PRESS RELEASE
Utah
Medical Products, Inc.
Reports Financial Performance for
Second Quarter
2004
July
20,
2004
Contact: Paul Richins
(801) 566-1200
Salt Lake City,
Utah - In the second calendar quarter of 2004 (2Q 2004), Utah Medical
Products, Inc. (Nasdaq:UTMD) concluded its twenty-sixth consecutive quarter
of higher earnings per share (eps) compared to the same quarter in the prior
year.
Eps from normal operations for the most recent four calendar quarters (LTM)
were $1.51. Including “extraordinary” income from 4Q 2003 and 1Q 2004, LTM
eps were $4.93. The extraordinary income results from receipt of Tyco
International damages and interest of $30,944,000 relating to patent
infringement.
UTMD’s 2Q 2004 sales were about the same as 2Q 2003, a recovery from 1Q 2004
when sales were down 4% compared to 1Q 2003. Combining the two quarters, 1H
2004 sales were down 2%. The 2Q sales trend improvement came from better
international sales, improved CMI OEM molding sales and a mid-quarter
acquisition of Abcorp Medical, UTMD's vendor for external fetal monitoring
belts.
Comparing 2Q 2004 sales to 2Q 2003 sales in product categories, blood
pressure monitoring/ components sales were up 3%, neonatal product sales
were up 1%, obstetrics product sales were even, and gynecology/
electrosurgery product sales were down 6%. 2Q 2004 international sales were
up 5% and domestic sales were down 2% compared to 2Q 2003. Even though
overall international sales were up, shipments by UTMD Ltd. (Ireland) were
down 4% in US Dollar terms, and 9% in EURO terms. International gynecology
product sales continued to be weaker than expected due to the Food & Drug
Administration’s (FDA’s) refusal to provide UTMD with Certificates to
Foreign Government (CFGs). According to CEO Kevin Cornwell, “We are keenly
disappointed by the FDA’s unilateral withholding of CFGs since early 2003.
This has been done without due process. The Denver District Director through
whom our application was refused, previously expressed ‘It’s out of my
hands,’ yet no one at the FDA is willing to discuss what they believe may be
the justification for this refusal. This conduct simply makes no sense
relative to the Bush administration’s stated economic goals of creating jobs
in America and seeking a level playing field with respect to foreign
commerce. I remind investors that UTMD’s devices always have been and remain
available to domestic and foreign users without restriction. UTMD has
retained outside regulatory and quality experts who support that UTMD has
been and remains in compliance with the FDA Quality System Regulation (QSR).
The reliable performance of our products and our reputation for safety and
quality among medical practitioners clearly suggest that our quality system
is serving its intended purpose. Recently other reputable and concerned
medical device industry participants have expressed support for our position
and wider industry relief.”
To put this in perspective, the Company has undergone five (5) FDA
inspections in three (3) years. If UTMD were not in compliance with the QSR
for the last three years, its devices could not have been used thousands of
times per day in high risk situations without any significant complication
over that time span. There’s been no FDA allegation that UTMD’s products are
unsafe. UTMD’s last inspection, which was five weeks long by three FDA
inspectors, was concluded 4½ months ago, and UTMD’s detailed written
response to the inspectors’ observations was submitted 4 months ago. An
independent expert and respected former FDA compliance official who
participated in the comprehensive inspection characterized the observations
resulting from the inspection as “shallow.” To date the FDA has not
responded with any feedback despite the Company’s request for a dialogue
that would exhaustively address any remaining issues.
According to Mr. Cornwell, “Earlier in October 2003, UTMD turned down a
Consent Decree offer which it considered unjustified. There has been no
further action by the government. The unreasonably long 2004 inspection,
particularly given UTMD’s small size, obviously did not support further
regulatory action. Now, as in the past, the FDA refuses to talk with us and
explain their position. After receiving no FDA response whatsoever, a
request in May from UTMD for non-binding mediation was rejected by the FDA.
If the FDA cannot justify formal enforcement action under due process of
law, they should advise the Company so that the CFGs can be issued without
delay. UTMD believes that this abuse of process should not be tolerated
because it damages the public health by reducing continued prospects for
innovation by, and survival of, smaller companies which simply expect that
FDA employees discharge their obligation to communicate promptly with
fairness and honesty.”
Because UTMD’s improved sales were in lower than average margin products,
gross profit margins declined somewhat compared to recent periods. The
slightly lower operating profit margin remained excellent on an absolute
basis. In 2Q 2004, UTMD achieved a gross profit margin of 57.6%, operating
profit margin of 38.5% and net profit margin of 27.0%. Profit margins for 2Q
2003 were 59.0%, 39.6% and 26.9%, respectively. UTMD’s earnings before
interest and income tax expenses and before non-cash depreciation/
amortization expenses (EBITDA), were $3,007,000 in 2Q 2004 (44.0% of sales),
compared to $3,062,000 in 2Q 2003 (44.8% of sales).
The Company was able to achieve a higher net profit margin despite lower
gross and operating profit margins primarily because of income associated
with its larger than normal cash balances. Non-operating income in 2Q 2004
was $178,300 compared $85,000 in 2Q 2003, and excluding Tyco damages, was
$332,000 in 1H 2004 compared to $165,400 in 1H 2003. In 2Q 2003 and 1H 2003,
UTMD paid $15,800 and $42,200 respectively in interest because of a line of
credit balance which no longer existed in 1H 2004. In contrast, UTMD
received $68,000 in 2Q 2004 interest, dividend income and capital gains from
investing its cash balances, and $115,800 in 1H 2004. Compared to a year
earlier, June 30 cash and investment balances were $22,044,000 versus
$300,000. Inventories were down about $500,000, and net accounts receivable
and other current assets were each up about $100,000. Intangible assets
increased from investment in goodwill resulting from the Abcorp acquisition
and some new product technology that is still under development. Current
liabilities were about $3 million higher due to a higher reserve for
litigation expenses and accrual for higher income taxes. Despite reduction
in Shareholders’ Equity resulting from share repurchases, UTMD’s
Shareholders’ Equity is up about $21 million from one year ago. UTMD’s
current cash balances will be used in four ways: 1) expanding the Company’s
business through accretive acquisitions, 2) increasing product development
activity, 3) continuing UTMD’s share repurchase program, and 4) paying
dividends to shareholders.
Financial ratios which may be of interest to shareholders follow:
1) Current Ratio = 6.2
2) Days in Receivables (based on 2Q sales activity) = 46.6
3) Average Inventory Turns (based on 2Q CGS) = 3.3
4) Year-to-Date ROE (excluding extraordinary income and equity) = 31%
UTMD’s dilution from unexercised option shares added to actual weighted
average outstanding shares for purposes of calculating eps was 302,000 in 2Q
2004 compared to 366,000 in 2Q 2003, and 315,000 in 1H 2004 compared to
370,000 in 1H 2003. The actual number of outstanding shares at the end of 2Q
2004 was 4,522,500 which included 1H 2004 employee option exercises of
104,800 shares and share repurchases of 124,800. The average price paid by
the Company to repurchase shares in the open market during 1H 2004 was
$24.49 including commissions. Management continues to be mindful of the
dilution effect of its option programs. The total number of outstanding
unexercised options at June 30, 2004 was about 760,000 shares at an average
exercise price of $13.19/ share, including shares awarded but not vested.
This compares to 1.0 million option shares outstanding at the end of 1H
2003.
Investors are cautioned that this press release contains forward looking
statements and that actual events may differ from those projected. Risk
factors that could cause results to differ materially from those projected
include market acceptance of products, timing of regulatory approval of new
products, UTMD’s ability to efficiently manufacture, market, and sell its
products, among other factors that have been outlined in UTMD’s public
disclosure filings with the SEC. The 2Q 2004 10-Q will be filed with the SEC
by August 9.
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.
For purposes of comparison with the prior year, UTMD has separated the
additional “extraordinary” income and associated expenses from augmented
damages and interest received from Tyco in 1Q 2004 from its “normal” first
half (1H) 2004 operating results (“regular” column in the results table).
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