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, 1995 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, 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
The number of shares outstanding of the registrant's common stock as of August
8, 1995: 9,816,551
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UTAH MEDICAL PRODUCTS, INC.
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INDEX TO FORM 10-Q
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PART I - FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Balance Sheets as of June 30, 1995
and December 31, 1994 3
Statements of Operations for the three and six months
ended June 30, 1995 and June 30, 1994 4
Statements of Cash Flows for the six months ended
June 30, 1995 and June 30, 1994 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
UTAH MEDICAL PRODUCTS, INC.
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BALANCE SHEETS AS OF JUNE 30, 1995 AND
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DECEMBER 31, 1994
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(unaudited)
ASSETS JUNE 30, 1995 DECEMBER 31, 1994
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CURRENT ASSETS:
Cash $ 5,258,318 $ 1,579,121
Investments 4,923,609 5,572,048
Accounts receivable - net 5,304,169 6,389,357
Inventories 3,711,865 4,023,939
Prepaid expenses 181,881 113,173
Other current assets 281,039 213,030
Deferred income taxes 422,010 390,941
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Total current assets 20,082,891 18,281,609
PROPERTY AND EQUIPMENT - NET 8,332,323 8,137,248
INTANGIBLE ASSETS - NET 797,887 946,326
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TOTAL $29,213,101 $27,365,183
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Accounts payable $ 1,791,560 $ 1,821,302
Accrued expenses:
Payroll and payroll taxes 944,681 1,000,946
Other 334,405 502,591
Deferred revenue 85,600 85,600
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Total current liabilities 3,156,246 3,410,439
DEFERRED REVENUE 215,706 258,204
DEFERRED INCOME TAXES 289,595 256,220
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Total liabilities 3,661,547 3,924,863
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STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value; authorized-5,000,000
shares; no shares issued or outstanding -- --
Common stock - $.01 par value; authorized - 50,000,000
shares; issued - June 30, 1995, 9,806,344 shares
December 31, 1994, 9,993,559 shares 98,063 99,935
Unrealized loss on investments
available-for-sale, net of tax -- (101,815)
Retained earnings 25,453,491 23,442,200
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Total stockholders' equity 25,551,554 23,440,320
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TOTAL $29,213,101 $27,365,183
<FN>
see notes to financial statements
UTAH MEDICAL PRODUCTS, INC.
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STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS
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ENDED JUNE 30, 1995 AND JUNE 30, 1994
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(unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 30, JUNE 30,
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1995 1994 1995 1994
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NET SALES $10,711,974 $10,110,800 $20,466,015 $19,468,330
COST OF SALES 5,706,955 5,599,235 11,089,633 10,783,722
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GROSS MARGIN 5,005,019 4,511,565 9,376,382 8,684,608
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EXPENSES:
Selling, general and administrative 1,605,968 1,560,181 3,028,846 3,010,774
Research & development 454,256 410,906 871,591 742,781
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Total 2,060,224 1,971,087 3,900,437 3,753,555
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INCOME FROM OPERATIONS 2,944,795 2,540,478 5,475,945 4,931,053
OTHER INCOME 271,240 223,711 540,885 396,463
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INCOME BEFORE INCOME TAX EXPENSE 3,216,035 2,764,189 6,016,830 5,327,516
INCOME TAX EXPENSE 1,125,613 969,590 2,105,889 1,879,571
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NET INCOME $ 2,090,422 $ 1,794,599 $ 3,910,941 $ 3,447,945
============= ============= ============= ===========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.21 $ 0.17 $ 0.39 $ 0.32
============ ============= ============= ===========
EARNINGS PER COMMON SHARE
ASSUMING FULL DILUTION $ 0.21 $ 0.17 $ 0.39 $ 0.32
============ ============= ============= ===========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES 9,939,592 10,492,944 10,002,182 10,733,166
============ ============= ============= ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES ASSUMING FULL DILUTION 9,997,762 10,492,944 10,081,155 10,733,166
============= ============= ============= ===========
<FN>
see notes to financial statements
UTAH MEDICAL PRODUCTS, INC.
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STATEMENTS OF CASH FLOWS
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FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1994
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(unaudited)
JUNE 30,
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net income $ 3,910,940 $ 3,447,945
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Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 831,006 590,700
Provision for losses on accounts
receivable 5,209 14,000
Deferred income taxes (59,307) 8,625
Loss on disposal of assets 7,926 29,547
Tax benefit attributable to exercise and
disposition of incentive stock options
and stock purchase rights 69,477 8,216
Changes in operating assets and liabilities:
Accounts receivable - trade 1,079,979 235,627
Inventories 312,074 (818,560)
Prepaid expenses (68,708) 167,510
Other current assets (68,009) (70,377)
Accounts payable (29,742) 306,842
Accrued expenses (224,450) (252,247)
Deferred revenue (42,498) (42,798)
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Total adjustments 1,812,957 177,085
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Net cash provided by operating activities 5,723,897 3,625,030
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for:
OB Tech acquisition -- (500,000)
Property and equipment (827,789) (1,028,388)
Intangible assets (23,304) (35,517)
Purchases of investments (607,641) (1,301,654)
Proceeds from sale of investments 1,394,223 5,945,530
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Net cash provided by (used in) investing
activities (64,511) 3,079,971
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 326,277 114,861
Common stock purchased and retired (2,306,466) (7,096,349)
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Net cash used in financing activities (1,980,189) (6,981,488)
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NET INCREASE (DECREASE) IN CASH 3,679,197 (276,487)
CASH AT BEGINNING OF PERIOD 1,579,121 830,724
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CASH AT END OF PERIOD $ 5,258,318 $ 554,237
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 2,147,767 $ 1,826,138
<FN>
see notes to financial statements
UTAH MEDICAL PRODUCTS, INC.
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NOTES TO FINANCIAL STATEMENTS
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(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 generally accepted accounting
principles. 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, 1994.
The accompanying financial statements have not been examined by independent
accountants in accordance with generally accepted auditing standards, but 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. The results of
operations for the three and six months ended June 30, 1995 may not be
indicative of the results that may be expected for the year ending December 31,
1995.
(2) Inventories at June 30, 1995 and December 31, 1994 consisted of the
following:
June 30, December
1995 31, 1994
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Finished goods $ 795,374 $ 789,924
Work-in-process 893,093 822,102
Raw materials 2,023,398 2,411,913
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Total $3,711,865 $4,023,939
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(3) The Company adopted SFAS No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" in 1994. All investments are classified as
available-for-sale, and resulting adjustments are included in the accompanying
financial statements.
(4) In January 1995, the Company entered into two new purchase and distribution
agreements with Baxter Healthcare Corporation. The new agreements supersede
previous agreements with Baxter and are designed to increase the predictability
of orders and to lower administrative costs for both companies.
(5) Events subsequent to June 30, 1995:
None.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Because of the relatively short span of time, results for any given three
or six month period in comparison with a previous three or six month period may
not be indicative of results for the year as a whole.
a) Overview
During second quarter (2Q) 1995, the Company established new quarterly
income statement performance records. Sales and gross profits were 5.5% and
9.9% higher, respectively, than the previous records set in fourth quarter (4Q)
1994. Operating profits and EBIT were 7.8% and 8.4% higher, respectively, than
the previous records set in third quarter (3Q) 1992. Net profits were 5.7%
higher than the previous high in 4Q 1992. And finally, EPS were 15.5% higher
than the previous record set both in 3Q 1994 and first quarter (1Q) 1995.
b) Revenues
UTMD divides revenues into three product-line categories: 1) critical care,
which is comprised primarily of components used in invasive blood pressure
monitoring, but also includes components for PTCA inflation pressure monitoring
and intercranial pressure monitoring, as well as neonatal oxygen hoods; 2)
obstetrics, comprised mainly of devices for monitoring intrauterine pressure
during labor and delivery, and to a lesser extent other labor and delivery
supplies; and 3) gynecology products including an electrosurgery system used in
a procedure called LETZ, a uterine manipulator called LUMIN that is used during
laproscopic procedures, and LIBERTY, an electrical stimulation device for
controlling incontinence. In the three general product categories, UTMD's
primary products sold in the U.S.: 1) are the accepted standard of care, 2)
enjoy a number one or number two market share position, and 3) have important
product features protected by patents.
In the second quarter, the Company experienced a changing revenue mix among
the three categories, causing an improvement in overall profitability. Critical
care product revenues represented 54% of total revenue in 2Q 1995, compared with
61% of 2Q 1994 revenues, 60% of total 1994 revenue, and 58% of revenue for 1Q
1995. In the U.S., this is a mature business dominated by two large suppliers,
Baxter and Abbott. About 40% of the blood pressure monitoring market is the
disposable pressure transducer ("DPT") and accessories which UTMD manufactures
and the balance is catheters. UTMD does not presently make or sell the
catheters. Overseas, the market is much more fragmented with DPTs still growing
in acceptance.
Revenues from UTMD's largest OEM customer, Baxter, actually declined a bit
from 1Q 1995. As a percentage of total revenues, UTMD's Baxter revenues (all of
which are included in the critical care category) declined to 34% in 2Q 1995
from 41% in 2Q 1994, 39% in all of 1994, and 38% in 1Q 1995. Sales of critical
care products in 2Q 1995 were $5,778,000, compared with $6,118,000 in 2Q 1994.
Sales to Baxter in 2Q 1995 were $3,696,000 compared to $4,194,000 in 2Q 1994.
During the first half (1H) of 1995, total critical care sales were $11,448,000
compared with $11,648,000 in 1H 1994. Sales to Baxter were $7,439,000 in 1H
1995, compared to $7,684,000 in 1H 1994.
The obstetrics revenue category grew 29% and 18% during 2Q and 1H 1995,
respectively, over the same periods of 1994. Intran sales were $950,000 higher
in 2Q 1995 than during 2Q 1994. Obstetrics revenue represented 39% of total
sales in 2Q 1995 and 38% of total sales in 1H 1995. Marketing efforts to expand
the marketplace through "nurse placement" training programs, new contracts with
Group Purchasing Organizations (GPOs) and continued selective conversion from
distributors to direct sales employees in the U.S. have all contributed. Sales
of obstetrics products in 2Q 1995 were $4,197,000 compared to $3,247,000 in 2Q
1994. For the first half of the year, obstetric sales were $7,696,000 in 1995
compared to $6,516,000 in 1994.
The third category, gynecology products, increased 9% in 2Q 1995 over 2Q
1994, and represented 7% of total revenues. Along with the addition of LIBERTY
and LUMIN, both new products that the Company has just started to sell, the
gynecology category remains a very profitable and promising area of focus for
the Company. Gynecology product sales in 2Q 1995 were $737,000 compared to
$676,000 in 2Q 1994 and were $1,331,000 for 1H 1995 compared to $1,305,000 in 1H
1994. UTMD's success and dominant market share position with LETZ is due to
providing equipment that is custom designed for that important gynecological
procedure.
Second quarter and first half 1995 foreign sales were $2,675,000 and
$5,237,000, respectively, compared to $2,679,000 and $4,882,000, respectively,
in the same periods of 1994. Practically all international sales continue to be
critical care products, for which sales the Company has relied heavily on the
efforts of other medical device companies. Critical care products represented
98% of international sales in 2Q 1995 compared to 95% in 2Q 1994.
UTMD believes it has substantial sales potential for its products in
international markets, and therefore plans to continue to commit its resources
to international business expansion.
c) Gross Profit
Gross margins (profit after subtracting costs of manufacturing products from
revenues) in 2Q 1995, were 46.7% compared to 44.6% in 2Q 1994. For the first
half, gross margins were 45.8% in 1995 compared to 44.6% in 1994. The primary
cause of gross margin improvement is product mix, as obstetric and gynecology
products both increased as a percentage of sales, while critical care products
declined. Because UTMD anticipates a continuation of the trend for faster sales
growth in the obstetrics and gynecology product lines, which have higher margins
relative to UTMD's other products, and because of more sales productivity from
its directly employed sales representatives, the Company foresees continued
gross margin improvements.
d) Income from Operations
Operating profit, or income from operations, is the profit achieved after
subtracting operating expenses from gross profit.
As a percentage of sales, operating expenses declined to 19.2% in 2Q 1995
compared to 19.5% in 2Q 1994 and declined to 19.1% in 1H 1995 compared to 19.3%
in 1H 1994. Operating expenses for 2Q and 1H, in dollars, were up 5% and 4%,
respectively, in 1995 from 1994. R&D expenses were up 11% and 17% during 2Q
and 1H, respectively, in 1995 from 1994. Selling, general and administrative
(SG&A) expenses were up 3% in 2Q 1995 compared to 2Q 1994. SG&A expenses were
up 1% during 1H 1995 from the same period in 1994, following a 2% decline in
SG&A in 1Q 1995 compared to the same period of 1994. Due to costs associated
with introducing new products during the remainder of 1995 (Cordguard, Liberty
and Lumin), along with adding direct sales representatives to replace certain
distributors, sales and marketing expenses will likely increase as a percentage
of sales in the second half of the year.
Second quarter 1995 R&D expenses were 4.2% of sales compared to 4.1% in
1994. For 1H, R&D expenses were 4.3% of sales in 1995 compared to 3.8% of sales
in 1994. Second quarter 1995 income from operations was $2,945,000 compared to
$2,540,000 in 2Q 1994. Second quarter 1995 operating margins were 27.5%
compared to 25.1% for the same quarter in 1994. First half 1995 operating
income was $5,476,000 compared to $4,931,000 in 1994, while operating margins
were 26.8% and 25.3% for the same periods, respectively.
e) Non-operating Income
Non-operating income, or other income, for UTMD includes principally
royalties from licensing UTMD's technology to other companies, interest and
capital gains from investing the Company's cash, and gains from the sale of
other assets. Second quarter 1995 other income remained consistent with 1Q 1995
at $271,000. Royalties from other medical device companies comprise about 60%
of the total, representing about 1 cents per share earnings in the quarter. The
other 40% of non-operating income is essentially investment income from cash
balances. For 1H 1995, other income was $541,000, compared to $396,000 in 1H
1994. Most of this increase is from interest and dividends on higher cash
balances in 1995 from 1994.
f) Net Income and EPS
After income taxes, 2Q 1995 net income was $2,090,422, compared to
$1,794,599 in 2Q 1994. Net income for 1H 1995 was $3,910,941 compared to
$3,447,945 for 1H 1994. The effective income tax rate in both 2Q and 1H 1995
was 35.0% compared to 35.1% in 2Q 1994 and 35.3% in 1H 1994. Period to period
fluctuations in the tax rate result from the use of a foreign sales corporation
starting in mid-1992 and differing balances in tax-exempt securities
investments.
Fully diluted 2Q 1995 EPS were up 22.2% to $.209 compared to $.171 in 2Q
1994. Second quarter 1995 ending weighted average number of common shares
assuming full dilution (the number used to calculate EPS) were 9,997,762 shares
compared to 10,492,944 in 2Q 1994. For the first half, EPS were up 20.8% in
1995 over 1994 to $.388 from $.321. Actual outstanding common shares as of June
30, 1995 were 9,806,344.
g) Return on Equity
Net income, divided by average accumulated shareholders' equity during the
period, is return on shareholders' equity (ROE). This ratio determines how
fast the Company can afford to grow without any external financing. ROE in 1H
1995 (annualized) was 32%, and has averaged 30% during the last 7 years. It is
management's objective to maintain ROE in excess of the 25% per annum EPS growth
target so that UTMD can afford to grow at a 25% rate without diluting
shareholders' interests. External equity financing would only be considered if
an exceptional business growth opportunity presented itself that would allow
long term increased EPS at the same time that the number of shares are also
expanded.
h) Cash Flows
Cash and investments balances were $10.2 million at the end of 2Q 1995, an
increase of $3.0 million from December 31, 1994. Cash provided by operating
activities, including adjustments for depreciation and other non-cash operating
expenses, along with changes in working capital, totaled $5,723,897 in 1H 1995,
up from $3,625,030 in 1H 1994. Apart from net income, which contributed 68% of
the 1H 1995 total, a decrease of over $1 million in accounts receivable, and a
total of over $800,000 in depreciation and amortization costs were predominately
responsible for the additional cash generated in 1H 1995 compared to 1H 1994.
As of June 30, 1995, accounts receivable balances were $5.3 million which
equates to about 45 days in receivables (based on 2Q sales), compared to end of
year accounts receivable of $6.4 million which equates to about 58 days in
receivables. Inventory balances are $312,000 lower than at the end of 1994,
with inventory turns now at 5.5 times based on 2Q cost of sales.
Cash of $828,000 was used for capital expenditures in property and
equipment, almost equal to the amount of depreciation and amortization for the
period. Accordingly, net property and equipment, along with intangibles, were
$9.1 million at both June 30, 1995 and December 31, 1994. The expected $4
million capital investment to build a plant in Ireland (as announced on May 5,
1995) has not begun because of the time required to get plans through Irish
governmental agencies. Capital expenditures for property and equipment during
1H 1995 were made, in part, in automation of key assembly operations, and for
new product tooling and equipment.
Net purchases and sales of investments provided $786,600 in 1H 1995 cash.
First half 1995 financing activities used cash of $1,980,189, compared to
$6,981,488 in the same period of 1994. Stock repurchases continued to comprise
the largest use of cash from all categories, although not nearly at the level of
one year ago. The Company repurchased its own common stock during 2Q 1995 in
the amount of $1,425,000, for a total of $2,306,000 for the first half of 1995.
This is down from $7,096,000 used in 1H 1994. To date, UTMD has invested about
$19.0 million in repurchasing 2,314,000 of its common shares since November
1992. In 1H 1995, the Company increased by over $200,000, the amount received
from issuing stock (on exercise of employee options), compared to 1H 1994.
Since there are now outstanding employee options issued in 1990 with a remaining
exercisable balance of just over 100,000 shares that expire in December 1995, it
can be expected that proceeds from issuing stock will continue to exceed those
of 1994.
The Company did not enter into any long term debt agreements during the
first half of 1995.
Management believes that current cash balances plus future income from
operations will provide the liquidity needed to finance current growth plans.
UTMD plans to use cash during the remainder of 1995 for investing in its new
Ireland manufacturing facility, continued automation and other manufacturing
improvements in Utah, tooling for new products, and for selective infusions of
technological, marketing or product manufacturing rights to broaden the
Company's product offerings.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 19, 1995, at the annual meeting, shareholders of the Company approved
the following matters submitted to them for consideration:
(1) Elected Lori A. Sessions as a director of the Company; and
For 8,680,031
Withhold Authority 63,431
(2) Approved the appointment of Deloitte and Touche as independent certified
public accountants and auditors of the Company for its 1995 fiscal year.
For 8,443,581
Against 247,417
Abstentions and broker non-votes 52,464
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: None
b) Reports on Form 8-K: None
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.
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REGISTRANT
Date: 8/10/95 By: /s/ Kevin L. Cornwell
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Kevin L. Cornwell
President and CEO
Date: 8/10/95 By: /s/ Kevin L. Cornwell
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Kevin L. Cornwell
Secretary and CFO