EXHIBIT 99.1
Salt Lake City, Utah - Utah Medical Products, Inc. (NASDAQ: UTMD) completed
another solid operating year in 2003, achieving new profitability records
(profit dollars as a percentage of sales). The resulting $1.50 earnings per
share (eps) from normal operations is a company record and a 10% increase for
shareholders. This eps increase occurred despite a 1% drop in 2003 sales that
prevented the Company from reaching the $1.55 eps projection made in December
2002 which was based on a projected 5% increase in 2003 sales. Despite the
slight sales decline, net profits increased 2% from continued improvements in
quality and operating efficiencies.
+ Increase / (Decrease)
----------- ----------
Sales: ( 1%)
Gross Profits: + 1% Gross Profit Margin: 58.6% (record)
Operating Profits: + 2% Operating Profit Margin: 39.5% (record)
Net Profits: + 2% Net Profit Margin: 27.0% (record)
eps: + 10%
In 2003, in addition to "normal" operating results ("regular" column in the
results table), the Company recognized extraordinary non-operating income of
$24,880,000 in damages and interest resulting from the 2002 District Federal
Court judgment relating to UTMD's patent infringement litigation against Tyco/
Kendall-LTP, which was upheld by appellate court decision in December. After
subtraction of additional expenses and payment of income taxes, the
extraordinary income adds $13,426,000 to 2003 net income and $2.75 to 2003 eps.
The actual payment from Tyco, which was received on January 20, included an
additional $6 million in augmented damages and interest which will be recognized
as extraordinary non-operating income in first quarter (1Q) 2004. Management
believes that these funds will add most to shareholder value when used in three
ways: expanding the Company's business through accretive acquisitions,
increasing product development activity and continuing UTMD's share repurchase
program.
Fourth quarter (4Q) 2003 "normal" eps were up 6%, UTMD's twenty-fourth
consecutive quarter of higher eps compared with the same quarter in the prior
year. During that six consecutive year time span, sales, gross profits,
operating profits, net profits and eps have grown at annually compounded rates
of 2%, 4%, 12%, 9% and 20%, respectively.
Except for domestic sales of hospital L&D products and OEM sales of its Oregon
subcontract molding operation, UTMD met its sales plan or had positive growth in
all other sales categories. Oregon (CMI) OEM sales declined 16% generally as a
result of the economic recession and specifically as a result of some customers
transferring their subcontract molding work to China. CMI OEM sales were
$491,000 in 2003 compared to $587,000 in 2002.
More significantly, domestic sales of L&D products were $10,769,000, declining
5% compared to 2002 sales. UTMD believes there were two related reasons for this
decline.
1) With new hospital group purchasing organization (GPO) codes of
conduct allowing greater choice for "physician-preference" products, at
the beginning of 2003 UTMD expected that future domestic sales of its
proven and differentiated products would benefit. Although by the end of
the year UTMD had entered into GPO contracts with four of the top six
GPOs, that turned out not to be the case in 2003. UTMD believes that the
Safe Harbor passed by Congress more than ten years ago that allows GPOs
to collect fees from suppliers, without violating anti-kickback statutes
that govern other industries, needs to be repealed or substantially
narrowed in order for the current environment to change.
Regarding UTMD's physician-preference products, the practice of bundling
financial incentives with unrelated products, sole source contracts and
five year duration contracts were all expressly identified as
unacceptable administrative practices by the Senate Judiciary Antitrust,
Competition Policy and Consumer Rights Subcommittee under Chairman Mike
DeWine (R-OH) and Ranking Member Herb Kohl (D-WI). The contracting codes
of ethics purportedly accepted by the major GPOs in 2002 and 2003 are
not having a substantial effect on the behavior of hospital
administrators, as yet. Investors who wish to gain additional
perspective on hospital supply chain issues may wish to access
www.healthcareintegrity.org.
2) After the late 2002 injunction against Tyco for infringing UTMD's
Intran IUPC patent, Tyco apparently increased its efforts to enter into
bundling agreements with hospital groups (see above) that require the
hospitals to purchase a new substitute IUPC, or lose financial
incentives for many other Tyco products.
For the year, UTMD's international sales increased 2%. In the first half of the
year, sales had increased 12% primarily helped by a weaker U.S. Dollar. In the
second half, a decision by the FDA to withhold export certificates from UTMD
contributed to an international sales decline of 6%. This decision was part of
an unresolved disagreement regarding the issuance of a Warning Letter by FDA to
UTMD in September 2001. The export certificates have now been withheld for many
months while UTMD distributes its products in the U.S. without FDA interference.
The Company strongly believes that there is no basis for this decision and has
filed a lawsuit in U.S. Federal Court, District of Utah, in an effort to rectify
the situation. UTMD's quality systems have been certified under ISO9001/ EN46001
quality standards since 1994, and significantly, have recently been certified
under the more stringent ISO13485 for medical devices. The ISO standards are
quality system standards used by most countries outside the U.S. The FDA's
current Quality System Regulations were finalized, in part, during 1996 to be
consistent with the ISO standards.
According to CEO Kevin Cornwell, "Since the 2001 Warning Letter, there has not
been any FDA interruption to UTMD's distribution of its products in the U.S.
There has been no issue with the safety or effectiveness of our products. There
has been no product seizure or mandated recall of any UTMD products. In fact,
UTMD's reputation for highly reliable products continues to be our advantage in
the marketplace, for care of mothers and babies in higher risk situations."
Looking forward to 2004, UTMD expects to maintain or modestly increase sales for
its established products even though markets for its products will remain
intensely competitive, despite the fact that administrative barriers in the U.S.
that prevent smaller companies from fairly competing for hospital sales have not
been significantly diminished, and despite disappointment in U.S. FDA
administrators who hurt UTMD's international sales in 2003.
Record gross profit margins (GPM) were achieved largely as the result of an
experienced manufacturing team that averages eight years' employment with UTMD
and the fact that the majority of products have been manufactured and widely
distributed for ten years or more. This long term experience coupled with a
history of lack of significant complaints of product defects or injuries in the
use of UTMD's products clearly validates the quality of UTMD's products in
achieving desired fitness for use and safety and effectiveness. Although UTMD
will not increase prices in 2004 because of competitive pressures, it expects to
be able to maintain its GPM through continued improvements in efficiency allowed
by its established infrastructure.
UTMD maintained total operating expenses (including sales and marketing,
research and development, and general and administrative expenses) at 19.1% of
sales in 2003, the same as 2002. Higher G&A expenses, resulting primarily from
litigation costs, were offset by lower marketing expenses. In 2004, UTMD expects
to maintain the productivity of its operating expenses consistent with 2003.
Although the Company expects some relief in G&A expenses from lower litigation
costs affecting "normal" results, it also plans to increase its marketing
initiatives. UTMD reserved funds for litigation from its extraordinary income
recognized in 2003.
Normal earnings before income taxes (EBT) for the year increased $181,000 to
41.2% of 2003 sales from 40.2% of sales in the prior year. In addition, UTMD
realized $22,676,000 addition to EBT from Tyco damages. UTMD's EBITDA (earnings
before income tax and interest expense, plus depreciation and amortization) was
$12,207,000 or 45.0% of sales in 2003 compared to 44.6% of sales in 2002. As a
ratio of sales, this EBITDA performance was also a Company record. Because of
UTMD's excellent cash flow as demonstrated by EBITDA, the Company was able to
eliminate its debt balance remaining from the $8.6 million repurchase of about
0.5 million shares in late 2002. According to CEO Kevin Cornwell, "Despite our
significant challenges, I believe that UTMD will remain solidly profitable and
operationally fit in 2004. UTMD's performance gives it the financial ability to
operate its business with a long term perspective, focusing on growing
shareholder value efficiently without undue risk, and keeping the needs of
clinicians and their patients foremost in mind. Since we have projected about
the same sales with comparable margins in 2004, investors should expect
comparable results for "normal" operations. Of course, we have already received
about $6 million in extraordinary 2004 income. Management's financial objective
remains an annual 20% increase in eps, which we have been able to achieve since
1997. We will look to use our excess capital to find ways to continue to reach
that goal."
In 2003, UTMD repurchased in the open market and retired 96,900 of its shares at
a cost of $2,240,000. Stock repurchases reduced cash, as well as decreased
Stockholders' Equity on the Balance Sheet in the same amount of $2,240,000. The
Tyco Receivable at the end of 2003 is separated from other current assets on the
December 31, 2003 Balance Sheet. Other changes in current assets relative to the
end of the prior year included a reduction in inventory, slightly higher
receivables due to slower customer payment and higher ending cash balances due
to accumulation of cash in excess of additional share repurchases after
retirement of debt. The increase in current liabilities was due to a substantial
increase in taxes due, and an increase in the litigation expense reserve and
management bonuses as part of the extraordinary Tyco damages event. Return on
Shareholders' Equity (ROE) in 2003, excluding the extraordinary income, was 38%.
Investors are cautioned that this press release contains forward looking
statements and that actual events may differ from those projected. Risk factors
that could cause results to differ materially from those projected include
market acceptance of products, timing of regulatory approval of new products,
UTMD's ability to efficiently manufacture, market, and sell its products, and
litigation outcomes among other factors that have been outlined in UTMD's public
disclosure filings with the SEC. The 2003 10-K will be filed with the SEC by
March 15, and the 2003 Annual Report will be mailed to shareholders about
April 1.
Utah Medical Products, Inc., with particular interest in healthcare for women
and their babies, develops, manufactures, assembles and markets a broad range of
disposable and reusable specialty medical devices designed for better health
outcomes for patients and their care-providers.
INCOME STATEMENT, Fourth Quarter ended December 31, 2003:
(in thousands except earnings per share)
Total Extraordinary Regular Percent
4Q 2003 4Q 2003 4Q 2003 4Q 2002 Change
------- ------- ------- ------- --------
Net Sales $6,659 - $6,659 $6,851 (2.8%)
Gross Profit 3,902 - 3,902 3,951 (1.2%)
Operating Income 394 (2,208) 2,602 2,644 (1.6%)
Income Before Tax 25,460 22,676 2,784 2,746 +1.4%
Net Income 15,274 13,426 1,848 1,785 +3.6%
Earnings Per Share $3.102 $2.727 $ .375 $ .354 +6.2%
Shares Outstanding (diluted) 4,923 4,923 4,923 5,047
INCOME STATEMENT, Year ended December 31, 2003:
(in thousands except earnings per share)
Total Extraordinary Regular Percent
2003 2003 2003 2002 Change
---- ---- ---- ------- -------
Net Sales $27,137 - $27,137 $27,361 (0.8%)
Gross Profit 15,892 - 15,892 15,763 +0.8%
Operating Income 8,514 (2,208) 10,722 10,542 +1.7%
Income Before Tax 33,852 22,676 11,176 10,996 +1.6%
Net Income 20,761 13,426 7,335 7,165 +2.4%
Earnings Per Share $4.250 $2.749 $1.502 $1.361 +10.3%
Shares Outstanding (diluted) 4,885 4,885 4,885 5,263
BALANCE SHEETS
(in thousands) (audited) (unaudited) (audited)
DEC 31, 2003 SEP 30, 2003 DEC 31, 2002
------------ ------------ ------------
Assets
Cash & Investments $ 1,484 $ 925 $ 285
Accounts Receivable, net 3,326 3,705 3,093
Tyco Receivable 24,884 - -
Inventories 3,268 3,657 3,478
Other Current Assets 940 814 901
-------------------- --- --- ---
Total Current Assets 33,902 9,100 7,757
Property and Equipment - net 9,005 8,781 8,890
Intangible Assets - net 6,787 6,750 6,740
----------------------- ----- ----- -----
Total Assets $ 49,694 $ 24,631 $ 23,387
Liabilities and Stockholders' Equity
Total Current Liabilities $12,497 $ 1,934 $ 2,319
Note Payable - - 4,956
Deferred Income Taxes 665 383 390
Stockholders' Equity 36,532 22,314 15,722
-------------------- ------ ------ ------
Total Liabilities and Stockholders'
Equity $ 49,694 $ 24,631 $ 23,387