UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999.
Commission File No. 0-11178
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UTAH MEDICAL PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
Utah 87-0342734
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7043 South 300 West
Midvale, UT 84047
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(Address of principal executive offices)
Registrant's telephone number: (801) 566-1200
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Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Title of each Class
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Common Stock, $.01 par value
Preferred Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and; (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 10, 2000, based on NASDAQ/NMS closing price:
$47,500,000.
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The number of shares outstanding of the registrant's common stock as of
March 10, 2000: 6,442,011.
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DOCUMENTS INCORPORATED BY REFERENCE
List herein the documents incorporated by reference: The Company's
definitive proxy statement for the Annual Meeting of Shareholders is
incorporated by reference into Part III, Items 10, 11, 12, and 13 of this Form
10-K.
PART I.
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ITEM I - BUSINESS.
Utah Medical Products, Inc. ("UTMD" or "the Company") is in the business of
producing cost-effective devices for the healthcare industry which are
predominantly proprietary, disposable and for hospital use. Success depends on
1) recognizing needs of clinicians and patients, 2) rapidly designing or
acquiring economical solutions which gain regulatory approval, 3) reliably
producing products that meet those clinical needs, and then 4) selling through:
a) UTMD's own direct channels into markets where the Company enjoys an
established reputation and has a critical mass of sales and support
resources, or
b) establishing relationships with other medical companies that have the
proper resources to effectively introduce and support the Company's products.
UTMD's success in rapidly producing solutions comes from its proven ability
to integrate a number of engineering and technical disciplines in electronics,
software, mechanical packaging, instrumentation, optics and materials. The
resulting proprietary products represent significant incremental improvements
over existing clinical techniques. UTMD's experience is that, in the case of
labor-saving devices, the improvement in cost-effectiveness of clinical
procedures also leads to an improvement in overall healthcare including lower
risk of complications. UTMD markets a broad range of medical devices used in
the critical care areas, especially the neonatal intensive care unit (NICU), and
the labor and delivery (L&D) department in hospitals, as well as products sold
to outpatient clinics and physician's offices.
The opportunity to apply solutions to recognized needs results from an
excellent core of practicing clinicians who feed ideas to the Company, and key
employees who are both clinical applications savvy and development engineering
adept.
UTMD's products are sold in the U.S. domestic market primarily through the
Company's own direct sales representatives but also through independent
manufacturers' representatives, specialty distributors and other medical device
companies. Internationally, products are sold through other medical device
companies and through independent medical products distributors. UTMD now has
representation in all major global markets with approximately 100 international
distributors.
Negative factors that may adversely impact future performance include
managed care reforms or hospital group buying decisions that may limit
physicians' ability to choose certain products or procedures, new products
introduced by other companies that displace UTMD's products, regulatory approval
delays, changes in the Company's relationships with its distribution partners,
and loss of key personnel.
UTMD was formed as a Utah corporation in 1978. UTMD publicly raised equity
capital one time in 1982. In 1995, Utah Medical Products Ltd., a wholly-owned
subsidiary located in Ireland, was formed to establish an international
manufacturing capability. In 1997, UTMD purchased Columbia Medical, Inc. (CMI),
a Redmond, Oregon company specializing in manufacturing and marketing
vacuum-assisted obstetrical delivery systems. In July, 1998 UTMD acquired the
neonatal product line of Gesco International, a subsidiary of Bard Access
Systems and C.R. Bard, Inc. On March 8, 2000, UTMD returned to the Nasdaq Stock
Market after trading on the New York Stock Exchange for about 3 years. The
Company was previously listed on Nasdaq for 14 years. The Company's corporate
offices are located at 7043 South 300 West, Midvale, Utah 84047 USA. The
corporate telephone number is (801) 566-1200. European operations are located
at Garrycastle Industrial Estate, Athlone, County Westmeath, Ireland. The
telephone number in Ireland is (902) 73932. CMI's mailing address is P.O. Box
1530, Redmond, Oregon 97756. The phone number in Oregon is (541) 548-7738.
PRODUCTS
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Labor and Delivery/ Obstetrics:
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Fetal Monitoring Accessories.
About 60% of births are considered "higher risk" due to lack of prenatal
care, among other factors. In many of these births, labor may become
complicated and does not progress normally. The obstetrician must assess
progression of labor to be able to intervene with drug therapy, infuse a
solution to augment amniotic fluid, or ultimately if necessary, perform a
Caesarean section procedure, and be prepared for complications following
childbirth. UTMD markets disposable electrodes, catheters and accessories, but
not the monitors, the electronic capital equipment that process the signals. In
addition to products already offered, UTMD intends to continue to investigate
and introduce tools that enhance fetal monitoring techniques, a core area of
product development.
To assist the physician in assessing fetal well-being, changes in fetal
heart rate (FHR) in conjunction with trends in intrauterine pressure are often
electronically monitored. UTMD's intrauterine pressure (IUP) catheter product
line provides for clinician choices from a traditional fluid-filled system to
INTRAN PLUS, the most widely accepted sensor-tipped system. In addition,
adjunct FHR electrodes, leg plates, belly bands and chart paper are offered by
UTMD to complete a package of fetal monitoring supplies. UTMD's IUP catheters
include:
- - IUP-075 and UTMD's other custom fluid-filled catheter kits utilize a
saline-filled catheter that is placed within the uterine cavity, connected to a
separate external reusable or disposable transducer. This product package,
utilizing double lumen catheters, was the traditional mode of intrauterine
monitoring prior to the introduction of INTRAN. An intrauterine pressure change
is transmitted through the fluid column to the external pressure transducer.
- - Introduced in 1987, INTRAN was the first intrauterine pressure catheter
that placed the pressure transducer at the source within the uterine cavity.
This design eliminated the complicated setup of fluid-filled systems and
provided more accurate pressure waveforms. INTRAN I was discontinued in 1995 in
favor of the more widely preferred INTRAN PLUS, also covered by UTMD's original
INTRAN patent.
- - INTRAN PLUS was introduced in 1991. The INTRAN PLUS catheter combines the
transducer tip concept of INTRAN I with a refined tip design, a zero switch that
allows the clinician to verify the reference of the monitor, and a dedicated
amnio lumen which provides immediate access to the amniotic fluid environment
which may be essential in the diagnosis and intervention of certain fetal
conditions. In 1996, an enhancement which allows physicians to observe amniotic
fluid in a closed system was added to INTRAN PLUS. In 1997, UTMD introduced
several variations to address user preferences in tip size and zero switch
location.
Vacuum-Assisted Delivery Tools.
UTMD's 1997 purchase of CMI included the patented soft silicone bell-shaped
birthing cups and patented hand-held vacuum pumps which UTMD believes are the
safest products available for use in vacuum-assisted operative deliveries.
Operative vaginal deliveries provide knowledgeable physicians with an
alternative to C-section intervention. Although there are risks associated with
operative vaginal deliveries which represent about 15% of all U.S. hospital
births, the procedures are generally regarded as safer for the mother, and at
least as safe for the fetus, as abdominal (cesarean) delivery in comparable
clinical situations. In operative vaginal deliveries, either forceps or a
vacuum-assisted extraction system are used to deliver a baby. UTMD estimates
that the preferred vacuum-assisted delivery approach is used for about 8-10% of
all U.S. births, and will continue to improve on its share versus forceps.
UTMD's patented bell-shaped soft silicone TENDER TOUCH cups enjoy a low
reported complication rate compared to other vacuum cup designs, as evidenced by
the FDA Medical Device Reporting System. UTMD's patented soft silicone cup is
unique in the industry.
In May 1998, the FDA issued an advisory which warned of increases in
reported injuries in the use of VADS. The advisory appears to have caused a
slow-down in usage as hospitals evaluated their protocols. UTMD responded by
providing additional written instructions for use to all its users, and offering
assistance in training. In September 1998, The American College of
Obstetricians and Gynecologists issued a formal Committee Opinion that strongly
recommended continued use of VADS, when used by appropriately trained
physicians.
Other Obstetrical Tools
MUC-X is a meconium aspiration device used immediately after birth to clear
neonatal respiratory passages and reduce exposure to potential infections.
AROM-COT' is a patented finger cover, designed to rupture maternal membranes
with less patient pain and anxiety. CORDGUARD is a patented product which
unifies the multiple steps of clamping the neonate's cord close to the
umbilicus, severing the cord without splattering blood, drawing a clean cord
blood sample, and assisting in the removal of the placenta. CORDGUARD's
sharpless, closed system reduces the risk of exposure to potentially infected
blood, and consequently reduces the high cost of exposure treatment under OSHA
and CDC guidelines. In addition, CORDGUARD facilitates obtaining neonatal blood
that is otherwise hard to obtain safely and cleanly. The UMBILICUP' System
allows larger volume umbilical cord blood collection without the use of needles.
Neonatal Intensive Care:
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DISPOSA-HOOD'
The DISPOSA-HOOD is an infant oxygen hood that is used in the NICU to
administer oxygen to neonates while maintaining a neutral thermal environment
critical to proper physiologic responses. The Disposa-Hood, placed over the
infant's head, incorporates a round diffusor connection specifically designed to
disperse the incoming gases along the inner surfaces of the hood, rather than
allowing them to blow directly on the infant's head. The design allows more
precise FIO2 (fractional inspired oxygen) control, minimizes convective heat
loss from the head and provides optimum flows for elimination of CO2 (carbon
dioxide) by ventilation. Because it is a disposable product, it allows for
excellent visualization of the underdeveloped infant and prevents
cross-contamination.
DELTRAN PLUS
UTMD's patented DELTRAN blood pressure monitoring system, the source of
over $100 million in past UTMD sales to Baxter over the nine year period of
1988-1996, has been adapted specifically for use in the NICU. The new closed
system reduces the risk of infection and avoids the loss of scarce neonatal
blood volume. The system features excellent visualization of clearing volume
and one-handed use.
GESCO
In the third quarter of 1998, UTMD acquired the neonatal product line of
Gesco International, a subsidiary of Bard Access Systems and C.R. Bard, Inc.
Gesco, best known for its innovative silicone catheters, gained an early
reputation as a company which focused on the special developmental needs of tiny
critically-ill babies.
A class of catheters called umbilical vessel catheters (UVC's) are
specially designed for administering vital medications and fluids immediately
following birth through the infant's umbilical vessel into the inferior vena
cava. Because of the neonate's small size and lack of vascular development,
there is no better access to vital organs. The catheters are also called
umbilical artery catheters (UAC's) when placed in one of the umbilical arteries
to measure blood pressure or monitor metabolic processes through blood analysis.
In developing its UMBILI-CATH product line, Gesco pioneered the use of soft,
biocompatible silicone catheters, helping to reduce the number of insertions
required as well as other complications associated with invasive applications.
In 1999, UTMD expanded the UVC product line to include catheters made from a
patented thermosensitive polyurethane (Tecoflex ) version that offers many of
the flexibility and biocompatibility advantages of silicone after insertion,
with the greater rigidity of polyurethane preferred by many clinical during
insertion. UTMD is presently the only medical device company offering these
material selection options to clinicians.
Gesco was attentive to product features that were distinct to neonates, e.g.
in the case of invasive catheters, the introducer, the soft rounded distal tip,
mode of securing to patient after insertion to avoid migration, luer locking hub
with minimal dead space, number of lumens, catheter radiopaque striping for
visualization, variations in catheter lengths and diameters and special
packaging. In 1999, UTMD made a number of changes to these features to bring
the Gesco products up to date relative to current neonatal nurse practitioner
preferences. In addition, Gesco provides a convenient catheterization procedure
tray of implements and supplies necessary to place UVC catheters, as well as
perform other similar procedures.
The soft, biocompatible silicone catheter concept had important advantages
in other applications including peripherally inserted central venous catheters
(PICC lines), enteral feeding tubes, urinary drainage catheters, and chest
drainage tubes. Gesco developed all of these neonatal products under the names
PER-Q-CATH , NUTRI-CATH', URI-CATH' and THORA-CATH', respectively. In 1999, in
order to keep pace with the trend of caring for smaller babies, UTMD added
smaller diameter versions of its Uri-Cath and Nutri-Cath products. UTMD has an
exclusive distribution agreement with Bard for the only Gesco neonatal product
which was not purchased by UTMD, the PER-Q-CATH PICC.
Other Gesco specialty products acquired by UTMD include a disposable
peritoneal dialysis set that is a pre-assembled, sterile, closed system, called
DIALY-NATE'; a patented silicone oral protection device used to prevent palatal
soft tissue injury by orotracheal tubes, called PALA-NATE'; and a lumbar
puncture kit used for obtaining spinal fluid samples, called MYELO-NATE'. In
1999, a tiny needle version with a special bevel was added to the product line.
Gesco's first patented product, HEMO-NATE , is a disposable filter designed
to remove microaggregates from stored blood prior to transfusion into a neonate
where any deficiency can have an overwhelmingly negative impact on a neonate's
chances for survival, given an under-developed vasculature and small total blood
volume.
In 2000, UTMD will continue to improve and augment its Gesco, Disposa-Hood
and Deltran products, allowing it to retain the most complete armamentarium of
NICU speciality products of any company in the medical device industry. In
addition to products already offered, UTMD intends to continue to investigate
and introduce tools that enhance developmental care of critically-ill infants, a
core area of product development.
Gynecology /Urology /Electrosurgery:
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LETZ System
The LETZ System is comprised of electrosurgical equipment, electrodes and
supplies used to treat cervical intraepithelial neoplasia (CIN) and other lower
genital tract lesions related to human papilloma virus (HPV) infections. The
electrosurgical excision procedure with hemostasis has widely replaced cold
knife scalpel, laser and cryotherapy procedural approaches because it is
economical, safe, effective, quick and easy to perform, has fewer potential side
effects, and requires little physician training. Most importantly, in contrast
to laser and cryotherapy (freezing of tissue), LETZ provides a tissue specimen
for a pathological assessment. The LETZ procedure may be performed using local
anesthesia in a physician's office, eliminating the time and expense of hospital
or surgical center admittance. UTMD's system includes patented disposable loop
electrodes, the patented FINESSE electrosurgical generator, and other
miscellaneous components. The FINESSE electrosurgical generator is the only
generator on the market that contains an integral smoke evacuator, required to
filter smoke and vapors which contain potentially hazardous particulate material
produced during electrosurgery. The disposable loop electrode used to excise
the tissue specimen is a pencil-like tube with a thin tungsten wire loop
attached. The loop is available in varying sizes and includes a Safe-T-Gauge
that can be positioned so the physician can accurately colposcopically monitor
the amount of tissue being excised.
FINESSE Generator; Specialty Loop, Ball, and Needle Electrodes; FILTRESSE
Evacuator; Other Specialty Electrodes; Other Supplies and Gynecologic Tools
UTMD has FDA clearance to market its electrosurgical system in general
surgery applications, including dermatology. FILTRESSE, a stand-alone surgical
smoke filtration system which combines high filtration efficiency, low cost and
convenient use was introduced in 1997. UTMD continues to develop and introduce
specialty tools for specific electrosurgical procedures. In 1998, the Company
introduced a special conization electrode for deep endocervical disease called
C-LETZ, now patented, designed to limit the removal of healthy tissue that might
compromise adequate cervical function. Other tools include disposable
electrosurgical pens, dispersive pads, speculums, retractors, and forceps.
EPITOME
A patented electrosurgical scalpel which delivers precise performance in
incision and excision was introduced in 1996. An independent study concludes
that the Epitome scalpel provides a significant improvement over older devices
in wound healing and patient comfort. Epitome allows a rapid incision without
countertraction, yielding limited morbidity, less post-surgical pain and
cosmetically superior results. Where minimization of thermal tissue injury is
desired, Epitome offers significant advantages while achieving desired
hemostasis. A patented bendable version of EPITOME with a smaller active
electrode was introduced in early 1998. Designed to significantly reduce the
chance of tissue burns due to inadvertent electrode contact and where a smaller,
bent scalpel tip is needed, the bendable EPITOME is of particular value, e.g.,
to thoracic surgeons in harvesting the internal mammary artery during coronary
artery bypass surgery, as well as to otolaryngologists for tonsillectomies.
Marketing UTMD's group of specialty electrosurgery products requires multiple
sales call points and extensive clinical training and familiarization time with
users, among other challenges, resulting in UTMD's projection of a continued
slow adoption growth rate.
LIBERTY System
LIBERTY, a device for the conservative treatment and effective control of
urinary incontinence in women, was released for marketing by the FDA in 1995.
LIBERTY consists of a battery operated electrical stimulation unit and an
intravaginal electrode probe. This physiotherapy technique, which can be done
in the privacy of the home, involves passive strengthening of the periurethral
muscles. Pulsed, low voltage, high frequency current is applied primarily to
the pudendal neuromuscular tissue causing the pelvic area muscles to contract,
leading to better muscle tone. Because electrical stimulation has no known
adverse side effects, Liberty provides women suffering from mild to moderate
incontinence an effective, lower cost and lower risk alternative to more
traumatic treatments such as surgery and drug therapy. In 1999, UTMD's sales of
Liberty were up 20% compared to the prior year as more patients learned about
the device and decided to try it. UTMD believes that Liberty is the
easiest-to-use, most cost effective incontinence treatment available that yields
a therapeutic effect, not just a cover-up.
PATHFINDER PLUS'
As part of Columbia Medical Inc., UM acquired an endoscopic irrigation
device that allows a surgeon to precisely irrigate with the same hand that
controls the endoscope, eliminating the need for a separate assistant to
irrigate without visualization. UTMD is marketing the device through
independent manufacturers' representatives who sell to urologists.
Tools for Gynecologic Laparoscopy
LUMIN is a patented tool developed by UTMD for reliably and safely
manipulating the uterus in gynecological laparoscopic procedures. The product
was released for marketing by the FDA in 1995. LUMIN combines the strength,
range of motion and versatility of the higher end reusable instruments with the
lower cost and cleanliness of the cheaper disposable instruments presently on
the market, while at the same time reducing the number of tools needed to move
and secure the uterus. A number of the tools listed above in other categories
are also useful in laparoscopic procedures.
Blood Pressure Monitoring:
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DELTRAN Disposable Pressure Transducer
In pressure monitoring, a transducer is used to convert physiological
(mechanical) pressure into an electrical signal that is displayed on electronic
monitoring equipment. UTMD developed, patented and is now distributing its
disposable transducer as a stand-alone product, and as a component in sterile
blood pressure monitoring kits through direct representatives and other medical
companies in the U.S., as well as independent distributors and other medical
companies internationally.
Although other large medical companies manufacture disposable pressure
transducers ("DPTs") under rights to UTMD's technology, the Company believes
that the Deltran DPT which it developed remains the standard in terms of
reliability and ease of use. UTMD has an automated assembly line which allows
UTMD to effectively compete with the largest suppliers on the basis of
consistent quality with low manufacturing costs. Introduced in 1998, DELTRAN
PLUS may provide the easiest to use and most secure method of blood sampling
currently available.
Pressure Monitoring Accessories and Components
Components included in blood pressure monitoring kit configurations include
flush devices, stopcocks, fluid administration sets, caps, pressure tubing,
interface cables and organizers. The Company sells similar components designed
for other medical companies which incorporate UTMD's proprietary technologies.
DELTA-CAL' is a calibration device used to check proper functioning of an
arterial pressure system. In addition, UTMD sells plastic molded parts on a
subcontract basis to a number of medical and non-medical companies. UTMD
believes that this practice helps better utilize its investment in fixed plant
and equipment.
MARKETING
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UTMD competes in the marketplace on the basis of its proprietary
value-added technologies and cost effective solutions. Its future success will
depend upon its ability to innovate and introduce new products into specialized
market niches consistent with cost control pressures under a changing healthcare
environment. Speed is a critical success factor in that future performance
depends on UTMD's ability to innovate, develop, test and commercialize new
products faster than other medical device companies who possess significantly
more resources than UTMD. With new products that are unique, the Company must
be prepared for providing independent clinical evidence of efficacy, as well as
extensive user training and support.
Although the market potential for each of UTMD's individual products is
generally small because of the Company's niche orientation, in the aggregate,
the sales potential for all of UTMD's products exceeds $1 billion annually.
Enhancing its reputation for providing solutions to hospital areas which are
considered separate and highly special is critical to the implementation of
UTMD's strategy. UTMD has been able to differentiate itself independent from
the commodity contract pressures dominating other hospital medical products
suppliers for four reasons. First, because of the relatively high sensitivity
for quality care in the specialty areas of the NICU and L&D, UTMD can often
communicate directly with clinical decision-makers rather than administrative
gatekeepers. Second, because of the relatively low total dollar volume
associated with UTMD's products compared to products used in other areas in the
hospital, UTMD can often slip under the fallout rate accepted in contracts with
the large hospital commodities suppliers. Third, UTMD retains a significant
number of unique product features based on its patented portfolio. Last, there
is a significant amount of goodwill associated over the years with product names
manufactured by Utah Medical Products, Columbia Medical and Gesco, all now part
of UTMD, among knowledgeable clinicians that gives momentum to their continued
use.
DISTRIBUTION
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Another important success factor in a changing healthcare industry is
"access" to customers. In particular, the U.S. hospital supplier environment
has been consolidating as a result of group purchasing decisions and product
bundling by large suppliers with diverse product lines. The number of channels
and length of time required in evaluating new products for use in hospitals has
grown dramatically in recent years. As a potential negative factor to future
performance, as UTMD introduces new products, it may find itself excluded from
certain customers because of the existence of supply agreements unrelated to
safety and efficacy of products. UTMD may also be unable to establish viable
relationships with other medical companies who have the access to users but lack
an interest in a different approach.
Historically, UTMD has sold its products, especially those relating to
critical care, through independent distributors and other medical companies in
both domestic and international markets. However, since 1991, the Company has
developed a more focused direct sales organization in the United States with
specialized distributors and its own directly employed sales force. The network
of direct representatives and specialty distributors is employed to concentrate
on select market applications for UTMD products and to provide proper customer
training and support. In March 2000, the U.S. direct sales force consisted of
territory representatives and sales managers. Through the use of clinical
education programs, the direct sales force positions UTMD to gain market
leadership with solutions to clinical problems. Through its relationships with
physicians, UTMD is diversifying its product applications in obstetrics and
gynecological procedures which are trending toward outpatient clinics and
physician offices. Five years ago, independent distributors in the U.S.
represented more than half of UTMD's direct domestic Ob/Gyn business. In 2000,
UTMD expects that U.S. distributors will represent less than 10% of its domestic
business.
The Company also sells products into commodity markets, or for applications
which do not generate enough business to justify a direct selling effort,
directly to other medical companies. Additionally, the Company sells component
parts to medical companies for use in their product lines. This effort is
simply an optimal utilization of manufacturing resources that are otherwise
needed for UTMD's primary business, and does not compete with or dilute UTMD's
distribution and marketing programs.
Internationally, the Company sells its products through about 80 regional
distributors and through about 20 OEMs (other medical manufacturers).
RESEARCH AND NEW PRODUCT DEVELOPMENT
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New product development is a key to UTMD's growth plans. Product
development takes three fundamental forms, which are interrelated: 1)
improvements, enhancements and extensions of current product lines in response
to clinical needs or clinician requests, 2) invention of devices that allow
significantly different methods of performing medical procedures, representing a
quantum improvement in safety, efficacy and/or cost of care, and 3)
acquisitions of products from others.
During 1999, in addition to the amortization of goodwill expense of $569
(in thousands), or 1.9% of sales, associated with the acquisitions of new
product lines in 1997 and 1998, the Company spent $719 on internal product
development activities, or 2.4% of sales, a combined total of 4.4% of sales.
New product development expenses and amortization of goodwill expenses were $946
and $433, respectively in 1998 (combined 5.0% of sales) and $958 and $148,
respectively in 1997 (4.6% of sales). Amortization of goodwill expenses and R&D
expenses combined are expected to continue in the range of 4-5% of sales in
2000. Internal R&D will be limited more by the Company's ability to process new
ideas, as well as organize and integrate the speciality skills necessary to
develop innovative products, than by the availability of funds or new product
ideas.
UTMD's current product development projects are in four areas of focus: 1)
obstetrics/ fetal monitoring, 2) neonatal intensive care, 3) female
incontinence management, and 4) specialized procedures for the assessment and
treatment of cervical/uterine disease. UTMD has filed, had issued, or acquired
23 patents in the last five years.
Because of UTMD's reputation as a successful innovator, its financial
strength and its established clinician user base, it enjoys a substantial flow
of new product ideas. Internal development, joint development, product
acquisitions, and licensing arrangements are all included as viable options in
the investigation of opportunities. Only a small percentage of ideas survive
feasibility screening. For internal development purposes, projects are assigned
to a project manager who assembles an interdisciplinary, cross-functional
development team. The team's objective is to have a clinically proven,
manufacturable, and FDA released product ready for marketing by a specific
date. Approximately twelve projects on the average, depending on the level of
resources required, are underway at UTMD at any given time. More than 50% of
assigned projects do not succeed in attaining a product which meets all of the
Company's criteria. In particular, this includes a product that is highly
reliable, easy to use, cost-effective, safe, useful and differentiated from the
competition.
Once a product is developed, tooled, fully tested and cleared for marketing
by the FDA, there remains a reasonable probability it cannot be successfully
marketed for any number of reasons, not the least of which is being beaten to
the market by a competitor with a better solution, or not having access to users
because of limitations in marketing and distribution resources.
EMPLOYEES
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At December 31, 1999, the Company had 268 employees, 20 of which are
located in Oregon, and 33 in Ireland. The Company's continued success will
depend to a large extent upon its ability to retain skilled employees. No
assurances can be given that the Company will be able to retain or attract such
employees in the future, although management is committed to providing an
attractive environment in which creative and high achieving people want to work.
To the best of the Company's knowledge, none of the Company's officers or
directors is bound by restrictive covenants from prior employers that limit
their ability to contribute to UTMD's programs. All professional employees sign
a confidentiality and non-compete agreement as a condition of employment, and as
consideration for receipt of stock option awards and participation in the
management bonus program. None of the Company's employees is represented by
labor unions or other collective bargaining groups. All employees participate
in performance-based bonus programs.
PATENTS AND TECHNOLOGY LICENSES
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The Company owns or exclusively licenses forty-three unexpired patents and
patents pending, and is the licensee of certain other technology. There can be
no assurance, however, that patents will be issued with respect to the pending
applications or that the issued patents can be successfully defended.
The ability of the Company to achieve critical mass in the marketplace
depends in large part on the protection afforded by its patents. In cases where
competitors introduce products that may infringe on UTMD's technology, the
Company has an obligation to its shareholders to defend its intangible property.
Although the cost of patent litigation reduces the Company's current
performance, a successful defense of a core market franchise as represented by
INTRAN, for example, may potentially represent many orders of magnitude of
return in shareholder value. In addition, UTMD's practice of aggressively
pursuing those who infringe its patents tends to discourage others from unfairly
using UTMD's innovations. Patent infringement lawsuits are currently pending
against two companies which UTMD believes have infringed certain INTRAN patents.
As a matter of policy, UTMD has acquired and will continue to acquire the
use of technology from third parties that can be synergistically combined with
UTMD proprietary product ideas. During 1999, royalty expenses were (in
thousands) $118. Royalties are included in cost of goods sold.
Also as a matter of policy, UTMD licenses its proprietary technology to
others in circumstances where licensing does not directly compete with UTMD's
own marketing initiatives. During 1999, the Company received (in thousands)
$529 in royalty income, compared to $678 in 1998, and $732 in 1997. In 1998,
UTMD recorded an additional $447 in net other non-operating income associated
with unusual payments, subject to a confidentiality agreement, for use of its
technology. The non-operating income has been a material portion of UTMD's past
earnings, and therefore future improved performance also depends on the
performance of other companies who license UTMD's technology.
GOVERNMENT REGULATION
- ----------------------
The Company's products are subject to regulation by the U.S. Food & Drug
Administration ("FDA"), as well as other regulatory bodies globally. The FDA
has authority to regulate the marketing, manufacturing, labeling, packaging and
distribution of medical products in the U.S. In addition, requirements exist
under other federal laws and under state, local and foreign statutes that may
apply to the manufacturing and marketing of the Company's products.
All manufacturers of medical devices must register with the FDA and list
all medical devices produced by them. The listing must be updated annually. In
addition, prior to commercial distribution of devices for human use, a
manufacturer must file a notice with the FDA, setting forth certain information
regarding the safety and efficacy of the device that is acceptable in content to
the FDA.
Devices which are classified in Class I are subject only to the general
controls concerning adulteration, misbranding, good manufacturing practices,
record keeping and reporting requirements. Devices classified in Class II must,
in addition, comply with performance standards promulgated by the FDA. The
Company believes all of its present products are Class I or Class II products
and that the Company is in full compliance with all applicable performance
standards as well as FDA quality standards, record keeping and reporting.
In 1994, UTMD received certification of its quality system under the ISO
9001/EN 46001 standards ("ISO" stands for "International Organization of
Standardization"). EN 46001 is the European Community's effort to harmonize
different national regulatory requirements for the development, sale, and
manufacture of medical products. Because the ISO standards are in perpetual
modification, UTMD remains on a continuous periodic audit schedule by its
independent notified body in order to stay abreast of international regulatory
standards. In early 1997, UTMD received ISO 9001/EN 46001 certification for its
Ireland facility. UTMD has received formal product certification allowing the
use of the CE Mark (demonstrates proof of compliance with the European
Community's product standards) for essentially all of its products.
SOURCES AND AVAILABILITY OF RAW MATERIALS
- ----------------------------------------------
Most of the components which the Company purchases from various vendors are
readily available from a number of sources. Alternate sourcing of various
components is continually underway. Vendors are qualified by Corporate Quality
Assurance. The Company has a vendor quality monitoring program that routinely
checks all incoming material.
EXPORTS
- -------
Revenues from foreign customers in 1999 were (in thousands) $5,550 (19% of
total sales), as compared to $4,732 (17% of total sales) in 1998, and $5,219
(21% of total sales) in 1997. Blood pressure monitoring products represented
77% of international sales in 1999, compared to 79% in 1998 and 84% in 1997.
Ob/Gyn and neonatal product foreign sales were $1,290 in 1999, compared to
$1,002 in 1998 and $799 in 1997.
UTMD sees the international marketplace as one of the important elements of
its growth strategy. UTMD is keenly aware that not only are international
markets different from the U.S. market, but also that each country has its own
set of driving influences that affects the dynamics of the nature of care given
and medical devices used. In 1996, UTMD completed a new manufacturing facility
in Athlone, Ireland. The facility offers a number of advantages: 1) from a
marketing point of view, faster response to European Union customers, including
a better understanding of customized needs, less costly distribution and
duty-free access to over 350 million patients; 2) from a regulatory point of
view, faster new product introductions; and 3) from a manufacturing point of
view, reduced dependence on one manufacturing site and increased capacity at
existing U.S. facilities.
BACKLOG
- -------
As a marketer of primarily disposable products, the nature of UTMD's
business necessitates being very responsive to customer orders and delivering
products quickly. Thus an objective of UTMD is to minimize its shippable
backlog. Backlog shippable in less than 60 days as of January 1, 2000 was
approximately $0.6 million compared to $0.6 million as of January 1, 1999.
SEASONAL ASPECTS
- -----------------
The Company's business is generally not affected by seasonal factors,
although historically 1Q has been lowest and 3Q has been highest in demand.
PRODUCT LIABILITY RISK MANAGEMENT
- ------------------------------------
No product liability lawsuits involving a significant injury have been
filed against the Company for any of its products in the past eight years. The
risk of product liability lawsuits is a negative factor in UTMD's business
because UTMD's products are frequently used in inherently life threatening
situations to help physicians achieve a more positive outcome than what might
otherwise be the case. Although UTMD's products are proven to be safe and
efficacious over millions of uses, positive outcomes cannot always occur in the
situations where UTMD's products are needed. In litigious cultures (such as the
U.S.) which are often driven by attorneys looking for contingency fee windfalls,
patients may look at manufacturers of excellent medical products as possible
scapegoats. In any lawsuit against a company where an individual plaintiff
suffers a permanent physical injury, a small probability of a large award always
exists whether or not a causal relationship exists. UTMD is self-insured for
product liability risk and reserves funds against its current performance on an
ongoing basis to provide for its future defense should any lawsuits be filed.
The strength of UTMD's balance sheet may be an inducement for some attorneys to
file a claim against UTMD.
FORWARD LOOKING INFORMATION
- -----------------------------
This report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of management as well as
assumptions made by, and information currently available to, management. When
used in this document, the words "anticipate," "believe," "project," "estimate,"
"expect," "intend" and similar expressions, as they relate to the Company or its
management, are intended to identify forward-looking statements. Such
statements reflect the current view of the Company respecting future events and
are subject to certain risks, uncertainties, and assumptions, including the
risks and uncertainties noted throughout the document. Although the Company has
attempted to identify important factors that could cause the actual results to
differ materially, there may be other factors that cause the forward statement
not to come true as anticipated, believed, projected, expected, or intended.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may differ materially
from those described herein as anticipated, believed, projected, estimated,
expected, or intended.
General risk factors that may impact the Company's revenues include the
market acceptance of competitive products, obsolescence caused by new
technologies, the possible introduction by competitors of new products that
claim to have many of the advantages of UTMD's products at lower prices, the
timing and market acceptance of UTMD's own new product introductions, UTMD's
ability to efficiently manufacture its products, including the reliability of
suppliers, success in gaining access to important global distribution channels,
budgetary constraints, the timing of regulatory approvals for newly introduced
products, and third party reimbursement.
Risk factors, in addition to the risks outlined in the previous paragraph
and elsewhere in this report that may impact the Company's assets and
liabilities, as well as cash flows, include risks inherent to companies
manufacturing products used in healthcare including claims resulting from the
improper use of devices and other product liability claims, defense of the
Company's intellectual property, productive use of assets in generating
revenues, management of working capital including inventory levels required to
meet delivery commitments at a minimum cost, and timely collection of accounts
receivable.
Additional risk factors that may affect non-operating income include the
continuing viability of the Company's technology license agreements, actual cash
and investment balances, asset dispositions, and acquisition activities that may
require external funding.
ITEM 2 - PROPERTIES
Office and Manufacturing Facilities.
The Company's current operations are located in an 100,000 square foot
facility in Midvale, Utah, a suburb of Salt Lake City, a 20,000 square foot
facility in Redmond, Oregon, and a 77,000 square foot facility in Athlone,
Ireland. UTMD owns its property and facilities in Utah and Ireland, with the
exception of a long-term lease on one section of its Midvale parking lot. The
Oregon facilities are leased. The Ireland facility operates as a wholly-owned
subsidiary under the name Utah Medical Products Ltd.
UTMD is a vertically-integrated manufacturing company. Capabilities
include a machine shop for mold-making and building assembly tools and fixtures;
plastics-forming including thermoplastic forming, injection molding and
extrusion; sensor production; assembly of mechanical, electrical and electronic
components; testing; and advanced packaging in clean room conditions.
Facilities also include an R&D lab, communications and information systems
networked real time internationally, and administrative offices.
ITEM 3 - LEGAL PROCEEDINGS
The Company may be a party from time to time in ordinary routine litigation
incidental to its business. The outcomes of lawsuits which are currently
pending are not projected to have a materially adverse effect on UTMD's
financial condition or results of operations.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of the fiscal
year covered by this report.
[Remainder of Page Intentionally Left Blank]
PART II.
--------
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Market Information.
UTMD's common stock began trading on the Nasdaq Stock Market (symbol:UTMD)
on March 8, 2000. Between December 26, 1996 and March 7, 2000, it traded on the
New York Stock Exchange (symbol: UM). It previously traded on the Nasdaq, also
under the UTMD symbol. The following table sets forth the high and low sales
price information as reported by NYSE for the periods indicated:
<TABLE>
<CAPTION>
1999 1998
High Low High Low
-------- ------- -------- -------
<S> <C> <C> <C> <C>
1st Quarter $ 7 1/4 $ 5 $ 8 1/4 $ 6 1/2
2nd Quarter 7 5 3/4 8 6 3/4
3rd Quarter 8 6 3/4 7 5
4th Quarter 7 6 7 1/4 5
</TABLE>
Stockholders.
The approximate number of beneficial stockholders of UTMD's common stock as
of March 10, 2000 was 5,200.
Dividends.
The Company does not currently intend to pay cash dividends on its common
stock in the foreseeable future. It is the present intention of the Company to
use earnings to finance future growth, for selective infusions of technological,
marketing or product manufacturing rights to broaden the Company's product
offerings, and for continued share repurchases when the price of the stock
remains extremely undervalued.
[Remainder of Page Intentionally Left Blank]
ITEM 6 - SELECTED FINANCIAL DATA.
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1999 1998 1997 1996 1995
----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net Sales. . . . . . . . . $ 29,444 $ 27,677 $ 24,272 $ 38,673 $ 42,038
Net Income . . . . . . . . 5,468 4,858 4,322 8,754 8,354
Diluted Earnings Per Share .76 .59 .51 .93 .83
Total Assets . . . . . . . 27,756 31,968 31,459 28,916 33,330
Long-term Debt . . . . . . 5,934 3,098 5,571 None None
Cash Dividends
Per Common Share . . . . . None None None None None
</TABLE>
<TABLE>
<CAPTION>
Quarterly Data for 1999
-----------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net Sales. . . . . . . . . . $ 7,018 $ 7,320 $ 7,568 $ 7,539
Gross Profit . . . . . . . . 3,687 3,870 4,104 4,135
Net Income . . . . . . . . . 1,200 1,349 1,487 1,433
Earnings Per Share - Diluted .15 .18 .22 .22
</TABLE>
<TABLE>
<CAPTION>
Quarterly Data for 1998
-----------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net Sales. . . . . . . . . . $ 6,375 $ 6,786 $ 7,150 $ 7,366
Gross Profit . . . . . . . . 3,188 3,420 3,720 3,846
Net Income . . . . . . . . . 1,159 1,127 1,290 1,282
Earnings Per Share - Diluted .14 .14 .16 .16
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following comments should be read in conjunction with accompanying financial
statements. Dollar amounts are in thousands, except per-share amounts and where
noted.
Productivity of Assets and Working Capital.
a) Assets. Total UTMD asset turns (ratio of sales to total assets)
------
improved again in 1999 because sales increased while average total assets
decreased from the prior year. Year-ending total assets were lower because
current assets declined as a result of significantly reducing levels of cash,
inventory and receivables; net fixed assets declined as a result of depreciation
which exceeded replacement; and net intangible assets declined because
amortization of goodwill and intellectual property exceeded new acquisitions.
1999 year-end net intangible assets represent 30% of total assets. Excluding
the possibility of new intangible assets from 2000 acquisitions, total asset
productivity should continue to improve in 2000 because sales are projected to
grow while working capital remains about the same and net property plant and
equipment (PP&E) assets decline as depreciation exceeds the rate of new
purchases.
1999 net (after accumulated depreciation) PP&E in Utah and Oregon decreased
$0.6 million, while in Ireland decreased $0.9 million. Consolidated PP&E asset
turns improved to 2.7 based on year-ending balances. Productivity of PP&E in
2000 should continue to increase since sales are expected to increase, and net
PP&E decrease, as consolidated new capital expenditures are expected to be less
than one-half of 2000 depreciation.
Inventory turns increased in 1999 due to higher sales together with 21%
lower inventory at year-end. Lower inventory balances resulted from UTMD using
inventories previously obtained in its 1998 Gesco acquisition and continuing to
improve its MRP processes. Management expects to be able to achieve its
objective of 4.0 inventory turns in 2000 because sales should continue to
increase without the need for a similar increase in inventories. The 1999
year-ending accounts receivable (A/R) balances declined 10% despite higher sales
activity for the year. Calculated days in receivables improved to 49, based on
4Q 1999 shipments' activity. Aged A/R over 90 days from invoice date decreased
to about 3% of total accounts receivable at year end from 9% at the end of 1998.
The decrease in the older receivables balance is due mainly to resolving the
delinquency of one distributor in the Far East.
The working capital decline of $2.3 million in 1999 was the result of the
significant reduction in current assets coupled with a modest increase in
current liabilities associated with higher business activity. Through its
excellent profitability, UTMD expects to internally finance any working capital
growth that is needed to support growth in 2000 sales activity.
b) Liabilities. At the end of 1999, UTMD's total debt ratio increased to
-----------
32% of total assets from 19% at the end of 1998. In addition to current
liabilities associated with current production and sales activity, UTMD has a
few lease obligations (see note 5, page F-13) and an unsecured line-of-credit.
The balance of the revolving line-of-credit increased by $2.8 million in 1999
because UTMD used its financing facility to aggressively retire about 20% of its
outstanding shares at a total cost of $12.1 million. In 2000, if no new
significant acquisitions or repurchases of shares are made, the remaining
revolving line-of-credit balance can be eliminated.
Results of Operations.
a) Revenues. Annual consolidated revenues were up 6% in 1999.
--------
UTMD divides its sales channels in the U.S. into "direct sales" which are
sales to end user customers through UTMD's direct sales force, independent
commissioned sales reps, and specialty distributors, and "OEM sales" which are
sales to other medical device companies where products are resold as part of a
component of a kit or a repackaged stand-alone product. In 1999, U.S. direct
sales represented 74% of global consolidated sales compared to 74% in 1998 and
68% in 1997. In the U.S. only, direct sales represented 91% of 1999 sales
compared to 89% in 1998 and 86% in 1997. As a percentage of total U.S. sales,
OEM sales represented 9% of 1999 sales, compared to 11% in 1998 and 14% in 1997.
U.S. OEM sales excluding sales to Baxter declined 3% in 1999.
Foreign sales in 1999 were 19% of global consolidated sales compared to 17%
in 1998 and 21% in 1997. Foreign sales of blood pressure monitoring (BPM)
products were up 14% relative to the prior year.
Ob/Gyn and neonatal product sales were 23% of 1999 foreign sales, compared
to 21% in 1998 and 15% in 1997. Foreign sales of Ob/Gyn and neonatal products
increased 29%, and totaled $1.3 million for 1999. Ireland operations shipped
61% of foreign sales in 1999, compared to 62% in 1998 and 39% in 1997.
UTMD divides its sales into four product-line categories: 1) obstetrics,
comprised of labor and delivery management tools for monitoring fetal and
maternal well-being, for improving clinician safety and for ease in performing
delivery procedures; 2) gynecology/electrosurgery/urology, comprised of tools
for gynecological office/clinician practices, including LETZ, endometrial
sampling, diagnostic laparoscopy, and other MIS procedures; specialty excision
and incision tools; conservative urinary incontinence therapy devices; and
urology tools; 3) neonatal, comprised of devices for gaining vascular access,
administering vital fluids, maintaining a neutral thermal environment, and other
specialized tools used in the care of critically-ill infants; and 4) blood
pressure monitoring/accessories/other, comprised of specialized tools for
invasively monitoring blood pressure on a continuous basis with pressure
transducer systems, along with products sold on an OEM basis to other companies.
In these four categories, UTMD's primary revenue contributors generally enjoy a
dominant market share and typically have important product features protected by
patents.
Sales in the obstetrics product category decreased 5% in 1999 and
represented 47% of total sales. Obstetrics sales were $13,926 in 1999, compared
to $14,635 in 1998 and $11,823 in 1997. Direct sales of the market-leading IUP
catheter, Intran Plus, declined 3% under active competition from cheaper, less
clinically-effective products. Sales of vacuum-assisted delivery systems (VADS)
decreased 14% in 1999, due apparently to a decline in utilization by U.S.
hospitals. UTMD believes that using VADS remains the trained physician's best
choice in most operative deliveries, and will increase educational programs in
2000.
Gynecology/ electrosurgery/ urology product sales grew 7% in 1999, and
represented 15% of total revenues. Gyn/ES/Uro sales were $4,454 in 1999,
compared to $4,174 in 1998 and $3,859 in 1997. Several products contributed to
sales growth, including Epitome , Liberty , Pathfinder', and C-LETZ contoured
electrodes. UTMD looks to continue to develop and market specialized
electrosurgical electrodes and other urological devices in 2000. Marketing this
group of products requires multiple sales call points and extensive clinical
training and familiarization time with users, among other challenges, resulting
in continued low adoption growth rates.
Neonatal sales include the neonatal product line of Gesco International
acquired in July 1998. Compared to 1998, UTMD's 1999 neonatal product sales
grew 100%. Neonatal product sales were $3,807 in 1999, compared to $1,899 in
1998 and $708 in 1997. UTMD expects the neonatal product line to continue to be
a significant contributor to its growth in 2000.
BPM and accessories sales represented 25% of consolidated 1999 sales, the
same portion as the prior year. Sales of BPM products in 1999 were $7,258,
compared to $6,970 in 1998 and $7,882 in 1997. Although a mature product line,
UTMD continues to enjoy a stable and significant demand for its well-regarded
BPM products, particularly overseas.
b) Gross profits. The average gross profit margin (GPM), the surplus
--------------
remaining after subtracting costs of manufacturing products from net revenues,
in 1999 was 53.6% compared to 51.2% in 1998 and 51.9% in 1997. Gross margins
improved successively each quarter in 1999, led by product design improvements,
better materials management and better utilization of overhead costs. Looking
forward to 2000, offsetting influences are expected to result in GPM of about
54%. Expected favorable influences include continued growth in sales volume
without a similar increase in overhead expenses, a larger percentage of total
sales from higher margin products and a continued emphasis on reengineering
products to reduce costs. Unfavorable influences are expected to be continued
competitive pressure on pricing and higher wage rates for employees. UTMD
management believes that consistently achieving an average GPM above 50% is
necessary to successfully support the significant sales and marketing, research
and development, and administrative expenses associated with a growth company in
a highly complex and competitive marketplace.
c) Operating Profit. Operating profit, or income from operations, is the
-----------------
surplus remaining after subtracting operating expenses from gross profits.
Operating expenses are subdivided into sales, general and administrative
expenses (SG&A) and research and development expenses (R&D). UTMD further
divides SG&A into the two categories of sales and marketing expenses (S&M) and
general and administrative expenses (G&A). Despite only a 6% increase in 1999
total sales, operating profits increased 25% to $8,282 from $6,623 in 1998, and
$5,559 in 1997. Total operating expenses were 25.5% of sales in 1999 compared
to 27.3% of sales in 1998, and 29.0% in 1997, demonstrating the operating
leverage achievable when sales continue to grow.
SG&A expenses in 1999 decreased to 23.1% of revenues from 23.9% of 1998
revenues, although in dollar terms SG&A expenses increased to $6.8 million in
1999 from $6.6 million in 1998. The G&A expenses portion increased to $3.0
million in 1999 from $2.7 million in 1998, due to increased expenses from
amortization of goodwill (GWA) associated with the mid-1998 Gesco acquisition.
GWA in 1999 was $569 compared to $433 in 1998, and $148 in 1997. Looking
forward, GWA in 2000 will also be $569, without additional acquisitions in 2000.
Since the result of the acquisitions were additional new marketable products for
UTMD, the GWA expenses can be regarded as surrogate R&D expenses captured in
G&A.
S&M expenses are the costs of promoting, selling and providing customer
support of UTMD's products. Although sales and GPMs improve when sales are made
through directly employed sales representatives in lieu of independent
distributors or OEM customers, S&M operating expenses increase as an offset.
Global sales in 1999 increased 6% while S&M expenses declined 3%, improving the
productivity of S&M resources. The majority of UTMD's S&M expenses pertain to
the U.S. "direct sales" portion of its business. In 2000, UTMD's S&M expenses
to sales ratio is expected to remain consistent with the previous year. At the
end of 1999, UTMD terminated an exclusive third party distributor relationship
for the states of Hawaii and Alaska, representing 1% of domestic direct sales.
R&D expenses in 1999 were 2.4% of sales compared to 3.4% of sales in 1998,
and 3.9% in 1997. The mid-year termination of internal efforts committed to
UTMD's novel fetal pH monitoring project was responsible for the decline in
spending. Other 1999 projects included the continuing development of the Fowler
Endocurette, enhancements to the Gesco neonatal product line, and improvements
to UTMD's established products. The improvements in materials and configuration
of components was evident in UTMD's improved GPMs. At UTMD R&D resources are
kept involved in the support of manufacturing processes, as UTMD finds it makes
long-term sense to keep its most technical people involved with products
throughout their life cycles. In 2000, UTMD's R&D expenses to sales ratio is
expected to remain consistent with 1999.
d) Non-operating income. Non-operating income includes primarily
---------------------
royalties from licensing UTMD's technology to other companies, but also interest
and capital gains from investing the Company's cash offset by interest expenses
and bank fees on the revolving line-of-credit, and gains or losses from the sale
of assets. Non-operating income in 1999 was $263, compared to $900 in 1998 and
$1,216 in 1997. There were unusual payments received in 1998 and 1997 for the
use of UTMD's pressure monitoring technology, which are subject to a
confidentiality agreement, which were nonrecurring in 1999. Royalties received
in 1999 were $149 less than in the prior year. In 1997, there was also a
one-time $200 gain from the sale of a small real estate property no longer used
by the Company. Interest expenses and bank fees associated with the
line-of-credit were $307 in 1999, $318 in 1998 and $255 in 1997. Assuming no
change in current interest rates and no new borrowing to finance an
extraordinary capital requirement, 2000 net non-operating income is expected to
be about $300. Royalties received vary from period to period depending on the
desire and/or success of other companies in selling products licensed by UTMD,
and the remaining life of the patents.
Earnings before income taxes (EBT) result from adding UTMD's non-operating
income to its operating profits. 1999 EBT, as a percentage of sales, was 29.0%
compared to 27.2% and 27.9% in 1998 and 1997, respectively. These profit
margins are extremely high when compared with UTMD's peers in the medical device
industry, or other industries. The resulting profit dollars are equivalent to
profits generated by well-performing companies with twice or more the sales of
UTMD. EBT in 1999 were up 14% relative to 1998 even though sales were up only
6% and non-operating income was down 71%, because operating income in 1999
increased 25%. UTMD expects that it can continue its excellent overall profit
performance in 2000.
e) Net Income, EPS and ROE. Net income is EBT minus income taxes. UTMD's
-----------------------
net income expressed as a percentage of sales ranks in the top tier of all U.S.
publicly-traded companies at 19%, 18% and 18% for 1999, 1998 and 1997,
respectively. Net income in 1999 was up 13%. After income taxes, 1999 net
income was $5,468, compared to $4,858 in 1998 and $4,322 in 1997. The
effective income tax rate in 1999 was 36.0% compared to 35.4% in 1998 and 36.2%
in 1997. Year to year fluctuations in the tax rate have resulted from 1) the
use of a foreign sales corporation, 2) differing balances in tax-exempt
investments, 3) amount of exercised employee options which result in a tax
benefit to the Company, 4) differences in distribution of state income taxes,
5) differences in profitability of the Ireland subsidiary which is taxed at a
10% rate on manufactured products, 6) changes in the amount of non-deductible
goodwill expense resulting from an acquisition, and 7) other factors such as
R&D tax credits and actual litigation costs versus accrued expenses. The
amortization of goodwill associated with the 1997 Columbia Medical, Inc.
acquisition is not tax deductible.
Earnings per share (EPS) is net income divided by the number of shares of
stock outstanding (diluted to take effect for stock options awarded which have
exercise prices below the current market value). Diluted 1999 EPS were up 29%
to $.76 compared to $.59 in 1998, and $.51 in 1997. 1999-ending weighted
average number of diluted common shares (the number used to calculate diluted
EPS) were 7,197 compared to 8,273 and 8,495 shares in 1998 and 1997,
respectively. Actual outstanding common shares as of December 31, 1999 were
6,453. Future EPS can be increased by investing current net income to increase
future net profits through expanded product offerings and profitable business
operations, or by repurchasing stock, thereby reducing the number of outstanding
shares. UTMD believes that shareholder value is improved primarily by
consistently increasing EPS.
Return on shareholders' equity (ROE) is the portion of net income retained
by UTMD to internally finance its growth, divided by average accumulated
shareholders' equity during the period. This ratio determines how fast the
Company can afford to grow without adding external financing that would dilute
shareholder interests. For example, a 20% ROE will financially support 20%
growth in revenues. In UTMD's opinion, achieving growth in revenues and EPS
without diluting shareholder interests maximizes shareholders' value. ROE in
1999 was 24%, and has averaged 30% for the last thirteen years.
Cash Flows and Capital Resources.
a) Cash flows. EBITDA (EBT, adjusted for non-cash depreciation and
-----------
amortization expenses, asset dispositions, and interest expense and bank fees
associated with the line-of-credit) is a good measure of UTMD's ability to
generate cash. 1999 EBITDA was $11.0 million, or as a ratio of sales, 38%.
EBITDA has averaged 36% of sales over the last five years. The extraordinarily
strong cash generation performance resulted from a combination of excellent
operating earnings, a substantial non-cash charge to earnings from amortization
of goodwill and receipt of payments for the use of UTMD's technology. Because
of EBITDA performance in 1999, UTMD was able to purchase $0.7 million in new
property and equipment to maintain its facilities, equipment and tooling in good
working order and repurchase $12.1 million worth or about 20% of its shares,
while only increasing its bank revolving line-of-credit balance by $2.8 million.
Cash (and equivalent) balances were $0.7 million at the end of 1999. UTMD
effectively maintains zero-balance "sweep" cash account balances that minimize
the line-of-credit balance, except for amounts held to meet operating
requirements in Ireland and separate physical reserves set aside for litigation
expenses and other contractual commitments where cash has been committed.
Net cash provided by operating activities, including adjustments for
depreciation and other non-cash operating expenses, along with changes in
working capital, totaled $9,101 in 1999, compared to $9,463 in 1998 and $4,978
in 1997.
Financing activities in 1999 provided additional cash of $2,840 through the
bank line-of-credit. A total of 1,606,375 shares of stock were repurchased at
an average cost, including commissions, of $7.51/ share, using $12,058 in cash.
UTMD received $98 in cash from the sale of 13,950 shares of stock through
employee option exercises at an average price of $7.00 per share.
Management believes that future income from operations and effective
management of working capital will provide the liquidity needed to finance
growth plans. Planned 2000 capital expenditures, expected to be consistent in
magnitude with 1999, will keep facilities, equipment and tooling in good working
order. In addition to the capital expenditures, UTMD plans to use cash in 2000
for selective infusions of technological, marketing or product manufacturing
rights to broaden the Company's product offerings, for continued share
repurchases when the price of the stock remains extremely undervalued, and, if
available for a reasonable price, acquisitions that strategically fit UTMD's
business and are accretive to performance. UTMD plans to use any cash not
needed for the above pursuits during the remainder of 2000 to reduce the
line-of-credit balance. However, the revolving credit line will continue to be
used for liquidity when the timing of acquisitions or repurchases of stock
require a large amount of cash in a short period of time.
Management's Outlook.
Internally generated cash flow directly impacts shareholder value to the
extent it can be used to accelerate growth in the business, fund attractive
acquisitions, or be returned to investors through dividends or share
repurchases. Therefore, most financial analysts agree that a company's value is
not based on historical sales or earnings but rather the certainty of its future
cash flow. History should be interesting to investors where it can provide
insight into what might happen in the future.
In 1999, UTMD again demonstrated a high cash flow performance by achieving
EBITDA in excess of 37% of sales. In 1998 and 1997, EBITDA was 36% and 35% of
sales, respectively. Over the last three-year period, UTMD's cash flow funded
three significant achievements: a net (after option exercises) repurchase of 2.4
million of its shares at an average cost of $8.03 per share including
commissions and other repurchase costs; two significant acquisitions costing
$11.5 million which accounted for 22% of total sales in 1999; and R&D spending
of $2.6 million or about 3% of sales.
In 2000, management expects to be able to extend UTMD's excellent EBITDA
performance for another year. In a competitive marketplace, UTMD has built and
continued to successfully defend a dominant market franchise in the most special
areas of hospitals caring for mothers and their babies, with innovative and
highly effective products.
UTMD's direct U.S. sales team continues to evolve into a key resource for
achieving UTMD's objectives to help clarify clinician needs, responsively
provide excellent solutions for those needs, and assure timely support for
clinical customers' use of UTMD's solutions. To be successful in its programs,
UTMD must provide clinicians with the information they need to make important
judgments about using certain products in obtaining optimal clinical outcomes,
which include minimizing risk of complications. UTMD must also be able to
provide support for physicians to explain those needs to hospital administrators
who are primarily focused on reducing current operating costs.
Where UTMD has a proprietary advantage, it must actively defend its patents
from infringers and continue to develop new products representing a quantum
improvement in care. UTMD remains encouraged that the federal judicial process
will allow a favorable resolution of its two ongoing Intran IUPC patent
infringement lawsuits. The substantial legal costs of the litigation continue
to be absorbed in G&A expenses.
The Company's gynecology practice tools are intended to leverage UTMD's
reputation with physicians outside the hospital. The niche markets for which
UTMD's gynecology /urology /electrosurgery products are targeted have proven to
require many and varied marketing initiatives. They require individual user
training together with evidence of improved outcomes. Sales of newer products
are growing slowly and consistently. UTMD will continue to patiently
investigate economic ways to increase the rate of adoption of its newer
products.
Internationally, where UTMD must depend on the knowledge, focus,
relationships and energy of independent distributors, management will continue
to closely monitor performance and actively recruit needed new business
partners. In 2000, UTMD expects its Ireland subsidiary, which shipped 61% of
all foreign sales in 1999, to continue its important contribution to overall
performance.
In 1999, UTMD implemented a Y2K plan to identify and solve potential Y2K
problems. UTMD experienced no material adverse consequences from the "Year 2000
(Y2K) Problem," having taken all appropriate actions to be prepared. The costs
associated with the efforts were absorbed in 1999 and earlier results. The
Company has determined that all of the products it sells are Y2K compliant.
None of UTMD's products use or process dates in any form.
UTMD's 1999 ending share price of $6.75 was 8.8 times earnings per share
(eps) of 76 , which were up 29%. In other words, UTMD's year-end price to
earnings ratio (PER) was 8.8. The 29% trailing twelve months (TTM) eps growth
rate is more than three times the year-end PER expressed as a percent. As a
value indicator, the ratio of 1999 return on average shareholder equity (ROE) to
PER equals 2.7 times, the highest in UTMD's history. For reference, the end of
1995 ROE/PER ratio was equal 1.3 times and TTM eps growth rate of 21% in 1995
was less than one times the year-ending PER. (UTMD's 1995 ending share price
was 24 times eps of 82 .) These ratio comparisons suggest that from either a
"growth" or a "value" perspective, UM's stock may represent an uncommon "buy"
opportunity.
Accounting Policy Changes
In June 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 137, "Accounting for
Derivative Instruments and Hedging Activities- Deferral of the Effective Date of
FASB Statement No. 133." SFAS 133 establishes accounting and reporting
standards for derivative instruments and requires recognition of all derivatives
as assets or liabilities in the statement of financial position and measurement
of those instruments at fair value. SFAS 133 is now effective for fiscal years
beginning after June 15, 2000. UTMD believes that the adoption of SFAS 133 will
not have a material effect on the financial statements of the Company.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company has manufacturing operations, including assets, in Ireland
denominated in Irish Pounds, and sells products under agreements denominated in
various Western European currencies. The Irish Pound and other currencies are
subject to exchange rate fluctuations that are beyond the control of UTMD. The
exchange rate for the Irish Pounds was .7828, .6720 and .6981 per U.S. Dollar as
of December 31, 1999, 1998 and 1997, respectively. Please see Note 1, page F-9.
UTMD manages its foreign currency risk without separate hedging
transactions by converting currencies as transactions occur.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See index to financial statements and financial statement schedule at page F-1.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III.
---------
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information from the definitive proxy statement of the registrant under the
caption, "PROPOSAL NO. 1. ELECTION OF DIRECTORS: General," "Directors and
Nominees," "Executive Officers," and "Compliance with Exchange Act
Requirements," is incorporated herein by reference, expressly excluding the
material set forth under the subcaptions "Report of the Compensation and Option
Committee" and "Stock Performance Chart."
ITEM 11 - EXECUTIVE COMPENSATION.
The information from the definitive proxy statement of the registrant under the
caption, "PROPOSAL NO. 1. ELECTION OF DIRECTORS: Executive Compensation,"
"Compensation and Option Committee Interlocks and Insider Participation,"
"Employment Agreements, Termination of Employment, and Change in Control," and
"Director's Compensation" is incorporated herein by reference, expressly
excluding the material set forth under the subcaptions "Report of the
Compensation and Option Committee" and "Stock Performance Chart."
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information from the definitive proxy statement of the registrant under the
caption, "PROPOSAL NO. 1. ELECTION OF DIRECTORS: Security Ownership of
Management and Certain Persons" is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
[Remainder of Page Intentionally Left Blank]
PART IV.
--------
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report or
incorporated herein by reference.
1. Financial Statements.
(See Index to Consolidated Financial Statements at page F-1.)
2. Supplemental Schedule.
Financial Statement Schedules are omitted because they are inapplicable or
the required information is otherwise included in the accompanying
Financial Statements and the notes thereto.
3. Exhibits.
<TABLE>
<CAPTION>
SEC
Exhibit # Reference # Title of Document Location
- ---------- ------------ ------------------- ----------------
<S> <C> <C> <C>
1 3 Articles of Restatement of the Articles of Incorporated by
Incorporation Reference(1)
2 3 Bylaws Incorporated by
Reference(1)
3 4 Rights Agreement dated as of October 28, 1994, Incorporated by
between Utah Medical Products, Inc., and Reference(1)
Registrar and Transfer Company
4 4 Designation of Rights, Privileges, and Incorporated by
Preferences of Series "A" Preferred Stock Reference(1)
5 10 Employment Agreement dated December 21, 1992 Incorporated by
with Kevin L. Cornwell* Reference(2)
6 10 Amendment, effective May 15, 1998, to Employment Incorporated by
Agreement dated December 21, 1992 with Kevin L. Reference(4)
Cornwell*
7 10 Utah Medical Products, Inc., 1986 Incentive Incorporated by
Stock Option Plan* Reference(2)
8 10 Utah Medical Products, Inc., 1994 Employee Incorporated by
Incentive Stock Option Plan* Reference(1)
9 10 Utah Medical Products, Inc., 1993 Directors' Incorporated by
Stock Option Plan Reference(1)
10 10 Utah Medical Products, Inc., Performance Incorporated by
Option Plan* Reference(1)
11 10 Revolving Loan Agreement, dated April 4, 1997 Incorporated by
Between Utah Medical Products, Inc and First Reference(3)
Security Bank, N.A.
12 10 Modification Agreement, effective October 15, Incorporated by
1998 between Utah Medical Products, Inc. and Reference(4)
First Security Bank, N.A.
13 10 Modification Agreement, effective as of Incorporated by
June 4, 1999 between Utah Medical Products, Reference(5)
Inc. and First Security Bank, N.A.
14 21 Subsidiaries of Utah Medical Products, Inc. This Filing
15 23 Consent of Tanner + Co.,Company's independent This Filing
auditors for the years ending December 31, 1999,
December 31, 1998, and December 31, 1997
16 27 Financial Data Schedule This Filing
<FN>
* Management contract or compensatory plan or arrangement required to be filed
pursuant to Item 14(c).
(1) Incorporated by reference from the Company's registration statement on
form S-8 filed with the Commission effective February 10, 1995.
(2) Incorporated by reference from the Company's annual report on form 10-K
filed with the Commission for the year ended December 31, 1992.
(3) Incorporated by reference from the Company's annual report on form 10-K
filed with the Commission for the year ended December 31, 1997.
(4) Incorporated by reference from the Company's annual report on form 10-K
filed with the Commission for the year ended December 31, 1998.
(5) Incorporated by reference from the Company's issuer tender offer
statement on schedule 13E-4 (Amendment No. 1) dated June 25, 1999.
</TABLE>
(b) Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned this 24th day of March, 2000.
UTAH MEDICAL PRODUCTS, INC.
By:/s/ Kevin L. Cornwell
---------------------------------
Kevin L. Cornwell
Chairman and CEO
By:/s/ Kevin L. Cornwell
---------------------------------
Kevin L. Cornwell
Secretary and CFO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on this 24th day of March, 2000.
By:/s/ Stephen W. Bennett
----------------------------------
Stephen W. Bennett, Director
By:/s/ Kevin L. Cornwell
---------------------------------
Kevin L. Cornwell, Director
By:/s/ Ernst G. Hoyer
------------------------------
Ernst G. Hoyer, Director
By:/s/ Barbara A. Payne
--------------------------------
Barbara A. Payne, Director
By:/s/ Paul O. Richins
-------------------------------
Paul O. Richins, Director
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
DECEMBER 31, 1999 AND 1998
CONSOLIDATED FINANCIAL STATEMENTS
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------
PAGE
----
Independent Auditors' Report F-2
Consolidated balance sheet F-3
Consolidated statement of income F-4
Consolidated statement of stockholders' equity F-5
Consolidated statement of cash flows F-6
Notes to consolidated financial statements F-8
F-1
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF UTAH MEDICAL PRODUCTS, INC.
We have audited the consolidated balance sheet of UTAH MEDICAL PRODUCTS, INC. as
of December 31, 1999 and 1998, and the related consolidated statements of
income, stockholders' equity, and cash flows for the years ended December 31,
1999, 1998 and 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of UTAH MEDICAL
PRODUCTS, INC. as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years ended December 31, 1999, 1998 and
1997 in conformity with generally accepted accounting principles.
/s/ Tanner & Co.
Salt Lake City, Utah
January 14, 2000
F-2
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
ASSETS 1999 1998
- --------------------------------------------------- -------- --------
<S> <C> <C>
Current assets:
- ---------------------------------------------------
Cash. . . . . . . . . . . . . . . . . . . . . . . . $ 647 $ 1,367
- --------------------------------------------------- -------- --------
Accounts receivable, net (note 2) . . . . . . . . . 4,077 4,531
- --------------------------------------------------- -------- --------
Inventories (note 2). . . . . . . . . . . . . . . . 3,190 4,048
- --------------------------------------------------- -------- --------
Prepaid expenses and other current assets . . . . . 165 151
- --------------------------------------------------- -------- --------
Deferred income taxes (note 6). . . . . . . . . . . 459 446
- --------------------------------------------------- -------- --------
Total current assets. . . . . . . . . . . . . . . . 8,538 10,543
- --------------------------------------------------- -------- --------
Property and equipment, net (note 3). . . . . . . . 11,013 12,489
- --------------------------------------------------- -------- --------
Other assets, net (note 2). . . . . . . . . . . . . 8,205 8,936
- --------------------------------------------------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . $27,756 $31,968
- --------------------------------------------------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------
Current liabilities:
- ---------------------------------------------------
Accounts payable. . . . . . . . . . . . . . . . . . $ 544 $ 525
- --------------------------------------------------- -------- --------
Accrued expenses (note 2) . . . . . . . . . . . . . 2,117 1,886
- --------------------------------------------------- -------- --------
Deferred revenue. . . . . . . . . . . . . . . . . . - 2
- --------------------------------------------------- -------- --------
Total current liabilities . . . . . . . . . . . . . 2,661 2,413
- --------------------------------------------------- -------- --------
Notes payable (note 4). . . . . . . . . . . . . . . 5,934 3,098
- --------------------------------------------------- -------- --------
Deferred income taxes (note 6). . . . . . . . . . . 372 440
- --------------------------------------------------- -------- --------
Total liabilities . . . . . . . . . . . . . . . . . 8,967 5,951
- --------------------------------------------------- -------- --------
Commitments and contingencies (notes 5 and 10). . . - -
- --------------------------------------------------- -------- --------
Stockholders' equity:
- ---------------------------------------------------
Preferred stock $.01 par value; authorized 5,000
shares; no shares issued or outstanding . . . . . - -
- --------------------------------------------------- -------- --------
Common stock $.01 par value; authorized 50,000
shares; issued 6,453 shares in 1999 and
8,046 shares in 1998. . . . . . . . . . . . . . . 64 80
- --------------------------------------------------- -------- --------
Cumulative foreign currency translation adjustment. (1,250) (509)
- --------------------------------------------------- -------- --------
Retained earnings . . . . . . . . . . . . . . . . . 19,975 26,446
- --------------------------------------------------- -------- --------
Total stockholders' equity. . . . . . . . . . . . . 18,789 26,017
- --------------------------------------------------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . $27,756 $31,968
- --------------------------------------------------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
<S> <C> <C> <C>
1999 1998 1997
-------- -------- --------
Net sales (notes 9 and 10). . . . . . . $29,444 $27,677 $24,272
- --------------------------------------- -------- -------- --------
Cost of sales (note 10) . . . . . . . . 13,648 13,503 11,666
- --------------------------------------- -------- -------- --------
Gross margin. . . . . . . . . . . . . . 15,796 14,174 12,606
- --------------------------------------- -------- -------- --------
Expenses:
- ---------------------------------------
Selling, general, and administrative. . 6,795 6,605 6,089
- --------------------------------------- -------- -------- --------
Research and development. . . . . . . . 719 946 958
- --------------------------------------- -------- -------- --------
Income from operations. . . . . . . . . 8,282 6,623 5,559
- --------------------------------------- -------- -------- --------
Other income (expense):
- ---------------------------------------
Dividend and interest income. . . . . . 34 58 85
- --------------------------------------- -------- -------- --------
Royalty income. . . . . . . . . . . . . 529 678 732
- --------------------------------------- -------- -------- --------
Interest expense. . . . . . . . . . . . (296) (310) (250)
- --------------------------------------- -------- -------- --------
Other, net. . . . . . . . . . . . . . . (4) 474 649
- --------------------------------------- -------- -------- --------
Income before income tax expense. . . . 8,545 7,523 6,775
- --------------------------------------- -------- -------- --------
Income tax expense (note 6) . . . . . . (3,077) (2,665) (2,453)
- --------------------------------------- -------- -------- --------
Net income. . . . . . . . . . . . . . . $ 5,468 $ 4,858 $ 4,322
- --------------------------------------- -------- -------- --------
Earnings per common share (basic)
(notes 7 and 8) . . . . . . . . . . . $ .76 $ .59 $ .51
- --------------------------------------- -------- -------- --------
Earnings per common share (diluted)
(notes 7 and 8) . . . . . . . . . . . $ .76 $ .59 $ .51
- --------------------------------------- -------- -------- --------
Other comprehensive income - foreign
currency translation net of taxes of
$(252), $50 and $(297). . . . . . . . (489) 98 (577)
- --------------------------------------- -------- -------- --------
Total comprehensive income. . . . . . . $ 4,979 $ 4,956 $ 3,745
- --------------------------------------- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Gain on Cumulati
Investment ve
Addition Available Foreign
al for-Sale Currency
Common Stock Paid In Net Of Translation Retained
------------- -------- ---------- ----------- ---------
SHARES AMOUNT CAPITAL TAX ADJUSTMENT EARNINGS TOTAL
------- -------- --------- ----------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 . . . . . . . . 8,786 $ 88 $ - $ 59 $ 217 $ 24,019 $ 24,383
Shares issued upon exercise
of employee stock options for cash . . 29 - 227 - - - 227
Change in unrealized gain
on investments available-for-sale (59) (59)
Tax benefit attributable to
appreciation of stock options . . . . . - - 27 - - 27
Common stock purchased and
retired . . . . . . . . . . . . . . . (510) (5) (254) - (5,132) (5,391)
Foreign currency translation
adjustment. . . . . . . . . . . . . . - - - - (874) - (874)
Net income . . . . . . . . . . . . . . . - - - - - 4,322 4,322
Balance, December 31, 1997 . . . . . . . 8,305 83 - - (657) 23,209 22,635
Shares issued upon exercise
of employee stock options for cash . 8 - 58 - - - 58
Tax benefit attributable to appreciation
of stock options . . . . . . . . . . - - 4 - - 4
Common stock purchased and
retired . . . . . . . . . . . . . . . (267) (3) (62) - (1,621) (1,686)
Foreign currency translation
adjustment . . . . . . . . . . . . . - - - - 148 - 148
Net income . . . . . . . . . . . . . . . - - - - - 4,858 4,858
Balance, December 31, 1998 . . . . . . . 8,046 80 - - (509) 26,446 26,017
Shares issued upon exercise of
employee stock options for cash . . . 13 - 98 - - 98
Tax benefit attributable to
appreciation of stock options . . . . - - 5 - - 5
Common stock purchased and
retired . . . . . . . . . . . . . . . (1,606) (16) (103) - (11,939) (12,058)
Foreign currency translation
adjustment. . . . . . . . . . . . . . - - - - (741) - (741)
Net Income . . . . . . . . . . . . . . . - - - - - 5,468 5,468
Balance, December 31, 1999 . . . . . . . 6,453 $ 64 $ - $ - ($1,250) $ 19,975 $ 18,789
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- --------------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . $ 5,468 $ 4,858 $ 4,322
- -------------------------------------------------- --------- -------- --------
Adjustments to reconcile net income to
net cash provided by operating activities:
- --------------------------------------------------
Depreciation and amortization. . . . . . . . . . . 2,192 2,058 1,515
- -------------------------------------------------- --------- -------- --------
(Recovery of) provision for losses on accounts
receivable. . . . . . . . . . . . . . . . . . . (16) 22 (35)
- -------------------------------------------------- --------- -------- --------
(Gain) loss on disposal of assets. . . . . . . . . (1) 438 (278)
- -------------------------------------------------- --------- -------- --------
Deferred income taxes. . . . . . . . . . . . . . . (81) 52 195
- -------------------------------------------------- --------- -------- --------
Tax benefit attributable to exercise
of stock options . . . . . . . . . . . . . . . . 5 5 27
- -------------------------------------------------- --------- -------- --------
(Increase) decrease in:
- --------------------------------------------------
Accounts receivable. . . . . . . . . . . . . . . 1 55 514
- -------------------------------------------------- --------- -------- --------
Accrued interest, grant claims, and other
receivables. . . . . . . . . . . . . . . . . . . 404 68 562
- -------------------------------------------------- --------- -------- --------
903 2,317 (268)
--------- -------- --------
Prepaid expenses and other current assets. . . . (14) (43) 11
- -------------------------------------------------- --------- -------- --------
Increase (decrease) in:
- --------------------------------------------------
Accounts payable . . . . . . . . . . . . . . . . 21 (328) (1,010)
- -------------------------------------------------- --------- -------- --------
Accrued expenses . . . . . . . . . . . . . . . . 221 45 (441)
- -------------------------------------------------- --------- -------- --------
Deferred revenue . . . . . . . . . . . . . . . . (2) (84) (136)
- -------------------------------------------------- --------- -------- --------
Net cash provided by
operating activities . . . . . . . . . . . . . 9,101 9,463 4,978
- -------------------------------------------------- --------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
- --------------------------------------------------
Capital expenditures for:
- --------------------------------------------------
Property and equipment . . . . . . . . . . . . . . (684) (480) (1,134)
- -------------------------------------------------- --------- -------- --------
Intangible assets. . . . . . . . . . . . . . . . . (2) (306) (454)
- -------------------------------------------------- --------- -------- --------
Purchases of investments . . . . . . . . . . . . - - (112)
- -------------------------------------------------- --------- -------- --------
Proceeds from sale and maturities of investments - - 1,577
- -------------------------------------------------- --------- -------- --------
Proceeds from sale of property and equipment . . 1 12 9
- -------------------------------------------------- --------- -------- --------
Net cash paid in acquisition . . . . . . . . . . - (4,188) (7,300)
- -------------------------------------------------- --------- -------- --------
Net cash used in
investing activities . . . . . . . . . . . . . (685) (4,962) (7,414)
- -------------------------------------------------- --------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
- --------------------------------------------------
Proceeds from issuance of common stock . . . . . 98 58 227
- -------------------------------------------------- --------- -------- --------
Common stock purchased and retired . . . . . . . (12,058) (1,686) (5,391)
- -------------------------------------------------- --------- -------- --------
Increase (decrease) in note payable. . . . . . . 2,840 (2,470) 5,563
- -------------------------------------------------- --------- -------- --------
Net cash (used in) provided by
financing activities . . . . . . . . . . . . . . . (9,120) (4,098) 399
- -------------------------------------------------- --------- -------- --------
Effect of exchange rate changes on cash. . . . . . (16) 13 (51)
- -------------------------------------------------- --------- -------- --------
Net (decrease) increase in cash . . . . . . . . . (720) 416 (2,088)
- -------------------------------------------------- --------- -------- --------
Cash at beginning of year. . . . . . . . . . . . . 1,367 951 3,039
- -------------------------------------------------- --------- -------- --------
Cash at end of year. . . . . . . . . . . . . . . . $ 647 $ 1,367 $ 951
- -------------------------------------------------- --------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
YEARS ENDED
DECEMBER 31,
-------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Cash paid during the year for:
- --------------------------------
Income taxes . . . . . . . . . . $2,972 $2,197 $2,307
- -------------------------------- ------ ------ ------
Interest . . . . . . . . . . . . $ 296 $ 310 $ 250
- -------------------------------- ------ ------ ------
During the year ended December 31, 1998, the Company purchased assets from Gesco
International, Inc. The Company paid cash, and recorded net assets from the
acquisition as follows:
Inventory
$ 635
------
Property and equipment 48
- ---------------------- ------
Intangibles. . . . . . 3,505
- ---------------------- ------
Net cash investment. . $4,188
- ---------------------- ------
During the year ended December 31, 1997:
- - The Company sold property in exchange for a receivable of $340.
- - The Company purchased all of the outstanding common stock of Columbia
Medical, Inc. (Columbia) in a purchase transaction. The Company paid cash for
the common stock and recorded net assets from the acquisition as follows:
Cash. . . . . . . . . . . . $ 860
- --------------------------- -------
Accounts receivable . . . . 478
- --------------------------- -------
Inventory . . . . . . . . . 805
- --------------------------- -------
Prepaids and other. . . . . 27
- --------------------------- -------
Deferred income taxes . . . 28
- --------------------------- -------
Property and equipment, net 1,062
- --------------------------- -------
Intangibles . . . . . . . . 5,225
- --------------------------- -------
Accounts payable. . . . . . (94)
- --------------------------- -------
Accrued expenses. . . . . . (231)
- --------------------------- -------
Total cash paid . . . . . . 8,160
- --------------------------- -------
Less cash received. . . . . (860)
- --------------------------- -------
Net cash investment . . . . $7,300
- --------------------------- -------
</TABLE>
F-7
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------
ORGANIZATION
Utah Medical Products, Inc. and its wholly owned subsidiaries,
principally Utah Medical Products Ltd., which operates a manufacturing facility
in Ireland, and Columbia Medical, Inc. (the Company) are in the business of
producing cost-effective devices for the healthcare industry. The Company's
broad range of products includes those used in critical care areas and the labor
and delivery departments of hospitals, as well as outpatient clinics and
physician's offices. Products are sold in both domestic U.S. and international
markets.
BASIS OF PRESENTATION
Effective July 1, 1997, the Company acquired Columbia Medical, Inc.
(Columbia) in a purchase transaction. Operations of Columbia have been included
in the consolidated operations since the date of purchase.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include those of the Company and
its subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statement of cash flows, the Company
considers cash on deposit and short-term investments with original maturities of
three months or less to be cash and cash equivalents.
GRANT CLAIMS RECEIVABLE
Grant claims receivable consists of amounts due from the Industrial
Development Agency (Ireland) under capital and employment grant agreements for
the construction and operation of the Company's Ireland manufacturing facility.
INVENTORIES
Finished products, work-in-process, and raw materials and supplies
inventories are stated at the lower of cost (computed on a first-in, first-out
method) or market (see Note 2).
F-8
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line and units-of-production
methods over estimated useful lives as follows:
Building and improvements 30-40 years
Furniture, equipment, and tooling 3-10 years
INTANGIBLE ASSETS
Costs associated with the acquisition of patents, trademarks,
goodwill, license rights, and non-compete agreements are capitalized and
amortized using the straight-line method over periods ranging from 5 to 17
years.
DEFERRED REVENUE
Amounts received in advance from customers for the sale of product
rights and price reductions are recognized as revenue as the related products
are sold considering the future marketability of the products.
INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, "Accounting
for Income Taxes," whereby deferred taxes are computed under the asset and
liability method.
EARNINGS PER SHARE
The computation of basic earnings per common share is based on the
weighted average number of shares outstanding during each year.
The computation of diluted earnings per common share is based on the
weighted average number of shares outstanding during the year plus the common
stock equivalents which would arise from the exercise of stock options and
warrants outstanding using the treasury stock method and the average market
price per share during the year.
TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities of the Company's foreign subsidiary are
translated into U.S. dollars at the applicable exchange rates at year-end.
Income and expense items are translated at the average rate of exchange during
the year. Net gains or losses resulting from the translation of the Company's
assets and liabilities are reflected as a separate component of stockholders'
equity.
F-9
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of trade receivables. In the
normal course of business, the Company provides credit terms to its customers.
Accordingly, the Company performs ongoing credit evaluations of its customers
and maintains allowances for possible losses which, when realized, have been
within the range of management's expectations.
The Company's customer base consists primarily of healthcare
providers. Although the Company is directly affected by the well-being of the
medical industry, management does not believe significant credit risk exists at
December 31, 1999.
The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Company has not experienced any
losses in such accounts and believes it is not exposed to any significant credit
risk on cash and cash equivalents.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain changes to the presentation of the 1998 and 1997 consolidated
financial statements have been made to conform with the 1999 presentation.
F-10
2. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1999 1998
----- -----
<S> <C> <C>
Accounts receivable (in thousands):
- --------------------------------------
Trade receivables $4,074 $4,134
Grant claim receivables 51 49
Accrued interest and other 5 416
Less allowance for
doubtful accounts (53) (68)
------ ------
$4,077 $4,531
====== ======
Inventories (in thousands):
- -----------------------------
Finished products $846 $1,041
Work-in-process 962 771
Raw materials 1,382 2,236
------ ------
$3,190 $4,048
====== ======
Other assets (in thousands):
- -------------------------------
Goodwill $8,533 $8,533
Patents 1,744 1,743
License rights 293 293
Trademarks 224 223
Non-compete agreements 75 75
10,869 10,867
====== ======
Accumulated amortization (2,664) (1,931)
====== ======
$8,205 $8,936
====== ======
Accrued expenses (in thousands):
- -----------------------------------
Payroll and payroll taxes $956 $847
Reserve for litigation costs 477 542
Other 684 497
------ ------
$2,117 $1,886
====== ======
</TABLE>
F-11
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consists of the following (in thousands):
DECEMBER 31,
------------
1999 1998
------ -------
<S> <C> <C>
Land $967 $1,024
Buildings and improvements 7,549 7,998
Furniture, equipment, and tooling 13,300 13,018
Construction-in-progress 161 164
------- -------
21,977 22,204
Accumulated depreciation and amortization (10,964) (9,715)
-------- -------
$11,013 $12,489
======= ========
</TABLE>
Included in the Company's consolidated balance sheet are the assets of
its manufacturing facilities in Utah, Oregon and Ireland. Property and
equipment, by location are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
UTAH OREGON IRELAND TOTAL
----- ------ ------- -------
<S> <C> <C> <C> <C>
Land $621 $ - $346 $967
Building and improvements 3,817 32 3,700 7,549
Furniture, equipment, and tooling 11,309 1,253 738 13,300
Construction-in-progress 161 - - 161
------- ------- ------- -------
Total 15,908 1,285 4,784 21,977
Accumulated depreciation
and amortization (9,648) (717) (599) (10,964)
------- ------- ------- -------
Property and equipment,
net $6,260 $568 $4,185 $11,013
======= ====== ====== =======
</TABLE>
F-12
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
UTAH OREGON IRELAND TOTAL
---- ------ ------- -------
<S> <C> <C> <C> <C>
Land $621 $ - $403 $1,024
Building and improvements 3,656 32 4,310 7,998
Furniture, equipment, and
tooling 11,090 1,092 836 13,018
Construction-in-progress 157 7 - 164
------ ------ ------- -------
Total 15,524 1,131 5,549 22,204
Accumulated depreciation
and amortization (8,817) (397) (501) (9,715)
------ ------ ------- -------
Property and equipment,
net $6,707 $734 $5,048 $12,489
======= ====== ====== =======
</TABLE>
4. NOTES PAYABLE
The Company has a bank line-of-credit agreement which allows the
Company to borrow a maximum amount (in thousands) of $12,500 at an interest rate
equal to the bank's LIBOR rate plus 1.45%, or .8% below the bank's prime rate.
The line-of-credit matures on March 25, 2001, is unsecured and had an
outstanding balance of (in thousands) $5,934 and $3,093 at December 31, 1999 and
1998, respectively.
In addition, at December 31, 1998 the Company had certain other
long-term obligations which required monthly payments and were secured by
equipment. The balance at December 31, 1998 was (in thousands) $5.
5. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has an operating lease agreement for land adjoining the
Company's U.S. facilities for a term of forty years commencing on September 1,
1991. On September 1, 1996 and subsequent to each fifth lease year, the basic
rental is adjusted for published changes in a price index. The Company
also leases certain buildings under noncancelable operating leases. Rent expense
charged to operations under these operating lease agreements was
approximately (in thousands) $103, $116 and $75 for the years ended December
31, 1999, 1998 and 1997, respectively.
F-13
<TABLE>
<CAPTION>
Future minimum lease payments under the operating lease
obligations as of December 31, 1999 were as follows (in thousands):
YEAR ENDING
DECEMBER 31: AMOUNT
- ---------------- -------
<S> <C>
2000 $61
2001 35
2002 35
2003 35
2004 35
Thereafter 930
-------
Total future
minimum lease payments $1,131
=======
</TABLE>
PRODUCT LIABILITY
The Company is self-insured for product liability risk.
LITIGATION
The Company is involved in lawsuits which are an expected consequence
of its operations and in the ordinary course of business. The Company believes
that pending litigation will not have a materially adverse effect on its
financial condition or results of operations.
6. INCOME TAXES
Deferred tax assets (liabilities) consist of the following temporary
differences (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------------
1999 1998
----- ------
CURRENT LONG-TERM CURRENT LONG-TERM
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Inventory write-down and unicap $153 $ - $95 $ -
Allowance for doubtful accounts 18 - 26 -
Accrued liabilities and reserves 250 - 278 -
Other 38 - 47 -
------ ------- ----- ------
Depreciation and amortization - (210) - (246)
Earnings from subsidiary - (162) - (194)
------ ------- ----- ------
Deferred income taxes, net $459 $(372) $446 $(440)
====== ====== ===== ======
</TABLE>
F-14
The components of income tax expense are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Current $3,158 $2,613 $2,285
Deferred (81) 52 168
- -------- ------ ------ ------
Total $3,077 $2,665 $2,453
======== ====== ====== ======
</TABLE>
Income tax expense differed from amounts computed by applying the
statutory federal rate to pretax income as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal income tax expense at
the statutory rate $2,905 $2,558 $2,303
State income taxes 427 376 309
Foreign sales corporation (75) (76) (85)
Other (180) (193) (74)
----- ----- -----
Total $3,077 $2,665 $2,453
====== ====== ======
</TABLE>
7. STOCKHOLDERS' EQUITY
OPTIONS
The Company has stock option plans which authorize
the grant of stock options to eligible employees, directors, and other
individuals to purchase up to an aggregate 4,700,000 shares of common stock.
All options granted under the plans may be exercised between six months and ten
years following the date of grant. The plans are intended to advance the
interest of the Company by attracting and ensuring retention of competent
directors, employees, and executive personnel, and to provide incentives to
those individuals to devote their utmost efforts to the advancement of the
Company.
F-15
<TABLE>
<CAPTION>
Changes in stock options were as follows:
PRICE RANGE
SHARES PER SHARE
------- -------------------
<S> <C> <C>
1999
- ----
Granted 267,000 $6.50 - $7.75
Expired or canceled 147,174 6.50 - 14.25
Exercised 13,950 6.75 - 7.25
Total outstanding at December 31 1,098,657 6.50 - 14.25
Total exercisable at December 31 665,533 6.50 - 14.25
1998
- ----
Granted 267,500 $6.75 - $8.06
Expired or canceled 155,067 6.75 - 14.25
Exercised 8,000 7.25 - 7.25
Total outstanding at December 31 992,781 6.75 - 14.25
Total exercisable at December 31 478,902 6.75 - 14.25
1997
- ----
Granted 454,700 $6.75 - $11.50
Expired or canceled 229,452 6.75 - 14.25
Exercised 29,500 7.25 - 10.00
Total outstanding at December 31 888,348 6.75 - 14.25
Total exercisable at December 31 355,971 7.25 - 14.25
</TABLE>
For the years ended December 31, 1999, 1998 and 1997, the Company
reduced current income taxes payable and increased additional paid-in capital by
(in thousands) $5, $5 and $27, respectively, for the income tax benefit
attributable to appreciation of common stock related to stock options.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized in the financial
statements. Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant date for awards starting in 1995
consistent with the provisions of SFAS No. 123, the Company's net earnings and
earnings per share would have been reduced to the pro forma amounts indicated
below (in thousands, except per share amounts):
F-16
<TABLE>
<CAPTION>
YEARS ENDED
-----------
DECEMBER 31,
------------
1999 1998 1997
------ ------- -------
<S> <C> <C> <C>
Net income as reported $5,468 $4,858 $4,322
Net income pro forma $4,888 $4,382 $3,933
Earnings per share assuming
dilution as reported $.76 $.59 $.51
Earnings per share assuming
dilution pro forma $.68 $.53 $.46
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
YEARS ENDED
-----------
DECEMBER 31,
------------
1999 1998 1997
------ ------- -------
<S> <C> <C> <C>
Expected dividend yield $ - $ - $ -
Expected stock price volatility 47.5% 49.9% 47.6%
Risk-free interest rate
(weighted average) 4.7% 5.4% 6.3%
Expected life of options 3.5 years 3.8 years 3.8 years
============ ============ ============
</TABLE>
The per-share weighted average fair value of options granted during
1999, 1998 and 1997 is $2.56, $3.20 and $4.10, respectively.
The following table summarizes information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -------------------------------
Remaining Weighted Weighted
Range Of Contractual Average Average
Exercise Number Life Exercise Number Exercisable
Prices Outstanding (Years) Price Exercisable Price
- --------------- ------------- ------------ ------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$ 6.50 - 8.00 663,363 7.61 $6.97 307,235 $7.10
9.50 - 14.25 435,294 5.98 11.72 358,893 11.59
- --------------- ---------- -------- -------- --------- ---------
$ 6.50 - 14.25 1,098,657 6.97 $8.85 666,128 $9.52
- --------------- --------- ---- ----- ------- -----
</TABLE>
F-17
8. EARNINGS PER SHARE
Financial accounting standards require companies to present basic and
diluted earnings per share (EPS) along with additional informational
disclosures. Information related to EPS is as follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
------- -------- ---------
<S> <C> <C> <C>
BASIC EPS:
Net income available to common
stockholders $5,468 $4,858 $4,322
Weighted average common shares 7,187 8,269 8,444
Net income per share $.76 $.59 $.51
======== ====== =======
DILUTED EPS:
Net income available to common
stockholders $5,468 $4,858 $4,322
Weighted average common shares 7,197 8,273 8,495
Net income per share $.76 $.59 $.51
======== ====== =======
</TABLE>
The Company had sales in the following geographic areas (in
thousands):
9. GEOGRAPHIC SALES INFORMATION
<TABLE>
<CAPTION>
YEAR UNITED STATES OTHER
---- ------------- -----
<S> <C> <C>
1999 $23,894 $5,550
1998 $22,945 $4,732
1997 $19,053 $5,219
</TABLE>
10. PRODUCT SALE AND PURCHASE COMMITMENTS
The Company has license agreements for the rights to develop and
market certain products owned by unrelated parties. Under the terms of such
agreements, the Company is required to pay royalties ranging from 1.5% to 5% of
sales, and in one case certain payments to the developer contingent upon the
product achieving certain annual revenue thresholds.
F-18
The Company has license agreements with unrelated companies to provide
Exclusive and nonexclusive rights to purchase, market, distribute, or
manufacture the Company's products, from which the Company receives royalties
and license fees.
11. EMPLOYEE BENEFIT PLAN
The Company has a contributory 401(k) savings plan for employees who
work 30 hours or more each week, who are at least 21 years of age, and have a
minimum of one year of service with the Company. The Company's contribution is
determined annually by the Board of Directors and was approximately (in
thousands) $87, $63 and $54 for the years ended December 31, 1999, 1998 and
1997, respectively.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
None of the Company's financial instruments are held for trading
purposes. The Company estimates that the fair value of all financial
instruments at December 31, 1999, does not differ materially from the aggregate
carrying values of its financial instruments recorded in the accompanying
balance sheet. The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies. Considerable judgement is necessarily required in interpreting
market data to develop the estimates of fair value, and, accordingly, the
estimates are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
13. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities- Deferral of the Effective Date
of FASB Statement No. 133." SFAS 133 establishes accounting and reporting
standards for derivative instruments and requires recognition of all
derivatives as assets or liabilities in the statement of financial position
and measurement of those instruments at fair value. SFAS 133 is now effective
for fiscal years beginning after June 15, 2000. The Company believes that
the adoption of SFAS 133 will not have any material effect on the financial
statements of the Company.
F-19
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
SEC
Exhibit # Reference # Title of Document How Filed
- ---------- ------------ -------------------------------- ----------
<S> <C> <C> <C>
14 21 Subsidiaries of Utah Medical Products, Inc. Filed in Electronic
Format
15 23 Consent of Tanner + Co., Company's Filed in Electronic
independent auditors for the years ending Format
December 31, 1999, December 31, 1998
and December 31, 1997
16 27 Financial Data Schedule Filed in Electronic
Format
</TABLE>
EXHIBIT 14
SUBSIDIARIES OF UTAH MEDICAL PRODUCTS, INC.
FILED IN ELECTRONIC FORMAT
<TABLE>
<CAPTION>
SUBSIDIARIES OF UTAH MEDICAL PRODUCTS, INC.:
Jurisdiction of
Subsidiary Name Organization Business Name
- ---------------- ----------------- --------------
<S> <C> <C>
Utah Medical Products Ltd. Bermuda Utah Medical Products
Columbia Medical & Surgical, Inc. Oregon Columbia Medical
Utah Medical Products, California Utah Medical Products
California, Inc
Utah Medical Products, Florida Utah Medical Products
Florida, Inc
Utah Medical Products, Ohio Utah Medical Products
Ohio, Inc.
Utah Medical Products, Pennsylvania Utah Medical
Pennsylvania, Inc.
Products
Utah Medical Products, Texas Utah Medical Products
Texas, Inc
</TABLE>
EXHIBIT 15
CONSENT OF TANNER + CO., COMPANY'S INDEPENDENT AUDITORS
FOR THE YEARS ENDING DECEMBER 31, 1999,
DECEMBER 31, 1998, AND DECEMBER 31, 1997
FILED IN ELECTRONIC FORMAT
EXHIBIT 15
INDEPENDENT AUDITORS' CONSENT
-----------------------------
Utah Medical Products, Inc.
We consent to the incorporation by reference in Registration Statement Nos.
33-24781, 33-44100, 33-89394, and 33-89434 of Utah Medical Products, Inc. on
Forms S-8 of our report dated January 14, 2000, appearing in this Annual Report
on Form 10-K of Utah Medical Products, Inc. for the years ended December 31,
1999, December 31, 1998, and December 31, 1997
/s/ Tanner + Co.
Salt Lake City, Utah
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS AS OF DECEMBER 31, 1999 AND STATEMENTS OF OPERATIONS FOR THE TWELVE
MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 647000
<SECURITIES> 0
<RECEIVABLES> 4074000
<ALLOWANCES> (53000)
<INVENTORY> 3190000
<CURRENT-ASSETS> 8538000
<PP&E> 21977000
<DEPRECIATION> (10964000)
<TOTAL-ASSETS> 27756000
<CURRENT-LIABILITIES> 2661000
<BONDS> 5934000
0
0
<COMMON> 64000
<OTHER-SE> 18725000
<TOTAL-LIABILITY-AND-EQUITY> 27756000
<SALES> 29444000
<TOTAL-REVENUES> 29444000
<CGS> 13648000
<TOTAL-COSTS> 7514000
<OTHER-EXPENSES> (559000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 296000
<INCOME-PRETAX> 8545000
<INCOME-TAX> 3077000
<INCOME-CONTINUING> 5468000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5468000
<EPS-BASIC> .76
<EPS-DILUTED> .76
</TABLE>
