Utah Medical Products (UTMD) 10-Q 2005 Q2 Quarterly report

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: June 30, 2005 Commission File No.0-11178

UTAH MEDICAL PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)

UTAH	87-0342734
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

7043 South 300 West
       Midvale, Utah 84047       
Address of principal executive offices

Registrant's telephone number:(801) 566-1200

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and; (2) has been subject to such filing requirements for the past 90 days.  Yes |X|  No |_|

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes |X|  No |_|

     Indicate the number of shares outstanding of each of the issuer's classes of common stock as of August 4, 2005:3,875,609.

UTAH MEDICAL PRODUCTS, INC.
INDEX TO FORM 10-Q

PART I - FINANCIAL INFORMATION	PAGE
Item 1.   Financial Statements
Consolidated Condensed Balance Sheets as of
June 30, 2005 and December 31, 2004	1
Consolidated Condensed Statements of Income for the
three and six months ended June 30, 2005 and June 30, 2004	2
Consolidated Condensed Statements of Cash Flows for
the six months ended June 30, 2005 and June 30, 2004	3
Notes to Consolidated Condensed Financial Statements	5
Item 2.   Management’s Discussion and Analysis of
Financial Condition and Results of Operations	8
Item 3.   Quantitative and Qualitative Disclosures about Market Risk	12
Item 4.   Controls and Procedures	12
PART II - OTHER INFORMATION
Item 1.   Legal Proceedings	13
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds	13
Item 6.   Exhibits	14
SIGNATURES	14

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS AS OF
JUNE 30, 2005 AND DECEMBER 31, 2004
(in thousands)

	(unaudited) June 30, 2005			(audited) December 31, 2004
ASSETS
Current assets:
Cash	$	626		$	1,818
Investments, available-for-sale		12,676			15,110
Accounts receivable - net		3,935			3,730
Inventories		2,650			2,859
Other current assets		956			1,013
Total current assets		20,843			24,530
Property and equipment - net		8,423			9,058
Goodwill		7,191			7,191
Other intangible assets		2,718			2,718
Other intangible assets - accumulated amortization		(2,260	)		(2,235	)
Other intangible assets - net		458			483
TOTAL	$	36,915		$	41,262
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	824		$	698
Accrued expenses		1,869			3,638
Total current liabilities		2,693			4,336
Deferred income taxes		672			769
Total liabilities		3,365			5,105
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 - June 30, 2005, 3,928 shares
December 31, 2004, 4,105 shares		39			41
Accumulated other comprehensive income		(503	)		226
Retained earnings		34,014			35,890
Total stockholders' equity		33,550			36,157
TOTAL	$	36,915		$	41,262

see notes to consolidated condensed financial statements

1

UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR THE
THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND JUNE 30, 2004
(in thousands - unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
NET SALES	$	7,028	$	6,827	$	13,680	$	13,443
COST OF SALES		3,006		2,893		5,924		5,658
Gross Margin		4,022		3,934		7,756		7,785
OPERATING EXPENSES:
Selling, general and administrative		1,472		1,224		2,590		2,730
Research & development		79		82		143		147
Total		1,551		1,306		2,733		2,877
Income from Operations		2,471		2,628		5,023		4,908
OTHER INCOME		213		178		467		6,392
Income Before Income Tax Expense		2,684		2,806		5,490		11,300
INCOME TAX EXPENSE		797		965		1,634		4,284
Net Income	$	1,887	$	1,841	$	3,856	$	7,016
BASIC EARNINGS PER SHARE	$	0.47	$	0.41	$	0.95	$	1.56
DILUTED EARNINGS PER SHARE	$	0.45	$	0.38	$	0.90	$	1.46
SHARES OUTSTANDING - BASIC		4,010		4,492		4,053		4,504
SHARES OUTSTANDING - DILUTED		4,229		4,794		4,277		4,819

see notes to consolidated condensed financial statements

2

UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND JUNE 30, 2004
(in thousands - unaudited)

	June 30,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	3,856		$	7,016
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization		349			429
Gain on investments		(70	)		--
Provision for (recovery of) losses on accounts receivable		4			(4	)
Loss on disposal of assets		--			5
Deferred income taxes		24			71
Tax benefit attributable to exercise of stock options		171			182
Changes in operating assets and liabilities:
Accounts receivable - trade		(469	)		(212	)
Accrued interest and other receivables		130			21
Litigation receivable		--			24,884
Inventories		111			(106	)
Prepaid expenses and other current assets		(47	)		(114	)
Accounts payable		145			165
Accrued expenses		(1,727	)		(8,508	)
Total adjustments		(1,380	)		16,814
Net cash provided by operating activities		2,476			23,830
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for:
Property and equipment		(230	)		(259	)
Intangible assets		--			(10	)
Purchases of investments		(3,300	)		(22,103	)
Proceeds from the sale of investments		5,760			2,168
Net cash paid in acquisition		--			(1,012	)
Net cash used in investing activities		2,230			(21,217	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock - options		541			1,012
Common stock purchased and retired		(5,171	)		(3,057	)
Common stock purchased and retired - options		(47	)		(6	)
Payment of dividends		(1,230	)		--
Net cash used in financing activities		(5,908	)		(2,051	)
Effect of exchange rate changes on cash		9			(14	)
NET INCREASE (DECREASE) IN CASH		(1,193	)		549
CASH AT BEGINNING OF PERIOD		1,818			762
CASH AT END OF PERIOD	$	626		$	1,311

see notes to consolidated condensed financial statements

3

UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND JUNE 30, 2004
Continued

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
(in thousands)

	Six Months Ended June 30,
	2005		2004
Cash paid during the period for income taxes	$	1,765	$	12,000
Cash paid during the period for interest	$	--	$	--
During the six months ended June 30, 2004 the Company purchased all of the
outstanding stock of Abcorp Medical, Inc. The Company paid cash, and
recorded net assets from the acquisition as follows:
Cash			$	11
Accounts receivable				127
Inventory				25
Prepaid Insurance				18
Equipment, net				16
Accounts payable				(96	)
Accrued expenses				(25	)
Intangibles				946
Total cash paid				1,022
Less cash received				(11	)
Net cash investment			$	1,012

see notes to consolidated condensed financial statements

4

UTAH MEDICAL PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)

(1)   The unaudited financial statements 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/A for the year ended December 31, 2004. In the opinion of management, the accompanying 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 June 30, 2005 and December 31, 2004 (in thousands) consisted of the following:

	June 30, 2005		December 31, 2004
Finished goods	$	667	$	932
Work-in-process		625		640
Raw materials		1,358		1,287
Total	$	2,650	$	2,859

(3)   Stock-Based Compensation. At June 30, 2005 the Company had stock-based employee compensation plans, which authorized the grant of stock options to eligible employees and directors. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations, and has adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.” Accordingly, no compensation cost has been recognized in the financial statements, as all options granted under those plans had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. Had compensation cost for the Company’s stock option plans been determined based on the fair value at the grant date consistent with the provisions of SFAS No. 123, the Company’s net earnings and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share amounts):

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net Income as reported	$	1,887		$	1,841		$	3,856		$	7,016
Deduct:
Total stock-based employee compensation expense determined under fair value based method for allawards, net of related tax effects		(515	)		(103	)		(612	)		(184	)
Net income pro forma	$	1,372		$	1,738		$	3,244		$	6,832
Earnings per share:
Basic - as reported	$	0.47		$	0.41		$	0.95		$	1.56
Basic - pro forma	$	0.34		$	0.39		$	0.80		$	1.52
Diluted - as reported	$	0.45		$	0.38		$	0.90		$	1.46
Diluted - pro forma	$	0.32		$	0.36		$	0.76		$	1.42

      On May 6, 2005, the Compensation and Option Committee of the Board accelerated the vesting of certain unvested stock options awarded to employees, officers and directors under the Company’s stock option plans, which had exercise prices that were under water as of market close on May 5, 2005.

5

      Options to purchase 128,063 shares become fully exercisable on December 1, 2005 as a result of the vesting acceleration. Exercise prices of the options accelerated are $24.02 and $25.59 per share. These options previously became fully vested on October 1, 2007 and January 1, 2008.

      The Company took this action to avoid an accounting charge (as compensation expense) for these options starting in the quarter ending March 31, 2006, as required by FAS 123(R). The substantial increase in pro forma compensation expense in 2005, as shown above, is a result of the vesting acceleration.

(4)   Comprehensive Income. Comprehensive income (in thousands) for the three and six months ending June 30, 2005 was $1,691 and $3,307, net of taxes, respectively. The components used to calculate comprehensive income were foreign currency translation adjustments of ($217) and ($426), and unrealized holding gains/(losses) of $21 and ($123), respectively.

(5)   Warranty Reserve. The Company accrues provisions for estimated costs that are likely to be incurred for product warranties and uncollectible accounts. The amount of the provision is adjusted, as required, to reflect historical experience. The following table summarizes changes to UTMD’s warranty reserve during 2Q 2005 (in thousands):

Beginning Balance, April 1, 2005	$	60
Changes in Warranty Reserve during 2Q 2005:
Aggregate reductions for warranty repairs		-
Aggregate changes for warranties issued during reporting period		-
Aggregate changes in reserve related to preexisting warranties		-
Ending Balance, June 30, 2005	$	60

(6)   Investments. Investments, classified as available-for-sale consist of the following (in thousands):

Investments, available-for-sale	June 30, 2005			June 30, 2004
Investments, at cost	$	12,590		$	20,690
Equity Securities:
Unrealized holding gains		150			45
Unrealized holding (losses)		(64	)		(2	)
Investments, at fair value	$	12,676		$	20,733

Changes in the unrealized holding gain on investment securities available-for-sale and reported as a separate component of accumulated other comprehensive income are as follows (in thousands):

Unrealized holding gains on available-for-sale investments	2Q 2005			2Q 2004
Balance, beginning of period	$	32		$	21
Realized gain from securities included in beginning balance		-			20
Gross unrealized holding gains, net of (losses), in equity securities		34			8
Deferred income taxes on unrealized holding gain		(13	)		(23	)
Balance, end of period	$	53		$	26

UTMD held available-for-sale investments in municipal debt securities with the following maturities and amounts:

Available-for-sale debt securities	June 30, 2005		June 30, 2004
Maturity less than 1 year	$	2,041	$	19,205
Maturity greater than 10 years		1,450		-

6

(7)   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 this 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, administrative 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 and responsively manufacture its products, including the possible effects of lack of performance of suppliers, success in gaining access to important global distribution channels, budgetary constraints, the timing of regulatory approvals for newly introduced products, regulatory intervention in current operations, particularly including the August 9, 2004 lawsuit filed by the Justice Department on behalf of the FDA against UTMD in the U.S. District Court of Utah and third party reimbursement of health care costs of customers.

      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 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.

7

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 Company’s Form 10-K/A Annual Report for the year ended December 31, 2004 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 second quarter (2Q) 2005, UTMD’s consolidated global sales increased 3% compared to 2Q 2004. UTMD achieved the following profitability measures for 2Q 2005, in comparison with 2Q 2004:

	2Q 05		2Q 04
Gross Profit Margin (gross profits/ sales):		57.2%		57.6%
Operating Profit Margin (operating profits/ sales):		35.2%		38.5%
Net Income:		26.9%		27.0%

     2Q 2005 earnings per share (EPS) were $.45, an increase of 16% compared to 2Q 2004.

     For first half (1H) 2005, UTMD’s total sales increased 2% relative to 1H 2004. The Company achieved the following profitability measures for 1H 2005 compared to 1H 2004:

	1H 05		1H 04
Gross Profit Margin (gross profits/ sales):		56.7%		57.9%
Operating Profit Margin (operating profits/ sales):		36.7%		36.5%
Net Income:		28.2%		52.2%

     1H 2005 earnings per share (EPS) decreased 38% to $.90 on a diluted basis. In first quarter (1Q) 2004, UTMD recognized $6,060 in non-operating income from patent infringement damages which did not recur in 1H 2005.

   b) Revenues

     The Company believes that revenue should be recognized at the time of shipment as title generally passes to the customer at the time of shipment. Revenue from product and service sales is generally recognized at the time the product is shipped or service completed and invoiced, and collectibility is reasonably assured. There are circumstances under which revenue may be recognized when product is not shipped, all of which meet the criteria of SAB 104:

     1) The Company provides engineering services, for example, design and production of manufacturing tooling that may be used in subsequent UTMD manufacturing of custom components for other companies. This revenue is recognized when UTMD’s service has been completed according to a fixed contractual agreement.

     2) The Company manufactures products for other companies (OEM customers) according to fixed longer term supply contracts which are not cancelable or changeable. Occasionally, an OEM customer will request to bill completed products according to the contract, but hold shipment for some business purpose of the customer (e.g. awaiting some mating component from another supplier).

     3) The Company manufactures products for foreign companies according to fixed contracts which are not cancelable or changeable. Occasionally, a foreign customer under a prepay obligation will request to bill completed products according to the contract, but hold shipment until payment will be made.

     Sales in 2Q 2005 increased 3% compared to 2Q 2004. Domestic direct sales were up 5% in 2Q 2005, led by domestic neonatal sales which increased 68% compared to 2Q 2004. The voluntary temporary withdrawal from the neonatal market by Arrow International was a positive factor for UTMD in 1H 2005. Domestic obstetric sales declined 12% in 2Q 2005 compared to the same quarter in 2004. Domestic OEM sales (sales of components to other companies) were down 33% compared to 2Q 2004. The primary component of the weaker OEM sales was CMI molding, which was down 55%. The OEM sales pattern is uneven quarter-to-quarter because customers tend to purchase several months’ worth of components at a time to minimize costs.

8

     International sales increased 6% in 2Q 2005 compared to 2Q 2004. Trade shipments from UTMD’s Ireland facility, comprised largely of OEM sales, were up 14% in US Dollar terms, and up 11% in EURO terms. International sales did not increase as much as shipments from the Ireland facility due to product mix.

     1H 2005 sales increased 2% compared to 1H 2004. International sales increased 7% while domestic sales were about the same. International sales were 24% of total sales in 1H 2005, up from 23% in 1H 2004. 1H 2005 trade shipments from UTMD’s Ireland facility were up 9% in US Dollar terms, and 5% in EURO terms compared to 1H 2004.

Global revenues by product category:

	2Q 2005		2Q 2004		1H 2005		1H 2004
Labor & Delivery	$	2,392	$	2,830	$	4,804	$	5,401
Gynecology/ Electrosurgery/ Urology		1,324		1,298		2,631		2,651
Neonatal		1,647		996		2,958		2,017
Blood Pressure Monitoring and Accessories*		1,665		1,703		3,287		3,375
* includes molded components sold to OEM customers.

   c) Gross Profit

     UTMD’s average gross profit margin (GPM), gross profits as a percentage of sales, was 57.2% and 56.7% in 2Q and 1H 2005, respectively, compared to 57.6% and 57.9% in 2Q and 1H 2004, respectively. UTMD’s prices for its products remained consistent with the prior year, but 1H 2005 product mix favored lower margin products. 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. Management expects to continue to achieve its GPM target of 55% during the remainder of 2005.

   d) Operating Profit

     Operating Profit is the profit remaining after subtracting operating expenses from gross profits. Operating expenses in 2Q 2005 were $244 higher than 2Q 2004, but $144 lower in 1H 2005 than 1H 2004. Costs were higher in 2Q 2005 mainly because UTMD increased its litigation reserve $300 to reflect its current estimate of the costs that will be required to complete the litigation process with the FDA through the trial, which is scheduled to begin August 30. The primary factor in the 1H difference was $350 in 1Q 2004 bonuses and litigation expenses related to the Tyco patent infringement. Total operating expenses including sales and marketing (S&M), research and development (R&D) and general and administrative (G&A) expenses, were 22.1% of sales in 2Q 2005, compared to 19.1% in 2Q 2004. Total operating expenses were 20.0% of sales in 1H 2005, compared to 21.4% in 1H 2004. Operating profit margins as a percentage of sales were 35.2% in 2Q 2005, 38.5% in 2Q 2004, 36.7% in 1H 2005 and 36.5% in 1H 2004.

     S&M expenses in 2Q 2005 were $580 or 8.3% of sales compared to $625, or 9.2% of sales in 2Q 2004. S&M expenses in 1H 2005 were $1,082 or 7.9% of sales compared to $1,187, or 8.8% of sales in 2Q 2004. Looking forward to the rest of 2005, UTMD expects S&M expenses to remain less than 9% of total consolidated sales.

     R&D expenses in 2Q 2005 were 1.1% of sales compared to 1.2% of sales in 2Q 2004. R&D expenses in 1H 2005 were 1.0% of sales compared to 1.1% of sales in 1H 2004. Management expects R&D expenses during 2005 as a whole to be approximately 1% of sales.

     G&A expenses in 2Q 2005 were $891 or 12.7% of sales compared to $599 or 8.8% of 2Q 2004 sales. G&A expenses in 1H 2005 were $1,508 or 11.0% of sales compared to $1,542 or 11.5% of 1H 2004 sales. As noted above, in 2Q 2005, $300 in G&A expenses were related to the FDA lawsuit, while in 1Q 2004, $350 in G&A expenses were associated with the completion of the patent infringement lawsuit with Tyco. Management expects G&A expenses including litigation expenses during 2005 to be less than 12% of sales. However, costs of litigation are hard to estimate.

   e) Non-operating income

     Non-operating income in 2Q 2005 was $213 compared to $178 in 2Q 2004, and was $467 in 1H 2005 compared to $6,392 in 1H 2004. In 1Q 2004, UTMD recognized $6,060 in non-operating income due to completion of the patent infringement lawsuit with Tyco. UTMD paid no interest during either period. UTMD received $85 in 2Q 2005 compared to $68 in 2Q 2004 in interest, dividends and capital gains income from investing cash balances. 1H 2005 interest, dividends and capital gains income was $233 compared to $116 in 1H 2004. UTMD also received $25 and $7 in 2Q 2005 and 2Q 2004, respectively, in rental income from leasing underutilized property to others. Royalty income, which UTMD receives from licensing its technology to other companies, was approximately the same for the same periods in both years.

9

   f) Earnings Before Income Taxes

     2Q 2005 earnings before income taxes (EBT) decreased to $2,684 compared to $2,806 in 2Q 2004. 1H 2005 EBT was $5,490 compared to $11,300 in 1H 2004. 2Q and 1H 2005 EBT margin was 38.2% and 40.1% of sales, respectively, compared to 41.1% and 84.1% in 2Q and 1H 2004, respectively.

   g) Net Income and Earnings per Share

     UTMD’s net income after taxes increased to $1,887 in 2Q 2005 compared to $1,841 in 2Q 2004, and decreased to $3,856 in 1H 2005 compared to $7,016 in 1H 2004. Net profit margins (NPM), net income (after tax) expressed as a percentage of sales, were 26.9% in 2Q 2005 compared to 27.0% in 2Q 2004, and 28.2% in 1H 2005 compared to 52.2% in 1H 2004. The net profit margin in 1H 2004 was unusual because the recognition of $6,060 in non-operating income from patent infringement damages was unrelated to sales during the period. The income tax provision rate in 2Q and 1H 2005 was 29.7% and 29.8%, respectively, compared to 34.4% and 37.9% in 2Q and 1H 2004, respectively. 2Q and 1H 2005 net income relative to EBT was aided by a significantly lower income tax provision as a result of The American Jobs Creation Act of 2004 (the Act) enacted in October 2004 which allows a temporary tax deduction on repatriated foreign earnings, which must be accomplished in 2005. UTMD previously included a deferred tax liability in reported results, anticipating that profits generated by its Ireland facility would eventually be repatriated triggering additional U.S. income taxes. Although UTMD expects that the lower income tax provision resulting from the Act will impact all calendar quarters in 2005, it is a non-recurring tax benefit limited to the year 2005.

     Diluted 2Q 2005 Earnings per Share (EPS) increased to $.45 from $.38 in 2Q 2004. Diluted 1H 2005 EPS decreased to $.90 from $1.46 in 1H 2004. 2Q and 1H 2005 weighted average number of diluted common shares (the number used to calculate diluted EPS) were 4,229,000 and 4,277,000 compared to 4,794,000 and 4,819,000 shares in 2Q and 1H 2004. The Company repurchased 185,613 shares in 2Q 2005 and 238,737 shares in 1H 2005. Exercises of employee options in 2Q 2005 added 43,952 shares, and 61,697 shares in 1H 2005 (net of shares swapped by employees as payment for the option exercise cost). Increases and decreases in UTMD’s stock price impact EPS growth as a result of the dilution calculation for unexercised options with exercise prices below the average stock market value during each period. The dilution calculation added 219,000 and 224,000 shares to actual weighted average shares outstanding in 2Q 2005 and 1H 2005 respectively, compared to 302,000 and 315,000 in 2Q and 1H 2004. The decrease in dilution is primarily due to fewer unexercised options outstanding. Actual outstanding common shares as of the end of 2Q 2005 were 3,928,400 compared to 4,522,500 at the end of 2Q 2004.

   h) Return on Equity

     UTMD ROE is equal to net profits divided by average shareholder equity during a specific time period. Annualized ROE in 1H 2005 was 22%, compared to 36% in 1H 2004. The higher ROE in 1H 2004 was due primarily to non-operating income resulting from resolution of the Tyco patent infringement.

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 $2,476 in 1H 2005 compared to $23,830 in 1H 2004. The two major changes in operating assets and liabilities in 1H 2004 were related to the accrual and receipt of about $31 million from Tyco International for patent infringement, and taxes on that income. The largest change in 1H 2005 was a $1,727 decrease in accrued expenses, due mainly to a decrease in the litigation expense reserve as expenses related to the FDA lawsuit were paid.

     The Company’s use of cash for investing activities was primarily as a result of purchases of short-term investments, in an effort to make prudent use of cash balances. UTMD expended $3,300 in 1H 2005 on such transactions compared to purchases of $22,103 in 1H 2004. UTMD spent $1,012 in 2Q 2004 to acquire Abcorp, its vendor for external fetal monitoring belts. In 1H 2005, UTMD received $5,760 from selling short-term investments compared to $2,168 in 1H 2004. UTMD invested $230 and $259 in 1H 2005 and 2004, respectively, in property and equipment purchases. This rate of investing in new property and equipment is required to keep facilities, equipment and tooling in good working condition.

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     In 1H 2005, UTMD received $541 and issued 61,697 shares of stock upon the exercise of employee stock options. Employees exercised a total of 69,961 option shares in 1H 2005, with 8,264 shares immediately being retired as a result of the individual trading the shares in payment of the exercise price of the options and related tax withholding requirements. UTMD paid $47 to meet tax withholding obligations in 1H 2005, compared to $6 in 1H 2004. UTMD repurchased 238,737 shares of stock in the open market at a cost of $5,171 during 1H 2005. Option exercises in 1H 2005 were at an average price of $9.64 per share. Share repurchases in the open market were at an average cost of $21.66 per share, including commissions and fees.

     In 1H 2004, the Company received $1,012 from issuing 103,562 shares of stock on the exercise of employee stock options. 1,200 additional shares were retired upon an employee trading those shares in payment of the stock option exercise price. UTMD repurchased 124,843 shares of stock in the open market at a cost of $3,057 during 1H 2004.

     UTMD did not utilize its bank line of credit during either period. UTMD paid $1,230 in cash dividends during 1H 2005.

     Management believes that future income from operations and effective management of working capital will provide the liquidity needed to finance growth plans. Planned capital expenditures during the remainder of 2005 are expected to be approximately $300 to keep facilities, equipment and tooling in good working order. In addition to capital expenditures, UTMD plans to use cash in 2005 for selective infusions of technological, marketing or product manufacturing rights to broaden the Company’s product offerings; for litigation expenses; for continued share repurchases if the price of the stock remains undervalued; and if available for a reasonable price, acquisitions that may strategically fit UTMD’s business and are accretive to performance.

   j) Assets and Liabilities

     June 30, 2005 total assets were $4,347 lower than at December 31, 2004, while current assets decreased $3,687. The decreases resulted primarily from a $3,626 decrease in cash and investments. Cash and investments declined due to share repurchases, and payment of litigation costs and dividends.

     Working capital was $18,150 at June 30, 2005, a $2,044 decrease from 2004 year-end. On the liabilities side, total liabilities were $1,740 lower and current liabilities $1,643 lower, due to decreases in accrued expenses. UTMD’s current ratio increased to 7.7 at the end of 1H 2005 from 5.7 at year-end 2004.

     Inventories decreased $209 during 1H 2005, well within management’s targets for current sales activity. Average inventory turns improved to 4.3 times in 2Q 2005 from 4.1 times in the prior quarter, and 3.3 times in 2Q 2004.

     Receivables balances as of June 30, 2005 were $205 higher than at the beginning of the year. 2Q 2005 ending receivables yielded average “days in receivables” of 50 days, well within management’s target of 55 days. At the end of 2004 and at June 30, 2004, days in receivables were 51 and 47, respectively.

     Net property and equipment decreased $635 in 1H 2005 because depreciation of $324 exceeded new equipment purchases of $230, and due to a $591 decrease in the dollar-denominated value of Ireland P&E. The U.S. dollar increased about 13% relative to the EURO during 1H 2005. Goodwill remained the same. Net intangible assets, excluding goodwill, decreased $25 as a result of amortization of patents and other intellectual property. At June 30, 2005, net intangible assets including goodwill were 21% of total assets, an increase from 19% at year-end 2004.

     As of June 30, 2005, UTMD’s total debt ratio (total liabilities/ total assets) decreased to 9% from 12% on December 31, 2004.

   k) Management's Outlook.

     As outlined in its December 31, 2004 10-K/A Report, UTMD's plan for 2005 is to

     a) clear up its unresolved QSR status with the U.S. FDA that has hindered sales, slowed new product development, stymied business development, clouded UTMD’s previously excellent reputation for quality products and consumed an inordinate amount of human and financial capital since 2001;

     b) continue outstanding operating performance;

     c) actively look for new acquisitions to facilitate sales growth; and

     d) utilize current cash balances in shareholders’ best long-term interest.

     1H 2005 performance demonstrated progress toward achieving the above 2005 plan.

     Part II Item 1 of this report describes the current status of legal proceedings regarding UTMD’s dispute with the FDA. The U.S. Court will determine if UTMD is violating any provisions of the QSR. The FDA has the burden to prove its allegations. UTMD and its highly reputable independent experts maintain that UTMD has been and is in substantial compliance with all applicable government regulations.

     If the Court agrees with any of the FDA allegations, the Company’s responsibility would be to implement procedures that satisfy the Court’s determination. Because the FDA is not claiming that the Company’s devices are unsafe or ineffective, or do not meet predetermined specifications, UTMD and its lawyers believe that an injunction to cease manufacturing and shipping products is not a realistic possibility, even if the Court agrees with FDA allegations. Because of this and because UTMD does not understand the factual basis for FDA’s allegations, the Company has not spent resources analyzing the potential financial impact of the relief being sought by the FDA.

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     There is not and never has been an imminent public health risk relating to use of UTMD’s products. The FDA has a variety of remedies to address device risks without any resort to the courts. None of those remedies has ever been applied to any UTMD device, because none has been justified. The FDA Denver District Office shut off communication with UTMD after 2001 while it performed inspection after inspection in an attempt to build a case. The case that was finally filed involves alleged QSR violations that the agency has been unable to substantiate, despite an effort coordinated by the CDRH including four comprehensive inspections, some involving “national expert” FDA inspectors. An independent expert, a nearly thirty year FDA compliance veteran and former District Director, retained by UTMD, has alleged misconduct within FDA.

     There continue to be no FDA restrictions on UTMD’s production and distribution of its products, the clinical acceptance and differentiation of which have been clearly demonstrated by continued customer demand through 2Q 2005.

   l) Accounting Policy Changes.

     In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS 123 (revised 2004), “Accounting for Stock Based Compensation.” This statement supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” This revised statement establishes standards for the accounting of transactions in which an entity exchanges its equity instruments for goods and services, including the grant of stock options to employees and directors. The revised Statement is effective for UTMD starting in 1Q 2006, and will require the Company to recognize compensation cost based on the grant date fair value of the equity instruments it awards. The Company currently accounts for those instruments under the recognition and measurement principles of APB Opinion 25, including the disclosure-only provisions of the original SFAS 123. Accordingly, no compensation cost from issuing equity instruments has been recognized in the Company’s financial statements. The Company estimates that the required adoption of SFAS 123 (R) in first quarter 2006 will have a negative impact on its consolidated financial statements. See note 3, above for an estimate of the impact this Statement would have had on the Company’s net income for the periods covered by this report. The Company estimates that adoption of this Statement will result in about $150 additional compensation expense during the year 2006 related to options outstanding on the date of this report. The Company intends to continue granting stock options or other equity instruments, although at a lower level than in the past, which will increase the amount of stock based compensation in 2006 and beyond. The Board of Director’s action on May 6, 2005 to accelerate the vesting of under water options reduced the financial statement impact of this accounting policy change.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     UTMD has manufacturing operations, including related assets, in Ireland denominated in the EURO, and sells products under agreements denominated in various Western European currencies. The EURO and other currencies are subject to exchange rate fluctuations that are beyond the control of UTMD. The exchange rate was 0.8282 EURO per USD as of June 30, 2005, and 0.8218 EURO per USD as of June 30, 2004. UTMD manages its foreign currency risk without separate hedging transactions by converting currencies to USD as transactions occur.

Item 4. Controls and Procedures

     The company’s management, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2005, the company’s disclosure controls and procedures were effective.

      There were no changes in the company’s internal controls over financial reporting that occurred during the quarter ended June 30, 2005, that have materially affected, or are reasonably likely to materially affect, the company’s internal controls over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

     The Company may be a party from time to time in litigation incidental to its business. Presently, there is no routine litigation for which the Company believes the outcome may be material to its financial results.

     On August 9, 2004, the United States of America filed a lawsuit in The United States District Court, Central District of Utah v. UTMD, Kevin L. Cornwell, Chairman & CEO, and Ben D. Shirley, Vice President, Product Development & Quality Assurance. The presiding judge is Judge Bruce R. Jenkins. The government (FDA) is seeking a permanent injunction from alleged deviations of the Quality System Regulation (QSR). The FDA did not seek a preliminary injunction. The relief being sought is to enjoin the Company from manufacturing and shipping products until it conforms with the QSR in a manner that is acceptable to the FDA. The trial is scheduled to start August 30, 2005.

     On June 30, 2005 the Court indicated that it would issue an order to dismiss UTMD’s counterclaim for damages for abuse of process without prejudice. In response, on July 15, 2005, UTMD filed an administrative claim under the Federal Tort Claims Act with the U.S. Department of Health and Human Services.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table details purchases by UTMD of its own securities during 2Q 2005.

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Maximum Number (or Approximate Dollar Value) of Shares that May be Purchased Under the Plans or Programs (1)
4/01/05 - 4/30/05		55,101	$	21.80		55,101
5/01/05 - 5/31/05		22,242		22.16		22,242
6/01/05 - 6/30/05		108,270		21.58		108,270
Total		185,613	$	21.72		185,613

(1)   In 2Q 2005 UTMD repurchased the above shares pursuant to a continued open market repurchase program initially announced in August 1992. Since 1992 through 2Q 2005, the Company has repurchased 6.2 million shares at an average cost of $11.12 per share including broker commissions and fees in open market transactions. In addition, the Company conducted tender offer transactions in which it purchased an additional 2.8 million shares at an average cost of $9.76 per share including fees and administrative costs. In total, UTMD has repurchased 9.0 million of its shares at an average price of $10.70 per share since 1992. To complete the picture relating to current shares outstanding, since 1992 the Company’s employees and directors have exercised and purchased 1.5 million option shares at an average price of $6.41 per share. All options were awarded at the market value of the stock on the date of the award.

     The frequency of UTMD’s open market share repurchases depends on the availability of sellers and the price of the stock. The board of directors has not established an expiration date or a maximum dollar or share limit for UTMD’s continuing and long term pattern of open market share repurchases.

     The purpose of UTMD’s ongoing share repurchases is to maximize the value of the Company for its continuing shareholders, and maximize its return on shareholder equity by employing excess cash generated by effectively managing its business. UTMD does not intend to repurchase shares that would result in terminating its Nasdaq National Market listing.

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Item 6. Exhibits

Exhibit #	SEC Reference #	Title of Document
1	31	Certification of CEO pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
2	31	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
3	32	Certification of CEO pursuant to 18 U.S.C. ss.1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
4	32	Certification of Principal Financial Officer pursuant to 18 U.S.C. ss.1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 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:      8/5/05	By:     /s/ Kevin L. Cornwell
	Kevin L. Cornwell       CEO
Date:      8/5/05	By:     /s/ Greg A. LeClaire
	Greg A. LeClaire       CFO

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