UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For quarter ended: SeptemberJune 30, 20032004 Commission File No. 0-11178
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UTAH MEDICAL PRODUCTS, INC.
---------------------------
(Exact name of Registrant as specified in its charter)
UTAH 87-0342734
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7043 South 300 West
Midvale, Utah 84047
---------------------------------------------------------
Address of principal executive offices
Registrant's telephone number: (801) 566-1200
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and; (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
--- ----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of November 9, 2003: 4,615,521
---------August 4, 2004: 4,520,472.
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UTAH MEDICAL PRODUCTS, INC.
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INDEX TO FORM 10-Q
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PART I - FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
September 30, 2003 and December 31, 2002 ................................. 1
Consolidated Condensed Statements of Income for the
three and nine months ended September 30, 2003 and September 30, 2002 .... 2
Consolidated Condensed Statements of Cash Flows for the
nine months ended September 30, 2003 and September 30, 2002 .............. 3
Notes to Consolidated Condensed Financial Statements ..................... 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ......................... 6
Item 3. Quantitative and Qualitative Disclosures about Market Risk ............10
Item 4. Controls and Procedures ................................................10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ......................................11
SIGNATURES .......................................................................11
UTAH MEDICAL PRODUCTS, INC.
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INDEX TO FORM 10-Q
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PART I - FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
June 30, 2004 and December 31, 2003 ................................. 1
Consolidated Condensed Statements of Income for the
three and six months ended June 30, 2004 and June 30, 2003 .......... 2
Consolidated Condensed Statements of Cash Flows for the
six months ended June 30, 2004 and June 30, 2003 .................... 3
Notes to Consolidated Condensed Financial Statements ................ 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ..................... 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk ....... 11
Item 4. Controls and Procedures .......................................... 12
PART II - OTHER INFORMATION
Item 2. Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities ............................ 13
Item 6. Exhibits and Reports on Form 8-K ................................. 13
SIGNATURES .................................................................. 14
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
--------------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS AS OF
-------------------------------------------
SEPTEMBERJUNE 30, 20032004 AND DECEMBER 31, 2002
----------------------------------------2003
(in thousands)
(unaudited) (audited)
ASSETS SEPTEMBERJUNE 30, 20032004 DECEMBER 31, 20022003
- ------ ------------------------------- -----------------
Current assets:
Cash $ 9251,311 $ 285762
Investments, available-for-sale 20,733 722
Accounts receivable - net 3,705 3,0933,500 3,326
Inventories 3,657 3,4783,356 3,268
Litigation receivable - 24,884
Other current assets 814 901959 940
-------- --------
Total current assets 9,100 7,75729,859 33,902
-------- --------
Property and equipment - net 8,781 8,8908,737 9,005
-------- --------
Goodwill 8,5339,479 8,533
Goodwill - accumulated amortization (2,288) (2,288)
-------- --------
Goodwill - net 7,191 6,245
6,245-------- --------
Other intangible assets 2,653 2,5862,718 2,708
Other intangible assets - accumulated amortization (2,148) (2,091)(2,200) (2,166)
-------- --------
Other intangible assets - net 505 495518 542
-------- --------
TOTAL $ 24,63146,305 $ 23,38749,694
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 560526 $ 631368
Accrued expenses 1,374 1,6884,289 12,129
-------- --------
Total current liabilities 1,934 2,319
Notes payable -- 4,9564,815 12,497
-------- --------
Deferred income taxes 383 390641 665
-------- --------
Total liabilities 2,317 7,6655,456 13,162
-------- --------
Stockholders' equity:
Preferred stock - $.01 par value; authorized - 5,000
shares; no shares issued or outstanding
Common stock - $.01 par value; authorized - 50,000
shares; issued - SeptemberJune 30, 2003, 4,5962004, 4,522 shares
December 31, 2002, 4,4432003, 4,544 shares 46 44
Additional paid-in capital 656 --
Cumulative foreign currency translation adjustment (667) (1,115)45 45
Accumulated other comprehensive income (414) (260)
Retained earnings 22,279 16,79341,218 36,747
-------- --------
Total stockholders' equity 22,314 15,72240,849 36,532
-------- --------
TOTAL $ 24,63146,305 $ 23,387
========49,694
======== see notes to consolidated condensed financial statements
1========
see notes to consolidated condensed financial statements
-1-
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
--------------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR THE
---------------------------------------------------
THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 2004 AND JUNE 30, 2003
AND SEPTEMBER 30, 2002
---------------------------------------------------------------------
(in thousands except per share amounts)
----------------------------------------
(unaudited)- unaudited)
THREE MONTHS ENDED NINESIX MONTHS ENDED
SEPTEMBERJUNE 30, SEPTEMBERJUNE 30,
------------------------------------------------------------ --------------------
2004 2003 20022004 2003 2002
------- ------- ------- -------
NET SALES $ 6,7616,827 $ 7,005 $20,478 $20,5106,840 $13,443 $13,717
COST OF SALES 2,782 2,926 8,488 8,6982,893 2,807 5,658 5,706
------- ------- ------- -------
Gross Margin 3,979 4,079 11,990 11,8123,934 4,033 7,785 8,011
------- ------- ------- -------
EXPENSES:
Selling, general and administrative 1,208 1,228 3,653 3,7121,224 1,253 2,380 2,445
Research & development 75 76 217 20282 68 147 142
------- ------- ------- -------
Total 1,283 1,304 3,870 3,9141,306 1,321 2,527 2,587
------- ------- ------- -------
Income from Operations 2,696 2,775 8,120 7,8982,628 2,712 5,258 5,424
OTHER INCOME 107 113 273 352178 85 332 165
------- ------- ------- -------
Income Before Income Tax Expense 2,803 2,888 8,393 8,2502,806 2,797 5,590 5,589
INCOME TAX EXPENSE 942 1,005 2,907 2,870965 960 1,923 1,964
------- ------- ------- -------
Income Before Extraordinary Item $ 1,841 $ 1,837 $ 3,667 $ 3,625
------- ------- ------- -------
EXTRAORDINARY ITEM - Gain from Litigation,
net of income taxes of $2,361 - - 3,349 -
Net Income $ 1,8611,841 $ 1,8831,837 $ 5,4867,016 $ 5,3803,625
======= ======= ======= =======
BASIC EARNINGS PER SHARE
Before Extraordinary Item $ 0.41 $ 0.380.41 $ 1.220.81 $ 1.080.81
Extraordinary Item - - 0.74 -
------- ------- ------- -------
Total $ 0.41 $ 0.41 $ 1.56 $ 0.81
======= ======= ======= =======
DILUTED EARNINGS PER SHARE
Before Extraordinary Item $ 0.38 $ 0.360.38 $ 1.130.76 $ 1.010.75
Extraordinary Item - - 0.70 -
------- ------- ------- -------
Total $ 0.38 $ 0.38 $ 1.46 $ 0.75
======= ======= ======= =======
SHARES OUTSTANDING - BASIC 4,579 4,949 4,502 4,9964,492 4,482 4,504 4,463
======= ======= ======= =======
SHARES OUTSTANDING - DILUTED 4,920 5,261 4,870 5,3314,794 4,848 4,819 4,833
======= ======= ======= =======
see notes to consolidated condensed financial statements
-2-
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
--------------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
-----------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2002
-------------------------------------------------------------------
(in thousands - unaudited)
SEPTEMBER 30,
--------------------
2003 2002
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UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND JUNE 30, 2003
(in thousands - unaudited)
JUNE 30,
---------------------
2004 2003
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,486 $ 5,380
------- -------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 748 904
Provision for losses on accounts receivable (5) 12
Loss on disposal of assets 4 0
Deferred income taxes (213) (77)
Tax benefit attributable to exercise of stock options 889 214
Changes in operating assets and liabilities:
Accounts receivable 120 246
Accrued interest and other receivables (350) 0
Inventories (193) 195
Prepaid expenses (21) (45)
Accounts payable (89) 133
Accrued expenses (355) (581)
------- -------
Total adjustments 533 1,001
------- -------
Net cash provided by operating activities 6,020 6,381
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for:
Property and equipment (147) (349)
Intangible assets (66) --
------- -------
Net cash used in investing activities (213) (349)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 2,257 645
Common stock purchased and retired (385) (2,727)
Common stock purchased and retired - options (2,103) --
Proceeds from note payable -- --
Repayments of note payable (4,956) (2,501)
------- -------
Net cash used in financing activities (5,187) (4,582)
------- -------
Effect of exchange rate changes on cash 20 13
NET INCREASE IN CASH 640 1,463
CASH AT BEGINNING OF PERIOD 285 370
------- -------
CASH AT END OF PERIOD $ 925 $ 1,833
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes $ 2,512 $ 2,700
Cash paid during the period for interest $ 47 $ 7,016 $ 3,625
--------- --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 429 508
Recovery of losses on accounts receivable (4) (3)
Loss on disposal of assets 5 4
Deferred income taxes 71 (213)
Tax benefit attributable to exercise of stock options 182 216
Changes in operating assets and liabilities:
Accounts receivable - trade (212) (167)
Accrued interest and other receivables 21 253
Litigation receivable 24,884 -
Inventories (106) (367)
Prepaid expenses (114) (53)
Accounts payable 165 (24)
Accrued expenses (8,508) (497)
--------- --------
Total adjustments 16,814 (343)
--------- --------
Net cash provided by operating activities 23,830 3,282
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for:
Property and equipment (259) (123)
Intangible assets (10) -
Purchases of investments (22,103) -
Proceeds from the sale of investments 2,168 -
Net cash paid in acquisition (1,012) -
--------- --------
Net cash used in investing activities (21,217) (123)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock - options 1,012 382
Common stock purchased and retired (3,057) (385)
Common stock purchased and retired - options (6) (71)
Proceeds from note payable - -
Repayments of note payable - (3,088)
--------- --------
Net cash used in financing activities (2,051) (3,163)
--------- --------
Effect of exchange rate changes on cash (14) 18
NET INCREASE IN CASH 549 15
CASH AT BEGINNING OF PERIOD 762 285
--------- --------
CASH AT END OF PERIOD $ 1,311 $ 300
========= =========
see notes to consolidated condensed financial statements
-3-
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND JUNE 30, 2003
Continued
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
(in thousands)
Six Months Ended
JUNE 30,
---------------------
2004 2003
--------- ---------
Cash paid during the period for income taxes $ 12,000 $ 1,856
Cash paid during the period for interest $ - $ 42
During the six months ended June 30, 2004 the Company
purchased all of the outstanding stock of Abcorp Medical, Inc.
The Company paid cash, and recorded net assets from the
acquisition as follows:
Cash $ 11
Accounts receivable 127
Inventory 25
Prepaid Insurance 18
Equipment, net 16
Accounts payable (96)
Accrued expenses (25)
Intangibles 946
---------
Total cash paid 1,022
Less cash received (11)
---------
Net cash investment $ 1,012
see notes to consolidated condensed financial statements
-4-
UTAH MEDICAL PRODUCTS, INC.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
(1) The unaudited financial statements presented herein have been prepared in accordance with the
instructions to form 10-Q and do not include all of the information and note
disclosures required by accounting principles generally accepted in the United
States. These statements should be read in conjunction with the financial
statements and notes included in the Utah Medical Products, Inc. ("UTMD" or "the
Company") annual report on form 10-K for the year ended December 31, 2002.2003.
Although the accompanying financial statements have not been examined by
independent accountants in accordance with auditing standards generally accepted
in the United States, in the opinion of management, such financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary to summarize fairly the Company's financial position and results of
operations.
(2) Inventories at SeptemberJune 30, 20032004 and December 31, 20022003 (in thousands) consisted
of the following:
SeptemberJune 30, December 31,
2004 2003
2002
------------ --------------------- ---------
Finished goods $1,478 $1,236$1,317 $ 1,495
Work-in-process 821 907722 631
Raw materials 1,358 1,3351,317 1,142
------ -----------
Total $3,657 $3,478$3,356 $3,268
====== ======
(3) Stock-Based Compensation. At SeptemberJune 30, 20032004 the Company had stock-based
employee compensation plans, which authorized the grant of stock options to
eligible employees directors, and other individuals.directors. The Company accounts for those plans under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations, and has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized in the
financial statements, as all options granted under those plans had an exercise
price equal to or greater than the market value of the underlying common stock
on the date of grant. Had compensation cost for the Company's stock option plans
been determined based on the fair value at the grant date for
awards starting in 1995 consistent with the
provisions of SFAS No. 123, the Company's net earnings and earnings per share
would have been reduced to the pro forma amounts indicated below (in thousands,
except per share amounts):
Three Months NineEnded Six Months Ended
Ended
SeptemberJune 30, SeptemberJune 30,
------------------ -----------------
2004 2003 20022004 2003
2002
--------- --------- --------- ------------- ---- ---- ----
Net Income as reported $ 1,861 $ 1,883 $ 5,486 $ 5,380$1,841 $1,837 $7,016 $3,625
Deduct:
Total stock-based employee compensation expense
determined under fair value based method for all
awards net of related tax effects -49 -41 -131 -138
--------- --------- --------- ----------103 -44 -184 -83
---- --- ---- ---
Net income pro forma $ 1,812 $ 1,842 $ 5,355 $ 5,242
--------- --------- --------- ---------$1,738 $1,793 $6,832 $3,542
Earnings per share:
Basic - as reported $ 0.41 $ 0.38 $ 1.22 $ 1.08
--------- --------- --------- ---------$0.41 $0.41 $1.56 $0.81
Basic - pro forma $ 0.40 $ 0.37 $ 1.19 $ 1.05
--------- --------- --------- ---------$0.39 $0.40 $1.52 $0.79
Diluted - as reported $ 0.38 $ 0.36 $ 1.13 $ 1.01
--------- --------- --------- ---------$0.38 $0.38 $1.46 $0.75
Diluted - pro forma $ 0.37 $ 0.35 $ 1.10 $ 0.98
--------- --------- --------- ---------$0.36 $0.37 $1.42 $0.73
4-5-
(4) Comprehensive Income. Comprehensive income (in thousands) for the three and
six months ending June 30, 2004 was $1,831 and $6,914 net of taxes,
respectively. The Company translates the currency of its Ireland
subsidiary which comprises the only element of comprehensive income. Totalcomponents used to calculate comprehensive income for the threetwo
periods were foreign currency translation adjustments of ($13) and nine months ending September 30, 2003 was
(in thousands) $1,875($107), and
$5,784 netunrealized holding gains of taxes,$3 and $5, respectively.
(5) Goodwill and Other Intangible Assets. On January 1, 2002, the Company
adopted Statement of Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 142 changes the accounting for goodwill and
intangible assets with indefinite lives from an amortization method to an
impairment approach. Other intangible assets will continue to be amortized over
their estimated useful lives. The Company has completed the required initial
goodwill impairment test and its annual impairment test, and determined that the
book value of its goodwill associated with its 1997 and 1998 acquisitions is not
impaired. Expense from amortization of the Company's other intangible assets
totaled (in thousands) $57 for the nine months ending September 30, 2003, and is
expected to be an additional $17 for the remainder of 2003. The estimated
aggregate amortization expense for the years ending 2004, 2005, 2006, 2007 and
2008 is (in thousands) $71, $51, $51, $50 and $50, respectively.
(6) Forward-Looking Information
This report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of management as well as
assumptions made by, and information currently available to, management. When
used in this document, the words "anticipate," "believe," "should," "project,"
"estimate," "expect," "intend" and similar expressions, as they relate to the
Company or its management, are intended to identify forward-looking statements.
Such statements reflect the current view of the Company respecting future events
and are subject to certain risks, uncertainties, and assumptions, including the
risks and uncertainties noted throughout the document. Although the Company has
attempted to identify important factors that could cause the actual results to
differ materially, there may be other factors that cause the forward statement
not to come true as anticipated, believed, projected, expected, or intended.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may differ materially
from those described herein as anticipated, believed, projected, estimated,
expected, or intended.
General risk factors that may impact the Company's revenues include the
market acceptance of competitive products, obsolescence caused by new
technologies, the possible introduction by competitors of new products that
claim to have many of the advantages of UTMD's products at lower prices, the
timing and market acceptance of UTMD's own new product introductions, UTMD's
ability to efficiently manufacture its products, including the reliability of
suppliers, success in gaining access to important global distribution channels,
marketing success of UTMD's distribution and sales partners, budgetary
constraints, the timing of regulatory approvals for newly introduced products,
third party reimbursement, and access to U.S. hospital customers, as that access
continuesmay continue to be constrained by group purchasing decisions.
Risk factors, in addition to the risks outlined in the previous paragraph
that may impact the Company's assets and liabilities, as well as cash flows,
include risks inherent to companies manufacturing products used in health care
including claims resulting from the improper use of devices and other product
liability claims, defense of the Company's intellectual property, productive use
of assets in generating revenues, management of working capital including
inventory levels required to meet delivery commitments at a minimum cost, and
timely collection of accounts receivable.
Additional risk factors that may affect non-operating income include the
continuing viability of the Company's technology license agreements, actual cash
and investment balances, asset dispositions, and acquisition activities that may
require external funding.
-5--6-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
UTMD manufactures and markets a well-established range of specialty
medical devices. The general characteristics of UTMD's business have not
materially changed over the last several reporting periods. The Company's Form 10-K Annual Report for the year ended December 31,
20022003 provides a detailed description of products, technologies, markets,
regulatory issues, business initiatives, resources and business risks, among
other details, and should be read in conjunction with this report. Because of
the relatively short span of time, results for any given three month period in
comparison with a previous three month period may not be indicative of
comparative results for the year as a whole. Dollar amounts in the report are
expressed in thousands, except per-
shareper-share amounts or where otherwise noted.
UTMD manufactures and markets a well-established range of specialty
medical devices. The general characteristics of UTMD's business have not
materially changed over the last several reporting periods, except for the Tyco
patent infringement damages and interest recognized in fourth quarter (4Q) 2003
and first quarter (1Q) 2004. In 1Q 2004, UTMD recognized extraordinary
non-operating income of $6,060 from damages and interest for infringing product
sold after the January 2002 jury verdict regarding a patent infringement lawsuit
with Tyco International. (The Company previously recognized $24,884 from the
Federal Court's September 2002 judgment.) Associated with this extraordinary
first half (1H) 2004 operating income were extraordinary G&A Expenses (included
in Operating Expenses) of $350. These expenses were due to bonuses and
additional litigation expenses.
In management's opinion, the event in 1H 2004 of recognizing the
additional Tyco patent infringement damages has an impact on the income
statement that does not allow a meaningful comparison of financial ratios and
other financial measures with 1H 2003. Consequently, this MD&A of the income
statement for 1H adjusts out the following items related to the extraordinary
event, prior to making comparisons with 1H 2003:
INCOME STATEMENT adjustment
- ---------------- ----------
Extraordinary item - after tax gain from litigation (3,349)
Note: Income statement comparisons which follow, including earnings per share,
are "before extraordinary item".
Analysis of Results of Operations
a) Overview
In thirdsecond quarter (3Q) 2003,(2Q) 2004, UTMD's consolidated global sales were
approximately the same as in 2Q 2003. UTMD achieved the following profitability
measures for 2Q 2004 compared to 2Q 2003:
2Q 04 2Q 03
----- -----
Gross Profit Margin (gross profits/ sales): 57.6% 59.0%
Operating Profit Margin (operating profits/ sales): 38.5% 39.6%
Net Profit Margin (profit after taxes/ sales): 27.0% 26.9%
2Q 2004 EPS increased 1.3% to $.38 on a diluted basis.
For 1H 2004, UTMD's consolidated global sales decreased 3%2% relative to 3Q 2002. At the same time, the1H
2003. The Company achieved the following profitability measures for the most recent calendar quarter:1H 2004
compared to 1H 2003:
1H 04 1H 03
----- -----
Gross Profit Margin (gross profits/ sales): 58.9%57.9% 58.4%
Operating Profit Margin (operating profits/ sales): 39.9%39.1% 39.5%
Net Profit Margin (profit after taxes/ sales): 27.5%
3Q 200327.3% 26.4%
1H 2004 EPS increased 6%1.4% to $.38 on a diluted basis. As a result, UTMD
concluded its twenty-third consecutive quarter of higher Earnings Per Share
(EPS) when compared to the same quarter in the prior year.
For first nine months (9M) 2003, total consolidated sales were essentially
the same as 9M 2002. At the same time, the Company achieved the following
profitability measures 9M 2003:
Gross Profit Margin (gross profits/ sales): 58.6%
Operating Profit Margin (operating profits/ sales): 39.7%
Net Profit Margin (profit after taxes/ sales): 26.8%
9M 2003 EPS increased 12% to $1.13$.76 on a diluted basis. EPS for the last
twelve months (LTM) were $1.48.$1.51.
b) Revenues
Revenue from product sales is generally recognized by UTMD at the time the
product is shipped and invoiced and collectibility is reasonably assured. The
Company accrues provisions for the estimated costs that may be incurred for
product warranties and unforeseen uncollectible accounts.
UTMD believes that revenue should be recognized at the time of shipment as
title generally passes to the customer at the time of shipment. This policy
meets the criteria of SAB 101 in that there is persuasive evidence of an
existing contract or arrangement, delivery has occurred, the price is fixed and
determinable and the collectibility is reasonably assured. A few exceptions to
the "delivery has occurred" revenue recognition policy occur from time to time
with certain overseas customers or other medical device firms where UTMD has
supply contracts that require certain payments prior to shipment, whether or not
product is actually shipped.
-7-
Sales in 2Q 2004 were about the same as 2Q 2003, following a decrease of
4% in 1Q 2004 compared to 1Q 2003. The 3% decrease2Q sales trend improvement came from
better international sales, improved CMI OEM molding sales and a mid-quarter
acquisition of Abcorp Medical, UTMD's vendor for external fetal monitoring
belts.
International sales increased 5% while domestic sales decreased 2% in 3Q 20032Q
2004 compared to 2Q 2003. International sales were $1,603 in 2Q 2004 compared to
$1,522 in 2Q 2003. International sales were 23% of total sales was caused primarily by an 11%
decrease in international sales. International sales, down despite the
continuing benefit of a weaker US Dollar, were $1,3182Q 2004, up
from 22% in 3Q 2003 compared to
$1,482 in 3Q 2002. Dollar-denominated shipments2Q 2003. Shipments, including intercompany, from UTMD's Ireland
facility were down 14%,4% in US Dollar terms, and 9% in EURO terms.
1H 2004 sales decreased 2% compared to 1H 2003. International sales
increased 1% while Euro- denominateddomestic sales decreased 3%. International sales were $3,105
in 1H 2004 compared to $3,079 in 1H 2003. International sales were 23% of total
sales in 1H 2004, up from 22% in 1H 2003. 1H 2004 shipments, including
intercompany, from UTMD's Ireland facility were down 25%. Domestic sales decreased 1%7% in US Dollar terms, and
16% in EURO terms compared to 3Q 2002.
9M 2003 total sales were essentially the same as in 9M 2002.
Dollar-denominated international sales during this nine month period increased
4%. International sales in 9M 2003 were $4,398 compared to $4,233 in 9M 2002. Of
the international sales, 59% were made in Europe during 9M 2003 compared to 60%
in 9M 2002. 9M 2003 domestic sales decreased 1% compared to 9M 2002.1H 2003.
Global revenues by product category:
1. Obstetrics. 3Q 20032Q 2004 obstetrics product sales were $2,980$2,830 compared to
$3,131$2,828 in 3Q 2002. First nine months 20032Q 2003. 1H 2004 obstetric sales were $8,587$5,401 compared to $8,984$5,607 in 9M 2002.1H
2003.
2. Gynecology/ Electrosurgery/ Urology. 3Q 20032Q 2004 Gyn/ES/Uro product sales
were $1,272$1,298 compared to $1,250$1,376 in 3Q 2002. First nine months2Q 2003. 2Q 2004 international sales in this
product category declined from $319 in 2Q 2003 to $212. In 1H 2004, Gyn/ES/Uro
sales were $4,060$2,651 compared to $3,928$2,787 in 9M 2002.
-6-
1H 2003.
3. Neonatal. 3Q 20032Q 2004 neonatal product sales were $1,082$996 compared to $1,018$987 in
3Q 2002. First nine months 2003 neonatal2Q 2003. Neonatal sales were $3,051$2,017 in 1H 2004, compared to $2,864$1,969 in 9M 2002.1H 2003.
4. Blood Pressure Monitoring and Accessories (BPM). 3Q 2003 BPM product
sales were $1,427 compared to $1,607 in 3Q 2002. First nine months 20032Q 2004 BPM sales were
$4,781$1,703 compared to $4,735$1,649 in 9M 2002.2Q 2003. This category includes miscellaneous molded partscomponents
sold to OEM customers. BPM sales were $3,375 in 1H 2004, compared to $3,354 in
1H 2003.
c) Gross Profit
UTMD's 3Q and 9M 2003average gross profit marginsmargin (GPM), gross profits as a percentage of
sales, were 58.9%was 57.6% and 58.6%57.9% in 2Q and 1H 2004, respectively, compared to 58.2%59.0%
and 57.6%58.4% in 3Q2Q and 9M 2002.1H, 2003, respectively. The differences in GPM were due to a
higher percentage of sales in 2004 of lower-margin products. UTMD's prices for
its products have been higher in 2003 because of improved
manufacturing efficiencies.remained about the same relative to the prior year.
Because of UTMD's small size and period-to-period fluctuations in OEM
business activity, allocations of fixed manufacturing overheads cannot be
meaningfully allocated between direct and OEM sales. Therefore, UTMD does not
report GPM by sales channels.
UTMD targets an average GPM greater than or equal to 55%, which it
believes is necessary to successfully support the significant operating expenses
required in a highly complex and competitive medical device marketplace.
Management expects to continue to achieve its GPM target during the remainder of
2003.2004. Expected favorable influences include growth in sales volume without a
similar increase in manufacturing overhead expenses, a larger percentage of total sales from
higher margin products and a continued emphasis on
reengineering products to reduce material costs. Expected unfavorable influences
are continued competitive pressure on pricing, and higher labor-related costs particularly for employee
health plan benefits.and a
continued increase in sales of lower margin products.
d) Operating Profit
3Q 20032Q 2004 operating profits decreased 3% to $2,696$2,628 from $2,775$2,712 in 3Q 2002.
9M2Q 2003, operating profits increased 3%and
to $8,120$5,258 in 1H 2004 from $7,898$5,424 in 9M 2002.1H 2003. Total operating expenses, including
sales and marketing (S&M) expenses,, research and development (R&D) expenses and general and
administrative (G&A) expenses, were 19.0%19.1% of sales in 3Q 2003,2Q 2004, compared to 18.6%19.3%
in 3Q 2002.2Q 2003. Total operating expenses were 18.8% of sales in 1H 2004, compared to
18.9% of sales in 9M 2003, compared to 19.1% of sales in 9M 2002.
3Q1H 2003. 2Q and 9M 20031H 2004 operating profit margins were 39.9%38.5%
and 39.7%39.1% of sales, respectively, compared to 39.6% and 38.5%39.5% of sales in 3Q2Q and
9M 2002.1H 2003, respectively.
S&M expenses in 3Q 20032Q 2004 were $582$625 or 8.6%9.2% of sales compared to $618$627, also
9.2% of sales in 2Q 2003. S&M expenses in 1H 2004 were $1,187 or 8.8% of sales
in 3Q 2002. S&M expenses in 9M 2003 were $1,778compared to $1,196 or 8.7% of sales compared to $1,864 or 9.1% of sales in 9M 2002.1H 2003. Because UTMD sells
internationally through third party distributors, its S&M expenses are
predominantly for U.S. business activity. Looking forward, UTMD plans higher S&M
expenses during the remainder of 20032004 due to Group Purchasing Organization fees
along with higher marketing expenses, but intends to manage S&M expenses to
remain less thanabout 9% of total 2004 consolidated sales.
-8-
R&D expenses in 3Q 20032Q 2004 were $75$82 or 1.2% of sales compared to $69 or 1.0%
of sales in 2Q 2003. R&D expenses in 1H 2004 were $147 or 1.1% of sales compared
to $76 or 1.1%
of sales in 3Q 2002. R&D expenses in 9M 2003 were $217 or 1.1% of sales compared
to $202$142 or 1.0% of sales in 9M 2002.1H 2003. In 2004, UTMD will opportunistically employ
R&D resources to invest where management anticipates it can get a significant
return with future new products. Management expects R&D expenses during 20032004 as
a whole to be approximately 1-2% of sales.
G&A expenses in 3Q 20032Q 2004 were $627$599 or 9.3%8.8% of sales compared to $610$626 or
8.7%9.2% of 3Q 20022Q 2003 sales. G&A expenses in 9M 20031H 2004 were $1,876$1,192 or 9.2%8.9% of sales
compared to $1,848$1,249 or 9.0%9.1% of 9M 20021H 2003 sales. In addition to litigationlegal costs, G&A
expenses include the cost of outside auditors and corporate governance
activities relating to the implementation of new SEC rules resulting from the
Sarbanes-Oxley Act of 2002. Management expects G&A expenses during 20032004 to
be in
the range of 9-10%remain about 9% of sales.
e) Non-operating income
Non-operating income in 3Q 20032Q 2004 was $107$178 compared to $113$85 in 3Q 2002,2Q 2003, and
$273$332 in 9M 20031H 2004 compared to $352$165 in 9M 2002. The decrease was due to higher1H 2003. In 2Q and 1H 2003, UTMD paid $16
and $42 in interest, expense resulting from higher average line of credit loan balances
during 2003 (resulting from financing the November 2002 repurchase of 503,000
shares) compared to 2002, and less 2003 rental income from the unused portion of
the Ireland facility. Interest expense was $5 in 3Q 2003 compared to none in 3Q
2002, and $47 in 9M 2003 compared to $18 in 9M 2002. The averagerespectively, on its line of credit balance, for 9M 2003which was $2.4 million compared to $0.7 millionpaid
off in 9M 2002.3Q 2003. In contrast, in 2Q and 1H 2004 UTMD paid no interest because its
line of credit balance was zero, and received $68 and $116, respectively, in
interest, dividends and capital gains income from investing cash balances.
Royalty income, which UTMD receives forfrom licensing its technology to other
companies, was approximately the same for the same periods in both years.
The
line of credit balance was paid off in September 2003.
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f) Earnings Before Income Taxes
3Q 20032Q and 1H 2004 earnings before income taxes (EBT) decreased 3%were essentially the
same as in 2Q and 1H 2003, $2,806 compared to $2,803 from
$2,888 in 3Q 2002. 9M 2003 EBT increased 2%$2,797 and $5,590 compared to
$8,393 from $8,250 in 9M 2002. 3Q
2003$5,589. 2Q 2004 EBT margin was 41.5%41.1% of sales compared to 41.2%40.9% in 3Q 2002. 9M 20032Q 2003. The
1H 2004 EBT margin was 41.0%41.6% of sales compared to 40.2%40.7% in 9M 2002.1H 2003.
g) Net Income and Earnings per Share
UTMD's net profit margin (NPM), net income (after taxes) expressed as a
percentage of sales, was 27.5%27.0% and 26.8%27.3% for 3Q2Q and 9M 2003,1H 2004, respectively,
compared to 26.9% and 26.2%26.4% in 2002. 3Q2Q and 1H 2003, respectively. 2Q 2004 net income
decreased 1%was about the same as 2Q 2003, $1,841 compared to $1,861
from $1,883 in 3Q 2002. 9M 2003$1,834. 1H 2004 net income
increased 2%1% to $5,486 from $5,380$3,667 compared to $3,625 in 9M 2002.1H 2003. UTMD's effective income
tax rate was 34.4% in 3Qboth 2Q and 9M 2003 was 33.6% and 34.6%,
respectively,1H 2004, compared to 34.8%34.3% and 35.1% in both 3Q2Q and
9M 2002.1H 2003, respectively. The reduction in34.4% rate is consistent with UTMD's
estimated income tax rate
during 3Q 2003 was due to an increase in employee
option exercises. For employee incentive options exercised and sold in less than
one year, and for all non-qualified option exercises, the taxable gain realized
by the employee is tax deductible to the Company.past 2 years. UTMD's tax rate for the remainder of 20032004 may be lower orslightly
higher than in 2002 depending largely2003, but this is difficult to predict. Fluctuations in the tax
rate have resulted from 1) extraterritorial income exclusions, 2) differences in
distribution of state income taxes, 3) differences in profits of the Ireland
subsidiary which is taxed at a 10% rate on employee option exercises (which would lower it) or whether or not UTMD receives
a taxable damages award from Tyco (which would raise it).exported manufactured products, 4)
increases in marginal tax rates for EBT above $10 million, and 5) other factors
such as the R&D tax credit.
1H 2004 net income including extraordinary items was $7,016, Income taxes
were $2,361 (a 41.4% tax rate) on 1Q 2004 extraordinary earnings of $5,710.
Diluted 3Q 20032Q 2004 Earnings per Share (EPS) increased 6%1.3% compared to 2Q
2003. Because of rounding, reported EPS were $.38 from $.36 in 3Q 2002.both periods. Diluted 9M 20031H
2004 EPS increased 12%1.4% to $1.13$.76 from $1.01$.75 in 9M 2002. The
higher rate of increase in EPS versus other income statement measures was due to
decreased diluted shares in 2003 compared to 2002. 3Q 20031H 2003. 2Q and 1H 2004 weighted
average number of diluted common shares (the number used to calculate diluted
EPS) were 4,920,0004,794,000 and 4,819,000 compared to 5,261,0004,848,000 and 4,833,000 shares in
3Q 2002. 9M2Q and 1H 2003, weighted average
number of diluted common shares were 4,870,000 compared to 5,331,000 shares in
9M 2002. UTMD completed a tender offer in 4Q 2002 under which it repurchased
about 503,000 shares of stock.respectively. The Company repurchased 20,90014,596 shares in 9M 2003.2Q 2004
and 124,843 shares in 1H 2004. Exercises of employee options in 9M 2003 offset the repurchases by adding
174,1002Q 2004 added
82,847 shares, and 103,562 shares in 1H 2004 (net of shares traded or swapped by employees
as payment for the option exercise cost or tax withholding)cost). In addition, the market increase in
UTMD's stock price had a retarding effect on EPS growth as a result of the
dilution calculation for unexercised options with an exercise price below the
current stock market value. The dilution calculation added 341,000302,000 and 368,000315,000
shares to actual weighted average shares outstanding in 3Q2Q and 9M 20031H 2004
respectively, compared to 312,000366,000 and 335,000370,000 shares in 3Q2Q and 9M 2002.1H 2003 because
fewer unexercised options were outstanding in 2004. Actual outstanding common
shares as of the end of 3Q 20032Q 2004 were 4,596,4004,522,500 compared to 4,917,6004,504,400 at the end
of 3Q 2002.2Q 2003, which includes all options exercised during the intervening year.
Including extraordinary earnings, diluted 1H 2004 EPS were $1.46.
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h) Return on Shareholders' Equity (ROE)
ROE is equal to net profits divided by average shareholder equity during a
specific time period. Annualized ROE in 3Q 2003 and 9M 20031H 2004 was 35% and 39%
respectively,31%, compared to 34% and 36%41% in 3Q and 9M 2002 respectively. The higher
ROE in 2003 resulted from higher profitability and financial leverage in1H
2003. UTMD's ROE has averaged about 30% over the last 15 years. Excluding the
financial impact that would result from receipt of the large damages award
previously adjudicated in UTMD's favor but currently under appeal, managementUTMD expects to
be able to achieve 30% ROE again for calendar year 2003.2004. Share repurchases will
have a beneficial impact on ROE as long as the Company sustains its net profit
performance because shareholder equity is reduced by the cost of the shares
repurchased.
Liquidity and Capital Resources
i) Cash flows
Net cash provided by operating activities, including adjustments for
depreciation and other non-cash operating expenses, along with changes in
working capital, totaled $6,020$23,830 in 9M 20031H 2004 compared to $6,381$3,282 in 9M 2002.1H 2003.
Impact of the extraordinary item (Tyco patent infringement damages) in 1H 2004
was approximately $21,803, resulting in net cash provided by operating
activities of $2,027 in 1H 2004 if the impact of the extraordinary item is
ignored, a decrease of $1,255 compared to 1H 2003
The Company expended $147$22,103 in 1H 2004 to purchase investments, made
possible by receipt of cash from the extraordinary item. The Company received
$2,168 from the sale of investments. UTMD spent $1,012 in 2Q 2004 to acquire
Abcorp, its vendor for external fetal monitoring belts. Please see the table on
page 4 for detail of the Abcorp assets purchased. UTMD spent $259 during 9M 20031H 2004
for purchases of property and equipment (P&E), and $66$10 for intangible assets. In
9M 20021H 2003 the Company used $349$123 to purchase property and equipment. This rate of
investing in new property and equipment is required to keep facilities,
equipment and tooling in good working condition.
In 9M 2003,1H 2004, UTMD received $2,257 from issuing 273,917$1,012 and issued 103,562 shares of stock upon
the exercise of employee stock options. Employees exercised a total of 104,762
option shares in 1H 2004, with 1,200 shares immediately being retired as a
result of the individual trading the shares in payment of the exercise price of
the options. UTMD paid $6 in 1H 2004 to meet tax obligations on option
exercises. Option exercises in 1H 2004 were at an average price of $9.95 per
share. UTMD repurchased 124,843 shares of stock in the open market at a cost of
$3,057 during 1H 2004. Share repurchases in the open market were at an average
cost of $24.49 per share, including commissions and fees. In 1H 2003, the
Company received $382 from issuing 82,069 shares of stock on the exercise of
employee stock options. Employees exercised a total of 122,057 option shares in
1H 2003, with 39,988 shares immediately being retired as a result of the
individuals trading the shares in payment of the exercise price of the options
and the related tax withholding requirements. UTMD paid $71 in 1H 2003 to meet
those tax withholding requirements. The Company repurchased 20,900 shares of
stock in the open market at a cost of $385.$385 in 1H 2003.
During 1H 2004 UTMD's line of credit was not used. In addition the Company retired 99,795 option
shares as the result of employees trading UTMD shares in payment for the
exercise
-8-
of stock options and related tax withholding requirements, at a cost of $2,103.
Employee option exercises were at an average price of $8.24 per share. 9M 2003
share repurchases in the open market were at an average cost of $18.43 per
share, including commissions. In 9M 2002, the Company received $645 from issuing
81,186 shares of stock upon the exercise of employee stock options and paid
$2,727 to repurchase 192,400 shares.
During 9M1H 2003, UTMD made
repayments of $4,956$3,088 on its note payable, while receiving $0 in proceeds from the note (line of credit). In 9M 2002, UTMD made
loan repayments of $2,501 and received $0 in proceeds from
the note. UTMD paid off the outstanding balance of the note during 3Qin September 2003.
As a result of the above cash flow activities, cash (and equivalent)
balances increased $288 from a balance of $285 at December 31, 2002Significantly, due largely to $925 at
September 30,extraordinary income, UTMD paid $12.0
million in income taxes in 1H 2004, compared to $1.9 million in 1H 2003. Cash (and equivalent) balances at September 30, 2002 were
$1,833.
Management believes that future income from operations and effective
management of working capital will provide the liquidity needed to finance
growth plans and repay debt.plans. Planned capital expenditures during the remainder of 20032004 are
expected to be in the range of $100-200$400-500 to keep facilities, equipment and
tooling in good working order. In addition to the capital expenditures, UTMD
plans to use cash for selective infusions of technological, marketing or product
manufacturing rights to broaden the Company's product offerings, for continued
share repurchases if the price of the stock remains undervalued, and if
available for a reasonable price, acquisitions that strategically fit UTMD's
business and are accretive to performance. The revolving credit line will
continue to be used for liquidity when the timing of acquisitions or repurchases
of stock require a large amount of cash in a short period of time.
j) Assets and Liabilities
SeptemberCompared to the audited December 31, 2003 balances, June 30, 20032004 total
assets were $1,244 higher than at December 31,
2002. Current$3,389 lower and current assets increased $1,343were $4,043 lower. The decreases
resulted primarily from the cash payment of income taxes due to a $640 increase in cash, a $612
increase in receivables (A/Ron the $30,944
received from TYCO on January 20, 2004. On the liabilities side, total
liabilities were $7,705 lower and other, net of allowances) and a $179 increase
in inventories (finished goods).current liabilities were $7,682 lower.
Inventories increased due to preparation for
anticipated increased demand$88 in 1H 2004, after being up $334 as a result of the injunction against Tyco/Kendall
for its infringing product, and the possibility of better access to physicians
in hospitals as a result of new GPO codes of conduct prohibiting bundling of
"physician preference" products with unrelated products. Those expected
increases have not yet materialized.March 31, 2004.
UTMD plans to make adjustmentsintends to decrease inventory balances during the remainder of 2003.2004. UTMD
expects that asset turns will decrease during the remainder of 2004 because of
extraordinary cash and investments balances, unless UTMD makes a substantial
acquisition, repurchases stock or takes some other action that utilizes a lot of
cash. Net property and equipment decreased $109 because $691 depreciation$268 primarily due to a $184 decrease
in the dollar-denominated value of Ireland P&E. The U.S. dollar increased about
3% relative to the EURO in 1H 2004. Depreciation of $395 of existing assets
exceeded $147$259 in new asset purchases. The decrease in NP&E was offset substantially by a $329
increase in dollar-denominated value of assets in Ireland because the U.S.
dollar (USD) declined about 11% relative to the EURO. Net intangible assetsGoodwill increased $10$946 as a result of new purchases partially offset bythe
Abcorp acquisition. Net intangible assets, excluding goodwill, decreased $24 as
a result of amortization of patents and other intellectual property.property partially
offset by $10 in new intangible purchases. At SeptemberJune 30, 2003,2004, net intangible
assets including goodwill were 27%17% of total assets, compared to 29%14% at year-end
2002.2003.
-10-
Cash (and equivalent) balances were $925$1,311 at SeptemberJune 30, 2003,2004, compared to
$285$762 on December 31, 2002.2003. UTMD maintains "sweep" accounts that move any
unneeded cash for day-to-day operations to an interest bearing account or to
reduce the line of credit.
For reasons previously described, averageinvestment
account.
Average inventory turns declinedimproved to 3.03.3 times in 9M 20032Q 2004 from 3.63.2 times in
9M 2002.the prior quarter, and 3.1 times in 4Q 2003. Receivables balances as of SeptemberJune 30,
20032004 yielded average "days in receivables" of 4247 days, well within management's
target. At the end of 20022003 and SeptemberJune 30, 2002,2003, respectively, days in receivables
were 4146 and 44.45.
As of SeptemberJune 30, 2003,2004, UTMD's total debt ratio (total liabilities/ total
assets) decreased to 9%12% from 33%27% on December 31, 2002. The decrease
resulted primarily from eliminating the line of credit balance. The total debt
ratio on September 30, 2002, at which time the line of credit balance was also
zero, was 9%. The recent line of credit balances were due to debt incurred in
November 2002 to finance2003. Absent a Tender Offer repurchasing 503,000 UTMD shares. Absent
thelarge use of
cash for a new acquisition and/or additional significant share repurchases, or receipt of a large cash damages award, UTMD
expects the debt ratio to remain around 10% duringcontinue to decrease throughout 2004 as all remaining
taxes due on the rest of 2003.extraordinary income are paid.
Other Financial Measures
k) EBITDA
EBITDA is not defined or described by Generally Accepted Accounting
Principles (GAAP). As such, EBITDA is not considered to be prepared in
accordance with GAAP, is not a measure of liquidity and is not a
-9-
measure of
operating results. However, the components of EBITDA are prepared in accordance
with GAAP, and UTMD believes that EBITDA is an important measure of the
Company's financial performance and well-being.
EBITDA is EBT plus depreciation and amortization expenses plus interest
expenses resulting from financing activities. EBITDA excluding the extraordinary
item is calculated as follows, with all three components as reported according
to GAAP in the attached statements of income and statements of cash flows:
9M1H 2004 1H 2003
9M 2002
-------- --------------- -------
Income Before Income Tax Expense $8,393 $8,250$5,590 $5,589
Depreciation and Amortization 748 904429 508
Interest 47 18
-------- --------Expense - 42
------- -------
Total = EBITDA: $9,187 $9,172$6,019 $6,140
The EBITDA above is a measure of UTMD's ability to generate cash.cash from
normal operations. As a ratio of sales, normal EBITDA was 45% in both 9M 20031H 2004
and 9M 2002.1H 2003. 1H 2004 EBITDA including the extraordinary item was $11,729.
l) Management's Outlook.
As outlined in its December 31, 20022003 10-K report,Report, UTMD's plan for 20032004
is to
1) realize improved results from 2002 initiatives to expandclear up its apparently unresolved QSR status with the U.S. FDA that
has hindered international sales, activity;
including efforts to regain market share that should be available as a resultslowed new product development, stymied
business development and consumed an inordinate amount of the injunction against Tyco/Kendall and the possibility of better access to
physicians in hospitals as a result of new GPO codes of conduct;human capital since
2002;
2) continue outstanding operating performance, and set new Company records
for profitability as a percent of sales;performance;
3) sustain the patent infringement verdict and recover damages; and
4) actively look for new acquisitions to build a platform for continued
growth.
3Qfacilitate sales growth; and
9M 2003 financial results are4) utilize current excess cash balances in shareholders' best long term
interest.
1H 2004 performance was consistent with achieving the previously stated
plan.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
On January 1, 2002, UTMD converted the functional currency of its Irish
manufacturing operations, including related assets, to the EURO currency
consistent with conversion of Ireland and many other Western European countries
to the new common EURO currency. The Company's Irish operations were previously
denominated in Irish Pounds. UTMD sells products under agreements denominated in
USD and EURO. The exchange rate was 0.85650.8218 EURO per USD as of SeptemberJune 30, 2003,2004, and
1.01170.8675 EURO per USD as of SeptemberJune 30, 2002.2003. The EURO and other currencies are
subject to exchange rate fluctuations that are beyond the control or
anticipation of UTMD. UTMD manages its foreign currency risk without separate
hedging transactions by converting currencies to USD as transactions occur.
-11-
Item 4. Controls and Procedures
UTMD maintains a system of internal controls and procedures designed to
provide reasonable assurance as to the reliability of its consolidated condensed
financial statements and other disclosures included in this report. UTMD's Board
of Directors, operating through its audit committee, provides oversight to its
financial reporting process.
Within the 90-day period prior to the date of this report, UTMD evaluated
the effectiveness of the design and operation of its disclosure controls and
procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. Based
on that evaluation, UTMD's Chief Executive Officer and PrincipalChief Financial Officer
concluded that its disclosure controls and procedures are effective in alerting
them in a timely manner to material information relating to UTMD that is
required to be included in this quarterly report on Form 10-Q.
There have been no significant changes in UTMD's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date that it carried out its evaluation and there were no corrective actions
regarding significant deficiencies or material weaknesses.
-10--12-
PART II - OTHER INFORMATION
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
The following table details purchases by UTMD of its own securities during 2Q
2004.
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of Maximum Number (or
Shares Purchased as Approximate Dollar Value) of
Total Number of Average Part of Publicly Shares that May be Purchased
Shares Price Paid Announced Plans or Under the Plans or
Period Purchased (1) per Share Programs (1) Programs (1)
- ----------------- ------------- --------- ------------ ------------
4/01/04 - 4/30/04 2,000 $ 24.72 2,000
5/01/04 - 5/31/04 12,596 25.25 12,596
6/01/04 - 6/30/04 - - -
- ----------------- ------------- --------- ------------ ------------
Total 14,596 $ 25.18 14,596
(1) In 2Q 2004 UTMD repurchased an aggregate of 14,596 shares of its common
stock at an average cost of $25.18 per share pursuant to a continued open market
repurchase program initially announced in August 1992. Since 1992 through 1H
2004, the Company has repurchased 5,548,870 shares at an average cost of $10.16
per share including broker commissions and fees in open market transactions. In
addition, the Company conducted tender offer transactions in which it purchased
an additional 2,775,742 shares at an average cost of $9.76 per share including
fees and administrative costs. In total, UTMD has repurchased over 8.3 million
of its shares at an average price of $10.02 per share since 1992. To complete
the picture relating to current shares outstanding, since 1992 the Company's
employees and directors have exercised and purchased 1.4 million option shares
at an average price of $6.19 per share. All options were awarded at the market
value of the stock on the date of the award.
The frequency of UTMD's open market share repurchases depends on the
availability of sellers. Since the conclusion of its November 2002 tender offer,
the Company has repurchased shares on a total of thirty-two trading days, about
8% of the total trading days available. The board of directors has not
established an expiration date or a maximum dollar or share limit for UTMD's
continuing and long term pattern of open market share repurchases.
The purpose of UTMD's ongoing share repurchases is to maximize the value of
the Company for its continuing shareholders, and maximize its return on
shareholder equity by employing excess cash generated by effectively managing
its business. UTMD does not intend to repurchase shares that would result in
terminating its Nasdaq National Market listing.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
SEC
Exhibit # Reference # Title of Document
-
--------- ----------- -----------------
1 31 Certification of CEO pursuant to Rule 13a-14(a)
as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
2 31 Certification of Principal Financial Officer
pursuant to Rule 13a-14(a) as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
3 32 Certification of CEO pursuant to 18 U.S.C.ss.1350,U.S.C.
ss.1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
4 32 Certification of Principal Financial Officer
pursuant to 18 U.S.C.ss.1350,U.S.C. ss.1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
-13-
b) Reports on Form 8-K:
On July 22, 2003,April 20, 2004, UTMD filed a report on Form 8-K, Item 12, Results of
Operations and Financial Condition, reporting financial results for secondfirst
quarter 2003.2004.
On May 11, 2004, UTMD filed a report on Form 8-K, Item 5, Other Events,
announcing that it is instituting a regular quarterly cash dividend.
SIGNATURES
Pursuant to the requirements of the Securities Exchanges Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UTAH MEDICAL PRODUCTS, INC.
---------------------------
REGISTRANT
Date: 11/10/038/5/04 By: /s/ Kevin L. Cornwell
---------- ---------------------------------------------- -------------------------
Kevin L. Cornwell
CEO
Date: 11/10/038/5/04 By: /s/ Greg A. LeClaire
---------- ---------------------------------------------- ------------------------
Greg A. LeClaire
Chief Financial Officer
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Exhibit 1
CERTIFICATION OF CEO
PURSUANT TO RULE 13a-14(a) AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kevin L. Cornwell, Chief Executive Officer of the Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Utah Medical
Products, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 10, 2003
/s/ Kevin L. Cornwell
- -------------------------------
Kevin L. Cornwell
Chief Executive Officer
Exhibit 2
CERTIFICATION OF PRINCIPLE FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Greg A. LeClaire, Chief Financial Officer of the Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Utah Medical
Products, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 10, 2003
/s/ Greg A. LeClaire
- ----------------------------------
Greg A. LeClaire
Chief Financial Officer
Exhibit 3
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Utah Medical Products, Inc. (the
"Company") on Form 10-Q for the period ending September 30, 2003, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Kevin L. Cornwell, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of my knowledge and belief:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company.
/s/ Kevin L. Cornwell
- --------------------------------
Kevin L. Cornwell
Chief Executive Officer
November 10, 2003
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
has been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 4
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Utah Medical Products, Inc. (the
"Company") on Form 10-Q for the period ending September 30, 2003, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Greg A. LeClaire, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of my knowledge and belief:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company.
/s/ Greg A. LeClaire
- -----------------------------------
Greg A. LeClaire
Chief Financial Officer
November 10, 2003
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
has been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon request.CFO
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