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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2000. Commission File No. 0-11178
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UTAH MEDICAL PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
Utah 87-0342734
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7043 South 300 West
Midvale, UT 84047
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(Address of principal executive offices)
Registrant's telephone number: (801) 566-1200
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Title of each Class
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Common Stock, $.01 par value
Preferred Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.[ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 9, 2001, based on NASDAQ/NMS closing price:
$46,374,000.
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The number of shares outstanding of the registrant's common stock as of
March 9, 2001: 5,013,366.
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DOCUMENTS INCORPORATED BY REFERENCE
List herein the documents incorporated by reference: The Company's definitive
proxy statement for the Annual Meeting of Shareholders is incorporated by
reference into Part III, Items 10, 11, 12, and 13 of this Form 10-K.
PART I.
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ITEM I - BUSINESS.
Utah Medical Products, Inc. ("UTMD" or "the Company") is in the business of
producing cost-effective devices for the healthcare industry which are
predominantly proprietary, disposable and for hospital use. Success depends on
1) recognizing needs of clinicians and patients, 2) rapidly designing or
acquiring economical solutions which gain regulatory approval, 3) reliably
producing products that meet those clinical needs, and then 4) selling through
a) UTMD's own direct channels into markets where the Company enjoys an
established reputation and has a critical mass of sales and support
resources, or
b) establishing relationships with other medical companies that have the
proper resources to effectively introduce and support the Company's
products.
UTMD's success in rapidly producing solutions comes from its proven ability
to integrate a number of engineering and technical disciplines in electronics,
software, mechanical packaging, instrumentation, plastics processing and
materials. The resulting proprietary products represent significant incremental
improvements over existing clinical techniques. UTMD's experience is that, in
the case of labor-saving devices, the improvement in cost-effectiveness of
clinical procedures also leads to an improvement in overall healthcare including
lower risk of complications. UTMD markets a broad range of medical devices used
in critical care areas, especially the neonatal intensive care unit (NICU) and
the labor and delivery (L&D) department in hospitals, as well as products sold
to outpatient clinics and physician's offices.
The opportunity to apply solutions to recognized needs results from an
excellent core of practicing clinicians who introduce ideas to the Company, and
key employees who are both clinical applications savvy and development
engineering adept.
UTMD's products are sold directly to end users in the U.S. domestic market
by the Company's own direct sales representatives and independent manufacturers'
representatives, and through the Internet. In addition, UTMD's products are sold
through specialty distributors, national hospital distribution companies and
other medical device manufacturers. Internationally, products are sold through
other medical device companies and through independent medical products
distributors. UTMD has representation in all major global markets with
approximately 100 international distributors.
Negative factors that may adversely impact future performance include
managed care reforms or hospital group buying agreements that may limit
physicians' ability to choose certain products or procedures, new products
introduced by other companies that displace UTMD's products, new product
regulatory approval delays, changes in the Company's relationships with
distribution partners, and loss of key personnel.
UTMD was formed as a Utah corporation in 1978. UTMD publicly raised equity
capital one time in 1982. In 1995, Utah Medical Products Ltd., a wholly-owned
subsidiary located in Ireland, was formed to establish an international
manufacturing capability. In 1997, UTMD purchased Columbia Medical, Inc. (CMI),
a Redmond, Oregon company specializing in silicone injection molding, assembly
and marketing vacuum-assisted obstetrical delivery systems. In July, 1998 UTMD
acquired the neonatal product line of Gesco International, a subsidiary of Bard
Access Systems and C.R. Bard, Inc. On March 8, 2000, UTMD returned to the Nasdaq
Stock Market after trading on the New York Stock Exchange for about 3 years. The
Company was previously listed on Nasdaq for 14 years. The Company's corporate
offices are located at 7043 South 300 West, Midvale, Utah 84047 USA. The
corporate telephone number is (801) 566-1200. European operations are located at
Garrycastle Industrial Estate, Athlone, County Westmeath, Ireland. The telephone
number in Ireland is (902) 73932. CMI's mailing address is 1830 S.E. 1st,
Redmond, Oregon 97756. The phone number in Oregon is (541) 548-7738.
2
PRODUCTS
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Labor and Delivery/ Obstetrics:
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Fetal Monitoring Accessories.
About 60% of births are considered "higher risk" due to lack of prenatal care,
among other factors. In many of these births, labor may become complicated and
does not progress normally. The obstetrician must assess progression of labor to
be able to intervene with drug therapy, infuse a solution to augment amniotic
fluid, or ultimately if necessary, perform a Caesarean section procedure, and be
prepared for complications following childbirth. UTMD markets disposable
electrodes, catheters and accessories, but not the monitors, the electronic
capital equipment that process the signals. In addition to products currently
offered, UTMD intends to continue to investigate and introduce tools that
enhance fetal monitoring techniques, a core area of product development.
To assist the physician in assessing fetal well-being, changes in fetal heart
rate (FHR) in conjunction with trends in intrauterine pressure are often
electronically monitored. UTMD's intrauterine pressure (IUP) catheter product
line provides for clinician choices from a traditional fluid-filled system to
INTRAN(R) PLUS, the widely accepted transducer-tipped system. In addition,
adjunct FHR electrodes, leg plates, belly bands and chart paper are offered by
UTMD to complete a package of fetal monitoring supplies. UTMD's IUP catheters
include:
o IUP-075 and UTMD's other custom fluid-filled catheter kits utilize a
saline-filled catheter that is placed within the uterine cavity, connected
to a separate external reusable or disposable transducer. This product
package, utilizing double lumen catheters, was the traditional mode of
intrauterine monitoring prior to the introduction of INTRAN. An
intrauterine pressure change is transmitted through the fluid column to the
external pressure transducer.
o Introduced in 1987, INTRAN was the first intrauterine pressure catheter
that placed the pressure transducer at the pressure source within the
uterine cavity. This design eliminated the complicated setup of
fluid-filled systems and provided more accurate pressure waveforms. INTRAN
I was discontinued in 1995 in favor of the more widely preferred INTRAN
PLUS, also covered by UTMD's original INTRAN patent.
o INTRAN PLUS was introduced in 1991. The INTRAN PLUS catheter combines the
transducer tip concept of INTRAN I with a refined tip design, a zero switch
that allows the clinician to verify the reference of the monitor, and a
dedicated amnio lumen which provides immediate access to the amniotic fluid
environment which may be essential in the diagnosis and intervention of
certain fetal conditions. In 1996, an enhancement which allows physicians
to observe amniotic fluid in a closed system was added to INTRAN PLUS. In
1997, UTMD introduced several variations to address user preferences in tip
size and zero switch location.
Vacuum-Assisted Delivery Systems.
UTMD's VAD Systems include CMI(R) patented soft silicone bell-shaped birthing
cups and patented hand-held vacuum pumps which UTMD believes are the safest
products available for use in vacuum-assisted operative deliveries. Operative
vaginal deliveries provide knowledgeable physicians with an alternative to
C-section intervention. Although there are risks associated with operative
vaginal deliveries which represent about 15% of all U.S. hospital births, the
procedures are generally regarded as safer for the mother, and at least as safe
for the fetus, as abdominal (cesarean) delivery in comparable clinical
situations. In operative vaginal deliveries, either forceps or a vacuum-assisted
delivery system are used by the physician. UTMD estimates that the preferred
vacuum-assisted delivery approach is used for about 8-10% of all U.S. births,
and will continue to increase its share versus forceps. UTMD's patented
bell-shaped soft silicone TENDER TOUCH(R) cups enjoy a low reported complication
rate compared to other vacuum cup designs, as evidenced by the FDA Medical
Device Reporting System. UTMD's patented soft silicone cup is unique in the
industry.
Other Obstetrical Tools.
AROM-COT(TM) is a finger cover with a patented design to rupture maternal
membranes with less patient pain and anxiety. MUC-X is a meconium aspiration
device used immediately after birth to clear neonatal respiratory passages and
reduce exposure to potential infections. CORDGUARD(R) is a patented product
which unifies the multiple steps of clamping the neonate's cord close to the
umbilicus, severing the cord without splattering blood, drawing a clean cord
blood sample, and assisting in the removal of the placenta. CORDGUARD's
sharpless, closed system reduces the risk of exposure to potentially infected
blood, and consequently reduces the high cost of exposure treatment under OSHA
and CDC guidelines. In addition, CORDGUARD facilitates obtaining neonatal blood
that is otherwise hard to obtain safely and cleanly.
3
Neonatal Intensive Care:
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DISPOSA-HOOD(TM)
The DISPOSA-HOOD is an infant oxygen hood that is used in the NICU to
administer oxygen to neonates while maintaining a neutral thermal environment
critical to proper physiologic responses. The DISPOSA-HOOD, placed over the
infant's head, incorporates a round diffusor connection specifically designed to
disperse the incoming gases along the inner surfaces of the hood, rather than
allowing them to blow directly on the infant's head. The design allows more
precise FIO2 (fractional inspired oxygen) control, minimizes convective heat
loss from the head and provides optimum flows for elimination of CO2 (carbon
dioxide) by ventilation. Because it is a disposable product, it allows for
excellent visualization of the underdeveloped infant and prevents
cross-contamination.
DELTRAN(R) PLUS
UTMD's DELTRAN blood pressure monitoring system has been adapted specifically
for use in the NICU. The new streamlined version eliminates needles used for
blood sampling, avoids the loss of scarce neonatal blood volume and provides a
closed system that reduces the risk of infection. The system features excellent
visualization of clearing volume and one-handed use.
GESCO(R)
In the third quarter of 1998, UTMD acquired the neonatal product line of Gesco
International, a subsidiary of Bard Access Systems and C.R. Bard, Inc. GESCO,
best known for innovative silicone catheters, gained an early reputation as a
company which focused on the special developmental needs of tiny critically-ill
babies.
A class of catheters called umbilical vessel catheters (UVC's) are specially
designed for administering vital medications and fluids immediately following
birth through the infant's umbilical vessel into the inferior vena cava. Because
of the neonate's small size and lack of vascular development, there is no better
access to vital organs. The catheters are also called umbilical artery catheters
(UAC's) when placed in one of the umbilical arteries to measure blood pressure
or monitor metabolic processes through blood analysis. In developing its
UMBILI-CATH(R) product line, Gesco pioneered the use of soft, biocompatible
silicone catheters, helping to reduce the number of insertions required as well
as other complications associated with invasive applications. UTMD has expanded
the UVC product line to include catheters made from a patented thermosensitive
polyurethane (Tecoflex(R)) that offers many of the flexibility and
biocompatibility advantages of silicone after insertion, with the greater
rigidity of polyurethane preferred by many clinicians for insertion. In
addition, GESCO provides a convenient catheterization procedure tray of
implements and supplies necessary to place UVC catheters, as well as perform
other similar procedures.
The primary distinction of GESCO products is that they are not just cut-down
or smaller versions of adult devices. For example, in the case of invasive
catheters, the introducer, the soft rounded distal tip, mode of securing to
patient after insertion to avoid migration, luer locking hub with minimal dead
space, number of lumens, catheter radiopaque striping for visualization,
variations in catheter lengths and diameters and special packaging are all
features specially designed for neonates. UTMD continues to modify product
features to bring the GESCO products up to date relative to current neonatal
nurse practitioner preferences.
The soft, biocompatible silicone catheter concept had important advantages in
other applications including peripherally inserted central venous catheters
(PICC lines), enteral feeding tubes, urinary drainage catheters, and chest
drainage tubes. GESCO developed all of these neonatal products. In order to keep
pace with the trend of caring for smaller babies, UTMD has added smaller
diameter versions of its URI-CATH(TM) and NUTRI-CATH(TM) products. In 2000, UTMD
gained FDA premarketing clearance of a new PICC family of products specifically
designed to minimize trauma to the critically ill neonate. The product was
designed with the input of experienced neonatal nurse practitioners for use as a
long-term indwelling catheter system for single-use, therapeutic central venous
infusion of drug solutions, blood products or other fluids and for blood
sampling. The soft, strong silicone PICC comes in two diameter sizes, two types
of venipuncture introducers, two hub configurations and the option of an
integral stylet that aides insertion.
4
Other GESCO specialty products include a disposable peritoneal dialysis set
that is a pre-assembled, sterile, closed system, called DIALY-NATE(TM); a
patented silicone oral protection device used to prevent palatal soft tissue
injury by orotracheal tubes, called PALA-NATE(TM); and a lumbar puncture kit
used for obtaining spinal fluid samples, called MYELO-NATE(TM). In 1999, a tiny
needle version with a special bevel was added to the product line.
GESCO's first patented product, HEMO-NATE(R), is a disposable filter designed
to remove microaggregates from stored blood prior to transfusion into a neonate
where any deficiency can have an overwhelmingly negative impact on a neonate's
chances for survival, given an under-developed vasculature and small total blood
volume.
In 2001, UTMD will continue to improve and expand its neonatal product line,
allowing it to retain the most complete armamentarium of NICU specialty
products in the medical device industry. In addition to products already offered
and being developed internally, UTMD will look to expand sales through
distribution arrangements with other manufacturers, or through selective
acquisitions.
Gynecology /Urology /Electrosurgery:
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LETZ(R) System
The LETZ System is comprised of electrosurgical equipment, electrodes and
supplies used to treat cervical intraepithelial neoplasia (CIN) and other lower
genital tract lesions related to human papilloma virus (HPV) infections. The
electrosurgical excision procedure with hemostasis has widely replaced cold
knife scalpel, laser and cryotherapy procedural approaches because it is
economical, safe, effective, quick and easy to perform, has fewer potential side
effects, and requires little physician training. Most importantly, in contrast
to laser and cryotherapy (freezing of tissue), LETZ provides a tissue specimen
for pathological assessment. The LETZ procedure may be performed using local
anesthesia in a physician's office, eliminating the time and expense of hospital
or surgical center admittance. UTMD's system includes patented disposable loop
electrodes, the patented FINESSE(R) electrosurgical generator, and other
miscellaneous components. The FINESSE electrosurgical generator is the only
generator on the market that contains an integral smoke evacuator, required to
filter smoke and vapors which contain potentially hazardous particulate material
produced during electrosurgery. The disposable loop electrode used to excise the
tissue specimen is a pencil-like tube with a thin tungsten wire loop attached.
The loop is available in varying sizes and includes a Safe-T-Gauge(R) that can
be positioned so the physician can accurately colposcopically monitor the amount
of tissue being excised.
FINESSE(R) Generator; Specialty Loop, Ball, and Needle Electrodes; FILTRESSE(R)
Evacuator; Other Specialty Electrodes; Other Supplies and Gynecologic Tools.
UTMD has FDA clearance to market its electrosurgical system in general surgery
applications, including dermatology, plastic surgery and otolaryngology.
FILTRESSE, a stand-alone surgical smoke filtration system which combines high
filtration efficiency, low cost and convenient use was introduced in 1997. UTMD
continues to develop and introduce specialty tools for specific electrosurgical
procedures. In 1998, the Company introduced a patented conization electrode for
deep endocervical disease called C-LETZ, designed to limit the removal of
healthy tissue that might compromise adequate cervical function. Other tools
include disposable electrosurgical pens, dispersive pads, speculums, retractors,
and forceps.
EPITOME(R)
A patented electrosurgical scalpel which delivers precise performance in
incision and excision was introduced in 1996. An independent study concludes
that the EPITOME scalpel provides a significant improvement over older devices
in wound healing and patient comfort. EPITOME allows a rapid incision without
countertraction, yielding limited morbidity, less post-surgical pain and
cosmetically superior results. Where minimization of thermal tissue injury is
desired, EPITOME offers significant advantages while achieving desired
hemostasis. A patented bendable version of EPITOME with a smaller active
electrode was introduced in early 1998. Designed to significantly reduce the
chance of tissue burns due to inadvertent electrode contact and where a smaller,
bent scalpel tip is needed, the bendable EPITOME is of particular value, e.g.,
to thoracic surgeons in harvesting the internal mammary artery during coronary
artery bypass surgery, as well as to otolaryngologists for tonsillectomies.
5
LIBERTY(R) System
LIBERTY is a device for the conservative treatment and effective control of
urinary incontinence in women. UTMD believes that LIBERTY is the easiest-to-use,
most cost effective incontinence treatment available that yields a therapeutic
effect, not just a cover-up. LIBERTY consists of a battery operated electrical
stimulation unit and an intravaginal electrode probe. This physiotherapy
technique, which can be done in the privacy of the home, involves passive
strengthening of the periurethral muscles. Pulsed, low voltage, high frequency
current is applied primarily to the pudendal neuromuscular tissue causing the
pelvic area muscles to contract, leading to better muscle tone. Because
electrical stimulation has no known adverse side effects, LIBERTY provides women
suffering from mild to moderate incontinence an effective, lower cost and lower
risk alternative to more traumatic treatments such as surgery and drug therapy.
In October 2000, HCFA (Health Care Financing Administration) decided to allow
Medicare reimbursement coverage for electrical stimulation devices. The
previously withheld coverage may help increase sales of LIBERTY because the
disease is prevalent among older women.
PATHFINDER PLUS(TM)
PATHFINDER PLUS is an endoscopic irrigation device that allows a surgeon to
precisely irrigate with the same hand that controls the endoscope, eliminating
the need for a separate assistant to irrigate without visualization. UTMD is
marketing the device through independent manufacturers' representatives who sell
primarily endoscopic tools.
ENDOCURETTE(TM)
Since 1997 UTMD has worked in cooperation with Dr. Stuart Fowler, Mayo Clinic
Scottsdale, Arizona to develop an advanced curette for uterine endometrial
tissue sampling in the doctor's office. The sampling procedure is intended
primarily to rule out precancer or cancerous change of the uterus in
premenopausal women with abnormal uterine bleeding, or women with postmenopausal
bleeding. The device is part of a class of catheters designed to be used without
dilitation of the cervix and without general anesthetic. The inherent weakness
of this type of device, which is related to its small size, is that it may not
remove enough tissue of the endometrium for an accurate histologic assessment.
The patented tip of the ENDOCURETTE was designed to obtain a more thorough
tissue specimen. UTMD began marketing the product in fourth quarter 2000. After
several weeks' routine use by early adopters, the device appears to be
performing exceptionally.
LUMIN(R)
LUMIN(R) is a patented tool developed by UTMD for reliably and safely
manipulating the uterus in gynecological laparoscopic procedures. LUMIN combines
the strength, range of motion and versatility of the higher end reusable
instruments with the lower cost and cleanliness of the cheaper disposable
instruments presently on the market, while at the same time reducing the number
of tools needed to move and secure the uterus.
Blood Pressure Monitoring:
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DELTRAN(R) Disposable Pressure Transducer
In pressure monitoring, a transducer is used to convert physiological
(mechanical) pressure into an electrical signal that is displayed on electronic
monitoring equipment. UTMD developed, patented and is now distributing its
disposable transducer as a stand-alone product, and as a component in sterile
blood pressure monitoring kits through direct representatives and other medical
companies in the U.S., as well as independent distributors and other medical
companies internationally.
Although other large medical companies manufacture disposable pressure
transducers ("DPTs") under rights to UTMD's technology, the Company believes
that the DELTRAN DPT which it developed remains the standard in terms of
reliability and ease of use. UTMD has an automated assembly line which allows
the Company to effectively compete with the largest suppliers on the basis of
consistent quality with low manufacturing costs. Introduced in 1998, DELTRAN
PLUS provides a closed system for blood sampling, without the use of needles,
reducing the risk of an unwanted infection for both the patient and the
practitioner.
6
Pressure Monitoring Accessories and Components.
Components included in blood pressure monitoring kit configurations include
flush devices, stopcocks, fluid administration sets, caps, pressure tubing,
interface cables and organizers. The Company sells similar components designed
for other medical companies which incorporate UTMD's technologies. DELTA-CAL(TM)
is a calibration device used to check proper functioning of an arterial pressure
system. In addition, UTMD sells plastic molded parts on a subcontract basis to a
number of medical and non-medical companies. UTMD believes that this practice
helps better utilize its investment in fixed plant and equipment.
MARKETING
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UTMD competes on the basis of its proprietary value-added technologies and
cost effective solutions. A number of UTMD's products are strong brands because
they are recognized as clinically different. The Company's primary marketing
challenge is to keep its customers focused on those differences and their
important benefits. UTMD's specialty focus and extensive experience with key
products in its specialty are important marketing attributes which help assure
its ability to successfully compete and survive in a marketplace where many
suppliers are trying to degrade product differences.
In U.S. hospitals, which represent about 60% of UTMD's sales activity,
marketing efforts are clouded by who in the hospital actually makes decisions to
purchase medical devices. UTMD regards clinicians who take responsibility for
obtaining optimal care outcomes as its customers. These people are often not the
same ones administratively in charge of purchase decisions. In 2000, UTMD
recognized increased need to supply independent references acknowledging the
value of UTMD's products.
DISTRIBUTION
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Another important success factor in the current healthcare industry is
"access" to customers. In particular, the U.S. hospital supplier environment has
been consolidating as a result of group purchasing organizations, or their
equivalent, utilizing large suppliers with diverse product lines. The number of
channels and length of time required in evaluating new products for use in
hospitals has grown dramatically in recent years. As a potential negative factor
to future performance, as UTMD introduces new products, it may find itself
excluded from certain customers because of the existence of supply agreements
unrelated to safety and efficacy of products. UTMD may also be unable to
establish viable relationships with other medical companies who have the access
to users but lack an interest in the Company's approach.
Historically, UTMD has sold its products, especially those relating to
critical care, through independent distributors and other medical companies in
both domestic and international markets. Since 1991, the Company has developed a
more focused direct sales organization in the United States with specialized
distributors and its own directly employed sales force. The current network of
direct representatives and one specialty distributor is employed to concentrate
on select market applications for UTMD products and to provide proper customer
training and support. As of March 2001, the U.S. direct sales force is comprised
of both "outside" territory representatives operating remotely geographically,
as well as "inside" representatives who effectively operate by telephone.
Through the use of its one-on-one contacts with physicians, the direct sales
force positions UTMD to gain market leadership with solutions to clinical
problems. UTMD's direct representatives encourage customers to take advantage of
fast and easy direct online ordering at www.order.utahmed.com.
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When hospital customers request it, UTMD will provide its products through
national distribution companies, e.g. Owens & Minor or McKesson/HBOC, also known
as Med/Surg distributors. UTMD has distribution contracts with Owens & Minor and
McKesson/HBOC, and as a fully aligned vendor expects to be part of the New
Health Exchange, an e-commerce business being established by five of the largest
U.S. Med/Surg distributors. Sales to Med/Surg distributors currently comprise
less than 10% of total domestic sales. Five years ago, national distributors and
independent distributors in the U.S. represented more than 65% of UTMD's direct
domestic Ob/Gyn business. In 2000, all independent U.S. distributors represented
less than 20% of UTMD's domestic business.
7
In addition to its own website and participation later in 2001 through
Med/Surg distributor relationships, UTMD was one of the first companies in 2000
to join the Global Healthcare Exchange (GHX), an independent Internet-based
company created originally by five of the world's largest medical device
manufacturers. GHX is a single-source solution for online purchasing of
potentially all medical products needed by hospitals using their own internal
ERP systems, while allowing hospitals to maintain individual supplier
relationships. GHX is developing fully integrated e-procurement solutions, which
link supplier systems directly with hospital ERP systems on a customized basis
making it possible for buyers to interact in real time with UTMD over the
Internet. UTMD believes that GHX may be its primary method in the future to
circumvent the access limits imposed by hospital GPO's, providing a key answer
to UTMD's challenge of gaining and retaining access to potential customers.
Through GHX, UTMD's customers will have electronic access to pricing, product
availability, order tracking and all other administrative tasks in the
purchasing process. Eventually, UTMD would link sales support, clinical training
and third party support. UTMD was selected by GHX as one of its first supplier
implementation sites, with the first transactions on GHX involving UTMD's
products occurring in first half 2001.
Additionally, the Company sells component parts to medical companies for use
in their product lines. This effort is simply an optimal utilization of
manufacturing resources that are otherwise needed for UTMD's primary business,
and does not compete with or dilute UTMD's distribution and marketing programs.
Internationally, the Company sells its products through about 80 regional
distributors and through about 20 OEMs (other medical manufacturers). In 2000,
UTMD's Internet website www.utahmed.com became a frequent conduit for
international customer inquiries.
NEW PRODUCT DEVELOPMENT
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New product development is a key to UTMD's growth plans. Product development
takes three fundamental forms, which are interrelated: 1) improvements,
enhancements and extensions of current product lines in response to clinical
needs or clinician requests, 2) invention of devices that allow significantly
different methods of performing medical procedures, representing a quantum
improvement in safety, efficacy and/or cost of care, and 3) acquisitions of
products from others.
During 2000, in addition to the amortization of goodwill expense of $569 (in
thousands), or 2.1% of sales, associated with the acquisitions of new product
lines in 1997 and 1998, the Company spent $568 on internal product development
activities, or 2.1% of sales, a combined total of 4.2% of sales. New product
development expenses and amortization of goodwill expenses were $719 and $569,
respectively in 1999 (combined 4.4% of sales) and $946 and $433, respectively in
1998 (5.0% of sales). Amortization of goodwill expenses and R&D expenses
combined are expected to continue in the range of 4-5% of sales in 2001.
Internal R&D will be limited more by the Company's ability to process new ideas,
as well as organize and integrate the specialty skills necessary to develop
innovative products, than by the availability of funds or new product ideas.
UTMD's current product development projects are in four areas of focus: 1)
obstetrics/ fetal monitoring, 2) neonatal intensive care, 3) female incontinence
management, and 4) specialized procedures for the assessment and treatment of
cervical/uterine disease. UTMD has filed, had issued, exclusively licensed or
acquired 23 patents in the last five years.
Because of UTMD's reputation as a successful innovator, its financial strength
and its established clinician user base, it enjoys a substantial flow of new
product ideas. Internal development, joint development, product acquisitions,
and licensing arrangements are all included as viable options in the
investigation of opportunities. Only a small percentage of ideas survive
feasibility screening. For internal development purposes, projects are assigned
to a project manager who assembles an interdisciplinary, cross-functional
development team. The team's objective is to have a clinically proven,
manufacturable, and FDA released product ready for marketing by a specific date.
Approximately ten projects on the average, depending on the level of resources
required, are underway at UTMD at any given time. More than 50% of assigned
projects do not succeed in attaining a product which meets all of the Company's
criteria. In particular, this includes a product that is highly reliable, easy
to use, cost-effective, safe, useful and differentiated from the competition.
Once a product is developed, tooled, fully tested and cleared for marketing by
the FDA, there remains a reasonable probability it cannot be successfully
marketed for any number of reasons, not the least of which is being beaten to
the market by a competitor with a better solution, or not having access to users
because of limitations in marketing and distribution resources.
8
EMPLOYEES
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At December 31, 2000, the Company had 235 employees, 16 of which are located
in Oregon, and 37 in Ireland. The Company's continued success will depend to a
large extent upon its ability to retain skilled employees. No assurances can be
given that the Company will be able to retain or attract such employees in the
future, although management is committed to providing an attractive environment
in which creative and high achieving people want to work.
To the best of the Company's knowledge, none of the Company's officers or
directors is bound by restrictive covenants from prior employers that limit
their ability to contribute to UTMD's programs. All professional employees sign
a confidentiality and non-compete agreement as a condition of employment, and as
consideration for receipt of stock option awards and participation in the
management bonus program. None of the Company's employees is represented by
labor unions or other collective bargaining groups. All employees participate in
performance-based bonus programs.
PATENTS AND TECHNOLOGY LICENSES
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The Company owns or exclusively licenses forty-five unexpired patents and
patents pending, and is the licensee of certain other technology. There can be
no assurance, however, that patents will be issued with respect to the pending
applications or that the issued patents can be successfully defended.
The ability of the Company to achieve critical mass in the marketplace depends
in large part on the protection afforded by its patents. In cases where
competitors introduce products that may infringe on UTMD's technology, the
Company has an obligation to its shareholders to defend its intangible property.
Although the cost of patent litigation reduces the Company's current
performance, a successful defense of a core market franchise as represented by
INTRAN, for example, may potentially represent many orders of magnitude of
return in shareholder value. In addition, UTMD's practice of aggressively
pursuing those who infringe its patents tends to discourage others from unfairly
using UTMD's innovations. One patent infringement lawsuit is currently pending.
As a matter of policy, UTMD has acquired and will continue to acquire the use
of technology from third parties that can be synergistically combined with UTMD
proprietary product ideas. During 2000, royalty expenses were (in thousands)
$31. Royalties are included in cost of goods sold.
Also as a matter of policy, UTMD licenses its proprietary technology to others
in circumstances where licensing does not directly compete with UTMD's own
marketing initiatives. During 2000, the Company received (in thousands) $452 in
royalty income, compared to $529 in 1999, and $678 in 1998. In 1998, UTMD
recorded an additional $447 in net other non-operating income associated with
unusual payments, subject to a confidentiality agreement, for use of its
technology. The non-operating income has been a material portion of UTMD's past
earnings, and therefore future improved performance also depends on the
performance of other companies who license UTMD's technology.
GOVERNMENT REGULATION
- ---------------------
The Company's products are subject to regulation by the U.S. Food & Drug
Administration ("FDA"), as well as other regulatory bodies globally. The FDA has
authority to regulate the marketing, manufacturing, labeling, packaging and
distribution of medical products in the U.S. In addition, requirements exist
under other federal laws and under state, local and foreign statutes that may
apply to the manufacturing and marketing of the Company's products.
9
All manufacturers of medical devices must register with the FDA and list all
medical devices produced by them. The listing must be updated annually. In
addition, prior to commercial distribution of devices for human use, a
manufacturer must file a notice with the FDA, setting forth certain information
regarding the safety and efficacy of the device that is acceptable in content to
the FDA.
Devices which are classified in Class I are subject only to the general
controls concerning adulteration, misbranding, good manufacturing practices,
record keeping and reporting requirements. Devices classified in Class II must,
in addition, comply with performance standards promulgated by the FDA. The
Company believes all of its present products are Class I or Class II products
and that the Company is in full compliance with all applicable performance
standards as well as FDA quality standards, record keeping and reporting.
In 1994, UTMD received certification of its quality system under the ISO
9001/EN 46001 standards ("ISO" stands for "International Organization of
Standardization"). EN 46001 is the European Union's effort to harmonize
different national regulatory requirements for the development, sale, and
manufacture of medical products. Because the ISO standards are in perpetual
modification, UTMD remains on a continuous periodic audit schedule by its
independent notified body in order to stay abreast of international regulatory
standards. In early 1997, UTMD received ISO 9001/EN 46001 certification for its
Ireland facility. UTMD has received formal product certification allowing the
use of the CE Mark (demonstrates proof of compliance with the European
Community's product standards) for essentially all of its products.
SOURCES AND AVAILABILITY OF RAW MATERIALS
- -----------------------------------------
Most of the components which the Company purchases from various vendors are
readily available from a number of sources. Alternate sourcing of various
components is continually underway. Vendors are qualified by Corporate Quality
Assurance. The Company has a vendor quality monitoring program that routinely
checks all incoming material.
EXPORTS
- -------
Revenues from foreign customers in 2000 were (in thousands) $5,425 (20% of
total sales), as compared to $5,550 (19% of total sales) in 1999, and $4,732
(17% of total sales) in 1998. Blood pressure monitoring products represented 72%
of international sales in 2000, compared to 77% in 1999 and 79% in 1998. Ob/Gyn
and neonatal product foreign sales were $1,506 in 2000, compared to $1,290 in
1999 and $1,002 in 1998.
UTMD sees the international marketplace as one of the important elements of
its growth strategy. UTMD is keenly aware that not only are international
markets different from the U.S. market, but also that each country has its own
set of driving influences that affects the dynamics of the nature of care given
and medical devices used. In 1996, UTMD completed a new manufacturing facility
in Athlone, Ireland. The facility offers a number of advantages: 1) from a
marketing point of view, faster response to European Union customers, including
a better understanding of customized needs, less costly distribution and
duty-free access to over 350 million patients; 2) from a regulatory point of
view, faster new product introductions; and 3) from a manufacturing point of
view, reduced dependence on one manufacturing site and increased capacity at
existing U.S. facilities.
BACKLOG
- -------
As a supplier of primarily disposable products, the nature of UTMD's business
necessitates being very responsive to customer orders and delivering products
quickly. Virtually all direct shipments to end users are accomplished within one
week of receipt of customer purchase order. Backlog shippable in less than 60
days as of January 1, 2001 was approximately $0.3 million compared to $0.6
million as of January 1, 2000.
SEASONAL ASPECTS
- ----------------
The Company's business is generally not affected by seasonal factors.
10
PRODUCT LIABILITY RISK MANAGEMENT
- ---------------------------------
The risk of product liability lawsuits is a negative factor in UTMD's business
because UTMD's products are frequently used in inherently life threatening
situations to help physicians achieve a more positive outcome than what might
otherwise be the case. Although UTMD's products are proven to be safe and
efficacious over millions of uses, positive outcomes cannot always occur in the
situations where UTMD's products are needed. In litigious cultures (such as the
U.S.) which are often driven by attorneys looking for contingency fee windfalls,
patients may look at manufacturers of excellent medical products as possible
scapegoats. In any lawsuit against a company where an individual plaintiff
suffers a permanent physical injury, a small probability of a large award always
exists whether or not a causal relationship exists. UTMD is self-insured for
product liability risk and reserves funds against its current performance on an
ongoing basis to provide for its future defense should any lawsuits be filed.
The strength of UTMD's balance sheet may be an inducement for some attorneys to
file a claim against UTMD. No product liability lawsuits involving a significant
injury have been filed against the Company for any of its products in the past
nine years.
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," "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, anti-competitive practices of group
purchasing organizations, 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, budgetary constraints,
the timing of regulatory approvals for newly introduced products, and third
party reimbursement.
Risk factors, in addition to the risks outlined in the previous paragraph and
elsewhere in this report that may impact the Company's assets and liabilities,
as well as cash flows, include risks inherent to companies manufacturing
products used in healthcare 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.
11
ITEM 2 - PROPERTIES
Office and Manufacturing Facilities.
The Company's current operations are located in an 100,000 square foot
facility in Midvale, Utah, a suburb of Salt Lake City, a 20,000 square foot
facility in Redmond, Oregon, and a 77,000 square foot facility in Athlone,
Ireland. UTMD owns its property and facilities in Utah and Ireland, with the
exception of a long-term lease on one section of its Midvale parking lot. The
Oregon facility is leased.
UTMD is a vertically-integrated manufacturing company. Capabilities include
silicone and plastics-forming operations including injection molding, insert and
over-molding, thermoforming and extrusion; sensor production; manual and
automated assembly of mechanical, electrical and electronic components; parts
printing; various testing modalities; advanced packaging in clean room
conditions; and a machine shop for mold-making and building assembly tools and
fixtures. Capabilities also include an R&D laboratory for both electronic and
chemical processes, software development resources, communications and computer
systems networked real time internationally, and administrative offices.
ITEM 3 - LEGAL PROCEEDINGS
The Company may be a party from time to time in ordinary routine litigation
incidental to its business. The outcomes of lawsuits which are currently pending
are not projected to have a materially adverse effect on UTMD's financial
condition or results of operations.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders through the solicitation
of proxies or otherwise during the fourth quarter of the fiscal year covered by
this report.
12
PART II.
--------
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Market Information.
UTMD's common stock began trading on the Nasdaq Stock Market (symbol:UTMD) on
March 8, 2000. Between December 26, 1996 and March 7, 2000, it traded on the New
York Stock Exchange (symbol: UM). It previously traded on the Nasdaq, also under
the UTMD symbol. The following table sets forth the high and low sales price
information as reported by NASDAQ and NYSE for the periods indicated:
2000 1999
High Low High Low
--------- --------- ---------- --------
1st Quarter $ 8 $ 6 3/16 $ 7 1/4 $ 5 9/16
2nd Quarter 7 11/16 6 1/2 7 15/16 5 13/16
3rd Quarter 8 1/16 6 13/16 8 3/16 7
4th Quarter 8 9/16 6 7 3/8 6 1/8
Stockholders.
The approximate number of beneficial stockholders of UTMD's common stock as of
March 9, 2001 was 3,800.
Dividends.
The Company does not currently intend to pay cash dividends on its common
stock in the foreseeable future. It is the present intention of the Company to
use earnings to finance future growth, for selective infusions of technological,
marketing or product manufacturing rights to broaden the Company's product
offerings, and for continued share repurchases when the price of the stock
remains undervalued.
13
ITEM 6 - SELECTED FINANCIAL DATA.
(in thousands, except per share data)
Year Ended December 31
----------------------
2000 1999 1998 1997 1996
--------- --------- --------- ---------- ---------
Net Sales $ 27,193 $ 29,444 $ 27,677 $ 24,272 $ 38,673
Net Income 5,373 5,468 4,858 4,322 8,754
Diluted Earnings Per Share .90 .76 .59 .51 .93
Total Assets 25,423 27,756 31,968 31,459 28,916
Long-term Debt 10,000 5,934 3,098 5,571 None
Cash Dividends
Per Common Share None None None None None
Quarterly Data for 2000
-----------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Net Sales $ 6,666 $ 6,956 $ 6,882 $ 6,690
Gross Profit 3,671 3,873 3,829 3,752
Net Income 1,226 1,383 1,410 1,354
Earnings Per Share - Diluted .19 .22 .23 .27
Quarterly Data for 1999
-----------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Net Sales $ 7,018 $ 7,320 $ 7,568 $ 7,539
Gross Profit 3,687 3,870 4,104 4,135
Net Income 1,200 1,349 1,487 1,433
Earnings Per Share - Diluted .15 .18 .22 .22
14
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following comments should be read in conjunction with accompanying financial
statements. Dollar amounts are in thousands, except per-share amounts and where
noted.
Productivity of Assets and Working Capital.
a) Assets. Year-ending total assets were more than 8% lower because current
assets declined $0.5 million as a result of reduced levels of cash, inventory
and receivables related to the lower sales activity; net fixed assets declined
$1.2 million as a result of depreciation which exceeded new purchases; and net
intangible assets declined $0.6 million because amortization of goodwill and
intellectual property exceeded new acquisitions. 2000 year-end net intangible
assets represent 30% of total assets. Net tangible assets per NASDAQ Rule
4450(a)(3) is defined as total assets (including the value of patents and
trademarks, but excluding the value of goodwill) less total liabilities. Net
tangible assets at end of year 2000 were $5.5 million. Excluding the possibility
of new intangible assets from 2001 acquisitions, total asset productivity should
continue to improve in 2001 because sales are projected to grow, while working
capital remains about the same and net property plant and equipment (PP&E)
declines as depreciation exceeds the rate of new asset purchases.
2000 net (after accumulated depreciation) PP&E in Utah and Oregon decreased
$0.8 million, while in Ireland decreased $0.4 million. Consolidated PP&E asset
turns improved to 2.8 based on year-ending balances. Productivity of PP&E in
2001 should continue to increase since sales are expected to increase and net
PP&E decrease, as consolidated new capital expenditures are expected to be less
than one-half of 2001 depreciation.
Inventory turns increased slightly with lower sales in 2000 because average
inventory dropped 14% in 2000 from 1999. Management expects to be able to
achieve its objective of 4.0 average inventory turns in 2001 because sales
should increase without the need for a similar increase in inventories.
Year-ending 2000 accounts receivable (A/R) balances declined 2%. Calculated days
in A/R were within target at 53, based on 4Q 2000 shipment activity. Aged A/R
over 90 days from invoice date increased to about 6% of total A/R at year end
from 3% at the end of 1999. The increase in the over 90 days receivables balance
is due mainly to normally slower paying overseas distributors who were current
at the end of the prior year. The company believes these older A/R are
collectible.
The working capital decline of $0.5 million in 2000 was the result of a
reduction in current assets, as follows: $0.2 million cash, $0.1 million A/R and
$0.2 million inventories; with no change in current liabilities. UTMD expects to
internally finance any working capital growth needed to support 2001 growth in
sales activity.
b) Liabilities. At the end of 2000, UTMD's total debt ratio was 51% compared
to 32% at the end of 1999. The total debt ratio is defined as total liabilities,
including current liabilities, deferred income taxes and the balance remaining
on its unsecured line-of-credit used to finance share repurchases and
acquisitions, divided by total assets. Two influences caused the ratio increase:
the year ending line-of-credit balance increased by $4.1 million because of the
third quarter 2000 tender offer in which UTMD financed a $9.2 million repurchase
of its shares, and the $2.3 million decrease in total assets. Without additional
share repurchases or new acquisitions, UTMD expects to significantly reduce the
remaining line-of-credit balance in 2001, yielding a total debt ratio below 30%.
Results of Operations.
a) Revenues. Annual consolidated revenues declined 7.6% in 2000.
--------
UTMD divides its U.S. sales into two channels: "direct sales" which are sales
to end user customers through UTMD's direct sales force, independent
commissioned sales reps, specialty distributors and national hospital
distribution companies, and "OEM sales" which are sales to other medical device
companies where products are resold as part of a component of a kit or a
repackaged stand-alone product. As a percentage of U.S. sales, direct sales
represented 92% of 2000 sales compared to 91% in 1999, and 89% in 1998. OEM
sales represented 8% of 2000 U.S. sales compared to 9% in 1999, and 11% in 1998.
Global consolidated sales adds foreign sales to U.S. sales. In each of the three
years 1998-2000, U.S. direct sales represented 74% of global consolidated sales.
15
Foreign sales in 2000, despite a stronger U.S. dollar, were 20% of global
consolidated sales compared to 19% in 1999, and 17% in 1998. Ob/Gyn and neonatal
product sales were 28% of 2000 foreign sales compared to 23% in 1999, and 21% in
1998. Foreign sales of Ob/Gyn and neonatal products increased 17%, and totaled
$1.5 million for 2000. Ireland operations shipped 64% of foreign sales (in U.S.
dollar terms) in 2000 compared to 61% in 1999, and 62% in 1998. In Irish pound
terms, shipments from UTMD Ltd. (Ireland) were up 17% compared to the prior
year. In dollar terms, Ireland shipments were up 2%. Total foreign sales were
down $0.1 million because sales of the blood pressure monitoring (BPM) &
accessory products representing 72% of foreign sales were down $0.3 million, or
8%, relative to the prior year.
UTMD categorizes its sales into four product-line groups: 1) obstetrics,
comprised of labor and delivery management tools for monitoring fetal and
maternal well-being, for improving clinician safety and for ease in performing
delivery procedures; 2) gynecology/electrosurgery/urology, comprised of tools
for gynecological office/clinician practices, including LETZ, endometrial
sampling, diagnostic laparoscopy, and other MIS procedures; specialty excision
and incision tools; conservative urinary incontinence therapy devices; and
urology tools; 3) neonatal, comprised of devices for gaining vascular access,
administering vital fluids, maintaining a neutral thermal environment, and other
specialized tools used in the care of critically-ill infants; and 4) blood
pressure monitoring/accessories/other, comprised of specialized tools for
invasively monitoring blood pressure on a continuous basis with pressure
transducer systems, along with other products sold on an OEM basis to other
companies. In these four categories, UTMD's primary revenue contributors often
enjoy a dominant market share and typically have differentiated product features
protected by patents.
Sales in the obstetrics product category decreased 10% in 2000 and represented
46% of total sales. Obstetrics sales were $12,499 compared to $13,926 in 1999,
and $14,635 in 1998. Direct sales of the market-leading IUP catheter, Intran(R)
Plus, declined 9% under active competition from cheaper, less
clinically-effective products. Sales of vacuum-assisted delivery systems (VADS)
decreased 14% in 2000, apparently due to lower utilization by U.S. hospitals.
UTMD agrees with ACOG (The American College of Obstetricians & Gynecologists)
that using VADS remains the trained physician's best choice in many operative
deliveries, and will increase its educational programs in 2001.
Gynecology/ electrosurgery/ urology product sales grew 2% in 2000,
representing 17% of total revenues. Gyn/ES/Uro sales were $4,552 in 2000
compared to $4,454 in 1999, and $4,174 in 1998. A number of UTMD products in
this fragmented category are highly differentiated, and should continue to grow
as physicians learn more about them.
Year 2000 global neonatal product sales were $3,782 compared to $3,807 in
1999, and $1,899 in 1998. Neonatal product sales include the neonatal product
line of Gesco International acquired in July 1998, the Bard Access Systems (BAS)
Per-Q-Cath(R) neonatal PICC, Disposa-Hood(TM) and the neonatal Deltran(R) Plus.
UTMD's 2000 neonatal product sales remained about the same as 1999 primarily
because sales of the Per-Q-Cath(R) PICC declined $0.1 million. The decline
resulted from the fact that BAS did not honor its exclusive distribution
agreement with UTMD for hospital NICUs, which agreement was part of the GESCO
acquisition. UTMD believes that an effective PICC is an important part of a
neonatal intensive care product line, and that its new GESCO PICC, released for
marketing by the FDA at the beginning of fourth quarter 2000, will be able to
regain lost Per-Q-Cath sales, and more, as a result of UTMD's PICC product
development improvements.
BPM and accessories and other miscellaneous OEM sales (BPM) represented 23% of
consolidated 2000 sales compared to 25% in both 1999 and 1998. Sales were $6,360
compared to $7,258 in 1999, and $6,970 in 1998. Sales declined $0.9 million due
to several factors relating to OEM customers: 1) sales of stopcock accessories
to Baxter declined $0.3 million, 2) CMI subcontract molding declined $0.1
million, and 3) foreign sales of primarily flush device accessories declined
$0.5 million. Except for the Baxter business, UTMD expects its 2001 BPM sales
will return to higher levels as UTMD continues to enjoy a stable and significant
demand for its well-regarded BPM products, particularly overseas.
16
b) Gross profits. UTMD's average 2000 gross profit margin (GPM), the surplus
remaining after subtracting costs of manufacturing products from net revenues,
was a Company record 55.6% compared to 53.6% in 1999, and 51.2% in 1998. The
1999 GPM was the previous record. Gross margin improvements were led by process
experience, product design improvements, better materials management and better
utilization of overhead costs. UTMD management believes that achieving an
average GPM about 55% is necessary to successfully support the significant sales
and marketing, research and development, and administrative expenses associated
with a growth company in a highly complex and competitive marketplace. Looking
forward to 2001, management believes it can achieve its targeted 55% GPM.
Expected favorable influences include growth in sales volume without a similar
increase in overhead expenses, a larger percentage of total sales from higher
margin products and a continued emphasis on reengineering products to reduce
costs. Unfavorable influences are expected to be continued competitive pressure
on pricing and higher wage rates.
c) Operating Profit. Operating profit, or income from operations, is the
surplus remaining after subtracting operating expenses from gross profits.
Operating expenses are subdivided into sales, general and administrative
expenses (SG&A) and research and development expenses (R&D). UTMD further
divides SG&A into the two categories of sales and marketing expenses (S&M) and
general and administrative expenses (G&A). Despite the decrease in sales, 2000
operating profits increased 1% to $8,367 from $8,282 in 1999, and $6,623 in
1998. Total operating expenses were 24.9% of sales in 2000 compared to 25.5% of
sales in 1999, and 27.3% in 1998, demonstrating the Company's ability to
effectively manage its expenses.
SG&A expenses in 2000 decreased to 22.8% of revenues from 23.1% of revenues in
1999, and 23.9% in 1998. In dollar terms SG&A expenses decreased to $6.2 million
in 2000 from $6.8 million in 1999, and $6.6 million in 1998. The G&A expenses
portion, which includes the Company's costs of litigation and amortization of
goodwill associated with acquisitions (GWA), decreased to $2.9 million in 2000
from $3.0 million in 1999, and $2.7 million in 1998. GWA in both 2000 and 1999
was $569, compared to $433 in 1998. Looking forward, GWA in 2001 will be $569
with no new acquisitions. Since the result of the acquisitions were additional
new marketable products for UTMD, the GWA expenses can be regarded as surrogate
R&D expenses captured in G&A.
S&M expenses are the costs of communicating our differences and product
advantages, as well as providing training and other customer service in support
of the use of UTMD's products. Although revenues and GPMs increase when the same
unit sales are made by directly employed sales representatives in lieu of
independent distributors or OEM customers, S&M operating expenses increase as an
offset. Contract administration fees paid to GPOs are also included in S&M
expenses. Year 2000 S&M expenses decreased to $3.2 million in 2000 from $3.8
million in 1999, and $3.9 million in 1998, as UTMD rationalized the lack of
effectiveness of its direct sales people. Although UTMD expects higher GPO fees,
increased advertising expenses and new marketing initiatives in 2001 that were
not incurred in 2000, UTMD plans to manage its S&M expenses as a ratio of 2001
sales to remain consistent with the previous year.
R&D expenses in 2000 were 2.1% of sales compared to 2.4% of sales in 1999, and
3.4% in 1998. In dollar terms R&D expenses decreased to $0.6 million in 2000
from $0.7 million in 1999, and $0.9 million in 1998. Year 2000 projects included
completion of development of the GESCO PICC, continued improvements and
augmentations to the GESCO neonatal product line, development of a proprietary
OEM product, continued collaborative work with manufacturing on improvements to
UTMD's established products, technical review and analysis of various
acquisition opportunities and focused development of several new product
concepts approved for internal R&D projects. The resulting improvements in
materials and configuration of components was evident in UTMD's substantially
improved GPMs. In 2001, UTMD will opportunistically invest R&D resources and
make R&D expenditures where management anticipates it can get a significant
return on its investments with future new product sales. Those expenses are most
likely to be in the range of 2%-6% of 2001 sales.
17
d) Non-operating income. Non-operating income includes royalties from
licensing UTMD's technology to other companies, rent from leasing unutilized
property to others, interest earned and capital gains from investing the
Company's cash, and gains or losses from the sale of assets offset by
non-operating expenses like interest expenses and bank fees on the revolving
line-of-credit. Non-operating income in 2000 was $53, compared to $263 in 1999
and $900 in 1998. There were unusual payments received in 1998 for the use of
UTMD's pressure monitoring technology, which are subject to a confidentiality
agreement, which were nonrecurring in 1999 and 2000. Royalties received were
$452 in 2000, $529 in 1999 and $678 in 1998. Royalties received vary from period
to period depending on the desire and/or success of other companies in selling
products licensed by UTMD, and the remaining life of the patents. Interest
expenses and bank fees associated with the line-of-credit, which reduced
non-operating income, were $499 in 2000, $307 in 1999 and $318 in 1998. Assuming
current interest rates are about average for the whole year of 2001 and no new
borrowing, management expects 2001 net non-operating income to be about the same
as 2000.
Earnings before income taxes (EBT) result from adding UTMD's non-operating
income to its operating profits. EBT dollars in 2000 were 1.5% lower than in
1999 mainly because non-operating income was $0.2 million lower as a result of
the interest cost of financing a major repurchase of shares. In dollar terms,
EBT decreased to $8.4 million in 2000 from $8.5 million in 1999 when sales were
8% higher, up from $7.5 million in 1998 when sales were about the same as in
2000. As a percentage of sales, 2000 EBT were 31.0% compared to 29.0% and 27.2%
in 1999 and 1998, respectively. The exceptional 2000 EBT performance was a
Company record, excluding 1996 when EBT at 35.3% benefitted from $1,782 higher
unusual non-operating income which represented 4.6% of 1996 sales. The resulting
profit dollars are equivalent to profits generated by well-performing companies
with twice or more the sales of UTMD. UTMD management continues to target EBT
near 30% of sales in 2001.
e) Net Income, EPS and ROE. Net income is EBT minus income taxes. After income
taxes, 2000 net income was $5,373, compared to $5,468 in 1999 and $4,858 in
1998. The effective income tax rate in 2000 was 36.2% compared to 36.0% in 1999
and 35.4% in 1998. Year to year fluctuations in the tax rate have resulted from
1) the use of a foreign sales corporation, 2) amount of exercised employee
options which result in a tax benefit to the Company, 3) differences in
distribution of state income taxes, 4) differences in profitability of the
Ireland subsidiary which is taxed at a 10% rate on exported manufactured
products, 5) changes in the amount of non-deductible goodwill expense resulting
from an acquisition, and 6) other factors such as R&D tax credits and actual
litigation costs versus accrued expenses. The amortization of goodwill
associated with the 1997 Columbia Medical, Inc. acquisition is not tax
deductible. Similar to EBT, UTMD's net income expressed as a percentage of sales
ranks in the top tier of all U.S. publicly-traded companies at 20%, 19% and 18%
for years 2000, 1999 and 1998, respectively.
Earnings per share (EPS) is net income divided by the number of shares of
stock outstanding (diluted to take effect for stock options awarded which have
exercise prices below the applicable period average market value). Diluted 2000
EPS were up 18% to $.90 compared to $.76 in 1999, and were up 53% compared to
$.59 in 1998 when sales were about the same. The combination of higher profits
and substantially fewer shares created a significant improvement in shareholder
value in the form of higher EPS. UTMD management believes shareholder value is
improved primarily by consistently increasing EPS. The end of 2000 weighted
average number of diluted common shares (the number used to calculate diluted
EPS) were 5,978 compared to 7,197 and 8,273 shares in 1999 and 1998,
respectively. Actual outstanding common shares as of December 31, 2000 were
5,003. Future EPS will continue to benefit from recent share repurchases. The
favorable trade-off in increased EPS as a result of decreased non-operating
income as a result of financing costs should be evident. EPS can be further
increased by investing current net income to increase future net profits through
expanding the number of differentiated products and profitable business
operations, or by repurchasing stock, thereby reducing the number of outstanding
shares.
Return on shareholders' equity (ROE) is the portion of net income retained by
UTMD to internally finance its growth, divided by the average accumulated
shareholders' equity during the period. This ratio determines how fast the
Company can afford to grow without adding external financing that would dilute
shareholder interests. For example, a 20% ROE will financially support 20%
growth in revenues. In UTMD's opinion, achieving growth in revenues and EPS
without diluting shareholder interests maximizes shareholders' value. ROE in
2000 was 34%, and has averaged 30% for the last fourteen years.
18
Cash Flows and Capital Resources.
a) Cash flows. EBITDA (EBT, plus non-cash depreciation and amortization
expenses, asset dispositions and interest expense and bank fees associated with
the line-of-credit) is the term used for measuring a company's ability to
generate cash. UTMD's EBITDA in 2000 was $11.1 million, or 41% as a ratio of
sales, a Company record. EBITDA has averaged 38% of sales over the last five
years. The extraordinarily strong cash generation performance resulted from a
combination of excellent operating earnings, a substantial non-cash charge to
earnings from amortization of goodwill and royalty income from others' use of
UTMD's technology. Because of EBITDA performance in 2000, UTMD was able to
purchase $250 in intangible assets, $350 in net new property and equipment to
maintain its facilities, equipment and tooling in good working order and
repurchase $11,598 worth of its shares, about a 22% net reduction, while only
increasing its bank revolving line-of-credit balance by $4.1 million. To
complete the cash flow picture, the Company received $85 from exercises of
employee options.
Cash (and equivalent) balances were $414 at the end of 2000. UTMD effectively
maintains zero-balance "sweep" cash account balances that minimize the
line-of-credit balance, except for amounts held to meet operating requirements
in Ireland and separate physical reserves set aside for litigation expenses and
other contractual commitments where cash has been committed.
Net cash provided by operating activities, including adjustments for
depreciation and other non-cash operating expenses, along with changes in
working capital, totaled $7,825 in 2000, compared to $9,101 in 1999 and $9,463
in 1998. A smaller decrease (adjusted for exchange rate changes) in inventories
during 2000 was the largest contributor to the change compared to prior years.
Financing activities in 2000 provided additional cash of $4,066 through the
bank line-of-credit. A total of 1,463,032 shares of stock were repurchased at an
average cost, including commissions, of $7.93/ share, using $11,598 in cash.
UTMD received $85 in cash from the sale of 12,524 shares of stock through
employee option exercises at an average price of $6.82 per share.
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. Planned 2001 capital expenditures, expected to be
in the range of $500, will keep facilities, equipment and tooling in good
working order. In addition to the capital expenditures, UTMD plans to use cash
in 2001 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. UTMD plans to use any cash not needed
for the above pursuits during the remainder of 2001 to reduce the line-of-credit
balance. 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.
Management's Outlook.
In 2001, UTMD intends to improve its direct U.S. sales team as a resource for
achieving UTMD's objectives to help clarify clinician needs, responsively
provide excellent solutions for those needs, and assure timely support for
clinical customers' use of UTMD's solutions. To be successful in its marketing
efforts, UTMD must engage physicians with the information they need to make
important judgments about using certain products in obtaining optimal clinical
outcomes, which include minimizing risk of complications and unnecessary
procedures. It is difficult for UTMD to find medical device salespeople who
understand that hospital administrators are not the best target for the
Company's sales approach.
UTMD needs to do a better job differentiating itself from its competitors. The
reliability and performance of UTMD's products is high and represents
significant clinical benefits as well as minimal total cost of care. Physicians
do care about the well-being of their patients, but their time is limited to
evaluate choices, and they have hospital administrators to deal with who often
look at the initial price of a product, period. UTMD needs to simplify its
communications with clinical customers, and in 2001 we will vigorously accept
this challenge.
In the U.S., UTMD will also continue to leverage its reputation with
physicians, who use its products in specialty hospital areas, outside the
hospital in their office practices. Internationally, where UTMD must depend on
the knowledge, focus, relationships and energy of independent distributors,
management will continue to closely monitor performance and recruit needed new
business partners. In 2001, UTMD expects its Ireland subsidiary, which shipped
64% of foreign sales in 2000, to continue its important contribution to overall
performance.
19
Internally generated cash flow impacts shareholder value to the extent it can
be used to drive marketing and new product development programs that grow the
business, fund attractive acquisitions, or be returned to investors through
dividends or share repurchases. Many financial analysts agree that a company's
value is not based on historical sales or earnings, but rather the certainty of
its future cash flow. In 2000, UTMD again demonstrated a high cash flow by
achieving record EBITDA performance of 41% of sales. In 1999 and 1998, EBITDA
was 37% and 36% of sales, respectively. Over the last four calendar years,
UTMD's cash flow funded several significant events: 1) a net $30.3 million
(after all option exercises) repurchase of 3.8 million of its shares yielding an
average cost of $8.00 per share including commissions and other repurchase
costs; 2) two acquisitions costing $11.5 million which accounted for 22% of
total sales in 2000; and 3) R&D spending of $3.2 million. Historically, UTMD has
been able to achieve outstanding cash flow.
In 2001, management plans to extend UTMD's excellent EBITDA performance for
another year. In a competitive marketplace, UTMD has built and intends to
successfully defend a dominant market franchise in the most special areas of
hospitals caring for mothers and their babies, with differentiated and highly
effective products under well-recognized brands. Given the awareness of UTMD's
brands, the Internet will increasingly become an effective distribution tool to
circumvent anticompetitive bureaucratic market forces. UTMD's sales and
marketing resources will employ the Internet, along with other varied
initiatives to maintain and further build UTMD's differentiation from its
competitors. Our vision is contrary to that of industry analysts who believe the
"Walmartization" of the medical device industry is inevitable. We will not
devote resources to pursue undifferentiated products and services; nor will we
devalue our differentiated solutions to providing better healthcare.
UTMD's 2000 ending share price of $7.50 was up 11% relative to the end of
1999. The NASDAQ Composite, S&P 500 Index and DJIA were down -39%, -10% and -6%,
respectively. EPS in 2000 were up 18%, and have grown annually at a compounded
rate of 21% since 1997. With 2000 EPS of $.90, UTMD's year-end price to earnings
ratio (PER) was 8.3, still well below the average market multiple. For example,
if the average market multiple declines to 15 in a recessionary environment in
2001, UTMD's PER multiple could still expand to 12 and remain well below the
market average.
Accounting Policy Changes
In June 1999, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 137, "Accounting for Derivative
Instruments and Hedging Activities- Deferral of the Effective Date of FASB
Statement No. 133." SFAS 133 establishes accounting and reporting standards for
derivative instruments and requires recognition of all derivatives as assets or
liabilities in the statement of financial position and measurement of those
instruments at fair value. SFAS 133 is now effective for fiscal years beginning
after June 15, 2000. UTMD believes that the adoption of SFAS 133 will not have a
material effect on the financial statements of the Company.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company has manufacturing operations, including assets, in Ireland
denominated in Irish Pounds, and sells products under agreements denominated in
various Western European currencies. The Irish Pound and other currencies are
subject to exchange rate fluctuations that are beyond the control of UTMD. The
exchange rate for the Irish Pounds was .8354, .7828 and .6720 per U.S. Dollar as
of December 31, 2000, 1999 and 1998, respectively. Please see Note 1, page F-9.
UTMD manages its foreign currency risk without separate hedging transactions by
converting currencies as transactions occur.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See index to financial statements and financial statement schedule at page F-1.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
20
PART III.
--------
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information from the definitive proxy statement of the registrant under the
caption, "PROPOSAL NO. 1. ELECTION OF DIRECTORS: General," "Directors and
Nominees," "Executive Officers," and "Compliance with Exchange Act
Requirements," is incorporated herein by reference, expressly excluding the
material set forth under the subcaptions "Report of the Compensation and Option
Committee" and "Stock Performance Chart."
ITEM 11 - EXECUTIVE COMPENSATION.
The information from the definitive proxy statement of the registrant under the
caption, "PROPOSAL NO. 1. ELECTION OF DIRECTORS: Executive Compensation,"
"Compensation and Option Committee Interlocks and Insider Participation,"
"Employment Agreements, Termination of Employment, and Change in Control," and
"Director's Compensation" is incorporated herein by reference, expressly
excluding the material set forth under the subcaptions "Report of the
Compensation and Option Committee" and "Stock Performance Chart."
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information from the definitive proxy statement of the registrant under the
caption, "PROPOSAL NO. 1. ELECTION OF DIRECTORS: Security Ownership of
Management and Certain Persons" is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
21
PART IV.
--------
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report or incorporated
herein by reference.
1. Financial Statements.
(See Index to Consolidated Financial Statements at page F-1.)
2. Supplemental Schedule.
Financial Statement Schedules are omitted because they are
inapplicable or the required information is otherwise included in the
accompanying Financial Statements and the notes thereto.
3. Exhibits.
SEC
Exhibit # Reference # Title of Document Location
- --------- ----------- ----------------- --------
1 3 Articles of Restatement of the Articles of Incorporated by
Incorporation Reference(1)
2 3 Bylaws Incorporated by
Reference(1)
3 4 Rights Agreement dated as of October 28, 1994, Incorporated by
between Utah Medical Products, Inc., and Reference(1)
Registrar and Transfer Company
4 4 Designation of Rights, Privileges, and Preferences Incorporated by
of Series "A" Preferred Stock Reference(1)
5 10 Employment Agreement dated December 21, 1992 Incorporated by
with Kevin L. Cornwell* Reference(2)
6 10 Amendment, effective May 15, 1998, to Employment Incorporated by
Agreement dated December 21, 1992 with Kevin L. Reference(3)
Cornwell*
7 10 Utah Medical Products, Inc., 1986 Incentive Incorporated by
Stock Option Plan* Reference(2)
8 10 Utah Medical Products, Inc., 1994 Employee Incorporated by
Incentive Stock Option Plan* Reference(1)
9 10 Utah Medical Products, Inc., 1993 Directors' Incorporated by
Stock Option Plan Reference(1)
10 10 Utah Medical Products, Inc., Performance Incorporated by
Option Plan* Reference(1)
11 10 Business Loan Agreement, dated April 14, 2000 Incorporated by
Between Utah Medical Products, Inc and Key Bank Reference(4)
National Association
12 21 Subsidiaries of Utah Medical Products, Inc. Incorporated by
Reference(5)
13 23 Consent of Tanner + Co., Company's independent This Filing
auditors for the years ending December 31, 2000,
December 31, 1999, and December 31, 1998
22
* Management contract or compensatory plan or arrangement required to be filed pursuant to Item 14(c).
(1) Incorporated by reference from the Company's registration statement on form S-8 filed
with the Commission effective February 10, 1995.
(2) Incorporated by reference from the Company's annual report on form 10-K filed with
the Commission for the year ended December 31, 1992.
(3) Incorporated by reference from the Company's annual report on form 10-K filed with
the Commission for the year ended December 31, 1998.
(4) Incorporated by reference from the Company's quarterly report on form 10-Q filed with
the Commission for the quarter ended March 31, 2000.
(5) Incorporated by reference from the Company's annual report on form 10-K filed with
the Commission for the year ended December 31, 1999.
(b) Reports on Form 8-K.
On January 29, 2001, UTMD filed a report on Form 8-K, Item 5, Other
Events, providing additional financial information prior the filing of this Form
10-K.
On November 17, 2000, UTMD filed a report on Form 8-K, Item 5, Other
Events, reporting its October 31, 2000 balance sheet, demonstrating that it was
in compliance with Nasdaq Market Marketplace Rule 4450(a)(3) which requires
issuers to maintain net tangible assets of at least $4.0 million. UTMD's net
tangible assets were $4.3 million at October 31, 2000, compared to $3.9 million
at September 30, 2000.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned this 24th day of March, 2001.
UTAH MEDICAL PRODUCTS, INC.
By: /s/ Kevin L. Cornwell
--------------------------------------
Kevin L. Cornwell
Chairman and CEO
By: /s/ Greg A. LeClaire
--------------------------------------
Greg A. LeClaire
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on this 24th day of March, 2000.
By: /s/ Stephen W. Bennett
--------------------------------------
Stephen W. Bennett, Director
By: /s/ Kevin L. Cornwell
--------------------------------------
Kevin L. Cornwell, Director
By: /s/ Ernst G. Hoyer
--------------------------------------
Ernst G. Hoyer, Director
By: /s/ Barbara A. Payne
--------------------------------------
Barbara A. Payne, Director
By: /s/ Paul O. Richins
--------------------------------------
Paul O. Richins, Director
24
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
December 31, 2000 and 1999
Consolidated Financial Statements
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Page
----
Independent Auditors' Report F-2
Consolidated balance sheet F-3
Consolidated statement of income F-4
Consolidated statement of stockholders' equity F-5
Consolidated statement of cash flows F-6
Notes to consolidated financial statements F-8
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Utah Medical Products, Inc.
We have audited the consolidated balance sheet of Utah Medical Products, Inc. as
of December 31, 2000 and 1999, and the related consolidated statements of
income, stockholders' equity, and cash flows for the years ended December 31,
2000, 1999 and 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Utah Medical
Products, Inc. as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years ended December 31, 2000, 1999 and
1998 in conformity with generally accepted accounting principles.
/s/ Tanner + Co.
Salt Lake City, Utah
January 16, 2001
F-2
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(In Thousands)
December 31,
- --------------------------------------------------------------------------------
Assets 2000 1999
------ --------- --------
Current assets:
Cash $ 414 $ 647
Accounts receivable, net (note 2) 3,979 4,077
Inventories (note 2) 3,005 3,190
Prepaid expenses and other current assets 137 165
Deferred income taxes (note 6) 529 459
--------- --------
Total current assets 8,064 8,538
Property and equipment, net (note 3) 9,789 11,013
Other assets, net (note 2) 7,570 8,205
--------- --------
Total $ 25,423 $ 27,756
--------- --------
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 683 $ 544
Accrued expenses (note 2) 1,963 2,117
--------- --------
Total current liabilities 2,646 2,661
Notes payable (note 4) 10,000 5,934
Deferred income taxes (note 6) 430 372
--------- --------
Total liabilities 13,076 8,967
--------- --------
Commitments and contingencies (notes 5 and 10) -- --
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 5,003 shares in 2000 and
6,453 shares in 1999 50 64
Cumulative foreign currency translation adjustment (1,559) (1,250)
Retained earnings 13,856 19,975
--------- --------
Total stockholders' equity 12,347 18,789
--------- --------
Total $ 25,423 $ 27,756
--------- --------
See accompanying notes to consolidated financial statements.
F-3
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
Consolidated Statement of Income
(In Thousands, Except Per Share Amounts)
Years Ended December 31,
- --------------------------------------------------------------------------------
2000 1999 1998
--------- --------- ---------
Net sales (notes 9 and 10) $ 27,193 $ 29,444 $ 27,677
Cost of sales (note 10) 12,068 13,648 13,503
--------- --------- ---------
Gross margin 15,125 15,796 14,174
Expenses:
Selling, general and administrative 6,190 6,795 6,605
Research and development 568 719 946
--------- --------- ---------
Income from operations 8,367 8,282 6,623
Other income (expense):
Dividend and interest income 39 34 58
Royalty income 452 529 678
Interest expense (496) (296) (310)
Other, net 58 (4) 474
--------- --------- ---------
Income before income tax expense 8,420 8,545 7,523
Income tax expense (note 6) (3,047) (3,077) (2,665)
--------- --------- ---------
Net income $ 5,373 $ 5,468 $ 4,858
--------- --------- ---------
Earnings per common share (basic)
(notes 7 and 8) $ .90 $ .76 $ .59
--------- --------- ---------
Earnings per common share (diluted)
(notes 7 and 8) $ .90 $ .76 $ .59
--------- --------- ---------
Other comprehensive income - foreign
currency translation net of taxes of
$(109), $(252) and $50 (200) (489) 98
--------- --------- ---------
Total comprehensive income $ 5,173 $ 4,979 $ 4,956
--------- --------- ---------
See accompanying notes to consolidated financial statements.
F-4
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(In Thousands)
Years Ended December 31, 2000, 1999 and 1998
- ----------------------------------------------------------------------------------------------------------
Cumulative
Foreign
Common Stock Additional Currency
--------------------- Paid-In Translation Retained
Shares Amount Capital Adjustment Earnings Total
--------------------------------------------------------------------
Balance, January 1, 1998 8,305 $ 83 $ -- ($ 657) $ 23,209 $ 22,635
Shares issued upon exercise of
employee stock options for cash 8 -- 58 -- -- 58
Tax benefit attributable to
appreciation of stock options -- -- 4 -- -- 4
Common stock purchased and retired (267) (3) (62) -- (1,621) (1,686)
Foreign currency translation -- -- -- 148 -- 148
adjustment
Net income -- -- -- -- 4,858 4,858
--------------------------------------------------------------------
Balance, December 31, 1998 8,046 80 -- (509) 26,446 26,017
Shares issued upon exercise of
employee stock options for cash 13 -- 98 -- -- 98
Tax benefit attributable to
appreciation of stock options -- -- 5 -- -- 5
Common stock purchased and retired (1,606) (16) (103) -- (11,939) (12,058)
Foreign currency translation -- -- -- (741) -- (741)
adjustment
Net Income -- -- -- -- 5,468 5,468
--------------------------------------------------------------------
Balance, December 31, 1999 6,453 64 -- (1,250) 19,975 18,789
Shares issued upon exercise of
employee stock options for cash 13 -- 85 -- -- 85
Tax benefit attributable to
appreciation of stock options -- -- 7 -- -- 7
Common stock purchased and retired (1,463) (14) (92) -- (11,492) (11,598)
Foreign currency translation
adjustments -- -- -- (309) -- (309)
Net income -- -- -- -- 5,373 5,373
--------------------------------------------------------------------
Balance, December 31, 2000 5,003 $ 50 $ -- ($ 1,559) $ 13,856 $ 12,347
--------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(In Thousands)
Years Ended December 31,
- -------------------------------------------------------------------------------------
2000 1999 1998
--------------------------------
Cash flows from operating activities:
Net income $ 5,373 $ 5,468 $ 4,858
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,191 2,192 2,058
(Recovery of) provision for losses on accounts
receivable (16) 22
27
(Gain) loss on disposal of assets 1 (1) 438
Deferred income taxes (13) (81) 52
Tax benefit attributable to exercise
of stock options 7 5 5
(Increase) decrease in:
Accounts receivable 57 1 55
Accrued interest, grant claims, and other
receivables (12) 404 68
Inventories 165 903 2,317
Prepaid expenses and other current assets 27 (14) (43)
Increase (decrease) in:
Accounts payable 149 21 (328)
Accrued expenses (147) 221 45
Deferred revenue -- (2) (84)
--------------------------------
Net cash provided by
operating activities 7,825 9,101 9,463
--------------------------------
Cash flows from investing activities:
Capital expenditures for:
Property and equipment (361) (684) (480)
Intangible assets (250) (2) (306)
Proceeds from sale of property and equipment 11 1 12
Net cash paid in acquisition -- -- (4,188)
--------------------------------
Net cash used in
investing activities (600) (685) (4,962)
--------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 85 98 58
Common stock purchased and retired (11,598) (12,058) (1,686)
Increase (decrease) in note payable 4,066 2,840 (2,470)
--------------------------------
Net cash (used in) provided by
financing activities (7,447) (9,120) (4,098)
--------------------------------
Effect of exchange rate changes on cash (11) (16) 13
--------------------------------
Net (decrease) increase in cash (233) (720) 416
Cash at beginning of year 647 1,367 951
--------------------------------
Cash at end of year $ 414 $ 647 $ 1,367
--------------------------------
See accompanying notes to consolidated financial statements.
F-6
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flow
(In Thousands)
Continued
- --------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Years Ended
December 31,
-------------------------------
2000 1999 1998
-------------------------------
Cash paid during the year for:
Income taxes $3,308 $2,972 $2,197
-------------------------------
Interest $ 496 $ 296 $ 310
-------------------------------
During the year ended December 31, 1998, the Company purchased assets from Gesco
International, Inc. The Company paid cash, and recorded net assets from the
acquisition as follows:
Inventory $ 635
Property and equipment 48
Intangibles 3,505
-------
Net cash investment $ 4,188
--------
See accompanying notes to consolidated financial statements.
F-7
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2000, 1999, and 1998
- --------------------------------------------------------------------------------
1. Summary of
Significant
Accounting
Policies
Organization
Utah Medical Products, Inc. and its wholly owned subsidiaries,
principally Utah Medical Products Ltd., which operates a
manufacturing facility in Ireland, and Columbia Medical, Inc.
(the Company) are in the business of producing cost-effective
devices for the health care industry. The Company's broad range
of products includes those used in critical care areas and the
labor and delivery departments of hospitals, as well as
outpatient clinics and physician's offices. Products are sold in
both domestic U.S. and international markets.
Basis of Presentation
Effective July 1, 1997, the Company acquired Columbia Medical,
Inc. (Columbia) in a purchase transaction. Operations of Columbia
have been included in the consolidated operations since the date
of purchase.
Principles of Consolidation
The consolidated financial statements include those of the
Company and its subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of the consolidated statement of cash flows, the
Company considers cash on deposit and short-term investments with
original maturities of three months or less to be cash and cash
equivalents.
Grant Claims Receivable
Grant claims receivable consists of amounts due from the
Industrial Development Agency (Ireland) under capital and
employment grant agreements for the construction and operation of
the Company's Ireland manufacturing facility.
Inventories
Finished products, work-in-process, and raw materials and
supplies inventories are stated at the lower of cost (computed on
a first-in, first-out method) or market (see Note 2).
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line and
units-of-production methods over estimated useful lives as
follows:
Building and improvements 30-40 years
Furniture, equipment, and tooling 3-10 years
F-8
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Summary of
Significant
Accounting
Policies
Continued
Intangible Assets
Costs associated with the acquisition of patents, trademarks,
goodwill, license rights, and non-compete agreements are
capitalized and amortized using the straight-line method over
periods ranging from 5 to 17 years.
Income Taxes
The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes," whereby deferred taxes are
computed under the asset and liability method.
Earnings per Share
The computation of basic earnings per common share is based on
the weighted average number of shares outstanding during each
year.
The computation of diluted earnings per common share is based on
the weighted average number of shares outstanding during the year
plus the common stock equivalents which would arise from the
exercise of stock options and warrants outstanding using the
treasury stock method and the average market price per share
during the year.
Translation of Foreign Currencies
Assets and liabilities of the Company's foreign subsidiary are
translated into U.S. dollars at the applicable exchange rates at
year-end. Income and expense items are translated at the average
rate of exchange during the year. Net gains or losses resulting
from the translation of the Company's assets and liabilities are
reflected as a separate component of stockholders' equity.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of trade
receivables. In the normal course of business, the Company
provides credit terms to its customers. Accordingly, the Company
performs ongoing credit evaluations of its customers and
maintains allowances for possible losses which, when realized,
have been within the range of management's expectations.
F-9
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Summary of
Significant
Accounting
Policies
Continued
The Company's customer base consists primarily of healthcare
providers. Although the Company is directly affected by the
well-being of the medical industry, management does not believe
significant credit risk exists at December 31, 2000.
The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not
exposed to any significant credit risk on cash and cash
equivalents.
Use of Estimates in the Preparation of 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.
Reclassifications
Certain changes to the presentation of the 1998 consolidated
financial statement have been made to conform with the 2000 and
1999 presentation.
F-10
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
2.Detail of
Certain
Balance
Sheet
Accounts
December 31,
--------------------------
2000 1999
--------------------------
Accounts receivable (in thousands):
Trade receivables $ 3,979 $ 4,074
Grant claim receivables 42 51
Accrued interest and other 38 5
Less allowance for
doubtful accounts (80) (53)
--------------------------
$ 3,979 $ 4,077
--------------------------
Inventories (in thousands):
Finished products $ 882 $ 846
Work-in-process 764 962
Raw materials 1,359 1,382
--------------------------
$ 3,005 $ 3,190
--------------------------
Other assets (in thousands):
Goodwill $ 8,533 $ 8,533
Patents 1,893 1,744
License rights 293 293
Trademarks 224 224
Non-compete agreements 175 75
--------------------------
11,118 10,869
Accumulated amortization (3,548) (2,664)
--------------------------
$ 7,570 $ 8,205
--------------------------
Accrued expenses (in thousands):
Payroll and payroll taxes $ 858 $ 956
Reserve for litigation costs 662 477
Other 443 684
--------------------------
$ 1,963 $ 2,117
--------------------------
F-11
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
3. Property
and
Equipment
Property and equipment consists of the following (in thousands):
December 31,
-------------------------
2000 1999
-------------------------
Land $ 945 $ 967
Buildings and improvements 7,328 7,549
Furniture, equipment, and tooling 13,548 13,300
Construction-in-progress 54 161
-----------------------
21,875 21,977
Accumulated depreciation and
amortization (12,086) (10,964)
-----------------------
$ 9,789 $ 11,013
------------------------
Included in the Company's consolidated balance sheet are the
assets of its manufacturing facilities in Utah, Oregon and
Ireland. Property and equipment, by location are as follows (in
thousands):
December 31, 2000
--------------------------------------------
Utah Oregon Ireland Total
--------------------------------------------
Land $ 621 $ -- $ 324 $ 945
Building and improvements 3,827 32 3,469 7,328
Furniture, equipment,
and tooling 11,611 1,262 675 13,548
Construction-in-progress 54 -- -- 54
--------------------------------------------
Total 16,113 1,294 4,468 21,875
Accumulated depreciation
and amortization (10,428) (959) (699) (12,086)
--------------------------------------------
Property and equipment,
net $ 5,685 $ 335 $ 3,769 $ 9,789
--------------------------------------------
December 31, 1999
--------------------------------------------
Utah Oregon Ireland Total
--------------------------------------------
Land $ 621 $ -- $ 346 $ 967
Building and improvements 3,817 32 3,700 7,549
Furniture, equipment, 11,309 1,253 738 13,300
and tooling
Construction-in-progress 161 -- -- 161
--------------------------------------------
Total 15,908 1,285 4,784 21,977
Accumulated depreciation
and amortization (9,648) (717) (599) (10,964)
--------------------------------------------
Property and equipment,
net $ 6,260 $ 568 $ 4,185 $ 11,013
--------------------------------------------
F-12
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
4. Notes
Payable
The Company has a bank line-of-credit agreement which allows the
Company to borrow a maximum amount (in thousands) of $14,500 at
an interest rate equal to either the bank's LIBOR rate plus
1.45%, or 1.0% below the bank's prime rate. The line-of-credit
matures on April 14, 2002, is unsecured and had outstanding
balances of (in thousands) $10,000 and $5,934 at December 31,
2000 and 1999, respectively.
5.Commitments
and
Contingencies
Operating Leases The Company has an operating lease agreement for
land adjoining the Company's Utah facility for a term of forty
years commencing on September 1, 1991. On September 1, 1996 and
subsequent to each fifth lease year, the basic rental is adjusted
for published changes in a price index. The Company also leases
certain buildings under noncancelable operating leases. Rent
expense charged to operations under these operating lease
agreements was approximately (in thousands) $98, $103 and $75 for
the years ended December 31, 2000, 1999 and 1998, respectively.
Future minimum lease payments under the operating lease
obligations as of December 31, 2000 were as follows (in
thousands):
Year ending December 31: Amount
----------------------- --------
2001 $ 62
2002 35
2003 35
2004 35
2005 35
Thereafter 895
--------
Total future minimum lease payments $ 1,097
--------
Product Liability
The Company is self-insured for product liability risk.
Litigation
The Company is involved in lawsuits which are an expected
consequence of its operations and in the ordinary course of
business. The Company believes that pending litigation will not
have a materially adverse effect on its financial condition or
results of operations.
F-13
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
6. Income Taxes
Deferred tax assets (liabilities) consist of the following
temporary differences (in thousands):
December 31,
-------------------------------------
2000 1999
-------------------------------------
Current Long- Current Long-
term term
-------------------------------------
Inventory write-down and unicap $ 153 $ - $ 153 $ -
Allowance for doubtful accounts 27 - 18 -
Accrued liabilities and reserves 278 - 250 -
Other 71 - 38 -
-------------------------------------
Depreciation and amortization - (196) - (210)
Earnings from subsidiary - (234) - (162)
-------------------------------------
Deferred income taxes, net $ 529 ($430) $ 459 ($372)
-------------------------------------
The components of income tax expense are as follows (in
thousands):
Years Ended
December 31,
--------------------------------------
2000 1999 1998
--------------------------------------
Current $ 3,039 $ 3,158 $2,613
Deferred 8 (81) 52
--------------------------------------
Total $ 3,047 $ 3,077 $2,665
--------------------------------------
Income tax expense differed from amounts computed by applying the
statutory federal rate to pretax income as follows (in
thousands):
Years Ended
December 31,
-------------------------------------
2000 1999 1998
-------------------------------------
Federal income tax expense
at the statutory rate $ 2,863 $ 2,905 $ 2,558
State income taxes 436 427 376
Foreign sales corporation (79) (75) (76)
Other (173) (180) (193)
-------------------------------------
Total $ 3,047 $ 3,077 $ 2,665
-------------------------------------
F-14
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
7. Stockholders'
Equity
Options
The Company has stock option plans which authorize the grant of
stock options to eligible employees, directors, and other
individuals to purchase up to an aggregate 4,300,000 shares of
common stock. All options granted under the plans may be
exercised between six months and ten years following the date of
grant. The plans are intended to advance the interest of the
Company by attracting and ensuring retention of competent
directors, employees, and executive personnel, and to provide
incentives to those individuals to devote their utmost efforts to
the advancement of the Company.
Changes in stock options were as follows:
Price Range
Shares Per Share
-------------------------------------
2000
Granted 96,200 $ 6.63 - $ 7.75
Expired or canceled 107,500 6.50 - 14.25
Exercised 12,524 6.50 - 7.75
Total outstanding at December 31 1,074,833 6.50 - 14.25
Total exercisable at December 31 821,462 6.50 - 14.25
1999
Granted 267,000 $ 6.50 - $ 7.75
Expired or canceled 147,174 6.50 - 14.25
Exercised 13,950 6.75 - 7.25
Total outstanding at December 31 1,098,657 6.50 - 14.25
Total exercisable at December 31 665,533 6.50 - 14.25
1998
Granted 267,500 $ 6.75 - $ 8.06
Expired or canceled 155,067 6.75 - 14.25
Exercised 8,000 7.25 - 7.25
Total outstanding at December 31 992,781 6.75 - 14.25
Total exercisable at December 31 478,902 6.75 - 14.25
For the years ended December 31, 2000, 1999 and 1998, the Company
reduced current income taxes payable and increased additional
paid-in capital by (in thousands) $7, $5 and $5, respectively,
for the income tax benefit attributable to appreciation of common
stock related to stock options.
F-15
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
7. Stockholders'
Equity
Continued
Stock-Based Compensation
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no
compensation cost has been recognized in the financial
statements. 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):
Years Ended
December 31,
----------------------------------
2000 1999 1998
----------------------------------
Net income as reported $ 5,373 $ 5,468 $ 4,858
Net income pro forma $ 4,970 $ 4,888 $ 4,382
Earnings per share assuming
dilution as reported $ .90 $ .76 $ .59
Earnings per share assuming
dilution pro forma $ .83 $ .68 $ .53
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the
following assumptions:
Years Ended
December 31,
---------------------------------
2000 1999 1998
---------------------------------
Expected dividend yield $ - $ - $ -
Expected stock price volatility 45.9% 47.5% 49.9%
Risk-free interest rate
(weighted average) 6.6% 4.7% 5.4%
Expected life of options 4.5 years 3.5 years 3.8 years
---------------------------------
The per-share weighted average fair value of options granted during
2000, 1999 and 1998 is $3.09, $2.56 and $3.20, respectively.
F-16
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
7. Stockholders'
Equity
Continued
The following table summarizes information about stock options
outstanding at December 31, 2000:
Options Outstanding Options Exercisable
------------------------------------- ----------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Number Life Exercise Number Exercise
Prices Outstanding (Years) Price Exercisable Price
- ---------------------------------------------------------------------------------
$6.50 - 8.00 663,208 6.83 $6.95 421,891 $7.02
9.50 - 14.25 411,625 4.95 11.74 399,571 11.75
- ---------------------------------------------------------------------------------
$6.50 - 14.25 1,074,833 6.11 $8.79 821,462 $9.32
- ---------------------------------------------------------------------------------
8. Earnings Per
Share
Financial accounting standards require companies to present basic
and diluted earnings per share (EPS) along with additional
informational disclosures. Information related to EPS is as
follows (in thousands, except per share amounts):
Years Ended
December 31,
-----------------------------
2000 1999 1998
-----------------------------
Basic EPS:
Net income available to common
stockholders $ 5,373 $ 5,468 $ 4,858
-----------------------------
Weighted average common shares 5,954 7,187 8,269
-----------------------------
Net income per share $ .90 $ .76 $ .59
-----------------------------
Diluted EPS:
Net income available to common
stockholders $ 5,373 $ 5,468 $ 4,858
-----------------------------
Weighted average common shares 5,978 7,197 8,273
-----------------------------
Net income per share $ .90 $ .76 $ .59
-----------------------------
F-17
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
9. Geographic
Sales
Information
The Company had sales in the following geographic areas (in
thousands):
Year United States Other
-----------------------------
2000 $21,768 $5,425
1999 $23,894 $5,550
1998 $22,945 $4,732
10. Product Sale
and Purchase
Commitments
The Company has license agreements for the rights to develop and
market certain products owned by unrelated parties. Under the
terms of such agreements, the Company is required to pay
royalties ranging from 1.5% to 5% of sales, and in one case
certain payments to the developer contingent upon the product
achieving certain annual revenue thresholds.
The Company has license agreements with unrelated companies to
provide exclusive and nonexclusive rights to purchase, market,
distribute, or manufacture the Company's products, from which the
Company receives royalties and license fees.
11. Employee
Benefit Plan
The Company has a contributory 401(k) savings plan for employees
who work 30 hours or more each week, who are at least 21 years of
age, and have a minimum of one year of service with the Company.
The Company's contribution is determined annually by the Board of
Directors and was approximately (in thousands) $80, $87and $63
for the years ended December 31, 2000, 1999 and 1998,
respectively.
F-18
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- --------------------------------------------------------------------------------
12. Fair Value
of Financial
Instruments
None of the Company's financial instruments are held for trading
purposes. The Company estimates that the fair value of all
financial instruments at December 31, 2000, does not differ
materially from the aggregate carrying values of its financial
instruments recorded in the accompanying balance sheet. The
estimated fair value amounts have been determined by the Company
using available market information and appropriate valuation
methodologies. Considerable judgement is necessarily required in
interpreting market data to develop the estimates of fair value,
and, accordingly, the estimates are not necessarily indicative of
the amounts that the Company could realize in a current market
exchange.
13. Recent
Accounting
Pronounce-
ments
In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities- Deferral of the
Effective Date of FASB Statement No. 133." SFAS 133 establishes
accounting and reporting standards for derivative instruments and
requires recognition of all derivatives as assets or liabilities
in the statement of financial position and measurement of those
instruments at fair value. SFAS 133 is now effective for fiscal
years beginning after June 15, 2000. The Company believes that
the adoption of SFAS 133 will not have any material effect on the
financial statements of the Company.
F-19
EXHIBIT INDEX
-------------
SEC
Exhibit # Reference # Title of Document How Filed
- --------- ----------- ----------------- ---------
13 23 Consent of Tanner + Co., Company's Filed in Electronic Format
independent auditors for the years ending
December 31, 2000, December 31, 1999
and December 31, 1998