-----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, OKVjwqfK61NURXWg0M18+hcS83dVib6nhvaJm9MNBZMhoy4hEZROG7JRePDfrf6G HpGD83tGqOb0wtKpP2bWiw== 0001096906-02-000588.txt : 20020814 0001096906-02-000588.hdr.sgml : 20020814 20020814160429 ACCESSION NUMBER: 0001096906-02-000588 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 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: 02736531 BUSINESS ADDRESS: STREET 1: 7043 S 300 WEST CITY: MIDVALE STATE: UT ZIP: 84047 BUSINESS PHONE: 8015661200 10-Q 1 umed10q_june02.txt 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, 2002 Commission File No. 0-11178 ------- UTAH MEDICAL PRODUCTS, INC. --------------------------- (Exact name of Registrant as specified in its charter) UTAH 87-0342734 ------------------------------- ------------------ (State or other jurisdiction of (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, 2002: 4,905,000 --------- UTAH MEDICAL PRODUCTS, INC. --------------------------- INDEX TO FORM 10-Q ------------------ PART I - FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements Consolidated Condensed Balance Sheets as of June 30, 2002 and December 31, 2001 .............................. 1 Consolidated Condensed Statements of Income for the three and six months ended June 30, 2002 and June 30, 2001 ....... 2 Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2002 and June 30, 2001 ................. 3 Notes to Consolidated Condensed Financial Statements ............. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................ 6 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K ............................... 10 SIGNATURES ................................................................ 10 PART I - FINANCIAL INFORMATION Item 1. Financial Statements
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES -------------------------------------------- CONSOLIDATED CONDENSED BALANCE SHEETS AS OF ------------------------------------------- JUNE 30, 2002 AND DECEMBER 31, 2001 ----------------------------------- (in thousands) (unaudited) (audited) ASSETS JUNE 30, 2002 DECEMBER 31, 2001 Current assets: Cash $ 823 $ 370 Accounts receivable - net 3,458 3,585 Inventories 3,351 3,248 Other current assets 740 670 -------- -------- Total current assets 8,372 7,873 Property and equipment - net 8,990 8,877 Goodwill 8,533 8,533 Goodwill - accumulated amortization (2,288) (2,288) -------- -------- Goodwill - net 6,245 6,245 Other intangible assets 2,586 2,586 Other intangible assets - accumulated amortization (2,052) (2,009) -------- -------- Other intangible assets - net 534 577 -------- -------- TOTAL $ 24,141 $ 23,572 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 514 $ 457 Accrued expenses 1,631 2,017 -------- -------- Total current liabilities 2,145 2,474 Notes payable 0 2,501 Deferred income taxes 200 390 -------- -------- Total liabilities 2,345 5,365 -------- -------- Stockholders' equity: Preferred stock - $.01 par value; authorized - 5,000 shares; no shares issued or outstanding Common stock - $.01 par value; authorized - 50,000 shares; issued - June 30, 2002, 5,021 shares December 31, 2001, 5,029 shares 50 50 Cumulative foreign currency translation adjustment (1,341) (1,816) Retained earnings 23,087 19,973 -------- -------- Total stockholders' equity 21,796 18,207 -------- -------- TOTAL $ 24,141 $ 23,572 ======== ======== see notes to consolidated condensed financial statements -1-
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES -------------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR THE --------------------------------------------------- THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001 ---------------------------------------------------------- (in thousands - unaudited) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------- ----------------- 2002 2001 2002 2001 ------- ------- ------- ------- NET SALES $ 6,800 $ 6,794 $13,505 $13,361 COST OF SALES 2,883 2,873 5,772 5,677 ------- ------- ------- ------- Gross Margin 3,917 3,921 7,733 7,684 ------- ------- ------- ------- EXPENSES: Selling, general and administrative 1,247 1,476 2,483 2,915 Research & development 68 94 126 194 ------- ------- ------- ------- Total 1,315 1,570 2,609 3,109 ------- ------- ------- ------- Income from Operations 2,602 2,351 5,124 4,575 OTHER INCOME 126 28 238 4 ------- ------- ------- ------- Income Before Income Tax Expense 2,728 2,379 5,362 4,579 INCOME TAX EXPENSE 943 898 1,865 1,707 ------- ------- ------- ------- Net Income $ 1,785 $ 1,481 $ 3,497 $ 2,872 ======= ======= ======= ======= BASIC EARNINGS PER SHARE $ 0.36 $ 0.30 $ 0.70 $ 0.57 ======= ======= ======= ======= DILUTED EARNINGS PER SHARE $ 0.33 $ 0.29 $ 0.65 $ 0.56 ======= ======= ======= ======= SHARES OUTSTANDING - BASIC 5,017 5,014 5,020 5,012 ======= ======= ======= ======= SHARES OUTSTANDING - DILUTED 5,367 5,195 5,367 5,155 ======= ======= ======= ======= see notes to consolidated condensed financial statements -2- UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES -------------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS ----------------------------------------------- FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001 -------------------------------------------------------- (in thousands - unaudited) JUNE 30, ------------------ 2002 2001 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,497 $ 2,872 ------- ------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 624 997 Provision for losses on accounts receivable 7 45 Loss on disposal of assets 0 6 Deferred income taxes (235) (74) Tax benefit attributable to exercise of stock options 155 23 Changes in operating assets and liabilities: Accounts receivable - trade 251 82 Accrued interest and other receivables (65) (16) Inventories (57) (170) Prepaid expenses (22) (78) Accounts payable 45 (142) Accrued expenses (420) (110) ------- ------- Total adjustments 283 563 ------- ------- Net cash provided by operating activities 3,780 3,435 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for: Property and equipment (300) (312) ------- ------- Net cash used in investing activities (300) (312) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 455 138 Common stock purchased and retired (995) (69) Proceeds from note payable 0 0 Repayments of note payable (2,501) (3,400) ------- ------- Net cash used in financing activities (3,041) (3,331) ------- ------- Effect of exchange rate changes on cash 14 (9) NET INCREASE (DECREASE) IN CASH 453 (217) CASH AT BEGINNING OF PERIOD 370 414 ------- ------- CASH AT END OF PERIOD $ 823 $ 197 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for income taxes $ 1,824 $ 1,832 Cash paid during the period for interest $ 18 $ 267 see notes to consolidated condensed financial statements -3- UTAH MEDICAL PRODUCTS, INC. --------------------------- NOTES TO CONSOLIDATED CONDENSED 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 accounting principles generally accepted in the United States. These statements should be read in conjunction with the financial statements and notes included in the Utah Medical Products, Inc. ("UTMD" or "the Company") annual report on form 10-K for the year ended December 31, 2001. Although the accompanying financial statements have not been examined by independent accountants in accordance with auditing standards generally accepted in the United States, 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. (2) Inventories at June 30, 2002 and December 31, 2001 (in thousands) consisted of the following: June 30, December 31, 2002 2001 ------ ------ Finished goods $1,077 $1,142 Work-in-process 970 835 Raw materials 1,304 1,271 ------ ------ Total $3,351 $3,248 ====== ====== (3) Comprehensive Income. The Company translates the currency of its Ireland subsidiary which comprises the only element of comprehensive income. Total comprehensive income for the three and six months ending June 30, 2002 was (in thousands) $2,307 and $3,972, respectively. (4) In July 2001, SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets" were issued. SFAS 142 is required to be applied for fiscal years beginning after December 15, 2001. SFAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. It requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment within six months of adopting the statement and at least annually thereafter. The Company completed the required initial goodwill impairment test, based on December 31, 2001 valuations, and determined that the book value of its goodwill associated with its 1997 and 1998 acquisitions is not impaired. Amortization of the Company's other intangible assets totaled (in thousands) $22 and $43 for the three and six months ending June 30, 2002. The estimated aggregate amortization expense for the years ending 2002, 2003, 2004, 2005 and 2006 is (in thousands) $81, $76, $51, $51 and $50, respectively. (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 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, -4- including the reliability of suppliers, success in gaining access to important global distribution channels, marketing success of UTMD's distribution and sales partners, budgetary constraints, the timing of regulatory approvals for newly introduced products, third party reimbursement, and access to U.S. hospital customers, as that access continues to be constrained by group purchasing decisions. 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) Events subsequent to June 30, 2002 On July 3, 2002, UTMD entered into a new unsecured revolving line-of-credit agreement with U.S. Bank National Association which replaces its prior line-of-credit. Under the agreement, the Company may borrow up to $15,000,000 at a floating interest rate tied to Prime Rate or LIBOR, at UTMD's election. Financial covenants per the agreement require the Company to maintain certain minimum Net Worth and maximum Interest Bearing Debt to EBITDA ratios. A copy of the agreement is filed as an exhibit to this Form 10-Q. -5- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General UTMD manufactures and markets a well-established range of specialty medical devices. The general characteristics of UTMD's business have not materially changed over the last several reporting periods. The Company's Form 10-K Annual Report for the year ended December 31, 2001 provides a detailed description of products, technologies, markets, regulatory issues, business initiatives, resources and business risks, among other details, and should be read in conjunction with this report. Because of the relatively short span of time, results for any given three 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. Dollar amounts in the report are expressed in thousands, except per-share amounts or where otherwise noted. Analysis of Results of Operations a) Overview In 2Q 2002, UTMD met its primary financial performance objectives: 1) Return on Shareholders' Equity (ROE) exceeded 25% and 2) Earnings Per Share (EPS) increased 17% to $.333 on a diluted basis. UTMD concluded its eighteenth consecutive quarter of higher EPS when compared to the same quarter in the prior year. EPS for the last twelve months (LTM) were $1.23. Profit margins (profits as a percentage of sales) at all income statement levels continued exceptionally strong: 1) Gross Profit Margin (GPM) = 57.6%, 2) Operating Profit Margin (OPM) = 38.3%, 3) Earnings Before Tax Margin (EBTM) = 40.1%, and 4) Net Profit Margin (NPM) = 26.3%. Total consolidated sales increased by 1% in first half (1H) 2002, led by a 2% increase in domestic direct business activity. With its continued strong positive cash flow, UTMD eliminated its long term debt balance. b) Revenues Revenue from product sales is generally recognized by UTMD at the time the product is shipped and invoiced and collectibility is reasonably assured. The Company accrues provisions for the estimated costs that may be incurred for product warranties and unforeseen uncollectible accounts. UTMD believes that revenue should be recognized at the time of shipment as title generally passes to the customer at the time of shipment. This policy meets the criteria of SAB 101 in that there is persuasive evidence of an existing contract or arrangement, delivery has occurred, the price is fixed and determinable and the collectibility is reasonably assured. Total sales in 2Q 2002 were essentially the same as in 2Q 2001. International sales increased 4%, domestic direct sales remained the same, and domestic OEM sales declined 11%. International sales, which benefitted from a weaker US Dollar, were $1,438 in 2Q 2002 compared to $1,385 in 2Q 2001. Of these international sales, 61% were made in Europe during 2Q 2002, compared to 55% in 2Q 2001. Shipments from UTMD's Ireland facility in U.S. Dollar terms were up 12%. Domestic OEM sales are subject to fluctuations because OEM customers purchase products in quantities that represent more than one quarter's supply. First half (1H) 2002 total sales increased 1%, comprised of domestic direct sales up 2%, domestic OEM sales down 12% and international sales up 1% from 1H 2001. International sales in 1H 2002 were $2,751 compared to $2,716 in 1H 2001. Of these international sales, 57% were made in Europe during 1H 2002, compared to 55% in 1H 2001. Revenues by product category: 1. Obstetrics. Worldwide 2Q 2002 obstetrics product sales decreased 1% compared to 2Q 2001 and represented 43% of total sales. 2Q 2002 sales dollars were $2,945 compared to $2,988 in 2Q 2001. Obstetrics sales in 1H 2002 were $5,854 compared to $5,945 in 1H 2001. In 1H 2002, obstetrics product sales also represented 43% of total sales. In 1H 2002, domestic (U.S.) obstetrics sales declined $36, about 1%. In 1H 2002, sales of the market-leading IUP catheter, Intran(R) Plus, increased 2%, while vacuum-assisted delivery systems (VADS) sales declined 15%. 2. Gynecology/ Electrosurgery/ Urology. Worldwide 2Q 2002 Gyn/ES/Uro product sales increased 3% compared to 2Q 2001 and represented 19% of total revenues. 2Q 2002 sales dollars were $1,321 compared to $1,288 in 2Q 2001. Gyn/ES/ Uro product sales in 1H 2002 were 2,677 compared to 2,504 in 1H 2001. In 1H -6- 2002, Gyn/ES/Uro product sales represented 20% of total revenues. 1H 2002 ES product sales increased 6%. 1H 2002 OEM urology sales decreased $46, or 33%. 3. Neonatal. Worldwide 2Q 2002 neonatal product sales decreased 4% compared to 2Q 2001 and represented 13% of total sales. 2Q 2002 sales dollars were $911 compared to $946 in 2Q 2001. Neonatal product sales in 1H 2002 were $1,845 compared to $1,811 in 1H 2001. In 1H 2002, neonatal product sales represented 14% of total revenues. 4. Blood Pressure Monitoring and accessories (BPM). Worldwide 2Q 2002 BPM product sales increased 3% compared to 2Q 2001 and represented 24% of total revenues. 2Q 2002 sales dollars were $1,622 compared to $1,572 in 2Q 2001. BPM product sales in 1H 2002 were $3,129 compared to $3,101 in 1H 2001. In 1H 2002, BPM product sales represented 23% of total revenues. In 1H 2002, international BPM sales increased 9%. c) Gross Profit UTMD's GPMs in 2Q 2002 and 1H 2002 were 57.6% and 57.3%, respectively, compared to 57.7% and 57.5% for the same periods in 2001. GPMs remained consistent because product mix did not change significantly, and improved manufacturing efficiencies offset increased labor-related costs. Because of UTMD's small size and period-to-period fluctuations in OEM business activity, allocations of fixed manufacturing overheads cannot be meaningfully allocated between direct and OEM sales. Therefore, UTMD does not report GPM by sales channels. UTMD targets an average GPM greater than or equal to 55%, which it believes is necessary to successfully support the significant operating expenses required in a highly complex and competitive marketplace. Management expects to continue to achieve its average GPM target during the remainder of 2002. Expected favorable influences include growth in sales volume without a similar increase in manufacturing overhead expenses, a larger percentage of total sales from higher margin products and a continued emphasis on reengineering products to reduce costs. Expected unfavorable influences are continued competitive pressure on pricing and higher labor-related costs, including especially health plan benefits for employees. d) Operating Profit 2Q 2002 operating profits increased 11% to $2,602 from $2,351 in 2Q 2001. Operating profit dollars increased 12% in 1H 2002 compared to 1H 2001. Total operating expenses, including sales and marketing (S&M) expenses, research and development (R&D) expenses and general and administrative (G&A) expenses, were 19.3% of sales in both 2Q 2002 and 1H 2002 compared to 23.1% of sales in 2Q 2001 and 23.3% of sales in 1H 2001. 2Q and 1H 2002 OPMs were 38.3% and 37.9% respectively, compared to 34.6% and 34.3% in 2Q and 1H 2001, respectively. A reduction in the Company's accrual rate for litigation expenses associated with the patent infringement lawsuit (which received a favorable verdict in January), and the cessation of amortization of goodwill dictated by FASB SFAS No. 142, significantly helped reduce operating (G&A) expenses. S&M expenses in 2Q 2002 were $639 or 9.4% of sales compared to $727 or 10.7% of sales in 2Q 2001. First half 2002 S&M expenses were 9.2% of sales compared to 10.6% in 1H 2001. Because UTMD sells internationally through third party distributors, its S&M expenses are predominantly for U.S. business activity. Looking forward, UTMD expects higher S&M expenses during the remainder of 2002 due to increased sales activity and new marketing initiatives. R&D expenses in 2Q 2002 were $68 or 1.0% of sales compared to $94 or 1.4% of sales in 2Q 2001. R&D expenses in 1H 2002 were 0.9% of sales compared to 1.5% of sales in 1H 2001. Management expects R&D expenses to increase during the remainder of 2002. G&A expenses in 2Q 2002 were $607 or 8.9% of sales compared to $750 or 11.0% of 2Q 2001 sales. G&A expenses in 1H 2002 were 9.2% of sales compared to 11.2% of 1H 2001. G&A expenses include the Company's costs of litigation, patents, shareholder relations activities and amortization of goodwill (GWA) associated with acquisitions. Because of the new FASB accounting rules regarding intangible assets, GWA was zero in 1H 2002. UTMD anticipates G&A expenses during the remainder of 2002 will continue to be about 2 percentage points lower, as a percent of sales, than in second half (2H) 2001. -7- e) Non-operating income (expense) Non-operating income in 2Q 2002 was $126 compared to $29 in 2Q 2001, and $239 in 1H 2002 compared to $3 in 1H 2001. The substantial improvement was primarily a result of much lower interest costs on the Company's line of credit. Interest expense was $248 lower in 1H 2002 than in 1H 2001. As anticipated, the Company eliminated its line of credit balance during 2Q 2002. The average line of credit balance for 1H 2002 was about $1.0 million compared to $8.3 million in 1H 2001. Royalty income, which UTMD receives for licensing its technology to other companies, was similar in all periods. f) Earnings Before Income Taxes 2Q 2002 and 1H 2002 earnings before income taxes (EBT) increased 15% and 17% respectively compared to the same periods in 2001. 2Q 2002 EBTM was 40.1% compared to 35.0% in 2Q 2001. 1H 2002 EBTM was 39.7% compared to 34.3% in 1H 2001. UTMD was able to increase EBT as a percentage of sales because of reductions in operating expenses without affecting sales activity and lower interest expenses. For the year 2001, UTMD achieved an excellent EBTM of 35%. Management expects higher EBTM performance during the remainder of 2002 compared to 2H 2001. g) Net Income and EPS UTMD's net income (after taxes) expressed as a percentage of sales (NPM) was 26.3% and 25.9% for 2Q and 1H 2002, respectively, compared to 21.8% and 21.5% for 2Q and 1H 2001, respectively. Net income in dollars was up 21% and 22% for 2Q 2002 and 1H 2002, respectively. The effective income tax rate in 2Q and 1H 2002 was 34.6% and 34.8%, respectively, compared to 37.8% and 37.3% in 2Q and 1H 2001. The reduction in UTMD's estimated income tax rate was due to two primary factors: actual litigation costs which exceeded the Company's accrual rate and exercises of employee options. For employee options exercised and sold in less than one year, the gain realized by the employee is tax deductible to the Company. UTMD expects the tax deduction benefits from these factors to continue during the rest of 2002, resulting in a lower income tax rate for 2002 compared to 2001. Diluted 2Q 2002 EPS increased 17% to $.33 compared to $.29 in 2Q 2001. Diluted 1H 2002 EPS increased 17% to $.65 compared to $.56 in 1H 2001. The Company's increase in stock price had a retarding effect on EPS growth as a result of dilution from option exercises and calculation for unexercised options with an exercise price below the current market value. 2Q 2002 weighted average number of diluted common shares (the number used to calculate diluted EPS) were 5,367,000 compared to 5,195,000 shares in 2Q 2001. Actual outstanding common shares as of the end of 2Q 2002 were 5,021,000. h) Return on Shareholders' Equity (ROE) Annualized ROE in 2Q and 1H 2002 was 34% and 35%, respectively, compared to 42% in both 2Q and 1H 2001. The higher ROE in the prior year resulted because of the much higher financial leverage (debt) in the prior year. UTMD's goal is to consistently achieve ROE in excess of 25%. UTMD's ROE has averaged about 30% over the last 14 years. Management expects to achieve 30% ROE for the calendar year 2002. Liquidity and Capital Resources i) Cash flows Net cash provided by operating activities, including adjustments for depreciation and other non-cash operating expenses, along with changes in working capital, totaled $3,781 in 1H 2002, compared to $3,435 in 1H 2001. The Company expended $300 during 1H 2002 for investing activities, comprised entirely of purchases of property and equipment. During 1H 2001, the Company used $312 to purchase property and equipment. UTMD received $455 from issuing 58,582 shares of stock upon the exercise of employee stock options in 1H 2002, and repurchased 66,000 shares at a cost of $995. Employee option exercises were at an average price of $7.76 per share. In 1H 2001, the Company received $138 from option exercises of 20,096 shares and paid $69 to repurchase 7,000 shares. During 1H 2002, UTMD made repayments of $2,501 on its note payable, eliminating the balance on the note, and received $0 in proceeds from the note. During 1Q 2001, UTMD made repayments of $3,400 and received $0 in proceeds from the note. Management believes that future income from operations and effective management of working capital will provide the liquidity needed to finance normal growth plans. UTMD expects to use cash during the rest of -8- 2002 to keep facilities, equipment and tooling in good working order, for selective infusions of technological, marketing or product manufacturing rights to broaden the Company's product offerings, for continued share repurchases, and, if available for a reasonable price, acquisitions that strategically fit UTMD's business and are accretive to performance. The revolving credit line will be used for liquidity when the timing of acquisitions or repurchases of stock require substantial cash. j) Assets and Liabilities The following discussion focuses on Balance Sheet changes since March 31, 2002. For changes since December 31, 2001, please refer to the Balance Sheets provided with this report. June 30, 2002 total assets were $714 more than at March 31, 2002. Current assets increased due to accumulation of cash following elimination of the line of credit balance. Net property and equipment increased because assets in Ireland appreciated in dollar terms due to the weakening of the U.S. Dollar. Net intangible assets were only $22 lower after UTMD's required adoption of FASB Statement No. 142, under which goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually, or more frequently if impairment indicators arise, for impairment. UTMD does not expect its goodwill intangible assets to become impaired in the foreseeable future. Cash (and equivalent) balances were $823 at June 30, 2002, compared to $110 on March 31, 2002. Cash balances will increase during the rest of 2002 with normal operations. Cash would only decrease if used for an acquisition or share repurchases. Average inventory turns in 2Q 2002 remained excellent at 3.5 times compared to 3.6 times in 2Q 2001. Accounts receivable balances decreased during 2Q 2002 with higher sales activity, which yielded a reduction in average "days in receivables" from 49 days at the end of the prior quarter to 46 days. At the end of 2Q 2001, days in receivables were 50. Working capital increased $1,115 due to the increase in cash and a concomitant decrease in current liabilities, in particular accrued liabilities for litigation expenses. As of June 30, 2002, due to elimination of the bank loan balance, UTMD's total debt ratio (total liabilities/ total assets) decreased to 10% from 17% on March 31, 2002 and from 23% on December 31, 2001. The debt had been incurred in September 2000 to finance a Tender Offer repurchasing 1,119,000 UTMD shares at $8.20/ share. Without additional share repurchases or acquisitions that require new borrowing, UTMD anticipates a total debt ratio below 15% for the remainder of the year. Other Financial Measures EBITDA is a measure of UTMD's ability to generate cash. EBITDA is EBT plus depreciation and amortization expenses plus interest expenses resulting from financing activities. 2Q 2002 EBITDA were $3,047, up from $2,982 in 2Q 2001. As a ratio of sales, EBITDA were 45% in 2Q 2002 compared to 44% in 2Q 2001. 1H 2002 EBITDA were $6,005, up from $5,843 in 1H 2001. LTM EBITDA were $11,945. Please note that EBITDA is not defined or described by Generally Accepted Accounting Principles. As such, it is not prepared in accordance with GAAP, is not a measure of liquidity, and is not a measure of operating results. However, the components of EBITDA are prepared in accordance with GAAP, and UTMD believes that EBITDA is an important measure of the Company's operating performance and financial well-being. k) Management's Outlook. As outlined in its December 31, 2001 10-K report, UTMD's plan for 2002 is to 1) realize improved results from 2001 initiatives to expand sales activity; 2) continue outstanding operating performance, and set new Company records for profitability as a percent of sales; 3) sustain the patent infringement verdict and recover damages; and 4) actively look for new acquisitions to build a platform for continued growth. 1H 2002 financial results are consistent with achieving the previously stated plan. Item 3. Quantitative and Qualitative Disclosures about Market Risk. On January 1, 2002, UTMD converted the functional currency of its Irish manufacturing operations, including related assets, to the Euro currency, consistent with conversion of Ireland and many other Western European countries to the new common Euro currency. The Company's Irish operations were previously denominated in Irish Pounds. UTMD sells products under agreements denominated in U.S. Dollars and the Euro. The exchange rate was 1.0055 Euros per U.S. Dollar as of June 30, 2002. The weighted average conversion rate for 2Q 2002 for sales was 1.0793 Euros per U.S. Dollar. The Euro and other currencies are subject to exchange rate fluctuations that are beyond the control or anticipation of UTMD. The exchange rate for the Irish Pound was .9302 per U.S. Dollar as of June 30, 2001. The fixed exchange rate is .787 Euros per Irish Pound. UTMD manages its foreign currency risk without separate hedging transactions by converting currencies to U.S. Dollars as transactions occur. -9- PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Exhibits: SEC Exhibit # Reference # Title of Document - --------- ----------- ----------------- 1 10 Loan Agreement, dated 3 July, 2002 between Utah Medical Products, Inc. and U.S. Bank National Association 2 10 Revolving Promissory Note, dated July 3, 2002, by Utah Medical Products, Inc. to U.S. Bank National Association 3 99 Certification of CEO pursuant to 18 U.S.C.ss.1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 4 99 Certification of CFO pursuant to 18 U.S.C.ss.1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 b) Reports on Form 8-K: None SIGNATURES Pursuant to the requirements of the Securities Exchanges Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UTAH MEDICAL PRODUCTS, INC. --------------------------- REGISTRANT Date: 8/14/02 By: /s/ Kevin L. Cornwell ------------------- -------------------------------------------- Kevin L. Cornwell CEO Date: 8/14/02 By: /s/ Greg A. LeClaire ------------------- -------------------------------------------- Greg A. LeClaire CFO -10- EX-10.1 3 umed10qjune02ex10-1.txt EXHIBIT 1 --------- LOAN AGREEMENT Between Utah Medical Products, Inc and U.S. Bank National Association Dated July 3, 2002 Loan Agreement -------------- This Loan Agreement (the "Agreement") is entered into as of July 3, 2002, by and between Utah Medical Products, Inc., a Utah corporation ("Borrower"), and U. S. Bank National Association ("Bank"). RECITALS -------- Borrower has requested that Bank make a revolving line of credit available to Borrower as described below, and Bank has agreed to provide such credit to Borrower on the terms and conditions contained herein. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as follows: ARTICLE I --------- CREDIT TERMS ------------ SECTION 1.1. REVOLVING LOAN. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make a revolving loan to Borrower in an amount up to the principal amount of Fifteen Million Dollars ($15,000,000.00) (The "Loan"), the proceeds of which shall be used for working capital, acquisitions, stock repurchases and other business and corporate purposes. Borrower's obligation to repay the Loan shall be evidenced by a Revolving Promissory Note of even date herewith. SECTION 1.1 INTEREST/FEES. (a) Interest. The outstanding principal balance of the Loan shall bear interest at the rate or rates of interest set forth in the Note. (b) Computation and Payment. Interest shall be computed on the basis of a 360-day year, actual days elapsed. Interest and principal shall be payable at the times and place set forth in the Note. (c) Commitment Fee. No commitment fee will be charged. -------------- ARTICLE II ---------- REPRESENTATIONS AND WARRANTIES ------------------------------ Borrower makes the following representations and warranties to Bank, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this Agreement. -1- SECTION 2.1. LEGAL STATUS. Borrower is corporation and is duly organized and existing and in good standing under the laws of the State of Utah, and is qualified or licensed to do business (and is in good standing as a foreign corporation, if applicable) in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a material adverse effect on Borrower. SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement and each promissory note, contract, instrument and other document required hereby or at any time hereafter delivered to Bank in connection herewith (collectively, the "Loan Documents") have been duly authorized, and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations of Borrower or the party which executes the same, enforceable in accordance with their respective terms. SECTION 2.3. NO VIOLATION. The execution, delivery and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of organizational document of Borrower, or result in any breach of or default under any contract, obligation, indenture or other instrument to which Borrower is a party or by which Borrower may be bound. SECTION 2.4. LITIGATION. There are no pending, or to the best of Borrower's knowledge threatened, actions, claims, investigations, suits or proceedings by or before any governmental authority, arbitrator, court or administrative agency which could have a material adverse effect on the financial condition or operation of Borrower other than those disclosed by Borrower to Bank in writing prior to the date hereof. SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement of Borrower dated December 31, 2001, a true copy of which has been delivered by Borrower to Bank prior to the date hereof, (a) is complete and correct and presents fairly the financial condition of Borrower, (b) discloses all liabilities of Borrower that are required to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent, and (c) has been prepared in accordance with generally accepted accounting principles consistently applied. Since the date of such financial statement there has been no material adverse change in the financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a security interest in or otherwise encumbered any of its assets or properties except in favor of Bank or as otherwise permitted by Bank in writing. SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter possess, all permits, consents, approvals, franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the business in which it is now engaged in compliance with applicable law. SECTION 2.9. ERISA. Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time ("ERISA"); Borrower has not violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower; Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under generally accepted accounting principles. SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any material obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation. SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank in writing prior to the date hereof, Borrower is in compliance in all material respects with all applicable federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any of Borrower's operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and the Federal -2- Toxic Substances Control Act, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower is the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. Borrower has no material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment. ARTICLE III ----------- CONDITIONS ---------- SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank to extend any credit contemplated by this Agreement is subject to the fulfillment to Bank's satisfaction of all of the following conditions: (a) Approval of Bank Counsel. All legal matters incidental to the extension of credit by Bank shall be satisfactory to Bank's counsel. (b) Documentation. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed: (i) This Agreement and the Note. (ii) Borrowing Resolution for Borrower. (iii) Certificates of Incumbency for Borrower. (iv) Such other documents as Bank may require under any other section of this Agreement or as contemplated by other Loan Documents. (c) Financial Condition. There shall have been no material adverse change, as determined reasonably by Bank, in the financial condition or business of Borrower hereunder. SECTION 3.2. CONDITIONS OF LOAN. The obligation of Bank to make the Loan hereunder shall be subject to the fulfillment to Bank's satisfaction of each of the following conditions: (a) Compliance. The representations and warranties contained herein and in each of the other Loan Documents shall be true on and as of the date of the signing of this Agreement and on the date of each extension of credit by Bank pursuant hereto, with the same effect as though such representations and warranties had been made on and as of each such date, and on each such date, no Event of Default as defined herein, and no condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default, shall have occurred and be continuing or shall exist. ARTICLE IV ---------- AFFIRMATIVE COVENANTS --------------------- Borrower covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in writing: SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or other liabilities due under any of the Loan Documents at the times and place and in the manner specified therein. SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in accordance with generally accepted accounting principles consistently applied, and permit any representative of Bank, during -3- business hours and after reasonable notice, to inspect, audit and examine such books and records and to make copies of the same. SECTION 4.3. COMPLIANCE. Preserve and maintain all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business; and comply with the provisions of all documents pursuant to which Borrower is organized and/or which govern Borrower's continued existence and with the requirements of all laws, rules, regulations and orders of any governmental authority applicable to Borrower and/or its business. SECTION 4.4. INSURANCE. Maintain and keep in force insurance of the types and in amounts customarily carried in lines of business similar to that of Borrower, including but not limited to fire, extended coverage, public liability, flood, property damage and workers' compensation. SECTION 4.5. TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real or personal, including without limitation federal and state income taxes and state and local property taxes and assessments, except such (a) as Borrower may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower has made provision for eventual payment thereof in the event Borrower is obligated to make such payment. SECTION 4.9. NOTICE TO BANK. Promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the giving of notice or the passage of time or both would constitute an Event of Default. SECTION 4.10 FINANCIAL COVENANTS. Borrower shall comply with the following financial covenants: (a) Borrower shall maintain a minimum Net Worth of $10,000,000.00. (b) Borrower shall maintain a maximum Interest Bearing Debt to EBITDA of 1.25 to 1.00, which is defined as Interest Bearing Debt divided by Earnings Before Interest, Taxes, Depreciation and Amortization. ARTICLE V --------- NEGATIVE COVENANTS ------------------ Borrower further covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower will not without Bank's prior written consent: SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit extended hereunder except for the purposes stated in Article I hereof. None of the Loan proceeds shall be used to purchase or carry "margin" stock (as defined in Regulation U of the Federal Reserve System). SECTION 5.2. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of Borrower to Bank, and (b) any other liabilities of Borrower existing as of, and disclosed to Bank prior to, the date hereof and (c) liabilities incurred in subsequent acquisitions. SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate with any other entity except for the consolidation into Borrower of acquired entities; make any substantial change in -4- the nature of Borrower's business as conducted as of the date hereof; nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Borrower's assets except in the ordinary course of its business. SECTION 5.4. GUARANTIES. Guarantee or become liable in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or hypothecate any assets of Borrower as security for, any liabilities or obligations of any other person or entity, except any of the foregoing in favor of Bank and except for any of the foregoing on behalf of a subsidiary. SECTION 5.5. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to or investments in any person or entity, except any of the foregoing existing as of, and disclosed to Bank prior to, the date hereof and except for acquisitions of entities or assets anticipated by this Agreement. SECTION 5.6. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, all or any portion of Borrower's assets now owned or hereafter acquired, except any of the foregoing in favor of Bank or which is existing as of, and disclosed to Bank in writing prior to, the date hereof and except for purchase money liens in an aggregate amount not to exceed $1,000,000.00 and except for encumbered assets acquired through the acquisition of another entity. ARTICLE VI ---------- EVENTS OF DEFAULT ----------------- SECTION 6.1. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement: (a) Borrower shall fail to pay due any principal, interest, fees or other amounts payable under any of the Loan Documents within fifteen (15) days after the date such payment is due. (b) Any financial statement or certificate furnished to Bank in connection with, or any representation or warranty made by Borrower under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material respect when furnished or made. (c) Any default in the performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document (other than those referred to in subsections (a) and (b) above), and with respect to any such default which by its nature can be cured, such default shall continue for a period of thirty (30) days from its occurrence. (d) Any default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract or instrument (other than any of the Loan Documents) pursuant to which Borrower has incurred any debt or other liability to any person or entity, including Bank. (e) Any judgment shall be obtained against Borrower which, together with all other outstanding unsatisfied judgments against Borrower, shall exceed the sum of $1,000,000 and shall remain unvacated, unbonded or unstayed for a period of thirty (30) days following the date of entry thereof. (f) Borrower shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time ("Bankruptcy Code"), or under any state or federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against -5- Borrower, or Borrower shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Borrower shall be adjudicated a bankrupt, or an order for relief shall be entered against Borrower by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors. (g) There shall exist or occur any event or condition which Bank in good faith believes impairs, or is substantially likely to impair, the prospect of payment or performance by Borrower of its obligations under any of the Loan Documents. (h) The dissolution or liquidation of Borrower; or Borrower or any of its directors, stockholders or members, shall take action seeking to effect the dissolution or liquidation of Borrower. SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a) all indebtedness of Borrower under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Bank's option and without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by each Borrower; (b) the obligation, if any, of Bank to extend any further credit under any of the Loan Documents shall immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies available under each of the Loan Documents or accorded by law. All rights, powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity. ARTICLE VII ----------- MISCELLANEOUS ------------- SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing. SECTION 7.2. NOTICES. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address: BORROWER: Utah Medical Products Inc. Attn: Paul Richins 7043 South 300 West Midvale, Utah 84047 BANK: U. S. Bank National Association 15 West South Temple, 6th Floor Salt Lake City, UT 84101 Attn: David Green or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or two (2) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt. -6- SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees expended or incurred by Bank in connection with (a) the enforcement of Bank's rights and/or the collection of any amounts which become due to Bank under any of the Loan Documents, and (b) the prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interest hereunder without Bank's prior written consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Bank's rights and benefits under each of the Loan Documents. In connection therewith, Bank may disclose all documents and information which Bank now has or may hereafter acquire relating to any credit subject hereto, Borrower or its business, provided that such other party agrees with Bank to keep such matters confidential. SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan Documents constitute the entire agreement between Borrower and Bank with respect to each credit subject hereto and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only in writing signed by each party hereto. SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party. SECTION 7.7 INDEMNIFICATION. Except for harm arising from Bank's gross negligence or willful misconduct, Borrower hereby indemnifies and agrees to defend and hold Bank harmless from any and all losses, costs, damages, claims and expenses of any kind suffered by or asserted against Bank related to claims by third parties arising out of the financing provided under the Loan Documents. This indemnification and hold harmless provision will survive the termination of the Loan Documents and repayment of the obligations of Borrower thereunder. SECTION 7.8 WAIVER OF JURY TRIAL. BORROWER AND BANK HEREBY JOINTLY AND SEVERALLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS THEREUNDER, ANY COLLATERAL SECURING THE OBLIGATIONS, OR ANY TRANSACTION ARISING THEREFROM OR CONNECTED THERETO. BORROWER AND BANK EACH REPRESENTS TO THE OTHER THAT THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY GIVEN. SECTION 7.9. TIME. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents. SECTION 7.10. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement. SECTION 7.11. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same Agreement. -7- SECTION 7.12. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Utah. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first written above. Utah Medical Products, Inc., a Utah corporation By: /s/ Kevin L. Cornwell --------------------------------------- Name: Kevin L. Cornwell ------------------------------------- Title: Chairman & CEO ----------------------------------- U. S. Bank National Association By: /s/ Jeffrey J. Jensen --------------------------------------- Name: Jeffrey J. Jensen ------------------------------------- Title: Vice President ----------------------------------- -8- EX-10.2 4 umed10qex10-2.txt EXHIBIT 2 Revolving Promissory Note By Utah Medical Products, Inc to U.S. Bank National Association Dated July 3, 2002 Loan No. _______________ Salt Lake City, Utah July 3, 2002 Revolving Promissory Note ------------------------- FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay to the order of U. S. Bank National Association ("Bank") at its office located at 15 West South Temple, Salt Lake City, Utah 84101 or at such other location as designated by Bank, in lawful money of the United States of America, the principal amount of Fifteen Million Dollars ($15,000,000.00), or such portion thereof as from time to time may be outstanding, on May 31, 2004 (the "Maturity Date"), and to also pay interest thereon at said location, in like money, from the date hereof on the unpaid principal amount hereof until such amount shall be paid in full. This Note is the Revolving Promissory Note referred to in the Loan Agreement (the "Agreement") of even date herewith and is entitled to the benefits and is subject to the provisions and definitions thereof. Capitalized terms shall have the meaning given in the Agreement unless defined otherwise in this Note. As used herein: "Daily Rate Advances" shall mean advances on the Loan that shall accrue interest at a variable per annum rate equal to 135 basis points above the one-month LIBOR, but adjusted daily. "LIBOR" shall mean the London interbank offered rate for a one-month interest period on U.S. Dollar deposits. LIBOR shall be determined by reference to the rate quoted by the British Banker's Association that appears on the Telerate service. If such rate does not appear on the Telerate service, LIBOR shall be determined by Bank by reference to any other reasonably equivalent index of rates published by a third party, selection of the same being in the sole and absolute discretion of Bank. The establishment of LIBOR by Bank shall (in the absence of manifest error) be final and binding. "LIBOR Loans" shall mean those advance on the Loan requested by Borrower that shall accrue interest at a fixed per annum rate for an interest period of one month at LIBOR plus 125 basis points. "Prime Rate" shall mean the Bank's announced "prime rate" on the basis of which Bank prices credit. Bank may make loans at, below or above its "prime rate." "Prime Rate Advances" shall mean advances on the Loan that shall accrued interest at a variable per annum rate equal to Prime Rate minus one percent (1.0%). Borrower may elect one of the following interest rate options in connection with each advance under this Note: (A) Daily Rate Advances may be effectuated by drawing checks on Borrower's checking account with Bank, numbered xxxxxxxxxxxx (the "Account"). Checks drawn on the Account will be covered, to the extent of availability under the Loan, if any, from funds advanced to the Account by Bank as Daily Rate Advances on the Loan. Bank will provide (pursuant to additional documentation) account- sweeping services from collected funds deposited into the Account by Borrower for credit against amounts outstanding on the Loan. Nothing herein shall be construed to be a commitment to allow -1- overdrafts on the Account. This agreement with respect to the Account provides only for availability of funds to cover checks on the Account to the extent of availability under the Loan. Bank shall have no obligation to notify Borrower of the unavailability of funds to cover checks on the Account. (B) Borrower may request a LIBOR Loan by giving notice to Bank at least two (2) business days prior to the proposed borrowing date (which notice shall be irrevocable). Such notice shall specify the proposed borrowing date and the amount of the requested LIBOR Loan (which must be in increments of $1,000,000.00). No LIBOR Loan interest period shall extend beyond the Maturity Date. If any interest period would otherwise end on a day that is not a business day, that interest period shall be extended to the next succeeding business day. Unless Bank receives notice two (2) days prior to the end of a LIBOR Loan interest period that Borrower wishes to renew the LIBOR Loan, the LIBOR Loan shall automatically be converted to a Daily Rate Advance upon the completion of such interest period. (C) Borrower may request a Prime Rate Advance by giving notice to Bank. Such notice shall specify the amount of the requested Prime Rate Advance. The Prime Rate Advance shall remain as such until Borrower requests that it be converted to a Daily Rate Advance or a LIBOR Loan in the respective manner described above. (D) Amounts outstanding as Daily Rate Advances or as Prime Rate Advances may be prepaid without penalty. Borrower may not pay any principal outstanding on a LIBOR Loan until the last day of the interest period. Nonetheless, in the event of a payment of principal prior to the end of the interest period, whether voluntary or involuntary, Borrower shall make Bank whole in such instance, and Borrower shall pay to Bank all costs incurred by Bank in connection with such payment and compensate Bank for any loss suffered by it by reason of such principal payment not being made at the end of the interest period. Such costs and losses to Bank shall include, but shall not be limited to, any loss or breakage costs arising from the re-employment of funds at rates lower than the rate of the LIBOR Loan, cost to Bank of such funds, any interest or fees payable by Bank to lenders of funds obtained by it in order to make or maintain the LIBOR Loans and any related costs. (E) Borrower shall also pay to Bank such amounts as may be necessary to compensate Bank for any costs incurred by Bank, which Bank determines are attributable to its making or maintaining hereunder any LIBOR Loan or any reduction in any amount receivable by Lender under this Agreement resulting from any change after the date of this Agreement in any law which imposes or modifies any reserve, special deposit, tax, withholding, compulsory loan, or similar requirements relating to extensions of such types of credit. Interest on the Daily Rate Advances shall accrue at a variable per annum rate equal to 135 basis points above the one-month LIBOR, but adjusted daily. Interest on each LIBOR Loan shall accrue interest at a fixed per annum rate for the one-month interest period of LIBOR plus 125 basis points. Interest on the Prime Rate Advances shall accrue interest at a variable per annum rate equal to the Prime Rate minus one percent (1%), which rate will change without notice on each change in the Prime Rate. Upon the occurrence of an Event of Default, the applicable rate of interest shall increase by two percent (2%) per annum. Monthly payments of all accrued and unpaid interest on the Daily Rate Advances and the Prime Rate Advances shall be due and payable on the first (1st) day of each month, commencing with August 1, 2002, and continuing each month thereafter. -2- Interest accrued on each LIBOR Loan shall be paid (i) on the last day of the interest period and (ii) upon the repayment thereof. For determining payment dates for LIBOR Loans, the New York banking day shall be the standard convention. On the Maturity Date, the entire outstanding principal balance, all remaining accrued and unpaid interest and all other amounts outstanding under this Note shall be due and payable in full. The actual interest to be charged under this Note shall be calculated on a year of three hundred sixty (360) days on a daily basis for the actual number of days the unpaid principal balance hereof is outstanding. If a payment on this Note becomes due and payable on a Saturday, Sunday or legal holiday under the laws of the State of Utah, the payment date shall be extended to the next succeeding business day and interest hereon shall be payable at the then applicable rate during such extension. All payments received by Bank on this Note shall be applied as follows and in the order indicated, at the option of Bank: (1) to the payment of Bank's attorneys' fees and other expenses as provided in the Agreement and herein, (2) to accrued interest and (3) to the reduction of principal. Upon the occurrence of an Event of Default, it shall be optional with the holder of this Note to declare the entire principal and interest sum hereof due and payable in full, and proceedings may at once be instituted for the enforcement and collection of the same by law. Borrower agrees to pay all reasonable attorneys' fees and other expenses incurred by Bank in the enforcement of any of its rights hereunder whether the default is ultimately cured or whether Bank is obligated to pursue its legal remedies, including such expenses incurred prior to the institution of legal action, during the pendency of such legal action, during any bankruptcy or insolvency proceeding and continuing to include all such expenses incurred in connection with any appeal to higher courts arising out of legal proceedings to enforce Borrower's obligations hereunder. The makers, sureties, guarantors and endorsers of this Note jointly and severally waive presentment for payment, protest, notice of protest and of nonpayment of this Note. Borrower agrees that failure of Bank or any holder of this Note to exercise its rights hereunder shall not constitute a waiver of the right to exercise the same in the event of a later default. This Note shall be construed according to the laws of the State of Utah. "Borrower" Utah Medical Products, Inc., a Utah corporation By: /s/ Kevin L. Cornwell ------------------------------------------ Its: Chairman & CEO ---------------------------------------- -3- EX-99.1 5 umed10qex99-1.txt EXHIBIT 3 --------- CERTIFICATION PURSUANT TO 18 U.S.C. ss. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Utah Medical Products, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kevin L. Cornwell, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Kevin L. Cornwell - --------------------------------- Kevin L. Cornwell Chief Executive Officer August, 14, 2002 EX-99.2 6 umed10qex99-2.txt EXHIBIT 4 --------- CERTIFICATION PURSUANT TO 18 U.S.C. ss. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Utah Medical Products, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Greg A. LeClaire, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Greg A. LeClaire - -------------------------------- Greg A. LeClaire Chief Financial Officer August, 14, 2002 -----END PRIVACY-ENHANCED MESSAGE-----