UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For quarter ended: September 30, 2002 Commission File No. 0-11178
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UTAH MEDICAL PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
UTAH 87-0342734
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7043 South 300 West
Midvale, Utah 84047
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Address of principal executive offices
Registrant's telephone number: (801) 566-1200
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and; (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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The number of shares outstanding of the registrant's common stock as of November
12, 2002: 4,923,000
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UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
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INDEX TO FORM 10-Q
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PART I - FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
September 30, 2002 and December 31, 2001 .......................... 1
Consolidated Condensed Statements of Income for the three and
nine months ended September 30, 2002 and September 30, 2001 ....... 2
Consolidated Condensed Statements of Cash Flows for the nine
months ended September 30, 2002 and September 30, 2001 ............ 3
Notes to Consolidated Condensed Financial Statements .............. 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................ 6
Item 3. Quantitative and Qualitative Disclosures about Market Risk ......10
Item 4. Controls and Procedures .........................................10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ...............................11
SIGNATURES ................................................................11
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
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CONSOLIDATED CONDENSED BALANCE SHEETS AS OF
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SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
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(in thousands)
(unaudited) (audited)
ASSETS SEPTEMBER 30, 2002 DECEMBER 31, 2001
- ------ ------------------ -----------------
Current assets:
Cash $ 1,833 $ 370
Accounts receivable - net 3,390 3,585
Inventories 3,098 3,248
Other current assets 604 670
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Total current assets 8,925 7,873
Property and equipment - net 8,755 8,877
Goodwill 8,533 8,533
Goodwill - accumulated amortization (2,288) (2,288)
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Goodwill - net 6,245 6,245
Other intangible assets 2,586 2,586
Other intangible assets - accumulated amortization (2,072) (2,009)
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Other intangible assets - net 514 577
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TOTAL $ 24,439 $ 23,572
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 600 $ 457
Accrued expenses 1,468 2,017
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Total current liabilities 2,068 2,474
Notes payable 0 2,501
Deferred income taxes 201 390
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Total liabilities 2,269 5,365
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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 - September 30, 2002, 4,917 shares
December 31, 2001, 5,029 shares 49 50
Cumulative foreign currency translation adjustment (1,444) (1,816)
Retained earnings 23,565 19,973
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Total stockholders' equity 22,170 18,207
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TOTAL $ 24,439 $ 23,572
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see notes to consolidated condensed financial statements
1
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
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CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR THE
---------------------------------------------------
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
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(in thousands, except per share amounts - unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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2002 2001 2002 2001
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NET SALES $ 7,005 $ 6,791 $ 20,510 $ 20,152
COST OF SALES 2,926 2,895 8,698 8,571
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GROSS MARGIN 4,079 3,896 11,812 11,581
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EXPENSES:
Selling, general and administrative 1,228 1,415 3,712 4,331
Research & development 76 86 202 280
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Total 1,304 1,501 3,914 4,611
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INCOME FROM OPERATIONS 2,775 2,395 7,898 6,970
OTHER INCOME 113 77 352 81
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INCOME BEFORE INCOME TAX EXPENSE 2,888 2,472 8,250 7,051
INCOME TAX EXPENSE 1,005 940 2,870 2,647
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NET INCOME $ 1,883 $ 1,532 $ 5,380 $ 4,403
========= ========= ========= =========
BASIC EARNINGS PER SHARE $ 0.38 $ 0.30 $ 1.08 $ 0.88
========= ========= ========= =========
DILUTED EARNINGS PER SHARE $ 0.36 $ 0.29 $ 1.01 $ 0.85
========= ========= ========= =========
SHARES OUTSTANDING - BASIC 4,949 5,025 4,996 5,016
========= ========= ========= =========
SHARES OUTSTANDING - DILUTED 5,261 5,268 5,331 5,193
========= ========= ========= =========
see notes to consolidated condensed financial statements
2
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
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(in thousands - unaudited)
SEPTEMBER 30,
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2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,380 $ 4,403
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Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 904 1,469
Provision for losses on accounts receivable 12 44
Loss on disposal of assets 0 6
Deferred income taxes (77) (79)
Tax benefit attributable to exercise of stock options 214 44
Changes in operating assets and liabilities:
Accounts receivable - trade 246 (40)
Accrued interest and other receivables 0 117
Inventories 195 (322)
Prepaid expenses (45) (71)
Accounts payable 133 (68)
Accrued expenses (581) 92
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Total adjustments 1,001 1,192
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Net cash provided by operating activities 6,381 5,595
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for:
Property and equipment (349) (399)
Intangible assets 0 0
Proceeds from sale of property and equipment 0 0
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Net cash used in investing activities (349) (399)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 645 245
Common stock purchased and retired (2,727) (69)
Proceeds from note payable 0 0
Repayments of note payable (2,501) (5,600)
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Net cash used in financing activities (4,583) (5,425)
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Effect of exchange rate changes on cash 13 (2)
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NET INCREASE (DECREASE) IN CASH 1,463 (230)
CASH AT BEGINNING OF PERIOD 370 414
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CASH AT END OF PERIOD $ 1,833 $ 184
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes $ 2,700 $ 2,505
Interest $ 18 $ 337
see notes to consolidated condensed financial statements
3
UTAH MEDICAL PRODUCTS, INC AND SUBSIDIARIES
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
(1) The unaudited financial statements presented herein have been prepared in
accordance with the instructions to form 10-Q and do not include all of the
information and note disclosures required by accounting principles generally
accepted in the United States. These statements should be read in conjunction
with the financial statements and notes included in the Utah Medical Products,
Inc. ("UTMD" or "the Company") annual report on form 10-K for the year ended
December 31, 2001. Although the accompanying financial statements have not been
audited by independent accountants in accordance with auditing standards
generally accepted in the United States, in the opinion of management, such
financial statements include all adjustments (consisting only of normal
recurring adjustments) necessary to summarize fairly the Company's financial
position and results of operations.
(2) Inventories at September 30, 2002 and December 31, 2001 (in thousands)
consisted of the following:
September 30, December 31,
2002 2001
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Finished goods $1,102 $1,142
Work-in-process 895 835
Raw materials 1,101 1,271
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Total $3,098 $3,248
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(3) Comprehensive Income. The Company translates the currency of its Ireland
subsidiary which comprises the only element of comprehensive income. Total
comprehensive income for the three and nine months ending September 30, 2002 was
(in thousands) $1,856 and $5,828, respectively.
(4) In July 2001, SFAS No. 141, "Business Combinations" and SFAS No. 142,
"Goodwill and Other Intangible Assets" were issued. SFAS 142 is required to be
applied for fiscal years beginning after December 15, 2001. SFAS 142 addresses
financial accounting and reporting for acquired goodwill and other intangible
assets. It requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment within six months of adopting
the statement and at least annually thereafter. The Company completed the
required initial goodwill impairment test, based on December 31, 2001
valuations, and determined that the book value of its goodwill associated with
its 1997 and 1998 acquisitions is not impaired. Amortization of the Company's
other intangible assets totaled (in thousands) $19 and $62 for the three and
nine months ending September 30, 2002. The estimated aggregate amortization
expense for the years ending 2002, 2003, 2004, 2005 and 2006 is (in thousands)
$81, $76, $51, $51 and $50, respectively.
(5) Forward-Looking Information
This report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of management as well as
assumptions made by, and information currently available to, management. When
used in this document, the words "anticipate," "believe," "should," "project,"
"estimate," "expect," "intend" and similar expressions, as they relate to the
Company or its management, are intended to identify forward-looking statements.
Such statements reflect the current view of the Company respecting future events
and are subject to certain risks, uncertainties, and assumptions, including the
risks and uncertainties noted throughout the document. Although the Company has
attempted to identify important factors that could cause the actual results to
differ materially, there may be other factors that cause the forward statement
not to come true as anticipated, believed, projected, expected, or intended.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may differ materially
from those described herein as anticipated, believed, projected, estimated,
expected, or intended.
4
General risk factors that may impact the Company's revenues include the
market acceptance of competitive products, obsolescence caused by new
technologies, the possible introduction by competitors of new products that
claim to have many of the advantages of UTMD's products at lower prices, the
timing and market acceptance of UTMD's own new product introductions, UTMD's
ability to efficiently manufacture its products, including the reliability of
suppliers, success in gaining access to important global distribution channels,
marketing success of UTMD's distribution and sales partners, budgetary
constraints, the timing of regulatory approvals for newly introduced products,
third party reimbursement, and access to U.S. hospital customers, as that access
continues to be constrained by group purchasing decisions.
Risk factors, in addition to the risks outlined in the previous paragraph
that may impact the Company's assets and liabilities, as well as cash flows,
include risks inherent to companies manufacturing products used in health care
including claims resulting from the improper use of devices and other product
liability claims, defense of the Company's intellectual property, productive use
of assets in generating revenues, management of working capital including
inventory levels required to meet delivery commitments at a minimum cost, and
timely collection of accounts receivable.
Additional risk factors that may affect non-operating income include the
continuing viability of the Company's technology license agreements, actual cash
and investment balances, asset dispositions, and acquisition activities that may
require external funding.
(6) Events subsequent to September 30, 2002
On October 1, 2002, UTMD announced a self-tender through which it intends
to repurchase at a price of $17.05 per share up to 750,000 of its shares. The
tender offer commenced on October 11, and is scheduled to expire on November 12,
2002.
5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
UTMD manufactures and markets a well-established range of specialty
medical devices. The general characteristics of UTMD's business have not
materially changed over the last several reporting periods. The Company's Form
10-K Annual Report for the year ended December 31, 2001 provides a detailed
description of products, technologies, markets, regulatory issues, business
initiatives, resources and business risks, among other details, and should be
read in conjunction with this report. Because of the relatively short span of
time, results for any given three month period in comparison with a previous
three month period may not be indicative of comparative results for the year as
a whole. Dollar amounts in the report are expressed in thousands, except
per-share amounts or where otherwise noted.
Analysis of Results of Operations
a) Overview
In third quarter (3Q) 2002, UTMD's consolidated global sales increased 3%
relative to 3Q 2001, while the first nine months' (9M) 2002 sales, representing
calendar year-to-date sales, increased 2%.
At the same time, the Company achieved the following profitability records
for a calendar quarter:
Gross Profit Margin (gross profits/ sales): 58.2%
Operating Profit Margin (operating profits/ sales): 39.6%
Net Profit Margin (profit after taxes/ sales): 26.9%
As a result, UTMD concluded its nineteenth consecutive quarter of higher
Earnings Per Share (EPS) when compared to the same quarter in the prior year. 3Q
2002 EPS increased 23% to $.36 on a diluted basis. EPS for the last twelve
months (LTM) were $1.30.
b) Revenues
Revenue from product sales is generally recognized by UTMD at the time the
product is shipped and invoiced and collectibility is reasonably assured. The
Company accrues provisions for the estimated costs that may be incurred for
product warranties and unforeseen uncollectible accounts.
UTMD believes that revenue should be recognized at the time of shipment as
title generally passes to the customer at the time of shipment. This policy
meets the criteria of SAB 101 in that there is persuasive evidence of an
existing contract or arrangement, delivery has occurred, the price is fixed and
determinable and the collectibility is reasonably assured.
The 3% increase in 3Q 2002 total sales was UTMD's best increase in quarter
over prior year's same quarter revenue in the last three years. International
sales increased 36%. Domestic sales decreased 3%, including a 7% decrease in
domestic OEM sales. International sales, which benefited from a weaker US
Dollar, were $1,482 in 3Q 2002 compared to $1,094 in 3Q 2001. Of the
international sales, 64% were made in Europe during 3Q 2002, compared to 61% in
3Q 2001. Shipments from UTMD's Ireland facility in U.S. Dollar terms were up
46%. Domestic OEM sales were soft because of a weak U.S. economy. OEM sales are
subject to quarter-to-quarter fluctuations because OEM customers usually
purchase quantities that represent more than one quarter's supply of components.
9M 2002 total sales increased 2%, comprised of international sales up 11%
and domestic sales about the same as 9M 2001, although the OEM portion of 9M
2002 domestic sales were down 10%. International sales in 9M 2002 were $4,233
compared to $3,810 in 9M 2001. Of the international sales, 60% were made in
Europe during 9M 2002, compared to 57% in 9M 2001.
Global revenues by product category:
1. Obstetrics. 3Q 2002 obstetrics product sales were $3,131 compared to
$3,357 in 3Q 2001. Obstetrics sales in 9M 2002 were $8,984 compared to $9,302 in
9M 2001.
2. Gynecology/ Electrosurgery/ Urology. 3Q 2002 Gyn/ES/Uro product sales
were $1,250 compared to $1,177 in 3Q 2001. Gyn/ES/ Uro product sales in 9M 2002
were $3,928 compared to $3,680 in 9M 2001. 9M 2002 OEM urology sales decreased
$107, or 52%.
3. Neonatal. 3Q 2002 neonatal product sales were $1,017 compared to $996 in
3Q 2001. Neonatal product sales in 9M 2002 were $2,863 compared to $2,807 in 9M
2001.
6
4. Blood Pressure Monitoring and Accessories (BPM). 3Q 2002 BPM product
sales were $1,607 compared to $1,262 in 3Q 2001. BPM product sales in 9M 2002
were $4,735 compared to $4,363 in 9M 2001.
c) Gross Profit
UTMD's gross profit margin (GPM), gross profits as a percentage of sales,
in 3Q 2002 and 9M 2002 were 58.2% and 57.6%, respectively, compared to 57.4% and
57.5% for the same periods in 2001. GPM remained consistent with the prior year
overall because improved manufacturing efficiencies offset increased
labor-related costs.
Because of UTMD's small size and period-to-period fluctuations in OEM
business activity, allocations of fixed manufacturing overheads cannot be
meaningfully allocated between direct and OEM sales. Therefore, UTMD does not
report GPM by sales channels.
UTMD targets an average GPM greater than or equal to 55%, which it
believes is necessary to successfully support the significant operating expenses
required in a highly complex and competitive marketplace. Management expects to
continue to achieve its average GPM target during the remainder of 2002
consistent with 9M 2002. Expected favorable influences include growth in sales
volume without a similar increase in manufacturing overhead expenses, a larger
percentage of total sales from higher margin products and a continued emphasis
on reengineering products to reduce material costs. Expected unfavorable
influences are continued competitive pressure on pricing and higher
labor-related costs, including especially health plan benefits for employees.
d) Operating Profit
3Q 2002 operating profits increased 16% to $2,775 from $2,395 in 3Q 2001.
Operating profits increased 13% to $7,898 in 9M 2002 from $6,970 in 9M 2001.
Total operating expenses, including sales and marketing (S&M) expenses, research
and development (R&D) expenses and general and administrative (G&A) expenses
were 18.6% and 19.1% of sales in 3Q 2002 and in 9M 2002, respectively, compared
to 22.1% of sales in 3Q 2001 and 22.9% of sales in 9M 2001. 3Q and 9M 2002
operating profit margins were 39.6% and 38.5% of sales, respectively, compared
to 35.3% and 34.6% in 3Q and 9M 2001, respectively.
S&M expenses in 3Q 2002 were $618 or 8.8% of sales compared to $680 or
10.0% of sales in 3Q 2001. 9M 2002 S&M expenses were 9.1% of sales compared to
10.4% in 9M 2001. Because UTMD sells internationally through third party
distributors, its S&M expenses are predominantly for U.S. business activity.
Looking forward, UTMD expects S&M expenses during 4Q 2002 consistent with 9M
2002.
R&D expenses in 3Q 2002 were $76 or 1.1% of sales compared to $86 or 1.3%
of sales in 3Q 2001. R&D expenses in 9M 2002 were 1.0% of sales compared to 1.4%
of sales in 9M 2001. Management expects R&D expenses during 4Q 2002 consistent
with 9M 2002.
G&A expenses in 3Q 2002 were $610 or 8.7% of sales compared to $735 or
10.8% of 3Q 2001 sales. G&A expenses in 9M 2002 were 9.0% of sales compared to
11.1% of 9M 2001. G&A expenses include the Company's costs of litigation,
patents, shareholder relations activities and, during 2001, amortization of
goodwill (GWA) associated with acquisitions. A reduction in the Company's
accrual rate for litigation expenses associated with the patent infringement
lawsuit (which received a formal judgment in September), and the cessation of
amortization of goodwill dictated by FASB SFAS No. 142, significantly helped
reduce the G&A portion of operating expenses. UTMD anticipates G&A expenses
during the remainder of 2002 will continue to be about 2 percentage points lower
as a percent of sales than in 2001.
e) Non-operating income
Non-operating income in 3Q 2002 was $113 compared to $77 in 3Q 2001, and
$352 in 9M 2002 compared to $81 in 9M 2001. The substantial improvement was a
result of much lower interest expense from borrowing on the Company's line of
credit. Interest expense was zero in 3Q 2002 compared to $71 in 3Q 2001, and
$319 lower in 9M 2002 than in 9M 2001. Royalty income, which UTMD receives for
licensing its technology to other companies, was similar in all periods. In 4Q
2002, non-operating income will be reduced by the interest on borrowing required
to finance the Tender Offer announced on October 1.
7
f) Earnings Before Income Taxes
3Q 2002 and 9M 2002 earnings before income taxes (EBT) each increased 17%
compared to the same periods in 2001. UTMD was able to increase EBT as a
percentage of sales (EBTM) because of reductions in operating expenses in all
categories with higher sales activity and lower interest expenses. 3Q 2002 EBTM
was 41.2% compared to 36.4% in 3Q 2001. 9M 2002 EBTM was 40.2% compared to 35.0%
in 9M 2001. Management expects to conclude 2002 with record annual EBT as a
percentage of sales compared to prior years.
g) Net Income and EPS
UTMD's net income (after taxes) expressed as a percentage of sales (NPM)
was 26.9% and 26.2% for 3Q and 9M 2002, respectively, compared to 22.6% and
21.9% for the same periods in 2001. Net income was up 23% and 22% for 3Q 2002
and 9M 2002, respectively. The leverage in net income was due to a lower income
tax accrual rate. The reduction in UTMD's estimated effective income tax rate
was due to two primary factors: actual litigation costs which exceeded the
Company's litigation reserve accrual rate and exercises of employee options. For
employee options exercised and sold in less than one year, the gain realized by
the employee is tax deductible to the Company. UTMD expects the tax deduction
benefits from these factors to continue during the rest of 2002, resulting in a
lower income tax rate for 2002 compared to 2001. The effective income tax rate
in both 3Q and 9M 2002 was 34.8%, compared to 38.0% and 37.6% in 3Q and 9M 2001,
respectively.
Diluted 3Q 2002 EPS increased 23% to $.36 compared to $.29 in 3Q 2001.
Diluted 9M 2002 EPS increased 19% to $1.01 compared to $.85 in 9M 2001. UTMD
repurchased 203,900 shares of stock from October 1, 2001 through September 30,
2002, reducing actual shares outstanding. Exercises of employee options offset
the reduction by 91,500 shares. In addition, the market increase in UTMD's stock
price had a retarding effect on EPS growth as a result of the dilution
calculation for unexercised options with an exercise price below the current
market value. 3Q 2002 weighted average number of diluted common shares (the
number used to calculate diluted EPS) were 5,261,000 compared to 5,268,000
shares in 3Q 2001. Actual outstanding common shares as of the end of 3Q 2002
were 4,917,600 compared to 5,030,000 at the end of 3Q 2001. The Tender Offer
announced on October 1 may have an impact in further reducing diluted shares by
as much as 15%, depending on how many shares are actually tendered for sale to
the Company by shareholders.
h) Return on Shareholders' Equity (ROE)
ROE is equal to net profits divided by average shareholder equity.
Annualized ROE in 3Q and 9M 2002 was 34% and 36%, respectively, compared to 39%
and 40% in 3Q and 9M 2001, respectively. The higher ROE in the prior year
resulted because of the higher financial leverage (debt) in the prior year.
UTMD's ROE has averaged about 30% each year over the last 14 years. Management
expects to exceed 30% ROE for calendar year 2002. Share repurchases have a
beneficial impact on ROE as long as the Company sustains its net profit
performance, because shareholder equity is reduced by the cost of the shares
repurchased.
Liquidity and Capital Resources
i) Cash flows
Net cash provided by operating activities, including adjustments for
depreciation and other non-cash operating expenses, along with changes in
working capital, totaled $6,381 in 9M 2002, compared to $5,595 in 9M 2001.
The Company expended $349 during 9M 2002 for investing activities,
comprised entirely of purchases of property and equipment. During 9M 2001, the
Company had used $399 to purchase property and equipment.
UTMD received $645 from issuing 81,186 shares of stock upon the exercise
of employee stock options in 9M 2002, and repurchased 192,400 shares at a cost
of $2,727. Employee option exercises were at an average price of $7.95 per
share. In 9M 2001, the Company received $245 from option exercises of 34,159
shares and paid $69 to repurchase 7,000 shares.
During 9M 2002, UTMD made repayments of $2,501 on its note payable,
eliminating the balance on the note in May, and received $0 in proceeds from the
note. During 9M 2001, UTMD made repayments of $5,600 and received $0 in proceeds
from the note. The note was used to finance the last Tender Offer in year 2000.
Management believes that future income from operations and effective
management of working capital will provide the liquidity needed to finance
normal operations. UTMD expects to use cash during the rest of 2002 to fund the
tender offer, to keep facilities, equipment and tooling in good working order,
for selective infusions of technological, marketing or product manufacturing
rights to broaden the Company's product offerings, and, if available for a
reasonable price, acquisitions that strategically fit UTMD's business and are
accretive to performance. The revolving credit line will be used for liquidity
when the timing of acquisitions or repurchases of stock require substantial
cash, such as the 2002 tender offer.
8
j) Assets and Liabilities
The following discussion focuses primarily on changes since June 30, 2002.
For changes since December 31, 2001, please refer to the Balance Sheets provided
with this report. September 30, 2002 total assets were $298 higher than three
months earlier. Current assets increased due to accumulation of cash following
elimination of the line of credit balance. Except for cash, the other main
components of current assets decreased, including receivables and inventories.
Net property and equipment increased because fixed assets in Ireland appreciated
in dollar terms due to the weakening of the U.S. Dollar compared to the Euro.
Depreciation and amortization expenses for 3Q 2002 exceeded capital expenditures
for new assets by $231. (Depreciation and amortization expenses for 9M 2002 have
exceeded capital expenditures for new assets by $555.) Net intangible assets
were $19 lower. UTMD's required adoption of FASB Statement No. 142, under which
goodwill and indefinite lived intangible assets are no longer amortized but are
reviewed annually, or more frequently if impairment indicators arise, reduced
amortization expenses by $142 in 3Q 2002 compared to 3Q 2001. UTMD does not
expect its goodwill intangible assets to become impaired in the foreseeable
future.
Cash (and equivalent) balances were $1,833 at September 30, 2002, compared
to $823 on June 30, 2002. Depending on the number of shares repurchased during
4Q 2002, cash balances will decrease and the line of credit balance may increase
following UTMD's payment for shares repurchased under the 2002 Tender Offer.
Average inventory turns in 3Q 2002 remained excellent at 3.6 times, up
from 3.5 times in the prior quarter. Accounts receivable balances decreased
during 3Q 2002 with higher sales activity, which yielded a reduction in average
"days in receivables" from 46 days at the end of the prior quarter to 44 days.
At the end of 3Q 2001, days in receivables were 52.
As of September 30, 2002, UTMD's total debt ratio (total liabilities/
total assets) decreased to 9% from 10% on June 30, 2002 and, due to elimination
of the bank loan balance in May 2002, from 23% on December 31, 2001. The debt
had been incurred in September 2000 to finance a Tender Offer repurchasing
1,119,000 UTMD shares at $8.20/ share. UTMD's debt ratio at the end of 2002 will
depend primarily on the number of shares that are repurchased in the 2002 Tender
Offer.
Other Financial Measures
k) EBITDA
EBITDA is EBT plus depreciation and amortization expenses plus interest
expenses resulting from financing activities. 3Q 2002 EBITDA were $3,167
compared to $3,015 in 3Q 2001. As a ratio of sales, EBITDA were 45% in 3Q 2002
compared to 44% in 3Q 2001. 9M 2002 EBITDA were $9,172 compared to $8,857 in 9M
2001. LTM EBITDA were $12,097.
EBITDA is a measure of UTMD's ability to generate cash. Please note that
EBITDA is not defined or described by Generally Accepted Accounting Principles.
As such, it is not prepared in accordance with GAAP, is not a measure of
liquidity, and is not a measure of operating results. However, the components of
EBITDA are prepared in accordance with GAAP, and UTMD believes that EBITDA is an
important measure of the Company's financial performance and well-being.
Management's Outlook.
As outlined in its December 31, 2001 10-K report, UTMD's plan for 2002 is
to 1) realize improved results from 2001 initiatives to expand sales
activity;
2) continue outstanding operating performance, and set new Company records
for profitability as a percent of sales; 3) sustain the patent infringement
verdict and recover damages; and 4) actively look for new acquisitions to
build a platform for continued growth.
3Q and 9M 2002 financial results are consistent with achieving the
previously stated plan.
9
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
On January 1, 2002, UTMD converted the functional currency of its Irish
manufacturing operations, including related assets, to the Euro currency,
consistent with conversion of Ireland and many other Western European countries
to the new common Euro currency. The Company's Irish operations were previously
denominated in Irish Pounds. UTMD sells products under agreements denominated in
U.S. Dollars and the Euro. The exchange rate was 1.0117 Euros per U.S. Dollar as
of September 30, 2002. The weighted average conversion rate for 3Q 2002 for
sales was 1.0164 Euros per U.S. Dollar. The Euro and other currencies are
subject to exchange rate fluctuations that are beyond the control or
anticipation of UTMD. The exchange rate for the Irish Pound was .8642 per U.S.
Dollar as of September 30, 2001. The fixed exchange rate is .787 Euros per Irish
Pound. UTMD manages its foreign currency risk without separate hedging
transactions by converting currencies to U.S. Dollars as transactions occur.
Item 4. Controls and Procedures
UTMD maintains a system of internal controls and procedures designed to
provide reasonable assurance as to the reliability of its consolidated condensed
financial statements and other disclosures included in this report. UTMD's Board
of Directors, operating through its audit committee, provides oversight to its
financial reporting process.
Within the 90-day period prior to the date of this report, UTMD evaluated
the effectiveness of the design and operation of its disclosure controls and
procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. Based
on that evaluation, UTMD's Chief Executive Officer and Acting Chief Financial
Officer concluded that its disclosure controls and procedures are effective in
alerting them in a timely manner to material information relating to UTMD
required to be included in this quarterly report on Form 10-Q.
There have been no significant changes in UTMD's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date that it carried out its evaluation and there were no corrective actions
regarding significant deficiencies or material weaknesses.
10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
SEC
Exhibit # Reference # Title of Document
- --------- ----------- -----------------
1 99 Certification of CEO pursuant to 18
U.S.C.ss.1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
2 99 Certification of Principal Financial Officer
pursuant to 18 U.S.C.ss.1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
b) Reports on Form 8-K:
On October 1, 2002, UTMD filed a report on Form 8-K, Item 5, Other Events,
reporting that it was commencing a self-tender through which it intends to
repurchase at a price of $17.05 per share up to 750,000 of its shares. The
tender offer was scheduled to commence on October 8, and to expire on November
5, 2002. Please note that UTMD subsequently adjusted the dates to commence on
October 11, and to expire on November 12, 2002.
On October 15, 2002, UTMD filed a report on Form 8-K, Item 5, Other
Events, reporting financial results for third quarter 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchanges Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UTAH MEDICAL PRODUCTS, INC.
---------------------------
REGISTRANT
Date: 11/12/02 By: /s/ Kevin L. Cornwell
------------ ---------------------------------------------
Kevin L. Cornwell
CEO
(Principal Executive and Financial Officer)
11
CERTIFICATION
I, Kevin L. Cornwell, Chief Executive Officer of the Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Utah Medical
Products, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls.
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ Kevin L. Cornwell
- ---------------------------------
Kevin L. Cornwell
Chief Executive Officer
12
CERTIFICATION
I, Kevin L. Cornwell, Principal Financial Officer of the Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Utah Medical
Products, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls.
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ Kevin L. Cornwell
- ---------------------------------
Kevin L. Cornwell
Principal Financial Officer
13