-----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, WEPs/t6XR42T8AR/lqjKTMDIcO9SoE6HlEU5DfNUsUd9KLGGs4xO8MuZqjoB4ZVP Pcc+lryEUsfHx/d894KBlw== 0001096906-01-500043.txt : 20010515 0001096906-01-500043.hdr.sgml : 20010515 ACCESSION NUMBER: 0001096906-01-500043 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 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: SEC FILE NUMBER: 001-12575 FILM NUMBER: 1632485 BUSINESS ADDRESS: STREET 1: 7043 S 300 WEST CITY: MIDVALE STATE: UT ZIP: 84047 BUSINESS PHONE: 8015661200 10-Q 1 umed10q_march2001.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: March 31, 2001 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 May 11, 2001: 5,013,898 --------- UTAH MEDICAL PRODUCTS, INC. --------------------------- INDEX TO FORM 10-Q ------------------ PART I - FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements Consolidated Condensed Balance Sheets as of March 31, 2001 and December 31, 2000 ............................. 1 Consolidated Condensed Statements of Income for the three months ended March 31, 2001 and March 31, 2000 ............. 2 Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 2001 and March 31, 2000 ............. 3 Notes to Consolidated Condensed Financial Statements ............. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............... 6 Item 3. Quantitative and Qualitative Disclosures about Market Risk ..... 9 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 ------------------------------------------- MARCH 31, 2001 AND DECEMBER 31, 2000 ------------------------------------ (in thousands) (unaudited) (audited) ASSETS MARCH 31, 2001 DECEMBER 31, 2000 - ------ -------------- ----------------- Current assets: Cash $ 69 $ 414 Accounts receivable - net 3,767 3,979 Inventories 3,115 3,005 Other current assets 828 666 --------- --------- Total current assets 7,779 8,064 Property and equipment - net 9,310 9,789 Goodwill - net 6,672 6,814 Other intangible assets - net 707 756 --------- --------- TOTAL $ 24,468 $ 25,423 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable $ 679 $ 683 Accrued expenses 2,308 1,963 --------- --------- Total current liabilities 2,987 2,646 Notes payable 7,600 10,000 Deferred income taxes 367 430 --------- --------- Total liabilities 10,954 13,076 --------- --------- 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 - March 31, 2001, 5,015 shares December 31, 2000, 5,003 shares 50 50 Cumulative foreign currency translation adjustment (1,868) (1,559) Retained earnings 15,332 13,856 --------- --------- Total stockholders' equity 13,514 12,347 --------- --------- TOTAL $ 24,468 $ 25,423 ========= ========= see notes to consolidated condensed financial statements -1-
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES -------------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR THE --------------------------------------------------- THREE MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000 ---------------------------------------------------- (in thousands, except per share amounts) (unaudited) THREE MONTHS ENDED MARCH 31, ------------------------------- 2001 2000 ----------- ----------- NET SALES $ 6,567 $ 6,666 COST OF SALES 2,804 2,995 ----------- ----------- Gross Margin 3,763 3,671 ----------- ----------- EXPENSES: Selling, general and administrative 1,438 1,644 Research & development 100 149 ----------- ----------- Total 1,538 1,793 ----------- ----------- Income From Operations 2,225 1,878 OTHER INCOME (EXPENSE) (26) 38 ----------- ----------- Income Before Income Tax Expense 2,199 1,916 INCOME TAX EXPENSE 808 690 ----------- ----------- Net Income $ 1,391 $ 1,226 =========== =========== EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE $ 0.27 $ 0.19 =========== =========== EARNINGS PER COMMON SHARE ASSUMING FULL DILUTION $ 0.27 $ 0.19 =========== =========== SHARES OUTSTANDING - BASIC 5,009 6,447 =========== =========== SHARES OUTSTANDING - DILUTED 5,117 6,469 =========== =========== see notes to consolidated condensed financial statements -2- UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES -------------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS ----------------------------------------------- FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000 ------------------------------------------------------------ (in thousands - unaudited) MARCH 31, ------------------------- 2001 2000 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,391 $ 1,226 --------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 501 571 Provision for losses on accounts receivable 11 4 (Gain) on disposal of assets 0 (1) Deferred income taxes (87) (34) Changes in operating assets and liabilities: Accounts receivable - trade 231 405 Accrued interest and other receivables (85) (191) Inventories (128) (371) Prepaid expenses (138) (65) Accounts payable 13 138 Accrued expenses 362 57 --------- --------- Total adjustments 680 514 --------- --------- Net cash provided by operating activities 2,071 1,739 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for: Property and equipment (95) (125) Intangible assets 0 (100) --------- --------- Net cash used in investing activities (95) (225) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 86 0 Common stock purchased and retired 0 (78) (Decrease) in note payable (2,400) (1,093) --------- --------- Net cash used in financing activities (2,314) (1,171) --------- --------- Effect of exchange rate changes on cash (7) (14) NET INCREASE (DECREASE) IN CASH (345) 329 CASH AT BEGINNING OF PERIOD 414 647 --------- --------- CASH AT END OF PERIOD $ 69 $ 976 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for income taxes $ 313 $ 463 Cash paid during the period for interest $ 160 $ 96 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 generally accepted accounting principles. 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, 2000. Although the accompanying first calendar quarter (1Q) financial statements have not been audited by independent accountants, 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 March 31, 2001 and December 31, 2000 (in thousands) consisted of the following: March 31, December 31, 2001 2000 ------------ -------------- Finished goods $ 827 $ 882 Work-in-process 970 764 Raw materials 1,318 1,359 ----- ----- Total $3,115 $3,005 ====== ====== (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 quarter ending March 31, 2001 was (in thousands) $1,082. (4) Effective March 27, 2001, UTMD modified its unsecured revolving line-of-credit with Key Bank, N.A. to extend the maturity date of the note by one year to April 14, 2003. Adjustments to the variable interest rates were also made that will not be material. Other terms remain the same. (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, 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 is increasingly 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 -4- 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. -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, 2000 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 month period in comparison with a previous three 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 and where otherwise noted. Analysis of Results of Operations a) Overview Sales in 1Q 2001 declined $99 from 1Q 2000. The change can be attributed primarily to weak international sales, which were down $158 compared to 1Q 2000. Operating profit dollars improved 18% due to a company record gross profit margin of 57.3% and lower selling expenses for the period. Earnings per share (EPS) were up 43% compared to 1Q 2000 due to the combination of improved profits and the effect of the 3Q 2000 Tender Offer, which substantially reduced outstanding shares. With continued strong cash flow, UTMD was able to reduce its long term debt balance by $2.4 million during the period. b) Revenues In 1Q 2001 compared to 1Q 2000, domestic sales grew 1% and international sales declined 11%. International sales in 1Q 2000 were the highest of the four quarters in 2000. 1Q 2001 international sales were 10% higher than 4Q 2000 international sales. Comparing 1Q 2001 sales by product category to 1Q 2000 sales, worldwide obstetrics product sales decreased 3%, representing 45% of total 1Q 2001 sales. Obstetrics sales dollars were $2,957 compared to $3,041 in 1Q 2000. Gynecology/ electrosurgery/ urology product sales grew 8% in 1Q 2001, representing 19% of total revenues. Gyn/ES/Uro sales were $1,216 compared to $1,125 in 1Q 2000. Neonatal product sales declined 1%, representing 13% of total sales. Neonatal product sales were $865 compared to $872 in 1Q 2000. Blood pressure monitoring (BPM) and accessories sales declined 6%, representing 23% of sales. Sales of BPM and accessories products were $1,529 compared to $1,629 in 1Q 2000. In the U.S. only, obstetrics product sales decreased 4%, while Gyn/ES/Uro product sales and neonatal product sales grew 6% and 2% respectively. Miscellaneous other U.S. sales, including BPM, were up 19% primarily as a result of improved OEM subcontract molding activity. International sales of obstetrics products and Gyn/ES/Uro products increased 26% and 16% respectively. International sales of neonatal products and BPM components and accessories declined 23% and 20% respectively. Because BPM sales represented 63% of total international sales, overall international sales declined 11%, which appears largely due to the continued strength of the U.S. Dollar. c) Gross Profit UTMD's gross profit margin (GPM) in 1Q 2001 was 57.3% compared to 55.1% in 1Q 2000. A favorable product mix resulted from the lower sales of international BPM products. In addition, expiration and purchase of certain license agreements reduced royalties paid to others, which are incorporated into the cost of goods sold. Continued improvements to direct materials costs also helped improve gross margins. UTMD believes that consistently achieving an average GPM about 55% is necessary to successfully support the significant sales and marketing, research and development, and administrative expenses associated with a growth company in a highly complex and competitive marketplace. During the rest of 2001, management believes it should be able to achieve its targeted 55% GPM. Expected favorable influences going forward include growth in sales activity without a similar increase in overhead expenses, a larger percentage of total sales from higher margin products and a continued emphasis on reengineering products to reduce costs. Unfavorable influences are expected to be continued competitive pressure on pricing and higher labor costs. -6- d) Operating Profit 1Q 2001 operating profits increased 18% to $2,225 from $1,878 in 1Q 2000, despite a 1% sales decrease. Total operating expenses, including sales and marketing (S&M) expenses, research and development (R&D) expenses and general and administrative (G&A) expenses, were $1,538 or 23.4% of sales in 1Q 2001 compared to $1,793 or 26.9% of sales in 1Q 2000. S&M expenses in 1Q 2001 were $695 or 10.6% of sales compared to $877 or 13.2% of sales in 1Q 2000, as UTMD eliminated its lowest performing sales resources. Effective S&M resources are essential to communicate UTMD's differences and value to clinical users, as well as providing training and other customer support in the use of UTMD's solutions. Because UTMD sells internationally through third party distributors, its S&M expenses are predominantly spent for U.S. business activity, in particular, supporting a domestic direct sales force. While S&M expenses declined 21%, U.S. direct sales increased 1% in 1Q 2001 compared to 1Q 2000. Looking forward, UTMD expects higher S&M expenses during the remainder of 2001 due to Group Purchasing Organization fees, increased advertising expenses and new marketing initiatives. For 2001 year as a whole, UTMD expects to manage its S&M expenses to less than 12% of sales, a ratio consistent with year 2000. R&D expenses in 1Q 2001 were $100 or 1.5% of sales compared to $148 or 2.2% of sales in 1Q 2000. As 2001 continues, UTMD will opportunistically invest R&D resources where management anticipates it can get a significant return on its investments with future new product sales. At UTMD, R&D resources are also kept involved in the direct support of manufacturing, contributing to improvements in GPM. UTMD finds it makes long-term sense to keep its most technical people involved with improving products and the processes for making them throughout their market life cycles. G&A expenses in 1Q 2001 were $743 or 11.3% of sales compared to $767 or 11.5% of 1Q 2000 sales. G&A expenses include the Company's costs of litigation, patents, shareholder relations activities and amortization of goodwill associated with acquisitions. Year 2001 G&A expenses are expected to be consistent with 2000. e) Non-operating income (expense) Non-operating expense in 1Q 2001 was ($25), compared to income of $37 in 1Q 2000, resulting in a lower contribution to earnings of $62 for the period. Interest expense on UTMD's bank loan used to finance share repurchases was $98 higher in 1Q 2001 than in 1Q 2000, accounting for the difference. Royalty income, which UTMD receives for licensing its technology to other companies, was similar in both quarters. Interest expenses and bank fees associated with the line-of-credit were $160 in 1Q 2001 compared to $98 in 1Q 2000. Assuming 1Q interest rates apply for the remainder of 2001, and no new borrowing, management expects total 2001 net non-operating income to be comparable with year 2000 as a whole. f) Earnings Before Income Taxes 1Q 2001 earnings before income taxes (EBT) increased $284 with a sales decrease of $99, an increase of 15% compared to 1Q 2000. 1Q 2001 EBT were 33.4% of sales compared to 28.7% in 1Q 2000. UTMD was able to increase EBT as a percentage of sales because of GPM improvements and reductions in S&M expenses. For the year 2000, UTMD achieved an excellent EBT performance of 31% of sales. Management expects to achieve comparable EBT performance in 2001. g) Net Income and EPS UTMD's net income (after taxes) expressed as a percentage of sales was 21.2% for 1Q 2001 compared to 18.4% for 1Q 2000. Net income in dollars was up 13% at $1,391, compared to $1,226 in 1Q 2000. The effective income tax rate in 1Q 2001 was 36.8% compared to 36.0% in 1Q 2000. Diluted 1Q 2001 EPS increased 43% to $.27 compared to $.19 in 1Q 2000. The combination of higher net income and substantially fewer shares created a significant improvement in shareholder value in the form of higher EPS. 1Q 2001 weighted average number of diluted common shares (the number used to calculate diluted EPS) were 5,117 compared to 6,469 shares in 1Q 2000. Actual outstanding common shares as of the end of 1Q 2001 were 5,015. The favorable trade-off in increased EPS as a result of decreased non-operating income as a result of financing costs should be evident. UTMD's trailing twelve months' EPS were $.98, up 21% from the prior twelve month period of time. -7- h) Return on Shareholders' Equity (ROE) Annualized ROE in 1Q 2001 was 43% compared to 25% in 1Q 2000. Higher profitability, higher financial leverage and higher utilization of assets all contributed to the increase. UTMD's goal is to consistently achieve ROE in excess of 25%. ROE has averaged about 30% over the last 14 years. Management expects to exceed 30% ROE for the year 2001. i) Cash flows EBITDA is a measure of UTMD's ability to generate cash. EBITDA is EBT plus non-cash depreciation and amortization expenses plus interest expenses resulting from financing activities. 1Q 2001 EBITDA was $2,861, up $276 from $2,584 in 1Q 2000. As a ratio of sales, 1Q 2001 EBITDA was 44% compared to 39% in 1Q 2000. UTMD used EBITDA for $95 in capital expenditures of property and equipment and for reducing its bank loan balance by $2,400 during 1Q 2001. Net cash provided by operating activities, including adjustments for depreciation and other non-cash operating expenses, along with changes in working capital, totaled $2,071 in 1Q 2001, compared to $1,739 in 1Q 2000. Financing activities in 1Q 2001 used cash of $2,400 to reduce the bank line-of-credit. UTMD received $86 from issuing 12,439 shares of stock upon the exercise of employee stock options in 1Q 2001, compared to paying $78 in 1Q 2000 to repurchase 11,300 shares. On March 27, 2001, UTMD extended its unsecured revolving line- of-credit agreement with Key Bank N.A. for an additional year. Management believes that future income from operations and effective management of working capital will provide the liquidity needed to finance growth plans and repay debt. UTMD expects to use cash during the rest of 2001 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 if the price of the stock remains undervalued, and, if available for a reasonable price, acquisitions that strategically fit UTMD's business and are accretive to performance. UTMD plans to use any cash not needed for the above pursuits during the remainder of 2001 to reduce the bank loan balance. The revolving credit line will continue to be used for liquidity when the timing of acquisitions or repurchases of stock require a large amount of cash in a short period of time. j) Assets and Liabilities First quarter 2001 ending total assets were $955 less than at December 31, 2000. Current assets decreased as a result of lower cash and accounts receivable balances while net fixed assets declined because depreciation exceeded replacement purchases. Net intangible assets declined because amortization of goodwill and intangible assets. First quarter 2001 ending net intangible assets represent 30% of total assets. Net tangible assets per NASDAQ Rule 4450(a)(3) is defined as total assets (including the value of patents and trademarks, but excluding the value of goodwill) less total liabilities. Net tangible assets at March 31, 2001 were $6.8 million. Cash (and equivalent) balances were $69 at March 31, 2001, compared to $414 at the end of 2000. UTMD effectively maintains "sweep" cash account balances that minimize the bank loan balance, except for amounts held to meet operating requirements in Ireland and separate physical reserves set aside for litigation expenses and other contractual commitments. Average inventory turns increased slightly in 1Q 2001 to 3.7 times, compared to 3.5 times in 1Q 2000. If sales increase during the remainder of 2001, management expects to be able to achieve its target of 4.0 inventory turns. Trade accounts receivable balances declined 7% during 1Q 2001, a higher rate of decline than sales. Calculated days in receivables at 49 for 1Q 2001 were about the same as for 1Q 2000. The working capital decrease of $626 was primarily due to the decrease in cash and increase in accrued expenses. As of March 31, 2001, due to reduction in the bank loan balance UTMD's total debt ratio (total liabilities/ total assets) decreased to 45% from 51% as of December 31, 2000. Without additional share repurchases or new acquisitions, UTMD expects to continue to significantly reduce the remaining loan balance in 2001, yielding a total debt ratio below 30% as of December 31, 2001. k) Management's Outlook. During the remainder of 2001, UTMD expects to continue to improve its direct U.S. sales team as a resource for achieving the Company's objectives to help clarify clinician needs, responsively provide excellent solutions for those needs, and assure timely support for clinical customers' use of UTMD's solutions. To be -8- successful in its marketing efforts, UTMD must engage physicians with the information they need to make important judgments about using certain products in obtaining optimal clinical outcomes, which include minimizing risk of complications and unnecessary procedures. As a small company competing with other medical device companies many times its size, UTMD must clearly differentiate itself to survive. The reliability and performance of UTMD's products remains high and represents significant clinical benefits as well as minimal total cost of care. Physicians do care about the well- being of their patients, but their time is limited to evaluate choices, and they have hospital administrators to deal with who often look at the initial price of a product, period. UTMD is simplifying its communications with clinical customers to focus where it provides significant value. In the U.S., UTMD is continuing to leverage its reputation with physicians, who use its products in specialty hospital areas and outside the hospital in their office practices. Internationally, where UTMD depends on the knowledge, focus, relationships and energy of independent distributors, the Company continues to closely monitor performance and recruit needed new business partners. UTMD expects its Ireland subsidiary , after a slow quarter in 1Q 2001, to resume its important contribution to overall performance. Management plans to extend UTMD's excellent EBITDA performance during the rest of 2001. In a competitive marketplace, UTMD has built and intends to successfully defend a dominant market franchise in the most special areas of hospitals caring for mothers and their babies, with differentiated and highly effective products under well-recognized brands. Given the awareness of UTMD's brands, the Internet will increasingly become an effective distribution tool to circumvent anticompetitive market forces. UTMD's sales and marketing resources will employ the Internet, along with other varied initiatives to maintain and further build UTMD's differentiation from its competitors. The Company will not devote resources to pursue undifferentiated products and services; nor will we devalue our differentiated solutions to providing better healthcare. Item 3. Quantitative and Qualitative Disclosures about Market Risk. The Company has manufacturing operations, including assets, in Ireland denominated in Irish Pounds, and sells products under agreements denominated in various Western European currencies. The Irish Pound and other currencies are subject to exchange rate fluctuations that are beyond the control of UTMD. The exchange rate for the Irish Pound was .8988 and .8275 per U.S. Dollar as of March 31, 2001 and 2000, respectively. UTMD manages its foreign currency risk without separate hedging transactions by converting currencies 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 Promissory Note, dated March 27, 2001 to KeyBank National Association b) Reports on Form 8-K: On January 30, 2001, UTMD filed a report on Form 8-K, Item 5, Other Events, providing financial information in addition to its audited income statement results for 2000 which were announced, by press release, on January 23, 2001. 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: 5/11/01 By: /s/ Kevin L. Cornwell ----------------- ---------------------------------------- Kevin L. Cornwell CEO Date: 5/11/01 By: /s/ Greg A. LeClaire ----------------- ---------------------------------------- Greg A. LeClaire CFO -10- EX-10 2 umed10qmar2001_ex1.txt EXHIBIT 1 PROMISSORY NOTE DATED MARCH 27 2001 TO KEYBANK NATIONAL ASSOCIATION PROMISSORY NOTE Borrower: UTAH MEDICAL PRODUCTS, INC. Lender: KEYBANK NATIONAL ASSOCIATION 7043 SOUTH 300 WEST UT-MM CENTRAL COMMERCIAL MIDVALE, UT 84047 BANKING CENTER 50 S. MAIN ST, SUITE 2007 SALT LAKE CITY, UT 84130
Principal Amount: $14,500,000.00 Initial Rate: 8.000% Date of Note: March 27, 2001
PROMISE TO PAY. UTAH MEDICAL PRODUCTS, INC. ("Borrower") promises to pay to KeyBank National Association ("Lender"), or order, In lawful money of the United States of America, the principal amount of Fourteen Million Five Hundred Thousand & 00/100 Dollars ($14,500,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance. PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on April 14, 2003. In addition, Borrower will pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning April 15, 2001, with all subsequent Interest payments to be due on the same day of each month after that. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. The annual interest rate for this Note is computed on a 365/360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is the Prime Rate announced by Lender (the "Index'). The Index is not necessarily the lowest rate charged by Lender on its loans and is set by Lender in its sole discretion. If the Index becomes unavailable during the term of this loan, the Lender may designate a substitute index after notifying Borrower. Lender will tell Borrower the current Index rate upon Borrower's request. The interest rate change will not occur more often than each day that the index changes. The interest rate will change automatically and correspondingly on the date of each announced change of the Index by Lender. Borrower understands that Lender may make loans based on other rates as well. The Index currently is 8.000% per annum. The interest rate to be applied to the unpaid principal balance of this Note will be at a rate equal to the Index, resulting in an initial rate of 8.000% per annum. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments of accrued unpaid interest. Rather, they will reduce the principal balance due. Borrower agrees not to send Lender payments marked "paid in full", "without recourse", or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: KeyBank National Association, UT-MM-Central Commercial Banking Center, 50 S. Main Street, Suite 2007, Salt Lake City, UT 84130. LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 5.000% of the unpaid portion of the regularly scheduled payment or $50.00, whichever Is greater. INTEREST AFTER DEFAULT. Upon default, including failure to pay upon first maturity, Lender, at its option, may, if permitted under applicable law, increase the variable interest rate on this Note to 3.000 percentage points over the Index. The interest rate will not exceed the maximum rate permitted by applicable law. DEFAULT. Each of the following shall constitute an event of default ("Event of Default") under this Note: Payment Default. Borrower fails to make any payment when due under this Note. Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant, or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the related documents. False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter. Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower of by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with the Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being adequate reserve or bond for the dispute. Events affecting Guarantor. Any of the proceeding events occurs with respect to any guarantor, endorser, surety, or accommodation party of any of the indebtedness of any guarantor, endorser, surety, of accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any of the indebtedness evidenced by this Note. In the event of a death, Lender, at its option, may, but shall not be required to, permit the guarantor's estate to assume unconditionally the obligations arising under the guaranty in a manner satisfactory to Lender, and, in doing so, cure any Event of Default. Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired. Insecurity. Lender in good faith believes itself insecure. Cure Provisions. If any default, other than a default in payment is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured (and no event of default will have occurred) if Borrower, after receiving written notice from Lender demanding cure of such default: (1) cures the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount. ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to collect this Note is Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's reasonable attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including without limitation all reasonable attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law. JURY WAIVER. Lender and Borrower hereby waive the right to a jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other. GOVERNING LAW. This Note will be governed by, construed and enforced in accordance with federal law and the laws of the State of Utah. This note has been accepted by Lender in the State of Utah. RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA and Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the debt against any and all such accounts. LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested either orally or in writing by Borrower or as provided in this paragraph. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. The following person currently is authorized to request advances and authorize payments under the line of credit until Lender receives from Borrower, at Lender's address shown above, written notice of revocation of his or her authority: KEVIN L. CORNWELL, CHAIRMAN/CEO of UTAH MEDICAL PRODUCTS, INC. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (A) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (B) Borrower or any guarantor ceases doing business or is insolvent; (C) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender; (D) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (E) Lender in good faith deems itself insecure LIBOR 1 MONTH. An exhibit, titled 'LIBOR 1 Month Exhibit", is attached to this Note and by this reference is made a part of this Note just as if all the provisions, terms and conditions of the Exhibit had been fully set forth in this Note. PRIOR NOTE. This Note is a renewal of the promissory note form Borrower to Lender dated April 14, 2000 in the original principal amount of $14,500,000.00. SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower's heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE. BORROWER: UTAH MEDICAL PRODUCTS, INC. By: /s/ Kevin L. Cornwell --------------------- KEVIN L CORNWELL, CHAIRMAN/CEO of UTAH MEDICAL PRODUCTS, INC LIBOR 1 MONTH EXHIBIT Borrower: UTAH MEDICAL PRODUCTS, INC Lender: KeyBank National Association 7043 SOUTH 300 WEST UT-MM- Central Commercial Banking MIDVALE, UT 84047 Center 50 S. Main Street Suite 2007 Salt Lake City, UT 84130 This LIBOR 1 MONTH EXHIBIT is attached to and by this reference is made a part of the Promissory Note, dated March 27, 2001, and executed in connection with a loan or other financial accommodations between KEYBANK NATIONAL ASSOCIATION and UTAH MEDICAL PRODUCTS, INC. LIBOR ADDENDUM (Line of Credit One-Month Rate) 1. DEFINITIONS: For the purposes of this Addendum, the following definitions will apply: "Business Day" means a day on which dealings are carried on in the London interbank eurodollar market. "LIBOR Interest Period" means the period commencing on the date an advance bearing interest at the LIBOR Rate is made, continued, or converted and continuing for one month, with successive periods commencing on the same day of each month thereafter; "LIBOR Rate" means the rate per annum calculated by the Lender in good faith, which Lender determines with reference to the rate per annum (rounded upwards to the next higher whole multiple of 1/16% if such rate is not such a multiple) at which deposits in United States dollars are offered by prime banks in the London interbank eurodollar market two Business Days prior to the day on which such rate is calculated by Bank, in an amount comparable to the amount of such advance and with a maturity equal to the LIBOR Interest Period; "LIBOR Reserve Requirements" means, for any advance bearing interest at the LIBOR Rate, the maximum reserves (whether basic, supplemental, marginal, emergency, or otherwise) prescribed by the Board of Governors of the Federal Reserve System (or any successor) with respect to liabilities or assets consisting of or including "Eurocurrency liabilities" (as defined in Regulation D of the Board of Governors of the Federal Reserve System) having a term equal to the term of such advance. "Margin" means one and 35/100 percent (1.35 %). "Note Rate" means the interest rate provided for in the Note based on the Lender's Prime Rate (as defined in the Note). 2. INTEREST RATE. Notwithstanding anything contained in the Note to the contrary, advances under the Note shall bear interest at a fixed rate of interest equal to the LIBOR Rate plus the Margin for the duration of a LIBOR Interest Period; provided that no such advance shall be in an amount of less than $100,000.00, and provided further that no LIBOR Interest Period may extend beyond the maturity date of the Note. Upon the expiration of the initial LIBOR Interest Period, Borrower may elect a new LIBOR Rate or the Note Rate. If Borrower fails to make an election, the advances will bear interest at the LIBOR Rate plus the Margin for consecutive LIBOR Interest Periods until an election is made. During any LIBOR Interest Period, Borrower shall continue to make interest payments as required by the Note. 3. INCREASED COSTS. If, because of the introduction of or any change in, or because of any judicial, administrative, or other governmental interpretation of, any law or regulation, there shall be any increase in the cost to Lender of making, funding, maintaining, or allocating capital to any advance bearing interest at the LIBOR Rate, including a change in LIBOR Reserve Requirements, then Borrower shall, from time to time upon demand by Lender, pay to Lender additional amounts sufficient to compensate Lender for such increased cost. 4. ILLEGALITY. lf, because of the introduction of or any change in, or because of any judicial, administrative, or other governmental interpretation of, any law or regulation, it becomes unlawful for Lender to make, fund, or maintain any advance at the LIBOR Rate, then Lender's obligation to make, fund, or maintain any such advance shall terminate and each affected outstanding advance shall be converted to the Note Rate on the earlier of the termination date for each LIBOR Interest Period or the date the making, funding, or maintaining of each such advance becomes unlawful. 5. REIMBURSEMENT OF COSTS. If Borrower repays any advance bearing interest at the LIBOR Rate prior to the end of the applicable LIBOR Interest Period, including without limitation a prepayment under paragraphs 3 or 4 above, Borrower shall reimburse Lender on demand for any resulting loss or expense incurred by Lender, including without limitation any loss or expense incurred in obtaining, liquidating or reemploying deposits from third parties. A statement as to the amount of such loss or expense, prepared in good faith and in reasonable detail by Lender and submitted by Lender to the Borrower, shall be conclusive and binding for all purposes absent manifest error in computation. Calculation of all amounts payable to Lender under this paragraph shall be made as though Lender shall have actually funded the relevant advance through deposits or other funds acquired from third parties for such purpose; provided, however, that Lender may fund any advance bearing interest at the LIBOR Rate in any manner it sees fit and the foregoing assumption shall be utilized only for purposes of calculation of amounts payable under this paragraph. Lender will be entitled to receive the reimbursement provided for herein regardless of whether the prepayment is voluntary or involuntary (including demand or acceleration of the Note upon Borrower's default). THIS LIBOR 1 MONTH EXHIBIT IS EXECUTED ON MARCH 27, 2001. BORROWER: UTAH MEDICAL PRODUCTS, INC. By: /s/ Kevin L. Cornwell ---------------------------------------- KEVIN L. CORNWELL, CHAIRMAN/CE0 of UTAH MEDICAL PRODUCTS, INC LENDER: KEYBANK NATIONAL ASSOCIATION By: /s/ John P. Norawong ------------------------ Authorized Officer -----END PRIVACY-ENHANCED MESSAGE-----