SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
[x] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
240.14a-11(c) or 240.14a-12
BALLARD MEDICAL PRODUCTS
(Name of Registrant as Specified in Its Charter)
PAUL W. HESS
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-
6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
(1) Title of each class of securities to which
transaction applies:
(2) Aggregate number of securities to which
transaction applies:
(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the filing
for which the offsetting fee was paid previously.
Identify the previous filing by a registration
statement number, or the Form or Schedule and the date
of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
BALLARD MEDICAL PRODUCTS
12050 Lone Peak Parkway
Draper, Utah 84020
Telephone (801) 572-6800
Telefax (801) 572-6869
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To Be Held January 26, 1998
INTRODUCTION
This Proxy Statement is furnished to the shareholders
with the Notice of Annual Meeting of Shareholders of Ballard
Medical Products, a Utah corporation (the "Company"), in
connection with the solicitation of proxies by the Company.
The proxies solicited hereby are to be voted at the Annual
Meeting of Shareholders of the Company to be held at the
Company's executive offices, 12050 Lone Peak Parkway,
Draper, Utah 84020, on Monday, January 26, 1998, at 11:00
a.m. Mountain Standard Time, and at any and all adjournments
thereof. Stockholders of record at the close of business on
November 19, 1997 (the "Record Date") are entitled to notice
of and to vote at the meeting.
A form of proxy is enclosed for your use. The shares
represented by each properly executed, unrevoked proxy will
be voted as directed by the shareholder. The proxy will be
voted "for" each proposal on which no direction is made.
This proxy solicitation is being made by the Board of
Directors of the Company. Before signing the enclosed
proxy, shareholders are urged to carefully read, review, and
consider this Proxy Statement.
SOLICITATION AND REVOCATION OF PROXIES
It is contemplated that the solicitation of proxies
will be made exclusively by mail. Should it, however,
appear desirable in order to ensure adequate representation
of shares at the meeting, officers and employees of the
Company may, for no additional compensation, communicate
with shareholders, banks, brokerage houses and others by
telephone, telegraph, or in person to request that proxies
be furnished. This Proxy Statement and the accompanying
form of proxy are being first mailed or delivered to
shareholders on or about December 12, 1997. All expenses
incurred in connection with this solicitation will be borne
by the Company. In following up on the original
solicitation of proxies by mail, the Company may make
arrangements with brokerage houses and other custodians,
nominees and fiduciaries to send proxies and proxy material
to the beneficial owners of the shares and will reimburse
them for their reasonable expenses in so doing. The Company
has no present plans to hire special employees or paid
solicitors to assist in obtaining proxies, but reserves the
right to do so if it should appear that a quorum otherwise
might not be obtained.
Any proxy given may be revoked at any time prior to the
exercise thereof. To accomplish this, written notice of
revocation must be received by the Secretary of the Company
no later than 10:00 a.m. MST on the date of the Annual
Meeting, at the Company's executive offices, 12050 Lone Peak
Parkway, Draper, Utah 84020. Such written notice may be in
the form of a later-dated proxy or some other written signed
instrument. In addition, any shareholder present at the
meeting who has given a proxy may withdraw it and vote his
or her shares in person.
OUTSTANDING STOCK AND VOTING RIGHTS
Only holders of record of the Company's Common Stock at
the close of business on the Record Date are entitled to
notice of and to vote at the Annual Meeting. As of the
Record Date, the Company had issued and outstanding
29,010,716 shares of Common Stock, $.10 par value. Each
share of Common Stock is entitled to one vote on every
matter submitted at the meeting. There is no cumulative
voting. The presence at the meeting, in person or by proxy,
of a majority of the shares entitled to vote shall
constitute a quorum for the transaction of business. The
vote required for the election of Directors and approval of
the other proposals is set forth in the discussion of each
item to be voted upon.
All properly executed and returned proxies, as well as
shares represented in person at the meeting, will be counted
to determine if a quorum is present, whether or not the
proxies indicate abstentions or consist of broker non-votes
(defined below). Abstentions (but not broker non-votes)
will also be counted in the denominator to determine whether
a matter has been approved. Thus, abstentions (but not
broker non-votes) will have the same effect as a vote
"against" the matter. A "broker non-vote" refers to shares
of Common Stock represented at the meeting in person or by
proxy by a broker or nominee where such broker or nominee
(1) has not received voting instructions on a particular
matter from the beneficial owners or persons entitled to
vote, and (2) the broker or nominee does not have
discretionary voting power on such matter.
PRINCIPAL STOCKHOLDERS
So far as is known to management, as of the Record
Date, the following persons owned beneficially more than 5%
of the outstanding shares of the Company's Common Stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENTAGE OF
OF BENEFICIAL OF BENEFICIAL OUTSTANDING COMMON
OWNER OWNERSHIP STOCK (1)
<S> <C> <C>
State Farm Mutual
Automobile
Insurance Company
One State Farm
Plaza,
Bloomington, IL
61710 (3) 2,264,502 7.54%
FMR Corp. (4) 2,583,000 8.60%
82 Devonshire St.
Boston, MA 02109-
3614
</TABLE>
(1) All percentages are calculated on the basis of
outstanding shares of common stock, plus shares (in the
denominator) which could be acquired within 60 days of
the Record Date by the exercise of outstanding stock
options.
(2) The shares held by State Farm are owned as follows:
Shares
State Farm Balanced Fund 427,751
State Farm Growth Fund, Inc. 820,000
State Farm Incentive and
Thrift Balanced Account 516,751
State Farm Employees
Retirement Trust Fund 500,000
Total 2,264,502
(3) The shares held by FMR Corporation are owned as
follows:
Shares
FMR Corporation 417,300
Fidelity International Ltd. (Bermuda) 8,000
Fidelity Low Priced Stock Fund 2,062,600
Fidelity New Millennium Fund 95,100
Total 2,583,000
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth, as of the Record Date,
the number of shares of Common Stock of the Company
beneficially owned by each of the Company's directors and
executive officers, and by all of the Company's directors
and executive officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE
NATURE OF OF
BENEFICIAL OUTSTANDING
BENEFICIAL OWNER, OWNERSHIP COMMON STOCK
POSITION WITH COMPANY (SHARES) (4) (1)
<S> <C> <C>
Dale H. Ballard, President, (2) Indirect
CEO and Chairman of the 1,064,631
Board 3.54%
John I. Bloomberg, Director Direct 11,300 (3)
J. Dallas VanWagoner, M.D. Direct 2,700 (3)
Director
Robert V. Petersen, Direct 676 (3)
Director
E. Martin Chamberlain,
Director, Vice President of Exercisable
Regulatory Affairs, and Options
Secretary 5,000 (3)
Dale H. Ballard, Jr., Direct 66,559
Director Indirect 4,464 (3)
Total 71,023
Paul W. Hess, Director, Indirect 1,466
General Counsel Exercisable
Options 4,000
Total 5,466 (3)
Harold R. ("Butch")
Wolcott, Executive Vice Exercisable
President and General Options 12,767
Manager Total 12,767 (3)
Daniel Burman, Direct 1,024
Vice President of Sales Exercisable
Options 53,500
Total 54,524 (3)
Bradford D. Bell, Vice Direct 1,000
President of International Exercisable
and Marketing Options 34,600
Total 35,600 (3)
Kenneth R. Sorenson, Direct 5,856
Treasurer Exercisable
Options 10,000
Total 15,856 (3)
All directors and executive Direct 89,115
officers as a group (11 Indirect
persons) 1,070,561
Exercisable
Options 119,867
Total 1,279,543 4.26%
</TABLE>
(1) All percentages are calculated on the basis of
outstanding shares of common stock, plus shares which
could be acquired, within 60 days of the Record Date,
by the exercise of outstanding stock options.
(2) These shares are owned as follows: Shares
Dale H. Ballard Family Living Trust 641,551
Alice B. Ballard Family Living Trust 422,720
Indirect ownership through
Ballard Family Properties, Ltd. 360
Total 1,064,631
(3) Percentage of shares owned does not exceed 1%.
(4) "Exercisable Options" listed indicate shares of common
stock which could be acquired by the exercise of
incentive stock options held by executive officers,
exercisable within 60 days of the Record Date.
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The full Board of Directors functions as the Company's
Compensation Committee. The Board has no separate
Compensation Committee. The following Board members are
also employees and executive officers of the Company:
Dale H. Ballard, Chairman of the Board, CEO, and
President
E. Martin Chamberlain, Vice President of
Regulatory Affairs and Secretary
Paul W. Hess, General Counsel
Dale H. Ballard, Jr., also a Board member, is the son of
Dale H. Ballard.
During the last completed fiscal year, any
deliberations in Board meetings regarding executive officer
compensation were participated in by all members of the
Board.
STOCK OPTION COMMITTEE
The Company's incentive stock option plans (the
"Plans") are administered by two stock option committees.
Stock Option Committee A ("Committee A") is authorized to
grant options only to employees who are not also officers or
directors of the Company. Stock Option Committee B
("Committee B") is authorized to grant options only to
employees who are also officers or directors of the Company.
Committee B was originally formed in response to old
Rule 16b-3 promulgated by the Securities and Exchange
Commission ("SEC"). Section 16(b) enables an issuer (or one
of its shareholders) to bring suit to recover profits gained
by an insider from short-swing transactions. A transaction
which meets the requirements of Rule 16b-3 is exempt from
Section 16(b) of the Securities Exchange Act of 1934.
Rule 16b-3 was amended by the SEC, effective August 15,
1996. Old Rule 16b-3 required, among other things, that
option grants to officers and directors, be made by the full
Board of Directors (if each member is a "disinterested
person"), or by a committee of two or more directors, each
of whom is a "disinterested person". A "disinterested
person" is a director who is not, during the one year prior
to service as an administrator of the applicable Plan, or
during such service, granted or awarded options pursuant to
any Plan.
The August, 1996 amendment to Rule 16b-3, among other
things, eliminated the need to have a committee of
"disinterested persons" for such option grants to officers
and directors. Nevertheless, in an August, 1996 Special
Meeting of the Company's Board of Directors, the Board voted
to continue the practice of administering the Company's
Plans through the existing Committee A and Committee B.
Each Committee must be comprised of two persons, both
of whom must be members of the Board of Directors. However,
members of Committee B must be "disinterested persons" as
defined above. Committee A is currently comprised of Dale
H. Ballard (the President of the Company) and E. Martin
Chamberlain (a Vice President and the Secretary of the
Company). Committee B is currently comprised of Dale H.
Ballard and J. Dallas VanWagoner, M.D., both of whom are
"disinterested persons". Dr. VanWagoner is not an employee
or officer of the Company.
NO EMPLOYMENT CONTRACTS
The Company has no written employment contract with any
executive officer. Like all but a very few of the Company's
employees, the executive officers are "at-will employees",
meaning either the employee or the Company can terminate the
employment relationship at any time for any reason or for no
reason.
COMPENSATION POLICIES
The Board of Directors establishes and periodically
reviews the compensation of the Chief Executive Officer.
Compensation of other executive officers has been left to
the judgment and discretion of Dale H. Ballard, Chief
Executive Officer. The Board has left such other
compensation to the discretion of the CEO because the
compensation levels of all such executive officers have
historically been reasonable in the judgment of the Board of
Directors, and because the Company has been successful under
Mr. Ballard's leadership and under this compensation system.
There is no specific relationship of corporate
performance to executive compensation. No formula or
specific evaluation procedure is followed. Rather, the
compensation policy is subjective and informal. However,
compensation for executives is based generally on the
principles that compensation must (1) be competitive with
other quality companies in order to help motivate and retain
the talent needed to grow the Company's business; and (2)
provide a strong incentive for key personnel and sales
representatives to achieve the Company's goals.
The Company has a history of relying upon incentive
stock options as an important element of each executive's
compensation package. This program has generally enabled
the Company to keep salaries and bonuses at relatively
modest levels. The Company's successful sales and profit
record suggests, we believe, that these principles which
form the basis for our compensation program have delivered
the desired results.
ELEMENTS OF EXECUTIVE COMPENSATION
It has been the Company's policy for many years that
the executive compensation program consists of base salary,
bonuses, insurance benefits, and stock options. In
addition, the Company has provided automobiles to its
executive officers and certain other key employees.
The Company's salary levels are determined by
comparisons with companies of similar size and complexity in
the health care industry. Salary increases are determined
in view of the financial performance of the Company, the
individual performance of the executive, and any promotions
of, or increased responsibilities assumed by, the executive.
Bonuses are determined by the Chief Executive Officer at the
end of each fiscal year, based upon these same factors.
Bonuses are completely discretionary and are not based upon
any formula.
All employee stock options are granted pursuant to one
of the Company's incentive stock option plans. The Company
makes incentive stock option grants periodically at no less
than 100% of the market price on the effective date of the
grant. All of the current incentive stock option plans of
the Company are summarized below. See "Summary of Stock
Option Plans."
In addition to the above compensation, executive
officers, along with all employees of the Company, are
eligible to participate in the Company's 401(k) retirement
plan. This plan is available to all employees after they
have been employed by the Company for at least one year.
The plan allows employees to make contributions to the plan
from salary reductions each year, up to an annual limit
which is generally 15% of a participant's annual
compensation. Under the 401(k) plan, the Company matches a
participant's contribution up to 4% of his or her salary.
Employees are always fully vested in their own contributions
and become fully vested in any contributions made by the
Company after six years of service.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The compensation of Dale H. Ballard, Chairman of the
Board and Chief Executive Officer, consists of a base
salary, typically an annual bonus, insurance benefits, and
the use of a vehicle. At no time in the Company's history
has Mr. Ballard received incentive stock options under any
incentive stock option plan. In addition, Mr. Ballard is
not a participant in the Company's 401(k) retirement plan.
There is no specific relationship between the Company's
performance and Mr. Ballard's compensation. Again, only a
subjective, informal policy is followed. The Board of
Directors periodically reviews Mr. Ballard's base salary and
bonus and approves his compensation based on the Board's
evaluation of his performance, his length of service as
Chief Executive Officer, and competitive Chief Executive
Officer pay information. Mr. Ballard has historically
determined his own salary and bonus. The Company has
enjoyed an overall strong performance, and Mr. Ballard has
been the Company's able Chief Executive Officer from the
Company's formation.
The Board feels that Mr. Ballard has been under
compensated over the years in view of his excellent
performance as Chief Executive Officer.
SECTION 162(m) POLICY.
Under Section 162(m) of the Internal Revenue Code, no
income tax deduction is allowed to a publicly held
corporation for remuneration paid to certain executive
officers (including the CEO) to the extent that the amount
of such remuneration with respect to any given
employee/executive officer for the taxable year exceeds
$1,000,000. The Board's current policy is that the Company
will not pay remuneration to any one employee during a given
tax year which would not be deductible by the Company
because of the Section 162(m) limits.
BOARD OF DIRECTORS
Dale H. Ballard, Chairman
John I. Bloomberg
J. Dallas VanWagoner
Robert V. Petersen
E. Martin Chamberlain
Dale H. Ballard, Jr.
Paul W. Hess
EXECUTIVE COMPENSATION
DIRECTORS
During the fiscal year ended September 30, 1997, each
of the members of the Board of Directors received $500 in
cash compensation for his services as a director. There is
no standard agreement pursuant to which the directors are
compensated for their services.
EXECUTIVE OFFICERS
The following table sets forth the compensation paid or
awarded by the Company to the Company's Chief Executive
Officer and all of the Company's other executive officers
who are considered "highly compensated" under regulations
promulgated by the Securities and Exchange Commission, for
each of the fiscal years ended September 30, 1997, 1996, and
1995:
SUMMARY COMPENSATION TABLES
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
OTHER
FISCAL ANNUAL
YEAR COMPEN-
NAME AND PRINCIPAL ENDED BONUS SATION
POSITION 9/30 SALARY ($) ($) ($)
<S> <C> <C> <C> <C>
Dale H. Ballard, 1997 233,333 45,678 (1)
CEO 1996 200,000 40,595 (1)
1995 200,500 35,000 (1)
Harold R. "Butch" 1997 140,333 45,381 (1)
Wolcott, Executive 1996 132,500 35,038 (1)
Vice President 1995 105,000 20,000 (1)
Bradford D. Bell, 1997 134,167 40,969 (1)
Vice President of 1996 120,833 31,001 (1)
Marketing and 1995 95,000 10,000 (1)
International
Daniel Burman, 1997 104,792 35,653 (1)
Vice President of 1996 99,667 30,000 (1)
Sales 1995 90,000 10,000 (1)
Kenneth R. 1997 91,333 28,160 (1)
Sorenson, Chief 1996 84,750 20,867 (1)
Financial Officer 1995 79,959 20,738 (1)
Paul W. Hess 1997 111,769 21,481 (1)
General Counsel 1996 133,750 15,696 (1)
1995 130,500 8,000 (1)
</TABLE>
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION (2)
SECURITIES ALL OTHER
FISCAL UNDERLYING COMPEN-
NAME AND PRINCIPAL YEAR ENDED OPTIONS SATION
POSITION 9/30 GRANTED (#) ($)(4)
<S> <C> <C> <C>
Dale H. Ballard, 1997 (3) N/A (5) 0
CEO 1996 (3) N/A (5) 0
1995 (3) N/A (5) 0
Harold R. ("Butch") 1997 8,000 5,613
Wolcott, Executive 1996 6,000 6,225
Vice President 1995 20,000 3,150
Bradford D. Bell, 1997 5,000 6,967
Vice President of 1996 5,000 5,808
Marketing and 1995 15,000 2,850
International
Daniel Burman 1997 7,000 4,000
Vice President of 1996 4,000 4,665
Sales 1995 10,000 4,608
Kenneth R. 1997 5,000 4,653
Sorenson, 1996 5,000 4,070
Chief Financial 1995 5,000 3,878
Officer
Paul W. Hess, 1997 4,000 4,837
General Counsel 1996 4,000 5,515
1995 7,000 3,900
</TABLE>
(1) The personal benefits and perquisites received by the
named executives were less than the reporting
thresholds established by the Securities and Exchange
Commission (the lesser of $50,000 or 10% of the
individual's cash compensation).
(2) The Company does not have benefit plans involving
Restricted Stock Awards, Stock Appreciation Rights
(SARs), or Long-Term Incentive Plans (LTIPs)
(3) No options have ever been granted to Mr. Ballard under
any of the Company's Incentive Stock Option Plans.
(4) These figures represent the Company's contributions to
its 401(k) retirement plan for the benefit of the named
executives. Messrs. Sorenson and Burman are 100%
vested, Messrs. Wolcott and Bell are 60% vested, and
Mr. Hess is 40% vested.
(5) Mr. Ballard is not a participant in the Company's
401(k) plan.
OPTION GRANTS IN FISCAL YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
INDIVIDUAL
GRANTS
Number of
Securities POTENTIAL
Underlying REALIZABLE VALUE
Options AT ASSUMED ANNUAL
Granted (#) RATES OF STOCK
and % of Total PRICE
Options APPRECIATION FOR
Granted to Exercise Option OPTION TERM (1)
Employees in Price Expiration
Name Fiscal Year ($/SH) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C>
Dale H.
Ballard N/A N/A N/A N/A N/A
Harold R.
("Butch") 8,000
Wolcott .93% 19.875 7/18/2004 $64,760 $96,280
Bradford D. 5,000
Bell .58% 19.875 7/18/2004 40,475 60,175
Daniel 7,000
Burman .82% 19.875 7/18/2004 56,665 84,245
Kenneth R. 5,000
Sorenson .58% 19.875 7/18/2004 40,475 60,175
Paul W. 4,000
Hess .47% 19.875 7/18/2004 32,380 48,140
</TABLE>
(1) We recommend caution in interpreting the financial
significance of these "potential realized value"
figures. They are calculated by multiplying the number
of options granted by the difference between a future
hypothetical stock price and the option exercise price
and are shown pursuant to rules of the Securities and
Exchange Commission. They assume the value of Company
stock appreciates 5% to 10% each year, respectively,
compounded annually, for seven years (the life of each
option). They are not intended to forecast possible
future appreciation, if any, of such stock price or to
establish a present value of options. Also, if
appreciation does occur at the 5% or 10% per year rate,
the amounts shown would not be realized by the
recipients until the year 2004. Depending on inflation
rates, these amounts may be worth significantly less in
2004 in real terms, than their value today. The
Company has not used an alternative formula for
valuation since the Company is not aware of any formula
which will determine with reasonable accuracy a present
value of options based on future unknown or volatile
factors. The realized values shown are before the
payment of federal or state income taxes.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED SEPTEMBER
30, 1997
<TABLE>
<CAPTION>
Number of
Shares Securities Value of
Acquired Underlying Unexercised
on Value Unexercised In-the-Money
Exercise Received Options at Year Options at
Name (#) ($) End (#) Year End ($) (1)
Exer- Unexer- Exer- Unexer-
cisable cisable cisable cisable
<S> <C> <C> <C> <C> <C> <C>
Dale H.
Ballard N/A N/A N/A N/A N/A N/A
Harold R.
("Butch")
Wolcott 35,900 219,574 12,767 8,000 134,759 34,000
Bradford
D. Bell 10,000 123,750 34,600 5,000 450,050 21,250
Daniel
Burman 18,504 297,074 58,500 7,000 867,924 29,750
Kenneth R.
Sorenson 40,000 463,496 10,000 5,000 103,750 21,250
Paul W.
Hess 20,000 200,750 4,000 4,000 29,500 17,000
</TABLE>
(1) The fair market value (i.e., the closing price) of the
Company's common stock on September 30, 1997 (24.125
per share) minus the exercise price.
STOCK PERFORMANCE GRAPH
The following graph shows the yearly percentage change
in cumulative total shareholder return on the Company's
Common Stock during the preceding five fiscal years ended
September 30, 1997, compared with the Standard & Poor's 500
Stock Index and the published Standard & Poor's Health Care
(Medical Products and Supplies) Industry Index. The
comparison assumes $100 were invested on September 30, 1992
in the Company's Common Stock, and in each of the foregoing
indices the comparison assumes reinvestment of dividends.
WRITTEN DESCRIPTION OF THE STOCK PERFORMANCE GRAPH
FOR EDGAR FILING.
The graph line of each of these three securities is
described below:
BALLARD MEDICAL PRODUCTS. The graph shows that $100
invested in Ballard Medical Products Common Stock on
September 30, 1992 would be worth the following values on
the respective dates shown:
September 30, 1993 79
September 30, 1994 49
September 30, 1995 78
September 30, 1996 93
September 30, 1997 115
S&P 500. The graph shows that $100 invested in the S&P
500 Index on September 30, 1992 would be worth the following
values on the respective dates shown:
September 30, 1993 113
September 30, 1994 117
September 30, 1995 152
September 30, 1996 183
September 30, 1997 257
S&P HEALTH CARE (MEDICAL PRODUCTS AND SUPPLIES). The
graph shows that $100 invested in the S&P Health Care
(Medical Products and Supplies) Index on September 30, 1992
would be worth the following values on the respective dates
shown:
September 30, 1993 76
September 30, 1994 97
September 30, 1995 157
September 30, 1996 188
September 30, 1997 235
SUMMARY OF STOCK OPTION PLANS
GENERAL
The Company has nine open incentive stock option plans,
identified in the table below:
NAME OF PLAN MONTH OF APPROVAL OF PLAN
BY SHAREHOLDERS
1988 Plan January, 1989
1990 Plan January, 1990
1991 Plan January, 1992
1992 Plan January, 1993
1993 Plan January, 1994
1994 Plan January, 1995
1995 Plan January, 1996
1996 Plan January, 1997
1997 Plan Not yet approved
(All of the above-named incentive stock option plans are
sometimes referred to herein collectively as the "Plans".)
The purpose of each of the Plans is to attract and
retain qualified personnel for positions of responsibility
in the Company by providing additional compensation
incentives, thereby promoting the success of the Company.
Options granted under each of the Plans are intended to
qualify as incentive stock options under Section 422 of the
Internal Revenue Code (the "Code").
ADMINISTRATION
All of the Plans are administered by two Stock Option
Committees, by delegation of authority from the Board of
Directors. See "Board of Directors Report on Executive
Compensation, Stock Option Committee."
The interpretation and construction of any provision of
the Plans is within the sole discretion of the applicable
Committee or the Board of Directors, whose determination is
final and conclusive. Members of each Committee are elected
by a majority vote of the Board, including the votes of the
directors thus elected to serve on the Committee. Committee
members hold office until the next regular meeting of the
Board and until their successors are elected and qualified.
Committee members may be removed at any time by a majority
vote of the Board, including the vote of the director whose
removal as a Committee member is sought.
ELIGIBILITY
Each of the Plans provides that options may be granted
to all employees of the Company and all employees of the
Company's subsidiaries. Under the 1988 and 1990 Plans, no
further options are available for grant. Under the Plans,
the applicable Committee selects the optionees and
determines the number of shares to be subject to each
option. None of the Plans provide for a maximum or minimum
number of shares which may be granted under option to any
one employee.
TERMS OF OPTIONS
Each option granted under the Plans may extend for a period
of up to ten (10) years from the date the option is granted,
must be evidenced by a stock option agreement between the
Company and the employee to whom such option is granted, and
is subject to the following additional terms and conditions:
(a) CONTINUED EMPLOYMENT. An option granted may
not be exercised, in whole or in part, unless the optionee
continues to serve as an employee of the Company for at
least one full year after the effective date of the option
grant. The 1992, 1993, 1994, 1995, 1996 and 1997 Plans
provide that the President of the Company, in his
discretion, may extend this continued employment period from
one year to up to three years. The intervening death of the
optionee before the end of such vesting period removes any
continued employment condition. In addition, the continued
employment condition is removed upon the occurrence of a
merger or other business combination pursuant to which the
Company is acquired by or merged into another corporation.
(b) EXERCISE OF THE OPTION. Under all of the
Plans, payment for shares issued upon exercise of an option
may consist of cash or the exchange of other shares of the
Company's stock which have been held for more than one year
by the optionee.
(c) OPTION PRICE. The option exercise price of
options granted under the Plans is the fair market value of
the Company's Common Stock on the date of grant. However,
in the case of options granted to an optionee who owns more
than 10% of the voting power or value of all classes of
stock of the Company, the exercise price must not be less
than 110% of the fair market value on the date of grant.
For so long as the Company's stock is listed on the New York
Stock Exchange, the Board of Directors or Stock Option
Committee will use the reported closing price on the last
trading day preceding the grant of the option, as the fair
market value for purposes of setting option prices.
(d) TERMINATION OF EMPLOYMENT. Each of the Plans
provides that if the optionee's employment by the Company is
terminated for any reason (other than permanent disability)
the option shall thereupon expire and any and all right to
purchase shares pursuant thereto shall terminate three
months after the optionee's employment terminates. However,
if the optionee is not vested in his or her options, the
optionee's options expire immediately upon termination of
his or her employment. If an optionee becomes permanently
disabled, the option may be exercised at any time within one
year after termination of employment by reason of
disability, so long as the optionee has been an employee of
the Company for at least the vesting period specified (one
year minimum) in the stock option agreement entered into by
the Company and the optionee.
(e) TRANSFER OF OPTIONS. Options granted under
any of the Plans are not transferable by an optionee other
than by will or the laws of descent and distribution and are
exercisable, during the optionee's lifetime, only by the
optionee.
(f) TERMINATION OF OPTIONS. No option is
exercisable by any person after ten (10) years from the date
the option was granted (five (5) years if the optionee owns
more than 10% of the voting power or value of all classes of
stock of the Company). The President of the Company has
discretion to shorten this period in stock option agreements
entered into by the Company with employees.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split, is made
in the Company's capitalization, which results in an
exchange of Common Stock for a greater or fewer number of
shares, appropriate adjustment is to be made under each of
the Plans in the option price and in the number of shares
subject to the option. In the event of a stock dividend,
each optionee is entitled to receive, upon exercise of the
option, the equivalent of any stock dividend which the
optionee would have received had the optionee been the
holder of record of the shares purchased upon such exercise.
OPTION SUMMARY
The following table sets forth certain information
related to the Plans and options granted thereunder, as of
September 30, 1997:
OPTION PLAN SHARE SUMMARY (1)
<TABLE>
<CAPTION>
TOTAL SHARES
SHARES STILL
RESERVED OPTIONS OPTIONS AVAILABLE
PLAN UNDER PLAN GRANTED OUTSTANDING FOR GRANT
<S> <C> <C> <C> <C>
1988 Plan 750,018 750,018 49,059 0
1990 Plan 1,125,021 1,125,021 85,609 0
1991 Plan 750,000 748,868 138,649 1,132
1992 Plan 200,000 199,883 29,009 117
1993 Plan 600,000 598,500 156,108 1,500
1994 Plan 600,000 599,726 189,550 274
1995 Plan 700,000 699,900 324,942 100
1996 Plan 700,000 696,050 641,100 16,600
1997 Plan 750,000 405,625 405,625 344,375
TOTALS 6,175,039 5,823,591 2,019,651 364,098
</TABLE>
(1) Appropriate adjustments have been made to reflect stock
splits which have occurred since the adoption of the
1988 Plan to the present.
The Company has had a number of plans prior to those listed
above; but all options reserved under the prior plans have
been granted and exercised, and thus are not listed here.
MEETINGS AND COMMITTEES OF THE BOARD
BOARD OF DIRECTORS
The Board of Directors met January 27, 1997, at the
regular meeting of the Board of Directors, immediately
following the January 27, 1997 Annual Meeting of
Shareholders, with all members of the Board of Directors in
attendance. A special meeting of the Board was held on
November 25, 1996. All members of the Board participated in
said meeting either in person or by conference telephone.
All other Board of Directors action taken during the 1997
fiscal year was conducted by ten unanimous directors consent
resolutions, approved and executed by all of the directors.
STOCK OPTION COMMITTEE A
The Company has a standing Stock Option Committee A
whose function is to administer and grant options to
employees other than officers and directors under all of the
Company's incentive stock option plans. The Committee is
comprised of two members of the Board, currently Dale H.
Ballard and E. Martin Chamberlain. Nine meetings were held
by Committee A during the 1997 fiscal year (with both
members present). The remaining actions of Committee A were
effected in nineteen Committee A consent resolutions,
approved and executed by both members of the Committee.
STOCK OPTION COMMITTEE B
The Company has a standing Stock Option Committee B
whose function is to administer and grant options to
employees who are also officers and directors under all of
the Company's incentive stock option plans. Committee B is
comprised of two members of the Board, currently Dale H.
Ballard and J. Dallas VanWagoner, M.D. All Committee B
action taken during the 1997 fiscal year was conducted in
one Committee B consent resolution, approved and executed by
both members of the Committee.
AUDIT COMMITTEE
The Company has a standing Audit Committee whose
functions are: (a) to conduct reviews of potential
conflict-of-interest situations as requested by the
President; (b) to select the Company's auditors; and (c) to
review the Company's annual report and other reports
prepared for the Company by the Company's auditors. The
Audit Committee is comprised of three members of the Board,
currently John I. Bloomberg, Robert V. Petersen, and Dale H.
Ballard, Jr. One meeting (attended by all members) was held
by the Audit Committee during the 1997 fiscal year.
The Company has no standing compensation or nominating
committees of the Board of Directors.
PROXY CARD PROPOSALS
PROPOSAL NO. 1: ELECTION OF DIRECTORS
GENERAL
Directors are elected at each Annual Meeting of the
Shareholders and hold office until the next Annual Meeting
and until their successors are elected and qualified.
Currently, there are seven directors.
NOMINEES FOR ELECTION
The names of the nominees for election to the Board of
Directors, with respect to whom proxies are solicited
hereby, and each of their business backgrounds for at least
the last five years are set forth below:
NAME, AGE AND DIRECTOR
POSITION WITH THE COMPANY SINCE PRINCIPAL OCCUPATION
Dale H. Ballard (74) 1978 President, Chief Executive
President, Chief Executive Officer, Chairman of the Board
Officer, Chairman of the
Board (1)
John I. Bloomberg (62) 1981 Managing General Partner,
Director private investment
companies (2)
J. Dallas VanWagoner (60) 1984 Retired Physician (3)
Director
Robert V. Petersen (71) 1986 Professor Emeritus of
Director Pharmaceutics, University
of Utah (4)
E. Martin Chamberlain (57) 1988 Vice President of Regulatory
Vice President of Regulatory Affairs, Secretary (5)
Affairs, Secretary, Director
Dale H. Ballard, Jr. (50) 1993 President of Stratco, a
Director financial planning and
investment firm (6)
Paul W. Hess (43) 1994 General Counsel (7)
Director, General Counsel
(1) Mr. Ballard has served as President, Chief
Executive Officer, and Chairman of the Board of Directors
since the formation of the Company in 1978. Mr. Ballard
holds a Bachelor of Science Degree in Pharmacy from the
University of Utah.
(2) From July, 1981 to the present, Mr. Bloomberg has
been a General Partner of J.I.B. Associates, Bricoleur
Partners, Olympic Growth Fund, and Utah Capital Corp.,
private investment companies. From 1963 to 1981, Mr.
Bloomberg's positions included Senior Drug Analyst at Kidder
Peabody (1963-1965), Associate Director of Research at
CBWL-Hayden Stone, now a part of Shearson/Lehman
(1965-1972), Director of Research and Senior Vice President
at Ladenberg, Thalmann & Co. (1972-1976), Security Analyst
at Alex Brown and Sons (1976-1979), and a Limited Partner
and Vice President of Bear Stearns & Co. (1979-1981). Mr.
Bloomberg graduated from Amherst College with a B.A. in
Chemistry and received an MBA in Business Administration
from Harvard Business School in 1962. He is on the Board of
Directors of the John Moran Eye Center, University of Utah.
(3) Dr. VanWagoner received his B.S.E.E. degree from
the University of Utah in 1961, and M.S.E.E. in 1964. He
graduated from St. Louis University School of Medicine in
1970. He is a board certified obstetrician and gynecologist
and a member of the American College of Obstetrics and
Gynecology. Dr. VanWagoner has been a clinical instructor
with the University of Utah School of Medicine and has
assisted companies in the health care industry with numerous
research projects. He retired his private practice in
November, 1996.
(4) Dr. Petersen received a B.S. (Honors) in Pharmacy
from the University of Utah in 1950, and a Ph.D. in
Pharmaceutical Chemistry, with minors in Organic Chemistry
and Pharmacology, from the University of Minnesota in 1955.
Dr. Petersen has held various academic positions with the
University of Utah since 1957 and has been a Professor of
Pharmacy since 1967. He was Chairman of the Department of
Applied Pharmaceutical Sciences from 1965 to 1978 and
Chairman of the Department of Pharmaceutics from 1978 to
1982. He retired from the University of Utah July 1, 1992,
and now serves as a professor emeritus of pharmaceutics.
Dr. Petersen has acted as a consultant to various companies,
including Albion Laboratories (1964-1982), Deseret
Pharmaceutical Company, Inc. (1970-1989), Sorenco, Inc.
(1978-present), Kolmar Laboratories (1983-1987), Sorenson
Development (1983-1989, and 1993 - present), Pacific
Chemicals of Seoul, Korea (1989-91), and Ciba-Geigy
Corporation (1989-91). He served as a member of the board
of directors of the American Foundation for Pharmaceutical
Education from 1973 to 1975, since 1980 has served as a
member of the board of directors for the Drug Standards
Division of the United States Pharmacopeia - National
Formulary, and in 1990 was appointed to the board of
directors of the U.S.P. Committee of Revisions (1990-1995).
Dr. Petersen is past president of the American Association
of Colleges of Pharmacy and from 1972 to 1987 was the
University of Utah College of Pharmacy's liaison to the
board of trustees of the Utah Pharmaceutical Association.
(5) Dr. Chamberlain joined the Company in August,
1982, as a project manager. He received his B.S. degree in
Molecular and Genetic Biology in 1967, his Master of Arts
degree in Biological Science with a minor in Chemistry in
1969, and his Doctorate in Biology with Biochemistry as an
allied field in 1973. Between 1974 and 1981, he held a
faculty appointment with the University of Utah, working
with the Departments of Biology and the School of Medicine's
Department of Obstetrics and Gynecology, in biological and
medical research. Dr. Chamberlain became Vice President in
October, 1993 in addition to his appointment as Secretary of
the Company in 1983. In July, 1994 he became Vice President
of Regulatory Affairs. He served as Director of Quality
Assurance for the Company from 1986 to 1994.
(6) Dale H. Ballard, Jr. is the son of Dale H.
Ballard, the Company's Chief Executive Officer. Dale
Ballard, Jr. graduated from Brigham Young University in
1970, with a Bachelor of Science Degree in Business
Management, with minors in Accounting and Economics. From
1972 until April, 1992, he owned and operated Ballard
Construction Company, a closely-held corporation engaged
principally in the business of road and asphalt
construction. From approximately 1977 to April, 1992, Mr.
Ballard also operated a property management business called
Empire Properties. Empire Properties was a wholly-owned
subsidiary of Ballard Construction Company. In April, 1992,
Mr. Ballard sold his construction and landscaping
businesses. Subsequently he formed a new financial planning
and investment company called Stratco.
(7) Paul W. Hess joined the Company as in-house
counsel in August, 1993. He had served as outside general
corporate counsel for the Company, through his former law
firm Strong & Hanni, since approximately 1985. In October,
1993, Mr. Hess was elected and appointed by the Board of
Directors as General Counsel. Mr. Hess worked as an
attorney for Strong & Hanni from 1981 until 1993. He
received his B.S. degree in Accounting from Brigham Young
University in 1978 and his Juris Doctorate degree from the
University of Utah College of Law in 1981. Mr. Hess is also
a Certified Public Accountant.
Should any of the nominees become unable or unwilling
to accept nomination or election, the persons named as
Proxies in the enclosed form of proxy will exercise their
voting power in favor of such person or persons as the Board
may recommend. All of the nominees have consented to being
named in this Proxy Statement and to serve if elected.
APPROVAL
If you return a proxy, but give no direction on this
Proposal No. 1, your proxy will be voted "for" all seven
nominees named above. The election of each director
requires the affirmative vote of a majority of the shares
represented at the Annual Meeting in person or by proxy.
PROPOSAL NO. 2: PROPOSAL TO APPROVE THE 1997 INCENTIVE
STOCK OPTION PLAN.
GENERAL
Effective July 15, 1997, by unanimous consent
resolution, the Board of Directors of the Company adopted
the 1997 Incentive Stock Option Plan (the "1997 Plan"),
reserving 750,000 shares of Common Stock for issuance to
employees. At the closing price on the Record Date of the
Company's stock, said 750,000 shares would have a value of
$17,250,000.
The purpose of the 1997 Plan is to attract and retain
the best available personnel for positions of responsibility
in the Company by providing additional compensation
incentives, thereby promoting the success of the Company.
Management feels that it may be important, for the Company's
future growth and success, that options continue to be a
portion of salaried employee compensation.
The Company is seeking shareholder approval of the
1997 Plan, not because shareholder approval is required
under state or federal law, but in order to qualify options
granted under the 1997 Plan as incentive stock options under
Section 422 of the Internal Revenue Code (the "Code"), and
in order to qualify transactions under the Plan as exempt
transactions under Section 16(b) of the Securities Exchange
Act of 1934 (the "Exchange Act"), pursuant to Rule 16b-3
promulgated by the Securities and Exchange Commission,
effective August 15, 1996. As of September 30, 1997,
405,625 options had been granted under the 1997 Plan.
ADMINISTRATION
The 1997 Plan is administered by two Stock Option
Committees, by delegation of authority from the Board of
Directors of the Company. See "Compensation Committee
Interlocks and Insider Participation, Stock Option
Committee."
The interpretation and construction of any provision
of the Plan are within the sole discretion of the applicable
Committee or the Board of Directors, whose determinations
are final and conclusive. Members of each Committee are
elected by a majority vote of the Board, including the votes
of the directors thus elected to serve on the Committee.
Committee members hold office until the next regular meeting
of the Board and until their successors are elected and
qualified. Committee members may be removed at any time by
a majority vote of the Board, including the vote of the
director whose removal as a Committee member is sought.
ELIGIBILITY
The 1997 Plan provides that options may be granted to
any employees (including officers, whether or not they are
directors) of the Company and any of its subsidiaries. As
of September 30, 1997, the Company and its subsidiaries had
1,145 employees. Directors who are not employees are not
eligible to participate in the 1997 Plan, but Directors who
are also employees may participate in the 1997 Plan.
Committee A selects the optionees and determines the number
of shares to be subject to each option, except in the case
of officers and directors in which case Committee B makes
such selections and decisions. The 1997 Plan does not
provide for a maximum or minimum number of shares which may
be granted under option to any one employee.
TERMS OF OPTIONS
Each option granted under the 1997 Plan may extend for
a period of up to ten years (or only five years for an
optionee who immediately before the grant of the option,
owns more than 10% of the Company's stock) from the date the
option is granted, must be evidenced by a stock option
agreement between the Company and the employee to whom such
option is granted, and is subject to the following
additional terms and conditions:
(a) CONTINUED EMPLOYMENT. An option granted may not
be exercised, in whole or in part, unless the optionee
continues to serve as an employee of the Company for at
least one full year after the effective date of the option
grant. The President of the Company, in his discretion, may
extend this vesting period from one year to up to three
years. The intervening death of the optionee before the end
of such vesting period removes this continued employment
condition. In addition, the continued employment condition
is removed upon the occurrence of a merger or other business
combination pursuant to which the Company is acquired by or
merged into another corporation.
(b) EXERCISE OF THE OPTION. Payment for shares
issued upon exercise of an option may consist of cash or the
exchange of other shares of the Company's stock owned by the
optionee. The option price of options granted under the
1997 Plan is the fair market value of the Company's Common
Stock on the date of grant as determined by the applicable
Committee. However, in the case of options granted to an
optionee who owns more than 10% of the stock of the Company,
the exercise price must not be less than 110% of the fair
market value on the date of grant. For so long as the
Company's stock is listed on the New York Stock Exchange,
the Committee will use the reported closing price for the
stock on the last trading day preceding the grant of the
option as the fair market value, for purposes of
establishing option prices.
(c) TERMINATION OF EMPLOYMENT. The 1997 Plan
provides that if the optionee's employment by the Company is
terminated for any reason, other than disability, the option
shall thereupon expire and any and all right to purchase
shares pursuant thereto shall terminate three months after
the optionee's employment terminates. However, if the
optionee is not vested in his or her options, the optionee's
options expire immediately upon termination of his or her
employment. If an optionee becomes permanently disabled,
the option may be exercised at any time within twelve (12)
months after termination of employment by reason of
disability, so long as the optionee has been an employee of
the Company for at least the vesting period specified (one
year minimum) in the stock option agreement entered into by
the Company and the optionee.
(d) TRANSFER OF OPTIONS. Options granted under the
1997 Plan are not transferable by an optionee other than by
will or the laws of descent and distribution and are
exercisable, during the optionee's lifetime, only by the
optionee or by the optionee's guardian or legal
representative.
(e) TERMINATION OF OPTIONS. No option is exercisable
by any person after ten (10) years from the date the option
was granted, or five (5) years if the optionee owns more
than 10% of the voting power or value of the stock of the
Company. The President of the Company has discretion to
shorten this period in stock option agreements entered into
by the Company with employees.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split, is
made in the Company's capitalization which results in an
exchange of Common Stock for a greater or fewer number of
shares, appropriate adjustments are to be made in the option
price and in the number of shares subject to the option. In
the event of a stock dividend, each optionee is entitled to
receive, upon exercise of the option, the equivalent of any
stock dividend which the optionee would have received had
the optionee been the holder of record of the shares
purchased upon such exercise. Appropriate adjustments are
also to be made to the number of shares subject to the Plan
and the number and option price of shares subject to
outstanding options in the event the Company effects a
reorganization, merger, or recapitalization.
AMENDMENT AND TERMINATION
The Board of Directors may amend the 1997 Plan at any
time or from time to time, as necessary to comply with state
and federal laws or for the good of the Company or the
employees affected by the 1997 Plan.
BENEFITS TO EXECUTIVES
The number of options to be granted in the future to
executive officers and other employees under the 1997 Plan
is not yet determinable. The granting of options is
discretionary and not subject to any formula. However, non-
employee Directors are not eligible to receive options, and
the Stock Option Committees do not intend to grant any
options to the Company's current CEO, Dale H. Ballard. As
of the Record Date, no options have been granted under the
1997 Plan to executive officers.
FEDERAL INCOME TAX CONSEQUENCES
Options granted pursuant to the 1997 Plan are intended
to qualify as "incentive stock options" under Section 422 of
the Internal Revenue Code (the "Code"). If an option
granted under the 1997 Plan is treated as an incentive stock
option, the optionee recognizes no taxable income upon the
granting of the option, nor does the Company get an income
tax deduction. Also, the optionee recognizes no taxable
income upon exercise of the incentive stock option.
However, the excess of the fair market value of shares
purchased pursuant to the exercise of an incentive stock
option over the exercise price is an item of tax preference
for purposes of computing the alternative minimum tax.
Subsequently, when such shares are sold, in determining the
amount of gain or loss to be recognized for purposes of
computing alternative minimum taxable income, the basis of
such shares is increased by the amount of such excess which
constituted an item of tax preference.
Upon the sale of the shares (assuming that the sale
occurs no sooner than two years after grant of the option
and one year after receipt of the shares by the optionee)
any gain will qualify as a long-term capital gain. If these
holding periods are not satisfied, the option will not
qualify as an incentive stock option, and the optionee will
recognize ordinary income at the time of disposition of the
shares, equal to the difference between the basis and the
lower of the fair market value of the stock at the date of
the option exercise or the selling price of the stock, and
the Company will get a corresponding income tax deduction.
To the extent that the aggregate fair market value of
stock with respect to which incentive stock options are
exercisable for the first time by any optionee during any
calendar year (under all of the Company's incentive stock
option plans) exceeds $100,000, such options are treated as
options which are not qualified as incentive stock options.
SECTION 16(b) EXEMPTION
Section 16(b) of the Exchange Act states that any
profit realized by insiders from the purchase and sale (or
sale and purchase) of any registered equity security (other
than an exempted security or exempted transaction) of an
issuer within a six-month period is subject to disgorgement,
i.e., the profiting insider can be required to disgorge or
pay his or her profit to the issuer. A transaction by an
officer or director pursuant to an employee benefit plan is
exempt from this "short-swing profit" liability if the plan
and the transaction meet the conditions of Rule 16b-3. The
Company desires to qualify the 1997 Plan (as all other Plans
have been qualified) under Rule 16b-3.
APPROVAL
Shareholder approval of the 1997 Plan requires the
affirmative vote of a majority of the shares represented in
person or by proxy at the Annual Meeting. If the
shareholders do not approve the 1997 Plan, the 1997 Plan and
options granted thereunder will be void. If you return a
proxy but give no direction on Proposal No. 2, your proxy
will be voted "for" this Proposal.
PROPOSAL NO. 3: PROPOSAL TO APPROVE DELOITTE & TOUCHE
LLP AS THE INDEPENDENT AUDITORS OF THE
COMPANY
The Board of Directors of the Company, through its
standing Audit Committee, has selected Deloitte & Touche LLP
as the independent auditors of the Company for the fiscal
year ending September 30, 1998. The firm (and its
predecessor) has served the Company as auditors for the
fiscal years ended September 30, 1982 through 1997.
Shareholder approval of this selection requires the
affirmative vote of a majority of the shares represented in
person or by proxy at the Annual Meeting. If you return a
proxy but give no direction on Proposal No. 3, your proxy
will be voted "for" this Proposal.
Representatives of Deloitte & Touche LLP are expected
to attend the Annual Meeting of Shareholders and will be
available to respond to appropriate questions and will be
afforded the opportunity to make a statement if they desire
to do so.
OTHER MATTERS
The Board of Directors knows of no matters to come
before the shareholders' meeting other than as specified
herein. If other business should, however, properly come
before such meeting, the persons voting the proxies will
vote them in accordance with their best judgment.
PROPOSALS FROM SHAREHOLDERS
Shareholder proposals submitted for consideration at
the Company's 1999 Annual Meeting of Shareholders must be
received by the Company no later than August 17, 1998, in
order to be included in the proxy materials for the 1999
Annual Meeting.
ALL SHAREHOLDERS ARE URGED TO COMPLETE, SIGN, AND
RETURN PROMPTLY THE ACCOMPANYING PROXY CARD IN THE ENCLOSED
ENVELOPE.
By the Order of the Board of Directors
E. Martin Chamberlain
Secretary
Telephone No. (801) 572-6800
Telefax No. (801) 572-6869
Draper, Utah
December 12, 1997
APPENDIX
OMITTED MATERIAL
The required Stock Performance Graph has been omitted
in the EDGAR filing of this Proxy Statement and has been
replaced with a written description.
BALLARD MEDICAL PRODUCTS
12050 Lone Peak Parkway
Draper, Utah 84020
Telephone No. (801) 572-6800
Telefax No. (801) 572-6869
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 26, 1998
To the Shareholders of Ballard Medical Products:
NOTICE IS HEREBY GIVEN that the Annual Meeting of
Shareholders of Ballard Medical Products will be held at the
Company's executive offices, 12050 Lone Peak Parkway,
Draper, Utah 84020, on Monday, January 26, 1998, at 11:00
a.m. Mountain Standard Time, for the following purposes, all
of which are more fully set forth in the accompanying Proxy
Statement:
1. To elect seven (7) Directors of the Company to
serve until the next Annual Meeting of
Shareholders and until their successors have been
duly elected and qualified.
2. To approve the 1997 Incentive Stock Option Plan.
3. To approve Deloitte & Touche LLP as the
independent auditors of the Company.
4. To transact such other business as may properly
come before the Company or any adjournment
thereof.
Said meeting may be adjourned from time to time
without notice other than an announcement at said meeting or
at any adjournment thereof, and any and all business for
which said meeting is hereby noticed may be transacted by
any such adjournment.
Shareholders of record at the close of business
November 19, 1997 are entitled to notice of and to vote at
the meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
E. Martin Chamberlain
Secretary
Draper, Utah
December 12, 1997
IMPORTANT
You can help avoid the necessity and expense of sending
follow-up letters to ensure a quorum by promptly returning
the enclosed Proxy. Please complete, sign and return your
Proxy in the envelope provided. Such action will not
prevent you from voting in person at the meeting.
PROXY
BALLARD MEDICAL PRODUCTS
12050 Lone Peak Parkway
Draper, Utah 84020
Telephone (801) 572-6800
Telefax (801) 572-6869
ANNUAL MEETING OF SHAREHOLDERS
January 26, 1998
This Proxy is solicited on behalf of the Board of
Directors.
The undersigned, revoking any proxy heretofore given,
hereby appoints Dale H. Ballard and E. Martin Chamberlain,
and each of them, acting alone or together, Proxies, each
with power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, for the
undersigned, all the shares of common stock of BALLARD
MEDICAL PRODUCTS held of record by the undersigned on
November 19, 1997, at the Company's Annual Meeting of
Stockholders to be held on January 26, 1998, at 11:00 a.m.,
Mountain Standard Time, and at all adjournments thereof. In
their discretion, the Proxies are further authorized to vote
upon such other business as may properly come before the
Annual Meeting, and matters incident to the conduct of the
meeting.
PLEASE MARK BOXES [ ] OR [X] IN BLUE OR BLACK INK.
1. ELECTION OF DIRECTORS: [ ] FOR all nominees listed
below (except as marked
to the contrary below).
[ ] WITHHOLD AUTHORITY to
vote for all nominees
listed below
NOMINEES: Dale H. Ballard, John I. Bloomberg,
J. Dallas Van Wagoner,
Robert V. Petersen,
E. Martin Chamberlain,
Dale H. Ballard, Jr.,
and Paul W. Hess
INSTRUCTION: To withhold authority to vote for any
individual nominee, write that nominee's
name on the space provided:
2. PROPOSAL TO APPROVE 1997 INCENTIVE STOCK OPTION PLAN:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO APPROVE DELOITTE & TOUCHE LLP AS THE
INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S).
THE PROXY WILL BE VOTED "FOR" EACH PROPOSAL FOR WHICH NO
DIRECTION IS MADE.
Please sign exactly as name appears to the left. When
shares are held by joint tenants, both should sign. When
signing as attorney, executor, personal representative,
administrator, trustee, or guardian, please give full title
as such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized
person.
Please complete, sign and mail this proxy promptly in
the enclosed addressed envelope which requires no postage if
mailed in the United States.
Date
Signature
Signature if held jointly
EXHIBIT 13.1
BALLARD MEDICAL PRODUCTS
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 13.2
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
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