Option Plan to Form 10-K filed December
15, 1994.
10.9 Material Contract: Incorporated herein by
1995 Incentive Stock reference to Exhibit 10.9
Option Plan to Form 10-K filed December
8, 1995.
10.10 Material Contract: p.
1996 Incentive Stock
Option Plan
10.11 Material Contract: Incorporated herein by
Agreement of reference to Exhibit 19 to
Settlement dated Form 10-Q, filed May 15,
March 1, 1990, with 1990.
Smiths Industries
Medical Systems,
Inc. and Smiths
Industries PLC
10.12 Material Contract: Incorporated herein by
Lease dated reference to Exhibit 10.19
September 8, 1986 to Form 10-K, filed
between Medical December 16, 1993.
Innovations
Corporation, as
Tenant, and
McCandless
Technology Park,
Milpitas, Phase I,
as Landlord, with
Fourth Amendment
10.13 Material Contract: Incorporated herein by
Agreement dated reference to Exhibit 10.21
effective October 1, to Form 10-K, filed
1993 between Ballard December 16, 1993.
Medical Products and
H. Earl Wright and
The Wright Foamer
Co.
11 Computation of p.
Income Per Common
Share and Common
Equivalent Share
12 Not Applicable
13 Ballard Medical p.
Products 1996 Annual
Report for the year
ended September 30,
1996
16 Not Applicable
18 Not Applicable
21 Subsidiaries of p.
Ballard Medical
Products
22 Not Applicable
23 Independent
Auditor's Consent p.
24 Not Applicable
25 Not Applicable
26 Not Applicable
27 Financial Data p.
Schedule
28 Not Applicable
</TABLE>
EXHIBIT 10.10
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 11
BALLARD MEDICAL PRODUCTS
COMPUTATION OF INCOME PER COMMON SHARE AND
COMMON EQUIVALENT SHARE FOR THE THREE YEARS
IN THE PERIOD ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Cumulative Period Average Net Income
Shares Out- Shares Income Per
Standing Share
<S> <C> <C> <C> <C> <C>
Primary
income
per
share:
1996 10,444,159,640 365 28,614,136 $25,603,039 $0.895
1995 10,163,100,515 365 27,844,111 20,942,616 $0.752
1994 9,990,612,100 365 27,371,540 16,594,198 0.606
Fully
diluted
income
per
share:
1996 10,573,632,075 365 28,968,855 $25,603,039 $0.844
1995 10,344,080,290 365 28,339,946 20,942,616 0.739
1994 10,023,886,230 365 27,462,702 16,594,198 0.604
</TABLE>
EXHIBIT 13
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
EXHIBIT 21
SUBSIDIARIES OF BALLARD MEDICAL PRODUCTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
JURISDICTION OF BUSINESS PARENT
SUBSIDIARY INCORPORATION NAME CORPORATION
Medical California Medical Ballard
Innovations Innovations Medical
Corporation Corporation Products
Ballard Utah Ballard Ballard
Real Estate Real Estate Medical
Holdings, Inc. Holdings, Inc. Products
Ballard Virgin Ballard Ballard
International, Islands International, Medical
Inc. Inc. Products
Mist Assist, Delaware Mist Assist, Ballard
Inc. Inc. Medical
Products
Ballard Canada Ballard Ballard
Medical Medical Medical
Products Products Products
(Canada) (Canada)
Inc. Inc.
691555 Ontario Canada Preferred Ballard
Limited Medical Medical
Products Products
(Canada)
Inc.
Preferred New York Preferred 691555
Medical Medical Ontario
Products, Inc. Products Limited
1194127 Canada 1194127 691555
Ontario Inc. Ontario Inc. Ontario
Limited
Plastic Ohio Plastic Ballard
Engineered Engineered Medical
Products Products Products
Company Company
Ballard Colorado Ballard Ballard
Acquisition Acquisition Medical
Corporation Corporation Products
</TABLE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement Nos. 33-23232, 33-34384, 33-43910, and 33-50040 on Form
S-3 and in Registration Statement Nos. 2-90684, 2-94306, 33-0840,
33-17698, 33-25628, 33-36851, 33-41720, 33-56302, 33-73194, 33-
57735, and 333-01941 on Form S-8 of our reports dated November 8,
1996, appearing in and incorporated by reference in this Annual
Report on Form 10-K of Ballard Medical Products for the year
ended September 30, 1996.
Deloitte & Touche LLP
Salt Lake City, Utah
November 8, 1996
<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
</TABLE>
