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, 1997
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.
[ ] 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 12/11/97:
$636,534,779
The number of shares outstanding of the registrant's class
of common stock, as of 12/11/97:
29,030,983
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference
herein:
1. Annual Report to Shareholders for fiscal year
ended September 30, 1997: Incorporated into Parts
I and II hereof.
2. Proxy Statement for Annual Meeting of Shareholders
to be held January 26, 1998: 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. 1-8
Item 2. Properties Annual Report,
pp. 1,2
Part II.
Item 5. Market for Registrant's Common Annual Report p.
Equity and Related Stockholder 8
Matters
Item 6. Selected Consolidated Financial Annual Report,
Data pp. 7-8
Item 7. Management's Discussion and
Analysis of Financial Condition Annual Report,
and Results of Operations pp. 26-33
Item 8. Consolidated Financial
Statements and Supplementary Annual Report,
Data pp. 10-25
Part III
Item 10. Directors and Executive
Officers of the Registrant Proxy Statement,
pp. 3,4, 16-19
Item 11. Executive Compensation Proxy Statement,
pp. 5-11
Item 12. Security Ownership of Certain
Beneficial Owners and Proxy Statement,
Management pp. 3-4
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,
1997, which was EDGAR-filed with the Commission on
or about December 12, 1997 and which was mailed to
shareholders on or about December 12, 1997.
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. "Cardiotronics" refers to Cardiotronics Systems,
Inc., a wholly-owned subsidiary of Ballard.
6. The "Company" and the "Registrant" refer to
Ballard and its subsidiaries.
7. "MIC" refers to Medical Innovations Corporation, a
wholly-owned subsidiary of Ballard.
8. "MIST ASSIST" refers to Mist Assist, Inc., a
wholly-owned subsidiary of Ballard.
9. "PEPCO" refers to the Plastic Engineered Products
Company, a wholly-owned subsidiary of Ballard.
10. "PMP" refers to Ballard Medical Products (Canada)
Inc. dba Preferred Medical Products, a wholly-
owned subsidiary of Ballard.
11. The "Proxy Statement" refers to the Company's
Proxy Statement which was EDGAR-filed with the
Commission on or about December 12, 1997 and which
was mailed to shareholders on or about December
12, 1997, for the Annual Shareholder Meeting to be
held January 26, 1998.
12. "R2" refers to R2 Medical Systems, Inc., a wholly-
owned subsidiary of Cardiotronics.
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 145-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,
pain clinics, 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 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, 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 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 serious
problem.
The Company used to purchase substantial amounts of
tubing from outside sources. Now the Company extrudes most
of its own tubing.
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 the MIC enteral feeding product line,
although the Company currently purchases substantially all
of such balloons from one source.
There are multiple vendors of needles and syringes
needed for PMP products, and foam needed for PEPCO products.
The Company has encountered supply problems regarding
needles, which are purchased from various vendors, including
some international suppliers. Long lead times (up to 18
weeks sometimes) are required for the ordering of certain
needles.
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 24 U.S. patents with respect to its
TRACH CARE family of products. The expiration dates on
these patents range from February, 2003 to January, 2014.
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 31 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 11
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 July 2002 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 6 U.S. patents with respect to its
EASI-LAV products, with expiration dates ranging from June,
2006 to July, 2014. 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
1,987,599 July 16, 1996 TRACH CARE MAC
1,970,481 April 23, 1996 MIST ASSIST
1,840,243 June 21, 1994 FOAM CARE
1,837,691 May 31, 1994 FLASH FOAM
1,818,717 February 1, 1994 CHAR-FLO
1,797,703 October 12, 1993 CODE BLUE EASI-LAV
1,793,553 September 21, 1993 BAL-CATH
1,757,543 March 9, 1993 DENTASWAB POLY-PLUS
1,753,765 February 23, 1993 BALLARD UNIT DOSE
1,690,024 June 2, 1992 ENDO-GUARD
1,662,948 October 29, 1991 PEPCO
1,655,483 September 3, 1991 EASI-LAV
1,639,354 March 26, 1991 JAW-BLOCKER
1,608,110 July 31, 1990 TRACH CARE WET PAK
1,569,479 December 5, 1989 SAFETY DRAIN
1,509,875 October 25, 1988 DENTASWAB
1,500,402 August 16, 1988 READY CARE
1,491,006 June 7, 1988 SAFETY SHIELD KIT
1,403,724 August 5, 1986 ENDOCAINE
1,358,802 September 10, 1985 FOAM CARE
1,358,803 September 10, 1985 FOAM CARE (stylized)
1,338,744 June 4, 1985 BALLARD MEDICAL PRODUCTS
1,330,753 April 16, 1985 ENDO-GUARD with design
1,328,358 April 2, 1985 TRACH CARE
1,328,357 April 2, 1985 DOUBLE SCRUB
1,325,596 March 19, 1985 FOAM CARE DOUBLE SCRUB
1,286,773 July 24, 1984 XYLO-TOL
1,277,803 May 15, 1984 LAC-TOL
1,274,743 April 24, 1984 QUIK-PREP
1,225,871 February 1, 1983 R2
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
2,036,645 February 11, 1997 BASICS
2,004,268 October 1, 1996 LARIAT
1,912,396 August 15, 1995 THERMAL OPTION
1,897,441 June 6, 1995 WE MAKE LIFE A LITTLE EASIER
1,853,026 September 6, 1994 CAN-OPT
1,746,978 January 19, 1993 SHUR-FORM
1,713,379 September 8, 1992 MIC-KEY
1,607,979 July 31, 1990 ENDOVATIONS
1,548,136 July 18, 1989 MEDICAL INNOVATIONS
CORPORATION (with Snakes)
1,512,575 November 15, 1988 SECUR-LOK
1,414,121 October 21, 1986 MIC (with Snakes)
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 17, 1997, the Company had
back orders (believed to be firm) of approximately $219,279,
in contrast to approximately $159,155 in back orders at the
same time in 1996. 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, three or
four competitors for its TRACH CARE products, and four or
five competitors for its Cardiotronics product line.
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 1,145 full-time employees,
782 of whom are hourly production employees. The total U.S.
and foreign sales force now numbers 145, split into a TRACH
CARE/CARDIO/R2 sales force with 44 representatives,
MIC/ENDOVATIONS/COX sales force with 48 representative, and
a PMP/FOAM CARE sales force with 26 representatives. In
addition, there are 14 full-time division and national sales
managers, 3 sales trainers, and 10 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. Cardiotronics' products are manufactured at a plant
in Carlsbad, California. However, this operation is being
moved to Pocatello within the next couple of months. 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:
9/30/97 9/30/96 9/30/95
Company-sponsored
in-house research and
development expenses $2,735,298 $2,903,805 $2,177,117
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 378,000 square-foot plant on
approximately twenty acres of land in Draper, Salt Lake
County, Utah. This facility includes a separate finished
goods warehouse (102,000 square feet) which was completed in
August, 1997 at a construction cost of approximately
$3,367,000.
The Company also owns a manufacturing plant in
Pocatello, Idaho (208,000 square feet), of which
approximately 104,000 square feet were added on and
completed in April, 1997 at a cost of approximately $5
million.
On April 29, 1997, the Company sold approximately 61
acres of BREH's real estate (located south of the Company's
Draper plant) for approximately $3,266,000 cash and a
$3,974,000 note. The note provides, among other things, for
interest at 8.0%, for payment of all accrued interest in one
year and for payment in full of all accrued interest and the
entire principal balance in two years. The note is secured
by a first trust deed against approximately 42 acres of the
property sold and certain related water shares.
On August 29, 1997 the Company sold the 6.5 acres it
acquired in 1996 in Fremont, California at a purchase price
of $2,326,000.
MIC closed its Milpitas, California facility and
terminated the building lease effective July 31, 1997, with
terms which included a $44,000 early cancellation fee.
MIC's manufacturing operations are now located at our
Pocatello, Idaho plant.
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 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. We are currently seeking a
tenant for this facility.
ITEM 3. LEGAL PROCEEDINGS
R2 MEDICAL SYSTEMS, INC. AND CARDIOTRONICS SYSTEMS,
INC. v. KATECHO, INC., CARDIOVASCULAR GROUP OF OREGON,
INC., AND PADECO, INC.
R2 and Cardiotronics were plaintiffs in a patent
infringement lawsuit against Katecho, Inc., Cardiovascular
Group of Oregon, Inc. and Padeco, Inc. filed in the United
States District Court for the Northern District of Illinois
Eastern Division as Case No. 94C3131. A jury trial was held
during the week of November 3, 1997. On November 10, 1997,
the jury returned a verdict finding that the Katecho device
does not infringe the patents of R2 and Cardiotronics. On
or about December 3, 1997, R2 filed a motion for a new trial
which claims that the jury verdict was contrary to the
evidence and that the court allowed evidence to be admitted
which, R2 believes, improperly influenced the jury. In the
alternative, the motion asks the court to enter a judgment
finding infringement.
J. MICHAEL KRAMER V. R2 MEDICAL SYSTEMS, ET AL.
R2 is a co-defendant in this ongoing product liability
case filed in the Supreme Court of the State of New York,
County of Suffolk, as Case No. 01787/94. This case is still
in the discovery phase, and settlement discussions are being
pursued.
ROGER LEE HEATH v. BAXTER, WALTERS, TOWNSEN, ET AL.
On or about March 18, 1997, the court dismissed Mr.
Heath's lawsuit with prejudice (which means that he cannot
refile the complaint in the United States District Court).
Mr. Heath has appealed the court's dismissal to the
United States Court of Appeals for the 7th Circuit. This
appeal is still pending.
OTHER LITIGATION
The Company is also a party to ordinary routine
litigation (including other product liability litigation)
incidental to the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
During the fourth quarter of the fiscal year ended
September 30, 1997, no matters were submitted to a vote of
shareholders.
FORWARD-LOOKING STATEMENTS
From time to time the Company may report, through its
press releases, its Annual Report, and SEC filings, certain
matters that could be characterized as forward-looking
statements 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, economic, competitive, governmental,
technological, and other factors discussed in the Company's
filings with the SEC on Forms 10-K, 10-Q, and 8-K. Such
forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation
Reform Act of 1995.
RISK FACTORS
Forward-looking statements are, of course, 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 which 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. 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. Price reductions 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 the Company's 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 continues to experience
change. Health care reform proposals have been formulated
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 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 and financial condition.
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 and device reuse mean 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. Some product liability claims have been inherited
by the Company through business acquisitions. 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, see Item 1. "Legal Proceedings." Furthermore, 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 any terms 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. The moving
of acquired product lines can also result in interruptions
in production and backorders. 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 certain 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.
The Company's ability to continue to sell products into
Europe is dependent to a large extent on its ability to
maintain the important ISO 9001/EN 4601 certification and
the CE marking of conformity. If the Company were to lose
such certifications, such loss would have a material,
adverse impact on international sales and profits.
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.
YEAR 2000 ISSUES. The approaching Year 2000 could
result in challenges related to computer software,
accounting records, and relationships with suppliers and
customers. Management of the Company is studying Year 2000
issues, seeking to avoid such problems, but there can be no
assurance that such problems will not be encountered.
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 (75) President, Chief Executive
Officer, Chairman of the Board
(1)
Harold R. ("Butch") Executive Vice President,
Wolcott (51) General Manager (2)
E. Martin Chamberlain (57) Director, Vice President of
Regulatory Affairs, Secretary
(3)
Daniel Burman (41) Vice President of Sales (4)
Bradford D. Bell (48) Vice President of Marketing
and International Sales (5)
Kenneth R. Sorenson (54) Treasurer and Principal
Financial Officer (6)
Paul W. Hess (43) Director, General Counsel (7)
(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. Burman was appointed Vice President of Sales on May
7, 1997. He served as Ballard's National Sales Manager
from 1994 to 1997. From 1990 through 1993, he served
as one of Ballard's Division Managers. He joined
Ballard as a sales representative in 1986 in New York.
(5) 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.
(6) Mr. Sorenson joined the Company in July, 1985. He has
worked in the Company's Finance 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.
(7) 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 13,
1997;
Consolidated Balance Sheets as of September 30,
1997 and 1996;
Consolidated Statements of Operations for the
Years Ended September 30, 1997, 1996, and 1995;
Consolidated Statements of Stockholders' Equity
for the Years Ended September 30, 1997, 1996, and
1995;
Consolidated Statements of Cash Flows for the
Years Ended September 30, 1997, 1996 and 1995;
Notes to Consolidated Financial Statements.
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
The following are included in this report:
Independent Auditors' Report dated November 13,
1997;
Supplemental Schedule II - Valuation Accounts for
the Three Years Ended September 30, 1997;
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, 1997.
(c) EXHIBITS
See "Ballard Medical Products Index to Exhibits"
attached to this report.
(d) SEPARATE FINANCIAL STATEMENT
SCHEDULES
Not applicable.
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 15, 1997 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 15, 1997 By: Dale H. Ballard
Director
Date: December 15, 1997 By: E. Martin Chamberlain
Director
Date: December 15, 1997 By: Dale H. Ballard, Jr.
Director
Date: December 15, 1997 By: Paul W. Hess
Director
Date: December 15, 1997 By: Kenneth R. Sorenson
Treasurer (Principal
Financial 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, 1997 and 1996, and for each of the three years in the
period ended September 30, 1997, and have issued our report
thereon dated November 13, 1997; such consolidated financial
statements and report are included in your 1997 Annual
Report to Stockholders and are incorporated herein by
reference. Our audits also included the consolidated
financial statement schedules of Ballard Medical Products
and subsidiaries, listed in Item 14. These consolidated
financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such
consolidated financial statement schedules, when considered
in relation to the basic consolidated financial statements
taken as a whole, present fairly in all material respects,
the information set forth therein.
Deloitte & Touche LLP
Salt Lake City, Utah
November 13, 1997
<TABLE>
<CAPTION>
SUPPLEMENTAL SCHEDULE II
BALLARD MEDICAL PRODUCTS
VALUATION ACCOUNTS
FOR THE THREE YEARS IN THE PERIOD
ENDED SEPTEMBER 30, 1997
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:
1997 $182,000 $1,216,000 $(560,000) $(838,000)
1996 $125,000 $57,000 NONE $182,000
1995 $200,000 NONE $(75,000) $125,000
ALLOWANCE FOR
SALES RETURNS:
1997 $805,000 $965,000 $(110,000) $1,660,000
1996 $500,000 $305,000 NONE $805,000
1995 $200,000 $300,000 NONE $500,000
ALLOWANCE FOR
INVENTORY
OBSOLESCENCE:
1997 $652,917 $601,860 $(137,829) $1,116,948
1996 $130,453 $522,464 NONE $652,917
1995 NONE $130,453 NONE $130,453
</TABLE>
BALLARD MEDICAL PRODUCTS
Index to Exhibits
EXHIBIT EXHIBIT DESCRIPTION SEQUENTIALLY NUMBERED PAGE
NO.
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 and 10.9
9 None
10.1 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.
10.2 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.
10.3 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.
10.4 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.
10.5 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.
10.6 Material Contract: Incorporated herein by
1994 Incentive Stock reference to Exhibit 10.8
Option Plan to Form 10-K filed December
15, 1994.
10.7 Material Contract: Incorporated herein by
1995 Incentive Stock reference to Exhibit 10.9
Option Plan to Form 10-K filed December
8, 1995.
10.8 Material Contract: Incorporated herein by
1996 Incentive Stock reference to Exhibit 10.10
Option Plan to Form 10-K filed December
9, 1996
10.9 Material Contract: p.
1997 Incentive Stock
Option Plan
10.10 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
10.11 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.
10.12 Material Contract: Incorporated herein by
Stock Purchase reference to Exhibit 99.1
Agreement (with to Form 8-K, filed December
various "Sellers" 23, 1996.
named therein)
10.13 Material Contract: Incorporated herein by
Stock Purchase reference to Exhibit 99.2
Agreement (with SO- to Form 8-K, filed December
CAL PARTNERS, L.P., 23, 1996.
as "Seller")
10.14 Material Contract: Incorporated herein by
Merger Agreement reference to Exhibit 99.3
to Form 8-K, filed December
23, 1996.
11 Computation of p.
Income Per Common
Share and Common
Equivalent Share
12 Not Applicable
13 Ballard Medical p.
Products 1997 Annual
Report for the year
ended September 30,
1997
16 Not Applicable
18 Not Applicable
21 Subsidiaries of p.
Ballard Medical
Products
22 Not Applicable
23 Not Applicable
24 Not Applicable
25 Not Applicable
26 Not Applicable
27 Financial Data p.
Schedule
28 Not Applicable
EXHIBIT 10.9
BALLARD MEDICAL PRODUCTS
1997 INCENTIVE STOCK OPTION PLAN
Adopted effective July 15, 1997
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 1997 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 750,000 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". A
"disinterested person" is a director who is not, during the
one year prior to service as an administrator of the
applicable Plan, or during such service, granted or awarded
options pursuant to any Plan of the Company.
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 Corporation
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 option grants hereunder to
officers and directors who are also employees of the Company
qualify as exempt transactions under Reg. Section 240.16b-
3(d)(3), promulgated by the Securities and Exchange
Commission under Section 16(b) of the Securities Exchange
Act of 1934.
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 1997 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 15, 1997; 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 26, 1998; and that the above 1997 Incentive Stock
Option Plan is now in full force and effect.
Dated this ____ day of ______________, 1998.
_____________________________________________
Secretary
(Corporate Seal)
EXHIBIT 11
BALLARD MEDICAL PRODUCTS
<TABLE>
<CAPTION>
COMPUTATION OF INCOME PER COMMON SHARE AND
COMMON EQUIVALENT SHARES FOR THE THREE YEARS
IN THE PERIOD ENDED SEPTEMBER 30, 1997
Period Income
Cumulative Out- Average Net Per
Shares Standing Shares Income Share
<S> <C> <C> <C> <C> <C>
Primary
income
per
share:
1997 10,666,208,120 365 29,222,488 $30,426,287 $1.041
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
Fully
diluted
income
per
share:
1997 10,722,101,300 365 29,375,620 $30,426,287 $1.036
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
</TABLE>
EXHIBIT 13
BALLARD MEDICAL PRODUCTS
ANNUAL REPORT
1997
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
acquisitions and through internal research and
development.
- 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 seven wholly-owned subsidiaries, MEDICAL
INNOVATIONS CORPORATION ("MIC"), BALLARD REAL ESTATE
HOLDINGS, INC. ("BREH"), BALLARD PURCHASE CORPORATION
("BPC"), BALLARD INTERNATIONAL, INC. ("BI"), BALLARD MEDICAL
PRODUCTS (CANADA) INC. dba PREFERRED MEDICAL PRODUCTS
("PMP"), PLASTIC ENGINEERED PRODUCTS COMPANY ("PEPCO"), MIST
ASSIST, INC. ("Mist Assist"), and CARDIOTRONICS SYSTEMS,
INC. ("Cardiotronics"). (As used in this report, the term
"Company" refers to Ballard Medical Products and its
subsidiaries.)
The Company's headquarters and principal manufacturing
plant (378,000 square feet) is located in Draper, Utah. The
Company has a separate manufacturing facility (208,000
square feet) in Pocatello, Idaho.
The Company's products are sold in 66 countries, and
the customers purchasing our products include more than
15,000 hospitals and other medical care facilities
worldwide. At September 30, 1997, Ballard and its
subsidiaries employed over 1,145 people in 9 countries.
The Company's common stock is traded on the New York
Stock Exchange under the symbol BMP.
1997 IN REVIEW
Fiscal year 1997 was another record setting year for
the Company. Our net sales for the year were $125,307,178,
compared to $103,525,263 for fiscal year 1996, representing
a 21.1% increase for the year. Net income grew by an 18.9%
growth rate, from $25,603,039 in fiscal year 1996 to
$30,426,287 in fiscal year 1997. Earnings per share for the
year were $1.04 cents, up 18.2% over $0.88 for fiscal year
1996. We continue to be very pleased with these results,
particularly in view of the increasing pricing and
competitive pressures on many of our products.
During fiscal year 1997, international sales of Company
products increased by 52.5%. We now have 10 international
sales representatives and approximately 70 international
distributors. We continue to look to the international
markets as an important growth opportunity for the Company.
In December, 1996, Ballard acquired Cardiotronics,
located in Carlsbad, California, in a merger transaction,
for a total purchase price of approximately $12,700,000
($3.75 per common share). Cardiotronics develops,
manufactures, and markets medical devices for the acute
management of heart rate disorders. Its disposable
stimulation electrodes replace traditional defibrillator
paddles and facilitate external defibrillation and pacing,
and enable hospitals to standardize using Cardiotronics
stimulation electrodes, regardless of defibrillator
manufacturer. Heart rate disorders are suffered by millions
of patients each year who are experiencing a heart attack or
who are undergoing an interventional heart procedure such as
coronary angioplasty, cardiac arrhythmia ablation, or open
heart surgery.
In July, 1997, we completed the monumental task of
relocating the manufacturing operations of MIC from Milpitas
and San Jose, California to our Pocatello facility. Earlier
in the year, we also moved the PEPCO operations (from Canal
Fulton, Ohio) and the PMP operations (from Thorold, Canada)
to our Draper, Utah facility. We believe that these
consolidations of operations will help us to reduce
manufacturing costs, through increased efficiencies.
The Company has been aggressive in seeking national
contracts with major hospital groups. For example during
the past year the Company acquired two significant contracts
with Premier and VHA for our TRACH CARE closed suction
system, in which these groups have agreed to use the Company
as the sole source for purchasing closed suction systems.
These two groups consist of approximately 3,800 facilities
and account for approximately 59% of the U.S. closed suction
market.
In addition to the above TRACH CARE contracts, the
Company has added contracts on our enteral feeding and FOAM
CARE products, which will allow us to continue our growth
with these product segments.
Our Strategic Accounts Department is also expanding
into the extended and home care markets, and has recently
signed new contracts that will allow for the utilization of
our products through the continuum of medical care.
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, and now also
in the heart stimulation electrodes market. The Company's
products are described below (for definitions of various
terms, see "Glossary of Technical and Medical Terms"):
CARDIOTRONICS PRODUCTS
* The products acquired from Cardiotronics consist
of a full line of stimulation electrodes and cables and
other interface systems used for external defibrillation and
pacing. Cardiotronics is the only manufacturer of multi-
function stimulation electrodes with pacing, defibrillation
and continuous electrocardiogram ("ECG") monitoring
capabilities all in one electrode. Cardiotronics pioneered
the development of stimulation electrode products designed
for specific procedures and settings including: (a) multi-
function electrodes for the emergency room and critical care
setting, (b) radiolucent products for the catheterization
lab and (c) sterile electrodes for the operating room.
Cardiotronics is the only company that has developed a
patented hydropolymer gel specifically designed for
stimulation electrode therapies. This unique hydropolymer
gel is the lowest impedance gel available on the market.
* Cardiotronics also offers a portfolio of cables
and other interface systems which allow the hospital
customer to standardize using Cardiotronics stimulation
electrodes.
TRACH CARE PRODUCTS
* 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 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.
* Heat and Moisture Exchangers (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, 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 (G-tube) is the first
tube specifically designed for the gastrostomy procedure.
The MIC Gastrostomy Tube can be placed by surgeons, gastro-
enterologists, interventional radiologists and replaced by
qualified registered nurses at bedside in the hospital, and
in home care and alternate care settings. The unique design
of the MIC Gastrostomy Tube becomes a problem solver for the
physician and other care givers. The MIC Gastrostomy Tube
virtually eliminates inadvertent tube dislodgement, controls
gastric leakage, and is provided in several sizes and
versions, to accommodate a wide range of patient needs.
* The 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 provides the gastroenterologist,
surgical endoscopist, and interventional radiologist, with
the ability to initially place a gastrostomy tube by
minimally invasive technique. The PEG is later replaced by
a G-tube or MIC-KEY skin level gastrostomy tube for long-
term nutrition.
* 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 CAN-OPT Disposable Dual-Lumen ERCP Catheter is
an endoscopic accessory used to detect gall stones by
cannulating and injecting contrast media into the biliary
duct.
* The CAN-OPT Disposable Needle-Knife Papillotome is
an endoscopic accessory used to remove gall stones by
incising stenosed papillas.
* The Keen Edge Disposable Biopsy Forcep is 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 forceps.
* The Disposable Injection/Washing-Injection Needle
is 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 medication
into a lesion to promote healing within the GI tract.
(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.
* The Disposable Irrigation Catheter is an
endoscopic accessory that delivers a concentrated stream of
fluid to specific sites, usually employed to remove
adhesions or residual fecal material from the colon to
enhance visual examination of underlying mucosa.
* The ENDO-GUARD Disposable Bite Block is an
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.
FOAM CARE PRODUCTS
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.
PMP PRODUCTS
The Company offers a variety of pain management
products, described below:
* 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 - 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.
OTHERS
* An array of sponge-tipped, oral swabs (DENTASWAB)
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.
* 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.
* The MIST ASSIST breaching 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.
CAPITAL EXPENDITURES
In August, 1997, the Company completed construction of
a separate warehouse facility (102,000 square feet) west of
its Draper, Utah facility, at a total construction cost of
approximately $3,367,000.
Also during this past fiscal year, the Company expended
approximately $5,500,000, in expanding and remodeling its
Pocatello facility, in preparation for the relocation of MIC
from Milpitas and San Jose, California to Pocatello, Idaho.
Total square footage at Pocatello is now approximately
208,000.
The Company continued to focus during the year on
upgrading and improving its manufacturing operations,
including the acquisition and assembly of additional
automation assembly equipment, the purchase of additional
machines, the purchase and construction of additional molds,
etc.
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
9/30/97 $12,002,960
9/30/96 $7,871,946
9/30/95 $6,172,904
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 1997 and 1996:
FISCAL YEAR 1997 FISCAL YEAR 1996
QUARTER HIGH LOW HIGH LOW
First Quarter 19 5/8 16 1/4 18 1/8 15 3/8
Second Quarter 21 1/4 17 7/8 18 5/8 15 1/8
Third Quarter 21 1/4 18 1/8 20 5/8 18
Fourth Quarter 25 19 9/16 19 1/2 16 1/4
On November 19, 1997, the closing quotation for the
Company's Common Stock, as reported by the WALL STREET
JOURNAL, was 23 1/2 high and 23 low. As of November 19,
1997, there were approximately 1,119 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 18, 1995 January 3, 1996 $.09
December 16, 1996 January 3, 1997 $.05
June 16, 1997 July 3, 1997 $.05
FINANCIAL HIGHLIGHTS
SELECTED CONSOLIDATED FINANCIAL DATA (1)(2)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Sales $125,307,178 $103,525,263 $84,152,967 $67,051,628 $66,532,017
Other
Income,
Net 5,547,587 5,308,873 4,101,037 3,518,832 3,711,891
Net Income 30,426,287 25,603,039 20,942,616 16,594,198 18,906,755
Net
Income
Per
Common
Share
Assuming
Full
Dilution
(3) 1.04 .88 .74 .55 .69
Total
Assets 186,448,667 142,465,088 113,702,547 93,243,187 80,764,500
Cash
Dividends
Declared
Per Share
(4) .102 .095 .074 .060 .045
</TABLE>
(1) The consolidated financial data shown above includes
the accounts of Ballard and its wholly-owned
subsidiaries, MIC, BREH, BI, PMP, BPC, Mist Assist,
PEPCO and Cardiotronics. The accounts of Mist Assist,
PMP and Cardiotronics are included as of July 19, 1996,
August 28, 1996, and December 10, 1996, respectively,
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>
FISCAL YEAR 1997
QUARTERS ENDED: 9/30/97 6/30/97 3/31/97 12/31/96
<S> <C> <C> <C> <C>
Net Sales $33,814,695 $32,218,086 $30,813,873 $28,460,524
Gross Margin 11,837,375 11,508,282 10,855,360 10,232,965
Net Income 8,173,788 7,851,476 7,476,352 6,924,671
Net Income Per
Common Share
Assuming Full
Dilution .276 .267 .256 .239
FISCAL YEAR 1996
QUARTERS ENDED: 9/30/96 6/30/96 3/31/96 12/31/95
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
Assuming Full
Dilution .236 .232 .225 .200
</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, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended
September 30, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years
in the period ended September 30, 1997 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.
Deloitte & Touche LLP
Salt Lake City, Utah
November 13, 1997
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $21,143,908 $14,164,103
Investments available for sale 26,628,312 26,662,598
Accounts receivable - trade
(less allowance for doubtful
accounts: 1997 - $838,000, 1996 -
$182,000; and allowance
for sales returns: 1997 -
$1,660,000, 1996 - $805,000) 25,320,584 19,944,055
Royalties receivable 375,673 1,351,885
Other receivables 908,287 636,291
Inventories:
Raw materials 10,798,381 7,171,048
Work-in-process 5,525,067 3,913,804
Finished goods 4,306,858 2,760,008
Deferred income taxes 2,233,042 1,057,303
Income tax refund receivable 1,830,946 3,274,000
Prepaid expenses 50,639 169,431
Total current assets 99,121,697 81,104,526
PROPERTY AND EQUIPMENT:
Land 873,865 3,944,701
Buildings 28,922,203 20,131,728
Molds 4,891,734 3,608,228
Machinery and equipment 10,969,531 9,192,269
Vehicles 785,440 1,039,175
Furniture and fixtures 3,059,632 2,081,200
Leasehold improvements 30,183 302,394
Construction in process 4,142,563 3,053,296
Total 53,675,151 43,352,991
Less accumulated depreciation (10,582,953) (8,058,401)
Property and equipment - net 43,092,198 35,294,590
INTANGIBLE ASSETS:
Cost in excess of purchase price
(less accumulated amortization:
1997 - $5,231,166; 1996 - $3,212,520) 28,557,783 15,644,651
Patents and other
intangibles (less accumulated
amortization: 1997 - $1,808,922;
1996 - $711,431) 8,280,488 5,012,157
Total intangible assets 36,838,271 20,656,808
DEFERRED INCOME TAXES 2,139,902
OTHER ASSETS 5,256,599 5,409,164
TOTAL $186,448,667 $142,465,088
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
CURRENT LIABILITIES:
Accounts payable $2,874,529 $2,273,674
Accrued liabilities:
Employee compensation 3,003,609 1,985,135
Royalties 432,617 326,492
Other 449,394 845,183
Total current liabilities 6,760,149 5,430,484
DEFERRED INCOME TAXES 1,110,764
Total liabilities 6,760,149 6,541,248
COMMITMENTS AND CONTINGENT
LIABILITIES (Note 6)
STOCKHOLDERS' EQUITY:
Common stock - $.10 par value;
75,000,000 shares authorized;
issued and outstanding:
1997 - 28,995,000 shares,
1996 - 27,702,323 shares, 2,899,500 2,770,232
Additional paid-in capital 55,039,439 38,935,892
Unrealized losses on investments
available for sale (223,783) (156,564)
Retained earnings 121,973,362 94,374,280
Total stockholders' equity 179,688,518 135,923,840
TOTAL $186,448,667 $142,465,088
</TABLE>
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
NET SALES $125,307,178 $103,525,263 $84,152,967
COST OF PRODUCTS SOLD 44,433,982 35,734,178 28,070,350
GROSS MARGIN 80,873,196 67,791,085 56,082,617
OPERATING EXPENSES:
Selling, general and
administrative 33,763,756 28,286,793 24,429,181
Research and development 2,735,298 2,903,805 2,177,117
Royalties 1,711,442 1,539,200 1,385,841
Total operating
expenses 38,210,496 32,729,798 27,992,139
OPERATING INCOME 42,662,700 35,061,287 28,090,478
OTHER INCOME:
Interest income 2,129,276 1,917,925 1,923,257
Royalty income 2,465,840 2,400,000 2,147,620
Other 952,471 990,948 30,160
Total other income 5,547,587 5,308,873 4,101,037
INCOME BEFORE
INCOME TAX EXPENSE 48,210,287 40,370,160 32,191,515
INCOME TAX EXPENSE 17,784,000 14,767,121 11,248,899
NET INCOME $30,426,287 $25,603,039 $20,942,616
NET INCOME PER SHARE:
Common and common
equivalent share $1.041 $0.895 $0.752
Common share assuming
full dilution $1.036 $0.884 $0.739
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING:
Common and common
equivalent share 29,222,488 28,614,136 27,844,111
Common share assuming
full dilution 29,375,620 28,968,855 28,339,946
</TABLE>
See notes to consolidated financial statements.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
<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, 1994 26,694,589 $2,669,459 $28,287,388 $59,959,522
Net 20,942,616
income
Cash
dividends (1,983,343)
paid
Common
stock
issued
from
exercise
of stock
options 205,425 20,543 432,869
Acquisi-
tion and
retire-
ment of
treasury
stock (100,000) (10,000) (1,464,985)
Tax bene-
fit
attribu-
able to
apprecia-
tion in
value of
stock
issued
in con-
junction
with the
exercise
and
disqual-
ifying
disposi-
tion of
incentive
stock
options 489,517
Unre-
alized
losses on
invest-
ments -
net of
tax $(142,728)
BALANCE
SEPTEMBER
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
exercise
of stock
options 1,252,309 125,230 9,689,509
Acqui-
sition
and
retire-
ment of
treasury
stock (350,000) (35,000) (6,126,421)
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 36,609
Unre-
alized
losses on
invest-
ments -
net of
tax (13,836)
BALANCE
SEPTEM-
BER 30,
1996 27,702,323 2,770,232 38,935,892 (156,564) 94,374,280
Net
income 30,426,287
Cash
divi
dends
paid (2,827,205)
Common
stock
issued
from
exer-
cise
of stock
options 1,292,677 129,268 11,129,231
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 4,974,316
Unre-
alized
losses on
invest-
ments (67,219)
BALANCE
SEPTEM-
BER 30,
1997 28,995,000 $2,899,500 $55,039,439 $(223,783) $121,973,362
</TABLE>
See notes to consolidated financial statements.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING
ACTIVITIES:
Net income $30,426,287 $25,603,039 $20,942,616
Adjustments to
reconcile net
income to net
cash provided by
operating
activities:
Depreciation and
amortization 6,858,106 3,932,373 3,116,862
(Gain) loss on
disposal of
property (6,253,835) (446,320) 7,044
Impairment of
investment 4,900,000
Tax benefit from
disqualifying
dispositions of
incentive stock
options 4,974,316 36,609 489,517
Provision for
losses on
accounts
receivable -
trade and sales
returns and
rebates 2,181,000 355,000 225,000
Deferred income
taxes (373,168) 442,122 373,655
Changes in
operating assets
and liabilities-
net of effects
from purchase of
subsidiaries:
Accounts
receivable -
trade (7,072,476) (6,150,608) (29,707)
Royalties and
other receivables 704,216 (167,553) 52,484
Inventories (6,029,686) (1,323,492) (1,398,153)
Income tax refund
receivable 1,443,054 <1,170,430> 897,815
Prepaid expenses 254,470 105,898 (196,526)
Accounts payable (707,213) 807,483 156,861
Accrued
liabilities (866,251) 19,180 1,126,009
Total
adjustments 12,533 (3,559,738) 4,820,861
Net cash
provided by
operating
activities 30,438,820 22,043,301 25,763,477
CASH FLOWS FROM
INVESTING
ACTIVITIES:
Capital
expenditures for
property and
equipment (14,439,471) (15,292,194) (2,769,625)
Proceeds from
sales of property
and equipment 6,514,131 564,418 45,250
Purchases of
investments
available for
sale (46,959,814) (30,569,641) (38,534,828)
Proceeds from
maturities of
investments
available for
sale 46,902,342 22,231,406 36,288,627
Investment in
and advances to
affiliates (1,281,661) (4,462,625) (800,000)
Purchases of
intangible assets (714,952) (2,854,344) (1,330,188)
Purchases of
other assets (108,338) (12,532) (109,579)
Payments for
purchase of
subsidiaries,
net of cash
acquired (12,323,417) (5,618,432) (3,283,650)
Investment in
notes receivable (34,134)
Net cash used
in investing
activities (22,445,314) (36,013,944) (10,493,993)
CASH FLOWS FROM
FINANCING
ACTIVITIES:
Cash dividends
paid (2,827,205) (2,556,148) (1,983,343)
Proceeds from
issuance of
common stock and
exercise of
options 11,258,499 9,814,739 453,412
Purchase of
treasury stock (6,161,421) (1,474,985)
Repayment of
long-term debt
assumed in
acquisitions (9,444,995) (517,754) (18,446)
Net cash
provided by
(used in)
financing
activities (1,013,701) 579,416 (3,023,362)
NET INCREASE
(DECREASE) IN
CASH AND CASH
EQUIVALENTS 6,979,805 (13,391,227) 12,246,122
CASH AND CASH
EQUIVALENTS,
BEGINNING OF YEAR 14,164,103 27,555,330 15,309,208
CASH AND CASH
EQUIVALENTS, END
OF YEAR $21,143,908 $14,164,103 $27,555,330
SUPPLEMENTAL
DISCLOSURE OF
CASH FLOW
INFORMATION -
Cash paid during
the year for
income taxes $11,993,115 $15,458,820 $9,487,912
</TABLE>
See notes to consolidated financial statements.
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
During 1997, the Company sold a parcel of land for
$3,265,700 in cash and a promissory note of $3,973,920.
On December 10, 1996, the Company acquired all of the
outstanding capital stock of Cardiotronics Systems, Inc.
(Cardiotronics) in a purchase transaction for $12,722,404 in
cash. In conjunction with the merger, liabilities were
assumed as follows:
Fair value of assets acquired
(including goodwill of $13,136,000) $25,070,528
Cash paid 12,722,404
Liabilities assumed $12,348,124
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 for the two years in the period ended
September 30, 1996 were restated as if this transaction had
occurred on October 1, 1994.
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 value of assets acquired approximated
$820,000.
* On July 19, 1996, the Company purchased all of the
outstanding capital stock of Mist Assist, Inc. for
approximately $673,000 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 good will) $4,000,000
Cash paid 3,313,310
Liabilities assumed 686,690
See notes to consolidated financial statements.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
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 Purchase
Corporation (BPC), Ballard International, Inc. (BI), Plastic
Engineered Products Company (PEPCO), Ballard Medical
Products (Canada) Inc. dba Preferred Medical Products (PMP),
Mist Assist, Inc. (Mist Assist), and Cardiotronics Systems,
Inc. (Cardiotronics) (collectively, the "Company"). All
significant intercompany accounts and transactions have been
eliminated in consolidation.
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 AVAILABLE FOR SALE - Investments available
for sale consist of tax-free municipal bonds. Investments
are recorded at fair market value. 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.
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 - The Company utilizes an asset and
liability approach for financial accounting and reporting
for income taxes. Deferred income taxes are provided for
temporary differences in the bases of assets and liabilities
as reported for financial statement and income tax purposes.
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.
STOCK-BASED COMPENSATION - Effective October 1, 1996,
the Company adopted SFAS No. 123, "Accounting for Stock-
Based Compensation." SFAS No. 123 requires expanded
disclosures of stock-based compensation arrangements. The
Company has elected to continue to apply APB 25 (as
permitted by SFAS No. 123). The appropriate required
disclosure of the effects of SFAS No. 123 are included in
Note 5.
STATEMENTS OF CASH FLOWS - For purposes of the
consolidated statements of cash flows, the Company considers
cash and interest bearing securities with original
maturities of less than three months to be cash equivalents.
LONG-LIVED ASSETS - Impairment of long-lived assets is
determined in accordance with SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and of Long-Lived Assets
to be Disposed Of," which was adopted on October 1, 1996.
OTHER - Certain reclassifications have been made to the
prior year financial statements to conform to
classifications adopted in the current year.
2. INVESTMENTS
Investments available for sale at September 30, 1997
and 1996 consist of municipal bonds.
The amortized cost and fair value of investments
available for sale at September 30, 1997 and 1996 are as
follows:
1997 1996
Amortized cost $26,972,594 $26,915,121
Gross unrealized
gains None None
Gross unrealized
losses (344,282) (252,523)
Fair value $26,628,312 $26,662,598
As of September 30, 1997 and 1996, all municipal bonds
had a contractual maturity of one year or less. During the
years ended September 30, 1997 and 1996, 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, 1997, the Company had an unsecured
line of credit with a bank totaling $5,000,000 which expires
February 15, 1998. The line, if drawn upon, bears interest
at the bank's base rate (8.5% at September 30, 1997). No
compensating cash balances are required. As of September
30, 1997 and during the year then ended, there were no
borrowings under the line of credit.
4. INCOME TAXES
The Company has recorded deferred tax assets and
liabilities at September 30, 1997 and 1996 which consisted
of thefollowing temporary differences andcarryforward items:
<TABLE>
<CAPTION>
1997 1996
Current Long-Term Current Long-Term
<S> <C> <C> <C> <C>
Deferred income
tax assets:
Allowance for
uncollectible
accounts
receivable $320,513 $69,111
Allowance for
sales returns,
rebates, and
allowances 664,785 305,729
Allowance
for obsolete
inventory 451,658 185,277
Accrued
expenses 280,925 168,549
Unrealized
losses on
investments 120,498 95,959
Net operating
loss carry-
forwards of
acquired
subsidiaries 394,663 $3,416,727 121,442 $99,562
Research and
development
credits 111,226
Total $2,233,042 $3,416,727 $1,057,303 $99,562
Deferred income
tax liabilities-
differences
between tax
basis and
financial
reporting basis
of property
and equipment (1,276,825) (1,210,326)
Net $2,233,042 $2,139,902 $1,057,303 $(1,110,764)
</TABLE>
The components of income tax expense (benefit) for the
years ended September 30, 1997, 1996, and 1995 are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current:
Federal $16,243,278 $12,421,679 $9,425,942
State 1,913,890 1,903,320 1,449,302
18,157,168 14,324,999 10,875,244
Deferred:
Federal (324,388) 402,473 323,859
State (48,780) 39,649 49,796
(373,168) 442,122 373,655
Total $17,784,000 $14,767,121 $11,248,899
</TABLE>
Income tax expense differed from amounts computed by
applying the statutory Federal tax rate to pretax income as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Computed
Federal income
tax expense at
statutory rate $16,873,600 $14,129,556 $11,082,432
State income
tax expense,
net of Federal
benefit 1,590,940 1,317,054 990,493
Environmental
tax 16,614 30,000
Tax exempt
income (410,736) (553,876) (624,750)
Foreign sales
corporation (429,833) (236,250) (121,756)
Amortization
of goodwill 642,986 335,763 316,969
Other (482,957) (241,740) (424,489)
Total $17,784,000 $14,767,121 $11,248,899
</TABLE>
As a result of the Company's acquisitions (see Note 8),
the Company has net operating loss carryforwards for Federal
income tax purposes of approximately $9,964,000, 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 at various dates through the year 2011.
5. COMMON STOCK AND STOCK OPTIONS
During the years ended September 30, 1996 and 1995, the
Company repurchased 350,000 and 100,000 shares of its
outstanding common stock for $6,161,421 and $1,474,985,
respectively. In accordance with Utah State law, this
treasury stock was accounted for as retired common stock.
The Company did not repurchase any shares of its common
stock during the year ended September 30, 1997.
The Company has adopted several incentive stock option
plans for key employees and reserved shares of common stock
totaling approximately 2,380,780, 2,926,400 and 3,483,028 at
September 30, 1997, 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 seven years.
Changes in stock options are as follows for the years
ended September 30:
Weighted Average
1997 Shares Exercise Price
Outstanding at
beginning of year 2,517,553 $10.06
Granted 856,475 19.71
Exercised (1,292,677) 8.71
Forfeited (61,700) 15.46
Outstanding at end
of year 2,019,651 $14.85
Options
exercisable at
year end 1,056,976
Weighted average
fair value of
options granted
during year $9.24
Weighted Average
1996 Shares Exercise Price
Outstanding at
beginning of year 3,331,162 $8.26
Granted 516,900 16.63
Exercised (1,252,309) 7.84
Forfeited (78,200) 12.32
Outstanding at
end of year 2,517,553 $12.32
Options
exercisable at
year end 1,799,351
Weighted average
fair value of
options granted
during year $7.79
Price Range
1995 Shares Per Share
Outstanding at
beginning of year 2,898,253 $1.46-$13.50
Granted 740,000 9.38-14.25
Exercised (205,425) 1.46-11.00
Forfeited (101,666) 8.63-13.50
Outstanding at end
of year 3,331,162 1.46-14.25
Options
exercisable at
year end 2,410,490
The following table summarizes information about stock
options outstanding at September 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Average
Remaining Weighted Weighted
Range of Number Contractual Average Number Average
Exercise Out- Life Exercise Exer- Exercise
Prices standing (in years) Price cisable Price
<S> <C> <C> <C> <C> <C>
$2.96-
$4.36 92,002 2.1 $3.95 92,002 $3.95
8.63-
12.88 709,174 7.1 9.51 709,174 9.51
13.50-
19.88 1,212,275 9.5 18.76 255,800 16.57
23.00-
23.63 6,200 10.0 $23.43
$2.96-
$23.63 2,019,651 8.3 $14.85 1,056,976 $10.73
</TABLE>
The Company accounts for stock options granted using
Accounting Principles Board (APB) Opinion 25. Accordingly,
no compensation cost has been recognized for its stock
option plans. Had compensation cost for the Company's
stock-based compensation plans been determined based on the
fair value at the grant dates for awards under those plans
consistent with SFAS No. 123, the Company's net income and
net income per common and common equivalent share would have
changed to the pro forma amounts indicated below:
1997 1996
Net income:
As reported $30,426,287 $25,603,039
Pro forma 25,393,835 24,208,058
Net income
per common and
common equivalent
share:
As reported $1.041 $0.895
Pro forma 0.869 0.846
Net income
per common and
common equivalent
share assuming
full dilution:
As reported $1.036 $0.884
Pro forma 0.864 0.836
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants
in 1997 and 1996, dividend yield of 0.5%; expected
volatility of 33%; risk-free interest rate of 5.68%; and
expected lives of approximately 8 years.
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
$810,123, $671,010, and $456,990 for the years ended
September 30, 1997, 1996, and 1995, respectively. The
following represents the Company's future commitments under
such leases:
Year ending
September 30
1998 $523,891
1999 288,464
2000 165,610
2001 86,560
2002 101,520
Thereafter 397,620
Total $1,563,665
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.
R2, a wholly-owned subsidiary of Cardiotronics, is a
co-defendant in an ongoing product liability case.
Plaintiff in this case alleges, among other things, that
defibrillation pads manufactured by R2 were defective and
seeks damages of $20 million. The Company believes that it
has valid defenses; however, in view of the inherent
uncertainties surrounding the litigation, no assurance can
be given that R2 will prevail in this case. Attorneys for
R2 are attempting to negotiate an out-of-court settlement
for an amount that will be covered by R2's product liability
insurance policy. Management believes that a settlement
will be reached that does not exceed the amount of the
policy.
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,
1997, 1996, and 1995, the Company expensed approximately
$757,000, $621,000, and $545,000, 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
Effective December 10, 1996, the Company acquired all
of the issued and outstanding capital stock of Cardiotronics
for $12,723,000 in cash and the assumption of liabilities
totaling $12,348,000. The acquisition is being 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 approxi-mately $13,136,000,
which is being amortized over 15 years.
The pro forma results of operations of the Company for the
years ended September 30, 1997 and 1996 (assuming the
acquisitions of Cardiotronics had occurred as of October 1,
1995) are as follows:
1997 1996
Net sales $126,535,215 $113,035,252
Net income 29,866,731 20,936,803
Net income per share
assuming full dilution 1.017 0.723
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.
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 Mist Assist 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 of
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.
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. In addition, on November 14, 1995,
the Company paid Neuro $500,000 for an option to purchase
substantially all of its assets. The Company exercised the
option on February 28, 1997 and acquired all of the
remaining assets of Neuro for $4,245,422. The price paid
for the option and amounts advanced to Neuro were applied to
the purchase price.
9. SALES
During the years ended September 30, 1997, 1996, and
1995, the Company had foreign export sales of approximately
$12,000,000, 7,900,000, and $6,200,000, respectively.
10. EFFECT OF RECENTLY ISSUED FINANCIAL ACCOUNTING
STANDARDS
In February, 1997, the Financial Accounting Standards
Board issued SFAS No. 128, Earnings Per Share. This
standard establishes standards for computing and presenting
earnings per share (EPS). SFAS No. 128 simplifies the
approach for computing earnings per share previously found
in Accounting Principles Board Opinion No. 15. It replaces
the presentation of primary EPS with a presentation of basic
EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all
entities with complex capital structures.
Under the new structure, basic EPS excludes dilution
and is computed by dividing income available to common
stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted
into common stock.
SFAS No. 128 is effective for financial statements
issued for periods ending after December 15, 1997. The
computation of basic EPS under SFAS No. 128 would have
resulted in net income per common share of $1.073, $0.933
and $0.788 for the fiscal years ended September 30, 1997,
1996, and 1995, respectively. Diluted EPS computed under
SFAS No. 128 would have resulted in net income per common
share of $1.038, $0.886, and $0.747 for the fiscal years
ended September 30, 1997, 1996, and 1995, respectively.
11. OTHER INCOME
During 1997, the Company recorded an impairment loss
totaling approximately $4,900,000 as a result of the
Company's assessment that the carrying amount of the
remaining Neuro assets, consisting primarily of inventory,
fixed assets, and intangible assets, exceeded their fair
values as estimated based on analysis of cash flows. The
Company also recorded a gain on the sale of a parcel of land
totaling approximately $6,300,000. The impairment loss and
the gain on the sale of land are included in other income in
the accompanying consolidated statements of operations.
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, 1997, 1996, and 1995,
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 Company s stock and asset purchases
(see Notes to Consolidated Financial Statements ).
Fiscal year 1997 was a another record setting year for
the Company in terms of sales and income. Net sales were
$125.3 million, representing an increase of 21.1% over
fiscal 1996. Net income and net income per share were $30.4
million and $1.04, respectively, increasing 18.9% and 18.2%,
respectively, over fiscal year 1996. The continued steady
growth in sales and income is the result of strategic
acquisitions, internal development of new products,
acquisition of national contracts, rapid expansion in the
international marketplace, and the overall efforts of an
outstanding sales force. Income growth continues as a
result of stable, high margins and manufacturing expertise.
With a continued emphasis on growth through
acquisitions, the Company acquired Cardiotronics in
December, 1996. Cardiotronics, located in Carlsbad,
California, is a manufacturer of medical devices for the
acute management of heart rate disorders. Its principal
product, a disposable defibrillator pad, provided
approximately $7.6 million in net sales during fiscal 1997.
The Company expects 1998 sales from this acquisition to
exceed $10.0 million.
During fiscal year 1997 the Company focused its sales
efforts and internally reported based upon 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 1996
acquisitions of Mist Assist, PMP and PEPCO and the 1997
acquisition of Cardiotronics; and (2) MIC/FOAM CARE ("MIC")
which includes the MIC, FOAM CARE and Cox families of
products as well as the product line additions acquired from
Endovations in 1996.
RESULTS OF OPERATIONS
SALES - For the year ended September 30, 1997,
consolidated net sales increased $21,781,915, or 21.1%, over
fiscal year 1996. For the year ended September 30, 1996,
consolidated net sales increased $19,372,296, or 23.0%, over
fiscal year 1995. The steady, solid growth in 1997 and 1996
is due principally to the Company s ability to increase
volume, both internally and through acquisitions. Although
prices on isolated TRACH CARE and MIC products and
accessories increased slightly, pricing for other products
during 1997 were reduced in order to meet competition and
price reductions required by hospitals and large buying
groups. The Company believes that the signing of exclusive
long-term contracts with major hospital buying groups should
stabilize prices for certain products over the next three to
five years.
The Company's MIC enteral feeding catheters and related
products continue to contribute significantly to the overall
growth in net sales, as is the rapid expansion of the
Company's international operations. Net sales within the
MIC product line increased 33.2% in fiscal 1997 over fiscal
1996 International net sales (all products) increased 52.5%
during the same period.
The following table summarizes sales by sales
force/business unit (see description above) as a percentage
of total net sales:
Year ended September 30, 1997 1996 1995
Trach Care 74.3% 64.8% 68.5%
MIC 25.7% 35.2% 31.5%
The table below summarizes U.S. sales versus
international sales as a percentage of total net sales:
Year ended September 30, 1997 1996 1995
Domestic 91.4% 92.4% 92.6%
International 9.6% 7.6% 7.4%
All sales of the Company and related receipts are in U.S.
dollars.
COST OF PRODUCTS SOLD - For the year ended September
30, 1997, consolidated cost of products sold totaled
$44,433,982, compared with $35,734,178 for fiscal year 1996
and $28,070,350 for fiscal year 1995, increases of 24.4% and
27.3%, respectively. As a percent of net sales, cost of
products sold was 35.5% and 34.5% for fiscal year 1997 and
1996, respectively. The 1% increase in product costs during
fiscal year 1997 can be attributed to the acquisition of
lower margin product lines, the closure and transfer of
Pepco s, PMP s, and MIC s manufacturing operations to
Draper, Utah and Pocatello, Idaho, and continued increases
in material and labor costs. Margins also continue to be
impacted by the health care industry's focus on cost
restraints and competitive pricing pressures, resulting in
increased product rebates and price reductions.
During the year the Company continued to refine and
automate its manufacturing processes as well as expand its
injection molding capacity. The Company closed its PEPCO,
PMP, and MIC facilities and integrated them into the
Company s two manufacturing sites in Utah and Idaho. Gross
margins will continue to be impacted by these closures into
the first quarter of 1998 but the Company expects these
combinations to create manufacturing benefits in the future.
Pricing pressures, new product acquisitions, and continued
increases in labor and materials will continue to impact
margins in 1998. Margins will also be impacted by the
Company's planned move of its Cardiotronics operations from
Carlsbad, California to Pocatello, Idaho during the first
quarter of fiscal year 1998.
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, 1997
were $38,210,496, compared with $32,729,798 for fiscal year
1996 and $27,992,139 for fiscal year 1995. The following
table is a summary of operating expenses by category as a
percentage of net sales:
Year ended September 30, 1997 1996 1995
Selling, general, and
administrative 27.0% 27.3% 29.0%
Research and development 2.2% 2.8% 2.6%
Royalties 1.4% 1.5% 1.6%
Selling, general, and administrative expenses increased
$5,476,963 during fiscal year 1997 and $3,857,612 during
fiscal year 1996. These increases are attributed
principally to increased sales volumes, as well as to
increases in period costs due to intangible write-offs from
acquisitions. Consolidated expenses related to research and
development and royalties, as a percentage of consolidated
net sales for fiscal years 1997, 1996, and 1995, remained
fairly consistent.
OTHER INCOME - Other income generally consists 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. Also included
in other income during fiscal 1997 was the sale of 61 acres
of real estate located south of the Company s Draper plant
for a net gain of $6,304,670 (see Liquidity and Capital
Resources ) and the impairment loss of $4,900,000 related
to the Company s investment in the assets and technology of
Neuro (see Liquidity and Capital Resources ).
Interest and royalty income remained relatively
consistent between the periods, bringing a combined
$4,595,116, $4,317,925, and $4,070,877 for fiscal years
1997, 1996, and 1995, respectively.
NET INCOME - Consolidated net income from operations
for the year ended September 30, 1997 totaled $30,426,287,
an increase of 18.9% over fiscal year 1996. The following
table reflects net income as a percentage of net sales for
each of the reporting periods:
Year ended September 30, 1997 1996 1995
Net Income 24.3% 24.7% 24.9%
The overall increase in net income over the prior
period and the outstanding after-tax margin reflects the
increased sales volume, continued strong margins, and
management's efforts to control the costs of manufacturing
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 Sheets present the Company's
financial position at the end of each of the last two fiscal
years. Each 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, 1997 the Company's
operating activities provided $30,438,820 in cash and cash
equivalents, comparable to the $22,043,301 provided during
fiscal year 1996. At September 30, 1997, working capital
totaled $92,361,548 compared with $75,674,042 at September
30, 1996. The Company's current ratio was 14.7 to 1 at
September 30, 1997 compared with 14.9 at September 30, 1996.
Available cash, which includes cash and cash equivalents and
investments available for sale, at September 30, 1997
totaled $47,772,220 compared with $40,826,701 at September
30, 1996. 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, 1997 or 1996.
Continued growth in cash and investments provides the
Company financial stability and flexibility to fund current
operations, an aggressive acquisitions program, future
internal growth and expansion, and the ability to continue
its dividend payment policy.
During the year ended September 30, 1997, the Company
completed expansion of its manufacturing facility in
Pocatello, Idaho. See discussion of Pocatello facility
under "Capital Expenditures". Total development and
construction costs of the first phase of the facility
totaled approximately $7,243,000. Completion of the second
phase cost approximately $5,500,000. The Company expended
an additional $8,900,000 during fiscal year 1997 to expand
and upgrade existing facilities and operations in order to
meet the growing needs of present and new business.
Cash outlay for the acquisition of Cardiotronics, net
of cash acquired, was approximately $12,722,000.
During February 1997, the Company exercised its option
to purchase the assets of Neuro at a total purchase price
$4,245,422. In March, 1997, the Company sold certain of the
assets it acquired from Neuro to an unrelated party for
$961,459, which approximated the purchased price of those
assets. In June, 1997 the Company determined that the
remaining carrying value in its investment in Neuro was not
entirely recoverable based upon expected future cash flows
from the sale of the remaining assets and technology
acquired from Neuro. Although the Company believes that
remaining assets and technology of Neuro have value, an
impairment loss of $4,900,000 has been recognized and
included in "Other Income." The remaining assets and
technology acquired from Neuro are being marketed for sale
by the Company.
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
1997 included the payment of dividends of $2,827,205, and
purchases of intangible assets of $714,952.
YEAR 2000 ISSUES
The approaching Year 2000 could result in challenges
related to computer software, accounting records, and
relationships with suppliers and customers. Management of
the Company is studying Year 2000 issues, seeking to avoid
such problems.
FORWARD-LOOKING STATEMENTS
From time to time the Company may report, through its
press releases, its Annual Report, and SEC filings, certain
matters that could be characterized as forward-looking
statements 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, economic, competitive, governmental,
technological, and other factors discussed in the Company's
filings with the SEC on Forms 10-K, 10-Q, and 8-K. Such
forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation
Reform Act of 1995.
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. Septic means pertaining to pathogenic organisms or
their toxins, i.e., putrid, rotten or decayed.
31. Stenosed means constricted.
32. Stimulation electrodes are
33. A surfactant is an agent that lowers surface tension.
34. 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.
35. Varix means an enlarged and tortuous vein or artery.
36. 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 Retired Physician
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 Marketing and
International
Daniel Burman Vice President of Sales
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 26, 1998, 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 19, 1997 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 1997, 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
Bear Stearns - New York, New York
Olde Discount - Detroit, Michigan
Nutmeg Securities - Providence, Rhode Island
Piper Jaffray - Minneapolis, Minnesota
Select Equity Group, Inc. - New York, New York
Southwest Securities - Dallas, Texas
Tucker Anthony - Boston, Massachusetts
AUDITORS
Deloitte & Touche LLP
50 South Main Street, Suite 1800
Salt Lake City, Utah 84144
EXHIBIT 21
SUBSIDIARIES OF BALLARD MEDICAL PRODUCTS
JURISDICTION OF BUSINESS PARENT
SUBSIDIARY INCORPORATION NAME CORPORATION
1194127 Canada 1194127 691555
Ontario Inc. Ontario Inc. Ontario
Limited
691555 Ontario Canada Preferred Ballard
Limited Medical Medical
Products Products
(Canada)
Inc.
Ballard Virgin Ballard Ballard
International, Islands International, Medical
Inc. Inc. Products
Ballard Canada Ballard Ballard
Medical Medical Medical
Products Products Products
(Canada) (Canada)
Inc. Inc.
Ballard Utah Ballard Ballard
Purchase Purchase Medical
Corporation Cororation Products
Ballard Utah Ballard Ballard
Real Estate Real Estate Medical
Holdings, Inc. Holdings, Inc. Products
Cardiotronics Colorado Cardiotronics Ballard
Sytems, Inc. Systems, Inc. Medical
Products
Medical California Medical Ballard
Innovations Innovations Medical
Corporation Corporation Products
Mist Assist, Delaware Mist Assist, Ballard
Inc. Inc. Medical
Products
Plastic Ohio Plastic Ballard
Engineered Engineered Medical
Products Products Products
Company Company
Preferred New York Preferred 691555
Medical Medical Ontario
Products, Inc. Products Limited
R2 Medical California R2 Medical Cardiotronics
Systems, Inc. Systems, Inc. Systems, Inc.
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<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1997
<PERIOD-START> JUL-1-1997 OCT-1-1996
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 21,143,908 21,143,908
<SECURITIES> 26,628,312 26,628,312
<RECEIVABLES> 27,818,584 27,818,584
<ALLOWANCES> 2,498,000 2,498,000
<INVENTORY> 20,630,306 20,630,306
<CURRENT-ASSETS> 99,121,697 99,121,697
<PP&E> 53,675,151 53,675,151
<DEPRECIATION> 10,582,953 10,582,953
<TOTAL-ASSETS> 186,448,667 186,448,667
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0 0
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<TOTAL-REVENUES> 33,814,695 125,307,178
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<INCOME-PRETAX> 13,338,788 48,210,287
<INCOME-TAX> 5,165,000 17,784,000
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