-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D6w+U1Oe3vN+win54XiS0vU3hWaCLMtcHt17KxZ9k1eYBQgftNg+rZR4/0y3mqqg EoLid9mZqcfZlRKDLx9Luw== 0000914233-97-000127.txt : 19970815 0000914233-97-000127.hdr.sgml : 19970815 ACCESSION NUMBER: 0000914233-97-000127 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UTAH MEDICAL PRODUCTS INC CENTRAL INDEX KEY: 0000706698 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 870342734 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12575 FILM NUMBER: 97662568 BUSINESS ADDRESS: STREET 1: 7043 S 300 WEST CITY: MIDVALE STATE: UT ZIP: 84047 BUSINESS PHONE: 8015661200 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For quarter ended: June 30, 1997 Commission File No. 1-12575 UTAH MEDICAL PRODUCTS, INC. (Exact name of Registrant as specified in its charter) UTAH 87-0342734 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7043 South 300 West Midvale, Utah 84047 Address of principal executive offices Registrant's telephone number: (801) 566-1200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and; (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of the registrant's common stock as of August 13, 1997: 8,388,786 UTAH MEDICAL PRODUCTS, INC. INDEX TO FORM 10-Q PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements Balance Sheets as of June 30, 1997 and December 31, 1996 1 Statements of Operations for the three and six months ended June 30, 1997 and June 30, 1996 2 Statements of Cash Flows for the six months ended June 30, 1997 and June 30, 1996 3 Notes to Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II - OTHER INFORMATION Item 4. Submission of Matters to a vote of Security Holders 10 Item 6. Exhibits and Reports on Form 8-K 10 SIGNATURES 10 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS UTAH MEDICAL PRODUCTS, INC. BALANCE SHEETS AS OF JUNE 30, 1997 AND DECEMBER 31, 1996 (unaudited) ASSETS CURRENT ASSETS: JUNE 30, 1997 DECEMBER 31, 1996 ------------- ----------------- Cash $2,439,956 $3,038,956 Investments 165,000 1,458,543 Accounts receivable - net 3,091,914 3,804,857 Other receivables 712,942 1,205,985 Inventories 6,389,444 4,750,442 Prepaid expenses 173,134 91,273 Deferred income taxes 587,242 595,639 ------------- ------------- Total current assets 13,559,632 14,945,695 PROPERTY AND EQUIPMENT - NET 13,170,250 13,367,597 INTANGIBLE ASSETS - NET 900,757 602,393 ------------- ------------- TOTAL $27,630,639 $28,915,685 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 1,684,560 $ 1,885,743 Accrued expenses: Payroll and payroll taxes 588,227 1,132,309 Reserve for litigation expenses 740,204 649,840 Income taxes payable Other 288,745 271,947 Revolving line of credit 2,150,000 Deferred revenue 85,600 135,600 ------------- ------------- Total current liabilities 5,537,336 4,075,439 DEFERRED REVENUE 44,634 87,492 DEFERRED INCOME TAXES 464,761 369,759 ------------- ------------- Total liabilities 6,046,731 4,532,690 ------------- ------------- STOCKHOLDERS' EQUITY: Preferred stock - $.01 par value; authorized - 5,000,000 shares; no shares issued or outstanding Common stock - $.01 par value; authorized - 50,000,000 shares; issued - June 30, 1997, 8,388,786 shares December 31, 1996, 8,785,736 shares 83,888 87,857 Unrealized gain on investments available-for-sale, net of tax 21,942 58,494 Cumulative foreign currency translation adjustment (349,914) 217,444 Retained earnings 21,827,992 24,019,200 ------------- ------------- Total stockholders' equity 21,583,908 24,382,995 ------------- ------------- TOTAL $27,630,639 $28,915,685 ============= ============= see notes to financial statements
UTAH MEDICAL PRODUCTS, INC. STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 (unaudited) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------- 1997 1996 1997 1996 ------------- ------------ ------------ ------------ NET SALES $ 5,100,577 $10,089,176 $10,273,971 $20,056,766 COST OF SALES 2,429,370 5,083,949 4,895,164 10,456,480 ------------- ------------ ------------ ------------ GROSS MARGIN 2,671,207 5,005,227 5,378,807 9,600,286 ------------- ------------ ------------ ------------ EXPENSES: Selling, general and administrative 1,334,546 1,521,835 2,711,684 2,970,181 Research & development 253,563 378,540 491,501 737,415 ------------- ------------ ------------ ------------ Total 1,588,109 1,900,375 3,203,185 3,707,596 INCOME FROM OPERATIONS 1,083,098 3,104,852 2,175,622 5,892,690 OTHER INCOME 293,500 245,235 821,901 1,343,993 ------------- ------------ ------------ ------------ INCOME BEFORE INCOME TAX EXPENSE 1,376,598 3,350,087 2,997,523 7,236,683 INCOME TAX EXPENSE 481,213 1,179,231 1,062,153 2,582,292 ------------- ------------ ------------ ------------ NET INCOME $895,385 $2,170,856 $1,935,370 $4,654,391 ============= ============ ============ ============ EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE $ 0.11 $ 0.23 $ 0.22 $ 0.47 ============= ============ ============ ============ EARNINGS PER COMMON SHARE ASSUMING FULL DILUTION $ 0.11 $ 0.23 $ 0.22 $ 0.47 ============= ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES 8,504,429 9,559,673 8,612,269 9,802,124 ============= ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES ASSUMING FULL DILUTION 8,504,429 9,559,673 8,612,269 9,802,124 ============= ============ ============ ============
see notes to financial statements UTAH MEDICAL PRODUCTS, INC. STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 (unaudited) JUNE 30, ---------------------------- 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,935,370 $4,654,391 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 620,078 671,876 Provision for (recovery of) losses on accounts receivable (18,716) 17,574 (Gain)/Loss on disposal of assets (49,834) 370,576 Deferred income taxes 125,517 44,349 Tax benefit attributable to exercise and disposition of incentive stock options and stock purchase rights 16,359 70,887 Changes in operating assets and liabilities: Accounts receivable - trade 731,660 537,059 Accrued interest and other receivables 493,044 59,303 Inventories (1,639,003) (730,176) Prepaid expenses (81,861) 77,886 Accounts payable (201,184) (426,838) Accrued expenses (436,919) (99,091) Deferred revenue (92,858) 57,142 ----------- ----------- Total adjustments (533,718) 650,547 ----------- ----------- Net cash provided by operating activities 1,401,652 5,304,938 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for: Property and equipment (902,469) (3,357,540) Intangible assets (327,622) (258,039) Purchases of investments (112,200) (3,315,186) Proceeds from sale of: Investments 1,401,001 9,802,283 Property and equipment 3,500 21,750 ----------- ----------- Net cash provided by (used in) investing activities 62,209 2,893,268 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 108,812 171,813 Common stock purchased and retired (4,321,673) (10,981,386) Proceeds from issuance of short-term debt 2,150,000 0 ----------- ----------- Net cash used in financing activities (2,062,861) (10,809,573) ----------- ----------- NET INCREASE (DECREASE) IN CASH (599,000) (2,611,367) CASH AT BEGINNING OF PERIOD 3,038,956 5,064,913 ----------- ----------- CASH AT END OF PERIOD $2,439,956 $2,453,546 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes $1,155,710 $2,643,631 see notes to financial statements UTAH MEDICAL PRODUCTS, INC. NOTES TO FINANCIAL STATEMENTS (unaudited) (1) The unaudited financial statements presented herein have been prepared in accordance with the instructions to form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles. These statements should be read in conjunction with the financial statements and notes thereto included in the Utah Medical Products, Inc. ("UM" or "the Company") annual report on form 10-K for the year ended December 31, 1996. The accompanying financial statements have not been examined by independent accountants in accordance with generally accepted auditing standards, but in the opinion of management such financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to summarize fairly the Company's financial position and results of operations. The results of operations for the three and six months ended June 30, 1997 may not be indicative of the results that may be expected for the year ending December 31, 1997. (2) Inventories at June 30, 1997 and December 31, 1996 consisted of the following: June 30, December 31, 1997 1996 ------------ ------------ Finished goods $ 1,383,827 $ 1,000,438 Work-in-process 1,230,539 1,010,086 Raw materials 3,775,078 2,739,918 ------------ ------------ Total $ 6,389,444 $ 4,750,442 ============ ============ (3) 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. (4) In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings per Share. This standard establishes standards for computing earnings per share ("EPS"). SFAS No. 128 simplifies the approach for computing EPS previously found in APB Opinion No. 15. It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. Early adoption is not permitted. The computation of basic EPS under SFAS No. 128 would not have changed the net income amounts for the three and six months ended June 30, 1997 and 1996 herein reported. Diluted EPS for the six months ended June 30,1997 and for the three and six months ended June 30, 1996 also would have been the same as herein reported. However, the computation of diluted EPS would have changed the net income amounts for the three months ended June 30, 1997 to $.10 per share from the $.11 reported herein. (5) Forward-Looking Information This report contains certain forward-looking statements and information relating to the Company that are based on the beliefs of management as well as assumptions made by, and information currently available to, management. When used in this document, the words "anticipate," "believe," "should," "project," "estimate," "expect," "intend" and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. Such statements reflect the current view of the Company respecting future events and are subject to certain risks, uncertainties, and assumptions, including the risks and uncertainties noted throughout the document. Although the Company has attempted to identify important factors that could cause the actual results to differ materially, there may be other factors that cause the forward statement not to come true as anticipated, believed, projected, expected, or intended. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ materially from those described herein as anticipated, believed, projected, estimated, expected, or intended. 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 UM's products at lower prices, the timing and market acceptance of UM's own new product introductions, UM's ability to efficiently manufacture its products, including the reliability of suppliers, success in gaining access to important global distribution channels, marketing success of UM's distribution and sales partners, 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 that may impact the Company's assets and liabilities, as well as cash flows, include risks inherent to companies manufacturing products used in health care including claims resulting from the improper use of devices and other product liability claims, defense of the Company's intellectual property, productive use of assets in generating revenues, management of working capital including inventory levels required to meet delivery commitments at a minimum cost, and timely collection of accounts receivable. Additional risk factors that may affect non-operating income include the continuing viability of the Company's technology license agreements, actual cash and investment balances, asset dispositions, and acquisition activities that may require external funding. (6) Subsequent Events On July 20, 1997, UM purchased all of the common shares of Columbia Medical & Surgical, Inc. (CMI), a privately held corporation located in Redmond, Oregon. The purchase price was approximately $8.1 million, including consideration for patent rights and non-competition agreements, paid in cash to Columbia's two prior owners, Larry and Emily Smith. The acquisition will be considered a purchase for accounting purposes. A $10,000,000 unsecured revolving promissory note with First Security Bank, along with the Company's own cash, were used for the purchase. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Because of the relatively short span of time, results for any given three or six month period in comparison with a previous three or six month period may not be indicative of comparative results for the year as a whole. a) Overview Second quarter (2Q) 1997 financial results were down compared to 2Q 1996, but about the same as in first quarter (1Q) 1997. Sales suffered in comparison to the prior year because of the permanent decline in sales of disposable pressure transducers to Baxter, a one-time buy-back of inventory from a terminated distributor, and lower Intran(R) sales due to competition from two manufacturers which UM believes are infringing its patents. In making a strategic decision to convert, over the past five years, its Ob/Gyn sales resources in the U.S. from third party distributors to its own employed direct representatives, UM knew it could result in some short term loss of sales, but determined it would ultimately benefit the Company due to better representation of products, higher unit prices and higher sales volumes. Despite sales which declined by 49%, gross profit margins improved to 52.4% of sales as compared to 49.6% of sales in 2Q 1996. Operating profit margins were hurt because of the lower sales volume, which caused operating expenses to increase from 19% of sales in 2Q 1996 to 31% of sales in 2Q 1997, despite the fact that actual operating expenses in 2Q 1997 were about $300,000 lower than in 2Q 1996. b) Revenues UM divides revenues into three product-line categories: 1) critical care, which is comprised primarily of components used in invasive blood pressure monitoring, but also includes components for other types of pressure monitoring, as well as disposable respiratory products used in hospitals; 2) obstetrics, which is comprised mainly of devices for monitoring intrauterine pressure during labor and delivery, although to a lesser extent electrodes for fetal heart rate monitoring as well as other labor and delivery supplies, and a product which unifies and improves clinician safety in the multiple step procedure of clamping, cutting, and drawing blood samples from the umbilical cord immediately following childbirth; and 3) gynecology, which comprises an electrosurgery system used in a procedure called LETZ(R), tools used in other minimally invasive surgical procedures including diagnostic laparoscopies, and a device for the conservative treatment of urinary incontinence. Critical care product revenues were $2,203,000 (43% of total revenue) in 2Q 1997, compared to $5,148,000 (51% of total revenue) in 2Q 1996. Sales to Baxter in 2Q 1997 were $393,000 compared to $2,995,000 in 2Q 1996. As previously announced, Baxter stopped purchasing disposable pressure transducers ("DPT") from UM at the end of 1996. During the first half (1H) of 1997, total critical care sales were $4,244,000 compared with $10,938,000 in 1H 1996. Sales to Baxter were $847,000 in 1H 1997, compared to $6,789,000 in 1H 1996. First half 1997 Baxter sales were non-pressure transducer components. Critical care blood pressure monitoring is a mature business dominated by two large suppliers, Baxter and Abbott. UM's non-Baxter critical care sales were $1,810,000 in 2Q 1997 compared to $2,153,000 in 2Q 1996, but up from $1,588,000 in 1Q 1997. First Half 1997 non-Baxter critical care sales were $3,398,000 compared to $4,149,000 in the same period of 1996. The obstetrics revenue category declined 48.4% in 2Q 1997 from the same quarter of 1996 and represented 41% of total sales compared to 40% in 1996. Sales of obstetrics products in 2Q 1997 were $2,091,000 compared to $4,051,000 in 2Q 1996. First half 1997 obstetrics sales were $4,426,000 compared to $7,497,00 in 1H 1996. In 2Q 1997, UM bought back $643,000 in obstetrics products from a dealer terminated at the beginning of 1997, and experienced lower Intran sales compared to 2Q 1996, due to the competitive situation. Absent the buy-back, obstetric revenues grew 17% from 1Q of this year. UM has been converting, for the past five years, its Ob/Gyn sales resources in the U.S. from third party distributors to its own employed direct representatives, and expects that the changes made at the start of this year will benefit the company for the rest of 1997 and into the future. Starting in late July 1997, UM has begun shipping the first of its six new Intran models offering a smaller tip size and a zero switch located on the connector cable, along with an amnioinfusion viewport introduced in late 1996. These new product offerings should allow the state of art Intran Plus catheter to satisfy customer preferences identified by recent surveys. The third product line, gynecology products, includes Liberty(R), a system for conservatively treating urinary incontinence, Lumin(R), a unique tool used in laparoscopic procedures to manipulate the uterus, and EpitomeTM, a unique ceramic scalpel, in addition to UM's LETZ system of electrosurgery equipment and disposable electrodes. Gynecology revenues were $807,000 in 2Q 1997 compared to $890,000 in 2Q 1996, and represented 16% of total revenues. First half 1997 gynecology revenues were $1,604,000 approximately equal to $1,622,000 in the same period of 1996, despite being negatively impacted in 1997 by the distributor change. UM's past successes with its gynecology products resulted from providing physician training along with equipment and tools designed for specific procedures. The Company believes that future success will depend on similar efforts. The Columbia Medical acquisition announced July 21, 1997 (see note 6 on page 5, above) should provide immediate growth opportunities for UM. CMI's principal products, vacuum-assisted obstetrical delivery systems are well suited to UM's current sales focus. Other advantages include the addition of a patented urology product, bundling help in defending UM's OB business in group contract bids, and further growth opportunities for sales overseas. Second quarter and first half 1997 foreign sales were $1,340,000 and $2,535,000, respectively, compared to $2,601,000 and $5,350,000, respectively, in the same periods of 1996 (around 25% of total sales in all periods). Lower sales to Baxter accounted for about 98% of the decrease in 2Q 1997 from 2Q 1996, and about 93% of the decrease in 1H 1997 from 1H 1996. Critical care products represented 86% and 85% of international sales in 2Q and 1H 1997, respectively, compared to 92% in both 2Q and 1H 1996. UM believes it has substantial sales potential for its products in international markets, including those acquired in July 1997 through the CMI purchase, and therefore plans to continue to commit resources to international business expansion. c) Gross Profit Gross margins (profit after subtracting costs of manufacturing products from revenues) in both 2Q and 1H 1997, were 52.4% compared to 49.6% and 47.9% in 2Q and 1H 1996, respectively The improvement was achieved because of the percentage increase in sales of Ob/Gyn products from 49.0% and 45.5% of total sales in 2Q and 1H 1996, respectively, to 56.8% and 58.7% of sales in 2Q and 1H 1997, respectively, combined with a sharp decrease in Baxter sales, which were among the Company's least profitable. A primary short-term challenge for UM is absorption of manufacturing overhead given the current sales volumes and depreciation related to recent increases in fixed assets. To the extent UM is successful in growing obstetrics and gynecology revenues, and in switching distribution channels from distributors to direct representatives, the Company foresees continued gross margin improvements. d) Income from Operations Operating profit, or income from operations, is the profit achieved after subtracting operating expenses from gross profit. Operating expenses are subdivided into sales, general and administrative (SG&A) expenses and research and development (R&D) expenses. UM further divides SG&A into the two categories of sales and marketing (S&M) expenses and general and administrative (G&A) expenses. As a percentage of sales, operating expenses increased to 31.1% in 2Q 1997 compared to 18.8% in 2Q 1996, despite a decrease of $312,000 in operating expense dollars. Comparing 1H 1997 to the same period of 1996, operating expenses increased to 31.2% of sales from 18.5% of sales. Second quarter 1997 SG&A expenses decreased 12% from the amounts spent in 1996, but, as a percentage of sales, increased to 26.2% of sales in 2Q 1997 from 15.1% of sales in 1996. First half 1997 selling, general and administrative expenses increased to 26.4% of sales compared to 14.8% in 1H 1996, while declining $258,000 in actual dollars. S&M expenses pertain primarily to the "direct sales" portion of UM's business. In 1997, the S&M expense ratio is expected to remain above historical levels for two reasons: 1) the decline in Baxter business will continue, on a relative basis to 1996, to reduce total sales; and 2) the termination of two additional U.S. distributors at the beginning of the year in favor of adding directly employed sales representatives will increase incremental sales expenses. R&D expenses in 2Q and 1H 1997 were 5.0% and 4.8% of sales, respectively, compared to 3.8% and 3.7% of sales in 2Q and 1H 1996, respectively. Some R&D expenses are external costs relating to both process and product validations, which costs can vary from period to period. The Company employs specialist R&D resources not only to internally develop its own new product ideas, but also, through joint development agreements, licensing of technology, acquisitions and other arrangements, to enhance and complete the commercialization of projects initiated by others. For example, UM recently announced that it would work in cooperation with Mayo Clinic to develop and commercialize an advanced endometrial tissue sampling approach designed by R. Stuart Fowler, M.D., Mayo Clinic Scottsdale, Arizona. The advancement allowed by this endometrial sampling invention is a uterine curetting device with the capability of obtaining a sampling of the endometrial lining that rivals the thoroughness of a D&C procedure, without cervical dilatation, performed in an office setting. Second quarter 1997 income from operations was $1,083,098 compared to $3,104,852 in 2Q 1996. Second quarter 1997 operating margins were 21.2% compared to 30.8% for the same quarter in 1996. First half 1997 income from operations declined to 21.2% of sales from 29.4% in 1H 1996. e) Non-operating Income Non-operating income includes primarily royalties from licensing UM's technology to other companies, interest and capital gains from investing the Company's cash, and gains or losses from the sale of assets. Non-operating income increased $48,000 to $293,000 in 2Q 1997 from $245,000 in 2Q 1996. For the first half, non-operating income declined from $1,344,000 in 1996 to $822,000 in 1997. An extraordinary payment for the use of UM's pressure monitoring technology in 1Q 1996 is principally responsible for the difference. Royalties from other medical device companies continue to make a substantial contribution to non-operating income. Non-operating income during the remainder of 1997 is expected to be lower than during the same period of 1996 due to required interest payments on UM's credit line and lower cash balances generating less investment income, while royalties are expected to be similar in magnitude to the last half of 1996. f) Net Income and EPS Despite lower sales in 2Q and 1H 1997, UM's net income expressed as a percentage of sales continues at a solid 18% and 19%, respectively, compared to 22% and 23% in 2Q and 1H 1996, respectively. After income taxes, 2Q 1997 net income was $895,385, compared to $2,170,856 in 2Q 1996. For the first half, 1997 net income was $1,935,370 compared to $4,654,391 in 1996. The effective income tax rates were between 35% and 36% for all periods. Earnings per share (EPS) is net income divided by the number of shares of stock outstanding (fully-diluted to take effect for stock options awarded which have exercise prices below the current market value). Fully diluted 2Q 1997 EPS were down 53.6% to $.11 compared to $.23 in 2Q 1996. Second quarter 1997 ending weighted average number of common shares assuming full dilution (the number used to calculate EPS) were 8,504,429 shares compared to 9,559,673 in 2Q 1996. The dilution calculation added about 35,000 shares to weighted actual shares outstanding in 2Q 1997, compared to about 194,000 for 2Q 1996, due to quarter ending share prices of $8.19 in 2Q 1997 compared to $12.63 in 2Q 1997. Actual outstanding common shares as of June 30, 1997 were 8,388,786. g) Cash Flows Cash and investments balances were $2.6 million at the end of 2Q 1997, a decrease of $1.9 million from December 31, 1996. The decrease was due primarily to the use of $4.3 million for share repurchases. Cash provided by operating activities, including adjustments for depreciation and other non-cash operating expenses, along with changes in working capital, totaled $1,401,652 in 1H 1997, from $5,304,938 in 1H 1996. Apart from net income, which accounted for about 70% of the decrease, a relative increase of $908,000 in inventories was responsible for a major portion of the decline compared to 1H 1996. Raw materials inventories have grown in 1997 because of volume purchase commitments with vendors and the time required to make changes in purchase patterns. As of June 30, 1997, net accounts receivable balances were $3.1 million which equates to 55 days sales in receivables (based on 2Q sales), compared to end-of-year accounts receivable of $3.8 million which equates to 45 days in receivables. Inventory balances are $1,639,000 higher than at the end of 1996, with inventory turns now at 1.6 times based on 2Q cost of sales. Inventory control will be an area of primary focus for the balance of 1997 as UM seeks to reduce debt and become more efficient with the use of its assets. Cash of $902,000 was used for capital expenditures in property and equipment, with an additional $328,000 used to purchase intangible assets. Capital expenditures during 1H 1997 were made, primarily, in the automation of key assembly operations, in new product tooling and equipment, for Midvale building improvements, and for final payments on the Ireland facility. Net purchases and sales of investments provided $1,289,000 to 1H 1997 cash. First half 1997 financing activities used cash of $2,063,000 after repurchases of shares are netted against sales of shares from option exercises and proceeds from issuance of short-term debt, compared to $10,810,000 in the same period of 1996. The Company repurchased its own common stock during 1H 1997 in the amount of $4,322,000, down from $10,981,000 used in 1H 1996. In 1H 1997, the Company received $109,000 from issuing stock (on exercise of employee options), compared to $172,000 in 1H 1996. The Company did not enter into any long-term debt agreements during the first half of 1997, but opened a $10 million unsecured line of credit in early April 1997, and had net borrowings of $2,150,000 at June 30 (see below). Management believes that current cash balances , the credit line, plus future income from operations will provide the liquidity needed to finance internal growth plans. In addition to the capital expenditures, UM plans to use cash during the remainder of 1997 for selective infusions of technological, marketing or product manufacturing rights to broaden the Company's product offerings and to reduce credit line balances. Other On April 4, 1997, the Company signed a revolving promissory note with its bank. Under the note, the Company may borrow up to $10,000,000 at a floating interest rate tied to LIBOR or the Prime Rate at UM's election. Amounts borrowed under the note are unsecured and are due March 25, 1999. At August 10, 1997, the Company had borrowed approximately $8,000,000 under the note at a current rate of approximately 7.08% per annum. PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On May 16, 1997, at the annual meeting, shareholders of the Company approved the following matter submitted to them for consideration: Elected Kevin L. Cornwell and Perry L. Lane as directors of the Company. Kevin L. Cornwell: For 7,285,870 Perry L. Lane: For 7,326,410 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: SEC Exhibit # Reference # Title of Document 1 27 Financial data schedule b) Reports on Form 8-K: During the quarter ended June 30, 1997, the Company filed no reports on Form 8-K. Subsequent to June 30, on August 4, 1997, UM filed a report on Form 8-K, Item 2, Acquisition or Disposition of Assets, related to the purchase of Columbia Medical & Surgical, Inc. (see note 6 on page 5, above). Financial Statements under Item 7 will be filed by amendment as soon as practicable, but no later than October 3, 1997. On August 7, 1997, UM filed a report on Form 8-K/A, Item 7, Exhibits, related to the Columbia Medical Acquisition. SIGNATURES Pursuant to the requirements of the Securities Exchanges Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UTAH MEDICAL PRODUCTS, INC. REGISTRANT Date: 8/13/97 By: /s/ Kevin L. Cornwell Kevin L. Cornwell CEO and CFO EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEETS AS OF JUNE 30, 1997, AND STATEMENTS OF OPERATIONS FOR THE PERIODS ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 2,439,956 165,000 3,155,283 (63,369) 6,389,444 13,559,632 20,760,316 (7,590,066) 27,630,639 5,537,336 0 83,888 0 0 21,500,020 27,630,639 10,273,971 10,273,971 4,895,164 3,203,185 (835,759) 0 13,858 2,997,523 1,062,153 1,935,370 0 0 0 1,935,370 0.22 0.22
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