UTAH MEDICAL PRODUCTS INC 10-Q

Item 1. Financial Statements UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS AS OF SEPTEMBER 30, 2021 AND DECEMBER 31, 2020 (in thousands) (unaudited) (audited) SEPTEMBER 30, 2021 DECEMBER 31, 2020 ASSETS Current assets: Cash & investments $ 64,321 $ 51,590 Accounts & other receivables, net 4,853 4,104 Inventories 6,299 6,222 Other current assets 373 346 Total current assets 75,846 62,262 Property and equipment, net 10,547 10,949 Operating lease – right-of-use assets, net 384 377 Goodwill 14,064 14,164 Other intangible assets 55,701 56,159 Other intangible assets - accumulated amortization ( 36,790 ) ( 32,166 ) Other intangible assets, net 18,911 23,993 Total assets $ 119,752 $ 111,745 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,026 $ 788 Accrued expenses 3,989 3,003 Total current liabilities 5,015 3,791 Deferred tax liability – Femcare IIA 1,810 2,151 Other long term liabilities 2,196 1,995 Operating lease liability 343 335 Deferred income taxes 408 651 Total liabilities 9,772 8,923 Stockholders' equity: Common stock - $ 0.01 par value; authorized - 50,000 shares; issued - September 30, 2021, 3,649 shares and December 31, 2020, 3,643 shares 36 36 Accumulated other comprehensive income (loss) ( 9,068 ) ( 8,281 ) Additional paid-in capital 520 115 Retained earnings 118,492 110,952 Total stockholders' equity 109,980 102,822 Total liabilities and stockholders' equity $ 119,752 $ 111,745 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, 2021 AND SEPTEMBER 30, 2020 (in thousands, except per share amounts - unaudited) Three Months Ended Nine Months Ended September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Sales, net $ 12,572 $ 10,479 $ 36,140 $ 30,168 Cost of goods sold 4,499 3,982 13,336 11,885 Gross profit 8,073 6,497 22,804 18,283 Operating expense Selling, general and administrative 2,848 2,785 8,669 8,480 Research & development 127 125 385 375 Total operating expenses 2,975 2,910 9,054 8,855 Operating income 5,098 3,587 13,750 9,428 Other income 59 1 130 125 Income before provision for income taxes 5,157 3,588 13,880 9,553 Provision for income taxes 951 655 3,224 2,167 Net income $ 4,206 $ 2,933 $ 10,656 $ 7,386 Earnings per common share (basic) $ 1.15 $ 0.81 $ 2.92 $ 2.02 Earnings per common share (diluted) $ 1.15 $ 0.80 $ 2.91 $ 2.01 Shares outstanding - basic 3,647 3,642 3,645 3,664 Shares outstanding - diluted 3,658 3,653 3,656 3,678 Other comprehensive income (loss): Foreign currency translation net of taxes of $ 0 in all periods $ ( 782 ) $ 1,511 $ ( 787 ) $ ( 416 ) Total comprehensive income $ 3,424 $ 4,444 $ 9,869 $ 6,970 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 NINE MONTHS ENDED SEPTEMBER 30, 2021 AND SEPTEMBER 30, 2020 (in thousands - unaudited) Nine Months Ended September 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 10,656 $ 7,386 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 483 495 Amortization 4,996 4,875 Provision for (recovery of) losses on accounts receivable 20 ( 4 ) Amortization of right-of-use assets 32 29 (Gain) loss on disposal of assets - 1 Deferred income taxes ( 160 ) ( 20 ) Stock-based compensation expense 123 121 Tax benefit attributable to exercise of stock options 11 7 Changes in operating assets and liabilities: Accounts receivable and other receivables ( 802 ) 442 Inventories ( 161 ) 757 Prepaid expenses and other current assets ( 35 ) 58 Accounts payable 242 ( 439 ) Accrued expenses 811 651 Total adjustments 5,560 6,973 Net cash provided by operating activities 16,216 14,359 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for: Property and equipment ( 299 ) ( 806 ) Net cash used in investing activities ( 299 ) ( 806 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock - options 281 282 Common stock purchased and retired - ( 6,977 ) Payment of dividends ( 3,116 ) ( 3,097 ) Net cash used in financing activities ( 2,835 ) ( 9,792 ) Effect of exchange rate changes on cash ( 351 ) ( 254 ) Net increase in cash and cash equivalents 12,731 3,507 Cash at beginning of period 51,590 42,787 Cash at end of period $ 64,321 $ 46,294 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for income taxes $ 3,094 $ 2,153 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, 2021 AND SEPTEMBER 30, 2020 (In thousands - unaudited) Accumulated Additional Other Total Common Stock Paid-in Comprehensive Retained Stockholders' Shares Amount Capital Income Earnings Equity Balance at June 30, 2021 3,646 $ 36 $ 289 $ ( 8,286 ) $ 115,326 $ 107,365 Shares issued upon exercise of employee stock options for cash 3 - 189 - - 189 Stock option compensation expense - - 41 - - 41 Foreign currency translation adjustment - - - ( 782 ) - ( 782 ) Common stock dividends - - - - ( 1,040 ) ( 1,040 ) Net income - - - - 4,206 4,206 Balance at September 30, 2021 3,649 $ 36 $ 520 $ ( 9,068 ) $ 118,492 $ 109,980 Balance at December 31, 2020 3,643 $ 36 $ 115 $ ( 8,281 ) $ 110,951 $ 102,822 Shares issued upon exercise of employee stock options for cash 6 - 281 - - 281 Stock option compensation expense - - 123 - - 123 Foreign currency translation adjustment - - - ( 787 ) - ( 787 ) Common stock dividends - - - - ( 3,116 ) ( 3,116 ) Net income - - - - 10,656 10,656 Balance at September 30, 2021 3,649 $ 36 $ 520 $ ( 9,068 ) $ 118,492 $ 109,980 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 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, 2020. 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, 2021, and December 31, 2020, consisted of the following: September 30, 2021 December 31, 2020 Finished goods $ 1,436 $ 1,363 Work-in-process 1,459 1,375 Raw materials 3,404 3,484 Total $ 6,299 $ 6,222 (4) Stock-Based Compensation. At September 30, 2021, 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, 2021, and 2020, the Company recognized $ 41 and $ 49 , respectively, in stock based compensation cost. In the nine months ended September 30, 2021, and 2020, the Company recognized $ 123 and $ 121 , 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, 2020, or September 30, 2021. (6) Global 3Q 2021 revenues (USD) by product category: Domestic Outside US Total Obstetrics $ 1,014 $ 232 $ 1,246 Gynecology/Electrosurgery/Urology 2,743 2,815 5,558 Neonatal 1,336 312 1,648 Blood Pressure Monitoring and Accessories 2,656 1,464 4,120 Total $ 7,749 $ 4,823 $ 12,572 Global 9M 2021 revenues (USD) by product category: Domestic Outside US Total Obstetrics $ 2,864 $ 559 $ 3,423 Gynecology/Electrosurgery/Urology 8,229 8,130 16,359 Neonatal 3,813 1,064 4,877 Blood Pressure Monitoring and Accessories 7,649 3,832 11,481 Total $ 22,555 $ 13,585 $ 36,140 5 Table of Contents (7) 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 2.08 year life as of September 30, 2021 of the prior CSI distribution agreement with Femcare. (8) 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 3rd quarter 2021. 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, 2021 2020 2021 2020 Numerator Net income 4,206 2,933 10,656 7,386 Denominator Weighted average shares, basic 3,647 3,642 3,645 3,664 Dilutive effect of stock options 11 11 11 14 Diluted shares 3,658 3,653 3,656 3,678 Earnings per share, basic 1.15 0.81 2.92 2.02 Earnings per share, diluted 1.15 0.80 2.91 2.01 (9) 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. 6 Table of Contents