UTAH MEDICAL PRODUCTS INC 10-Q

Item 1. Financial Statements UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS AS OF SEPTEMBER 30, 2020 AND DECEMBER 31, 2019 (in thousands) (unaudited) (audited) SEPTEMBER 30, 2020 DECEMBER 31, 2019 ASSETS Current assets: Cash & investments $ 46,294 $ 42,787 Accounts & other receivables, net 4,277 4,742 Inventories 6,304 6,913 Other current assets 385 444 Total current assets 57,260 54,886 Property and equipment, net 10,650 10,314 Operating lease – right of use assets, net 386 414 Goodwill 13,783 13,961 Other intangible assets 54,362 55,205 Other intangible assets - accumulated amortization ( 29,369 ) ( 24,993 ) Other intangible assets, net 24,993 30,212 Total assets $ 107,072 $ 109,787 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 651 $ 1,098 Accrued expenses 2,976 2,350 Total current liabilities 3,627 3,448 Deferred tax liability – Femcare IIA 1,995 2,110 Other long term liabilities 2,132 2,239 Operating lease liability 346 376 Deferred income taxes 557 521 Total liabilities 8,657 8,694 Stockholders' equity: Preferred stock - $ 0.01 par value; authorized - 5,000 shares; no shares issued or outstanding - - Common stock - $ 0.01 par value; authorized - 50,000 shares; issued - September 30, 2020, 3,640 shares and December 31, 2019, 3,722 shares 36 37 Accumulated other comprehensive income (loss) ( 10,199 ) ( 9,782 ) Additional paid-in capital - 18 Retained earnings 108,578 110,820 Total stockholders' equity 98,415 101,093 Total liabilities and stockholders' equity $ 107,072 $ 109,787 see notes to consolidated condensed financial statements 1 Table of Contents UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND SEPTEMBER 30, 2019 (in thousands, except per share amounts - unaudited) Three Months Ended Nine Months Ended September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 Sales, net $ 10,479 $ 12,494 $ 30,168 $ 35,073 Cost of goods sold 3,982 5,115 11,885 13,421 Gross profit 6,497 7,379 18,283 21,652 Operating expense Selling, general and administrative 2,785 2,878 8,480 8,341 Research & development 125 130 375 357 Total operating expenses 2,910 3,008 8,855 8,698 Operating income 3,587 4,371 9,428 12,954 Other income (expense) 1 76 125 196 Income before provision for income taxes 3,588 4,447 9,553 13,150 Provision for income taxes 655 742 2,167 2,781 Net income $ 2,933 $ 3,705 $ 7,386 $ 10,369 Earnings per common share (basic) $ 0.81 $ 1.00 $ 2.02 $ 2.79 Earnings per common share (diluted) $ 0.80 $ 0.99 $ 2.01 $ 2.77 Shares outstanding - basic 3,642 3,720 3,664 3,722 Shares outstanding - diluted 3,653 3,737 3,678 3,738 Other comprehensive income (loss): Foreign currency translation net of taxes of $ 0 in all periods $ 1,511 $ ( 1,683 ) $ ( 416 ) $ ( 1,200 ) Total comprehensive income $ 4,444 $ 2,022 $ 6,970 $ 9,169 see notes to consolidated condensed financial statements 2 Table of Contents UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2020 AND SEPTEMBER 30, 2019 (in thousands - unaudited) Nine Months Ended September 30, 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 7,386 $ 10,369 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 495 526 Amortization 4,875 4,512 Provision for (recovery of) losses on accounts receivable ( 4 ) ( 2 ) Amortization of Right-of-Use Assets 29 29 (Gain) loss on disposal of assets 1 - Deferred income taxes ( 20 ) ( 398 ) Stock-based compensation expense 121 85 Tax benefit attributable to exercise of stock options 7 20 Changes in operating assets and liabilities: Accounts receivable and other receivables 442 ( 1,139 ) Inventories 757 ( 1,449 ) Prepaid expenses and other current assets 58 73 Accounts payable ( 439 ) ( 188 ) Accrued expenses 651 ( 1,023 ) Total adjustments 6,973 1,046 Net cash provided by operating activities 14,359 11,415 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for: Property and equipment ( 806 ) ( 252 ) Intangible assets - ( 21,000 ) Net cash used in investing activities ( 806 ) ( 21,252 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock - options 282 223 Common stock purchased and retired ( 6,977 ) ( 398 ) Payment of dividends ( 3,097 ) ( 3,083 ) Net cash used in financing activities ( 9,792 ) ( 3,258 ) Effect of exchange rate changes on cash ( 254 ) ( 624 ) Net decrease in cash and cash equivalents 3,507 ( 13,719 ) Cash at beginning of period 42,787 51,112 Cash at end of period $ 46,294 $ 37,393 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for income taxes $ 2,153 $ 3,957 Cash paid during the period for interest - - see notes to consolidated condensed financial statements 3 Table of Contents UTAH MEDICAL PRODUCTS, INC. CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND SEPTEMBER 30, 2019 (In thousands - unaudited) Accumulated Additional Other Total Common Stock Paid-in Comprehensive Retained Stockholders' Shares Amount Capital Income Earnings Equity Balance at June 30, 2020 3,643 $ 36 $ 80 $ ( 11,710 ) $ 106,881 $ 95,288 Shares issued upon exercise of employee stock options for cash 4 - 202 - - 202 Stock option compensation expense - - 49 - - 49 Common stock purchased and retired ( 7 ) - ( 332 ) - ( 219 ) ( 551 ) Foreign currency translation adjustment - - - 1,511 - 1,511 Common stock dividends - - - - ( 1,018 ) ( 1,018 ) Net income - - - - 2,933 2,933 Balance at September 30, 2020 3,640 $ 36 $ - $ ( 10,199 ) $ 108,578 $ 98,415 Balance at December 31, 2019 3,722 $ 37 $ 18 $ ( 9,783 ) $ 110,820 $ 101,092 Shares issued upon exercise of employee stock options for cash 6 - 282 - - 282 Stock option compensation expense - - 121 - - 121 Common stock purchased and retired ( 87 ) ( 1 ) ( 421 ) - ( 6,555 ) ( 6,976 ) Foreign currency translation adjustment - - - ( 416 ) - ( 416 ) Common stock dividends - - - - ( 3,074 ) ( 3,074 ) Net income - - - - 7,386 7,386 Balance at September 30, 2020 3,640 $ 36 $ - $ ( 10,199 ) $ 108,578 $ 98,415 Balance at June 30, 2019 3,719 $ 37 $ - $ ( 10,807 ) $ 104,682 $ 93,912 Shares issued upon exercise of employee stock options for cash 1 - 52 - - 52 Stock option compensation expense - - 29 - - 29 Common stock purchased and retired - - ( 81 ) - 81 - Foreign currency translation adjustment - - - ( 1,683 ) - ( 1,683 ) Common stock dividends - - - - ( 1,029 ) ( 1,029 ) Net income - - - - 3,705 3,705 Balance at September 30, 2019 3,720 $ 37 $ - $ ( 12,490 ) $ 107,439 $ 94,986 Balance at December 31, 2018 3,720 $ 37 $ 121 $ ( 11,290 ) $ 100,123 $ 88,992 Shares issued upon exercise of employee stock options for cash 5 - 222 - - 222 Stock option compensation expense - - 85 - - 85 Common stock purchased and retired ( 5 ) - ( 429 ) - 31 ( 398 ) Foreign currency translation adjustment - - - ( 1,200 ) - ( 1,200 ) Common stock dividends - - - - ( 3,084 ) ( 3,084 ) Net income - - - - 10,369 10,369 Balance at September 30, 2019 3,720 $ 37 $ - $ ( 12,490 ) $ 107,439 $ 94,986 see notes to consolidated condensed financial statements 4 Table of Contents UTAH MEDICAL PRODUCTS, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited) (1) The unaudited financial statements 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, 2019. In the opinion of management, the accompanying financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to summarize fairly the Company's financial position and results of operations. Currency amounts are in thousands except per-share amounts and where noted. (2) Recent Accounting Standards. The Company has determined that other recently issued accounting standards will either have no material impact on its consolidated financial position, results of operations or cash flows, or will not apply to its operations. (3) Inventories at September 30, 2020, and December 31, 2019, consisted of the following: September 30, 2020 December 31, 2019 Finished goods $ 1,446 $ 1,708 Work-in-process 1,387 1,022 Raw materials 3,471 4,183 Total $ 6,304 $ 6,913 5 Table of Contents (4) Stock-Based Compensation. At September 30, 2020, the Company has stock-based employee compensation plans which authorize the grant of stock options to eligible employees and directors. The Company accounts for stock compensation under FASB Accounting Standards Codification (“ASC”) 718, Compensation - Stock Compensation . This statement requires the Company to recognize compensation cost based on the grant date fair value of options granted to employees and directors. In the quarters ended September 30, 2020, and 2019, the Company recognized $ 49 and $ 29 , respectively, in stock based compensation cost. In the nine months ended September 30, 2020, and 2019, the Company recognized $ 121 and $ 85 , respectively, in stock based compensation cost. (5) Warranty Reserve. The Company’s published warranty is: “UTMD warrants its products to conform in all material respects to all published product specifications in effect on the date of shipment, and to be free from defects in material and workmanship for a period of thirty (30) days for supplies, or twenty-four (24) months for equipment, from date of shipment. During the warranty period UTMD shall, at its option, replace any products shown to UTMD's reasonable satisfaction to be defective at no expense to the Purchaser or refund the purchase price.” UTMD maintains a warranty reserve to provide for estimated costs which are likely to occur. The amount of this reserve is adjusted, as required, to reflect its actual experience. Based on its analysis of historical warranty claims and its estimate that existing warranty obligations were immaterial, no warranty reserve was made at December 31, 2019, or September 30, 2020. 6 Table of Contents (6) Global 3Q 2020 revenues (USD) by product category: Domestic Outside US Total Obstetrics $ 1,032 $ 247 $ 1,279 Gynecology/Electrosurgery/Urology 2,847 2,202 5,049 Neonatal 1,151 348 1,499 Blood Pressure Monitoring and Accessories 1,920 732 2,652 Total $ 6,950 $ 3,529 $ 10,479 Global 9M 2020 revenues (USD) by product category: Domestic Outside US Total Obstetrics $ 2,739 $ 612 $ 3,351 Gynecology/Electrosurgery/Urology 7,686 6,945 14,631 Neonatal 3,266 1,169 4,435 Blood Pressure Monitoring and Accessories 5,215 2,536 7,751 Total $ 18,906 $ 11,262 $ 30,168 (7) Leases UTMD has operating leases for a portion of its parking lot at its Midvale facility and an automobile at its Ireland facility. The remaining lease term on the parking lot is 11 years and on the automobile it is 16 months. There are no options to extend or terminate the leases. UTMD has no other leases yet to commence. As neither lease contains implicit rates, UTMD’s incremental borrowing rate, based on information available at adoption date, was used to determine the present value of the leases. The components of lease cost were as follows: Three Months Ended September 30, 2020 Operating Lease Cost ( in thousands ) $ 15 Right of Use Assets obtained in exchange for new operating lease Obligations $ 0 Other Information Three Months Ended September 30, 2020 Weighted Average Remaining Lease Term - Operating Leases 11 years Weighted Average Discount Rate – Operating Leases 5.4 % Operating lease liabilities/ payments ( in thousands ) Operating lease payments, 2020 $ 60 Operating lease payments, 2021 $ 60 Operating lease payments, 2022 $ 45 Operating lease payments, 2023 $ 45 Operating lease payments, 2024 $ 45 Thereafter $ 299 Reconciliation of operating lease liabilities/ payments to operating lease liabilities ( in thousands ) Total operating lease liabilities/ payments $ 528 Operating lease liabilities – current (included in Accrued Expenses) $ 40 Operating lease liabilities – long term $ 346 Present value adjustment $ 142 Maturities of lease liabilities were as follows: ( in thousands ) Maturities of lease liabilities were as follows: ( in thousands ) Year ending December 31, 2020 $ 38 2021 $ 40 2022 $ 27 2023 $ 29 2024 $ 30 Thereafter $ 248 7 Table of Contents (8) Distribution Agreement Purchase. UTMD completed the purchase of exclusive U.S. distribution rights for the Filshie Clip System from CooperSurgical, Inc. (CSI) on February 1, 2019. The $ 21,000 purchase price represented an identifiable intangible asset which is being straight-line amortized and recognized as part of G&A expenses over a remaining 3.08 year life as of September 30, 2020 of the prior CSI distribution agreement with Femcare. (9) Earnings Per Share. Basic earnings per share is calculated by dividing net income attributable to the common stockholders of the company by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by assuming the exercise of stock options at the closing price of stock at the end of 3 rd quarter 2020. The following table reconciles the numerator and the denominator used to calculate basic and diluted earnings per share: ( in thousands ) Three months ended Nine months ended September 30, September 30, 2020 2019 2020 2019 Numerator Net income 2,933 3,705 7,386 10,369 Denominator Weighted average shares, basic 3,642 3,720 3,664 3,722 Dilutive effect of stock options 11 17 14 16 Diluted shares 3,653 3,737 3,678 3,738 Earnings per share, basic 0.81 1.00 2.02 2.79 Earnings per share, diluted 0.80 0.99 2.01 2.77 (10) Subsequent Events. UTMD has evaluated subsequent events through the date the financial statements were issued, and concluded there were no other events or transactions during this period that required recognition or disclosure in its financial statements. 8 Table of Contents