PRESS RELEASE
UTMD
Reports Financial Performance for
Fourth Quarter
and Year 2006
January
23, 2007
Contact: Paul Richins
(801) 566-1200
Salt Lake City, Utah - In the fourth quarter
(4Q) of 2006, Utah Medical Products, Inc.’s (Nasdaq: UTMD) consolidated
sales were up 5%, gross profits up 3%, operating profits up 32%, net income
up 9% and earnings per share (eps) up 11%, compared to 4Q 2005.
For the full calendar year of 2006, UTMD’s consolidated sales were up 4%,
gross profits up 3%, operating profits up 17%, net income up 8% and earnings
per share (eps) up 12%, compared to 2005.
The increase in 2006 sales resulted primarily from a 16% increase in
international sales. International sales were about 26% of total 2006 sales.
Management expects that international sales will continue to lead sales
growth in 2007. Domestic Direct sales remained about the same as the prior
year, as increases in UTMD’s gynecology/ electrosurgery/ urology product
sales and neonatal product sales were offset by decreases in labor &
delivery product sales. Domestic OEM sales, which represent only 5% of total
sales, increased 6%.
A lower rate of increase in gross profits relative to sales reflected
significant inflation in wages and raw materials costs, particularly in
Ireland operations. While inflation in Ireland manufacturing costs
outstripped the rate of increase in the U.S., the value of the U.S. Dollar
decreased relative to the EURO, yielding a double-whammy dilution effect on
UTMD’s gross profit margins (GPMs). In addition, increased 2006 sales were
more heavily weighted in products and sales channels with lower unit prices.
UTMD’s average gross profit margin (GPM) declined from 56.9% in 2005 to
56.2% in 2006. The GPM for 4Q 2006 was 55.6%. The increased direct labor and
materials costs were mitigated somewhat by greater production activity
accomplished without proportionate increases in manufacturing overhead
costs. The Company retains an excellent infrastructure which is capable of
supporting continued higher product sales without a proportionate increase
in overhead costs. UTMD does not have short-term flexibility to increase its
prices to customers because of fixed long-term pricing agreements, as well
as competitive pressures in a very price-sensitive U.S. hospital-user
marketplace. A key management objective for 2007 is to achieve an average
GPM of at least 56%.
Operating profits in 2006 were up $1,598,000, a 17% increase over 2005
operating profits. While higher gross profits contributed $394,000 to the
increase, the majority of the substantial increase was caused by operating
expenses as a whole that were $1,203,000 lower than in 2005. Operating
expenses include legal and other litigation
expenses. In 2005, legal/ litigation expenses were $1,426,000 higher than in
2006 because of expenses of the FDA’s unwarranted lawsuit. On the other side
of the coin, 2006 operating profits were reduced by $140,000 from recording
employee option expense as required by new accounting rules which was not
part of operating expenses in 2005. The 2Q 2006 $130,000 write-off of
intellectual property was recouped in 4Q 2006, resulting in no impact to R&D
expenses for the year. 2006 operating expenses as a percentage of revenues
were 18.5%, within management’s beginning of year stated objective of 19% of
sales. The Company has a history of tightly controlling its operating
expenses, and plans to do it again in 2007. UTMD also met its
beginning-of-year stated objective to achieve a 2006 operating profit margin
about 38%, in spite of the increased incremental manufacturing cost
pressures. The Company will provide more details relative to its 2006
financial results and plan for 2007 in the MD&A section of its 2006 SEC Form
10-K which will be filed by March 16.
At the beginning of 2006, UTMD projected non-operating income, resulting
primarily from the investment of excess cash and royalties from licensing
UTMD’s technology to others, about the same as in the prior year. In fact,
the company was able to achieve 2006 non-operating income $606,000 higher
than in 2005 because investing its excess cash yielded $521,000 in capital
gains that were not planned, in addition to interest and dividend income
which exceeded the prior year. Royalties remained the same. Adding operating
income that was up 17% compared to the prior year with better than expected
non-operating income yielded earnings before income taxes (EBT) that were
22% higher than in 2005. As the Company’s excess cash now all resides in
short-term money market instruments, management does not expect a similar
capital gain to benefit 2007 results.
Net income did not increase at the rapid pace of EBT because the income tax
provision in 2006 was 34.2% of EBT compared with only 26.1% of EBT in 2005.
The lower 2005 income tax provision resulted primarily from The American
Jobs Creation Act of 2004 (the Act) enacted in October 2004. The Act allowed
a temporary tax deduction on accumulated foreign earnings repatriated in
2005 resulting in a permanent deferred tax liability adjustment related to
foreign earnings in prior years, as well as a domestic tax deduction on
manufacturing related income. As a reminder for shareholders, the note
payable on UTMD’s balance sheet was taken out as a loan by UTMD’s Ireland
subsidiary to allow the repatriation of accumulated foreign earnings which
resulted in the favorable tax provision in 2005. This loan will be repaid as
profits are generated in Ireland going forward.
There are several highlights regarding changes in UTMD’s Balance Sheet
during 2006:
1) Cash and investments balance increased by $3.6 million even though the
Company spent $2.9 million in paying dividends to shareholders and $2.1 in
repurchasing shares in the open market. The dividend paid to shareholders in
2006 was $.74/ share compared to $.61/ share in 2005, representing a 21%
increase. Actual dividends paid only increased 19% because of the share
repurchases. UTMD repurchased 68,600 shares in 2006 at an average cost of
$31.00/ share including commissions.
2) Ending inventories declined 8% despite 4% higher sales, achieving the
company’s goal of 4.0 average inventory turns for the year.
3) The Ireland loan balance declined $0.5 million or 10% in U.S. Dollar
terms despite the fact that the loan obligation is held in EUROs. In EURO
terms, 18% of the loan was repaid.
4) The increase in PP&E (fixed assets) was due to currency exchange, i.e.
the increase in U.S. Dollar-denominated value of property, plant & equipment
in Ireland. From the end of 2005 to the end of 2006, the EURO increased in
value relative to the dollar by about 11%. In EURO terms, the fixed asset
value in Ireland decreased 4%.
Financial ratios which may be of interest to shareholders follow:
1) Current Ratio = 9.7
2) Days in Accounts Receivable (based on 4Q sales activity) = 43
3) Average Inventory Turns (based on 4Q CGS and average inventory) = 4.1
4) 2006 ROE = 24% (excluding payment of dividends)
ROE = 15% (after subtracting the dividends paid from net profits)
According to CEO Kevin Cornwell,
“UTMD accomplished
substantially all of its financial objectives for 2006 including continued
excellent returns to shareholders. We appreciate the continued confidence
that our shareholders demonstrate in the Company’s prospects for future
success. We look forward to new products and other initiatives in 2007 that
will help provide the basis for continued excellent growth in eps and
shareholder returns.”
UTMD's dilution
from unexercised option shares added to actual weighted-average outstanding
shares for purposes of calculating diluted eps was 87,100 in 4Q 2006
compared to 246,300 in 4Q 2005, and 99,400 in year 2006 compared to 230,200
in 2005. The actual number of outstanding shares at the end of 2006 was
3,943,600 which included 4Q employee option exercises of 38,300 shares and
4Q share repurchases of 9,800 shares. In 4Q 2006, UTMD repurchased the 9,800
shares in the open market at an average cost including commissions of $32.81
per share. The total number of outstanding unexercised options at December
31, 2006 was 227,900 shares at an average exercise price of $19.40/ share,
including shares awarded but not vested. This compares to 548,600 option
shares outstanding at the end of 2005. Total 2006 option-based compensation
expense was $140,000.
Investors are cautioned that this press release contains forward looking
statements and that actual events may differ from those projected. Risk
factors that could cause results to differ materially from those projected
include market acceptance of products, timing of regulatory approval of new
products, regulatory intervention in current operations, the Company’s
ability to efficiently manufacture, market, and sell its products, among
other factors that have been outlined in UTMD's
public disclosure filings with the SEC.
Utah Medical Products, Inc., with particular interest in health care for
women and their babies, develops, manufactures, assembles and markets a
broad range of disposable and reusable specialty medical devices designed
for better health outcomes for patients and their care-providers. For more
information about Utah Medical Products, Inc., visit UTMD's
website at www.utahmed.com.
|
|
(audited) |
(unaudited) |
(audited) |
|
DEC
31, 2006 |
SEP
30, 2006 |
DEC
31, 2005 |
Assets |
|
|
|
Cash &
Investments |
$21,049 |
$19,854 |
$17,453 |
Receivables, Net |
3,746 |
3,815 |
4,418 |
Inventories |
3,037 |
3,379 |
3,305 |
Other Current Assets |
579 |
613 |
682 |
Total Current Assets |
28,411 |
27,661 |
25,858 |
Property & Equipment,
Net |
8,331 |
8,347 |
8,160 |
Intangible Assets, Net |
7,445 |
7,458 |
7,624 |
Total Assets |
$44,187 |
$43,466 |
$41,642 |
|
|
|
|
Liabilities
&
Stockholders’ Equity |
|
|
|
Total Current Liabilities |
$2,940 |
$3,231 |
$3,175 |
Note Payable |
4,824 |
4,989 |
5,336 |
Deferred Income Taxes |
308 |
190 |
274 |
Stockholders’ Equity |
36,115 |
35,056 |
32,857 |
Total Liabilities
&
Stockholders’ Equity |
$44,187 |
$43,466 |
$41,642 |
|
|
|
|
|