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Item 7. Management’s Discussion and Analysis

2022-03-25 compared with 2021-03-26 · 255 added, 246 removed, 281 unchanged (64% of the section changed)

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The following comments should be read in conjunction with the accompanying financial statements.

The final calendar quarter (4Q) of 2020 continued a trend of financial recovery from the “COVID-19 depression” in 2Q 2020 caused by government policies restricting medical procedures deemed nonessential, such as tubal ligation and loop excision of the transformation zone in which a significant portion of the products of Utah Medical Products, Inc.

UTMD) are focused.

UTMD management believes that the presentation of sequential 2020 quarterly comparisons provides meaningful supplemental information to both management and investors.

Results for any given three month period in comparison with a previous year’s same three month period may vary as a result of several factors:

foreign currency exchange rates for sales invoiced in foreign currencies, uneven international distributor and OEM customer order patterns as a result of purchasing larger quantities of devices at a time, and the timing of ups and downs in government restrictions during the pandemic.

The following table provides the sequential quarterly percentage changes in financial results for each income statement category, comparing the same periods in 2020 and 2019:

The 2021 year financial results demonstrate Utah Medical Products, Inc.’s (Nasdaq:

UTMD’s) continuing performance improvement despite many challenges related to the COVID-19 pandemic including on-again/off-again restrictions on so-called nonessential medical procedures, supply chain disruption, high inflation on raw materials, freight and labor costs as well as a continued shortage of labor from higher employee turnover.

Because of UTMD’s unusual dip in 2020 financial performance, UTMD continues to report its income statement results compared to the same periods not only for 2021 compared to 2020, but also for 2021 compared to the pre-pandemic year of 2019.

In that regard, the Company exceeded its stated objective for 2021 to try to fully recover back to its 2019 financial performance.

UTMD management believes that the presentation of three years of annual income statement comparisons provides meaningful supplemental information to both management and investors due to the impact of several factors related to the COVID-19 pandemic including economic variations affecting foreign currency exchange rates for sales invoiced in foreign currencies, uneven customer demand from the timing of ups and downs in government restrictions on “nonessential” medical procedures, supply disruptions and inflation in input costs.

Consolidated Income Statement

2021 Compared to 2020

2021 Compared to 2019

Worldwide Revenues

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Earnings Per Share (US GAAP)

In summary, 4Q 2020 was UTMD’s best revenue quarter of the year, almost 2% higher than the pre-pandemic 4Q 2019.

Consolidated total worldwide revenues for the 2020 year were 10% lower than in 2019, after being down 26% in 2Q 2020.

Direct to end user sales, which drive UTMD’s overall profitability, were 14% lower for the 2020 year after being down 39% in the dismal 2Q 2020.

A comparison of 4Q and Year 2020 results with the results in the same periods of 2019, according to U.S.

For perspective, as stockholders may recall, total worldwide revenues for the 2020 pandemic year were 10% lower than in pre-pandemic 2019.

Sales outside the U.S.

(OUS) were more negatively affected by the reaction to the pandemic than inside the U.S., and recovered more slowly in 2021.

Direct to end-user sales, which drive UTMD’s overall profitability, were 14% lower for the 2020 pandemic year.

Operating Income in 2020 was 22% lower than in pre-pandemic 2019.

UTMD maintained its manufacturing operations in the U.S.

and Ireland throughout the pandemic, without government assistance, in order to support important clinical needs of patients.

During the pandemic, UTMD protected its critical mass of overhead resources and did not adjust relative to the decline in sales, which proved to be a good decision given 2021 results and future resource needs.

A comparison of 2021 bottom line results with the results of 2020 and 2019, according to U.S.

Generally Accepted Accounting Principles (US GAAP), is affected by some income tax provision adjustments not related to normal operations:

1) 4Q 2019 net income was increased $582 ($.156 increase in EPS) as a result of final adjustments made to state of Utah tax estimates following the December 2017 U.S.

“Tax Cuts and Jobs Act” (TCJA), enacted in late 2017, and 2) 2Q 2020 net income was decreased $225 ($.061 decrease in EPS) by a long term deferred tax liability increase on the balance of Femcare intangible assets (the amortization of which is not tax-deductible in the UK) as a result of a change in the UK income tax rate.

The $225 increase in deferred UK taxes over the next six years, according to US GAAP, must be booked in the quarter in which the tax law change was enacted.

The UK decided to not reduce its corporate income tax rate from 19% to 17% beginning in 2Q 2020, as was previously enacted.

UTMD management believes that the presentation of results excluding the unfavorable deferred tax liability adjustment to its 2Q 2020 net income and the favorable tax-related adjustments to 4Q 2019 net income provides meaningful supplemental information to both management and investors that is more clearly indicative of UTMD’s operating results in 2020 compared to 2019.

The non-US GAAP exclusion only affects Net Income and Earnings Per Share.

All other income statement categories at and above the EBT line were unaffected by the tax provision adjustments.

Excluding the 2Q 2020 deferred tax liability increase and concomitant “one-time” income statement tax provision increase resulting from the enactment of the UK corporate income tax change, and favorable tax provision adjustments in 4Q 2019 related to the U.S.

TCJA, UTMD’s non-US GAAP Net Income and Earnings Per Share (EPS) quarterly percentage changes follow:

1) in 4Q 2019, net income was increased $582 ($.156 increase in EPS) as a result of final adjustments made to state of Utah tax estimates following the December 2017 U.S.

“Tax Cuts and Jobs Act” (TCJA), enacted in late 2017;

2) in 2Q 2020, net income was decreased $225 ($.061 decrease in EPS) by a long term deferred tax liability increase on the balance of Femcare intangible assets (the amortization of which is not tax-deductible in the UK) as a result of a delay in the enacted UK income tax rate reduction, and 3) in 2Q 2021, net income was decreased $390 ($.107 decrease in EPS) by a long term deferred tax liability increase on the balance of Femcare intangible assets (the amortization of which is not tax-deductible in the UK) as a result of an enacted increase in the UK income tax rate effective in 2023.

The 2020 $225 increase in deferred UK taxes over the following six years, and the 2021 $390 increase in deferred UK taxes from 2023 through 2026, according to US GAAP, must be booked in the quarter in which the tax law change was enacted.

The UK decided to not reduce its corporate income tax rate from 19% to 17% beginning in 2Q 2020, as was previously enacted, and then in 2Q 2021 decided to increase its corporate income rate to 25% as of April 1, 2023.

UTMD management believes that the presentation of results excluding the unfavorable deferred tax liability adjustment to its 2020 and 2021 net income and the favorable U.S.

tax-related adjustment to 2019 net income provides meaningful supplemental information to both management and investors that is more clearly indicative of UTMD’s operating results in 2021 compared to 2020 and 2019.

Please note that the non-US GAAP exclusions only affects Net Income and Earnings Per Share.

All other income statement categories at and above the EBT line were unaffected by the UK tax rate adjustments.

Excluding the 2021 and 2020 deferred tax liability increases and concomitant “one-time” income statement tax provision increase resulting from the enactment of the UK corporate income tax changes, and favorable tax provision adjustment in 2019 related to the U.S.

TCJA, UTMD’s non-US GAAP Net Income and Earnings Per Share (EPS) percentage changes follow:

Consolidated Income Statement

2021 Compared to 2020

2021 Compared to 2019

Net Income (Non-US GAAP)

EPS (Non-US GAAP)

In other words, ignoring the income tax provision adjustments in 4Q 2019 and 2Q 2020, all income statement categories improved sequentially during 2020 following the 2Q pandemic depression, compared to the same time periods in 2019.

Income statement results for the year 2020 compared to 2019 were as follows:

Gross Profit (GP)

Operating Income

Income Before Tax (EBT)

Net Income before tax adjustments

Net Income per US GAAP

EPS before tax adjustments

Earnings per Share (EPS) per US GAAP

Sales outside the U.S.

(OUS) were more negatively affected by the reaction to the pandemic than inside the U.S., and have recovered more slowly.

UTMD maintained its manufacturing operations in the U.S.

and Ireland throughout the pandemic, without government assistance, in order to support important clinical needs of patients.

Gross profit declined more than sales as a result of less absorption of fixed overheads and marginal costs associated with the pandemic including personal protective equipment for employees, cleaning supplies, extra pay to encourage employees to come to work, pay continuation beyond normal sick pay and accrued vacation pay for those quarantined with symptoms or exposed to someone with symptoms, lower productivity as a result of social distancing and higher costs levied by some suppliers and service providers.

The associated key 2020 profit margins (profits as a percentage of sales) compared to the 2019 calendar year follow:

Key profit margins (profits as a percentage of sales) in 2021 compared to 2020 and 2019 calendar years follow:

Gross Profit Margin (GPM)

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Income Before Tax Margin

Net Income Margin before TCJA tax adjusts

Net Income Margin before tax adjusts

Net Income Margin per US GAAP

Operating Income, EBT and non-GAAP Net Income were leveraged further down from the lower GP due primarily to the fixed $6,470 noncash expense in 2020 resulting from amortizing Identifiable Intangible Assets (IIA) which resulted from the purchase of Femcare in 2011 and the remaining life of the U.S.

Profit margins in 2021 recovered to be consistent with UTMD’s pre-pandemic performance.

In 2020, Gross Profit declined more than Sales as a result of less absorption of fixed overheads and marginal costs associated with the pandemic including personal protective equipment for employees, cleaning supplies, extra pay to encourage employees to come to work, pay continuation beyond normal sick pay and accrued vacation pay for those quarantined with symptoms or exposed to someone with symptoms, lower productivity as a result of social distancing and higher costs levied by some suppliers and service providers.

In contrast and despite higher variable costs in 2021, UTMD’s 2021 Gross Profit increased more than Sales due to lower U.S.

employee medical plan costs and improved labor productivity, in addition to better absorption of fixed manufacturing overhead expenses.

In 2020, Operating Income was leveraged down from lower GP compared to 2019 primarily due to the fixed $6,470 noncash expense resulting from amortizing Identifiable Intangible Assets (IIA) which resulted from the purchase of Femcare in 2011 and the remaining life of the U.S.

exclusive distribution rights for the Filshie Clip System from CooperSurgical Inc.

(CSI) in 2019.

The IIA amortization expense in 2019 was only $6,089 because of a partial year of CSI IIA amortization and a stronger USD which reduced fixed GBP IIA amortization expense.

Non-GAAP EPS declined less than Net Income due to share repurchases in 2020.

Net Income and EPS per U.S.

Generally Accepted Accounting Principles (US GAAP) in both 2020 and 2019 were affected by a change in UTMD’s estimate of the IRC 965 Transition (REPAT) Tax initially booked in 2017 resulting from the U.S.

“Tax Cuts and Jobs Act” (TCJA) enacted by Congress in December 2017, and the concomitant ensuing Global Intangible Low-Taxed Income (GILTI) tax and Foreign-Derived Intangible Income (FDII) tax credit which liability began in 2018.

US GAAP Net Sales, GP, Operating Income and EBT were not affected by the TCJA tax estimate-related adjustments in 2020 or 2019.

Because of the tax estimate adjustments, in UTMD management’s view, a comparison of US GAAP Net Income and EPS between 2020 and 2019 does not provide stockholders with meaningful insight about UTMD’s financial performance.

The non-GAAP results presented above eliminate the tax estimate adjustments from Net Income and EPS.

Measures of the Company’s liquidity and overall financial condition improved as of the end of 2020 compared to the end of 2019 as the result of continued strong positive cash flow from normal operations, despite the negative performance comparison with the prior year.

The Company’s continued excellent positive cash flow in 2020 allowed it to increase cash dividends paid to stockholders, repurchase 87,000 UTMD shares in the open market and use $860 in cash to invest in new manufacturing equipment for a future need in addition to maintaining Property, Plant and Equipment (PP&E) in good working order.

In spite of a combined $11,952 in share repurchases, stockholder dividends and capital expenditures, UTMD’s cash equivalent balances at the end of 2020 increased $8,804 to $51,590 from $42,787 at the end of 2019.

Also, the CSI IIA amortization expense in 2019 was only $6,089 because of a partial year of amortization plus a stronger USD in 2019 which reduced fixed GBP Femcare IIA amortization expense in USD terms.

In contrast, the fixed IIA amortization expenses, which are included in General & Administrative (G&A) operating expense, were diluted by substantially higher sales in 2021 than in 2020 and a 6.6% stronger GBP in 2021 relative to the 2020 USD, which reduced the USD value of the fixed GBP Femcare IIA amortization expense.

Non-US GAAP Net Income and EPS increased the same as Operating Income in 2021 compared to 2020 because the consolidated total income tax rate prior to US GAAP tax adjustments was the same in both years at 20.4%.

Measures of the Company’s liquidity and overall financial condition improved as of the end of 2021 compared to the end of 2020 with year-end working capital up 19% and Stockholders’ Equity up 4% despite a $7,309 special dividend paid to stockholders near the end of 2021 which reduced both cash and Stockholders’ Equity by that same amount.

The improvement was the result of continued strong positive cash flow from normal operations.

In total, UTMD paid $11,465 in stockholder cash dividends in 2021 compared to $4,116 in 2020.

In 2020, the Company also used $6,976 of its cash to repurchase its shares.

UTMD did not repurchase shares in 2021.

The Company also used $552 in cash in 2021 to invest in new manufacturing equipment for a future need in addition to maintaining Property, Plant and Equipment (PP&E) in good working order.

In spite of the combined $12,017 use of cash for stockholder dividends and capital expenditures, UTMD’s cash equivalent balances at the end of 2021 increased $9,384 to $60,974 from $51,590 at the end of 2020.

Working capital increased $10,941 to $69,412 at the end of 2021 from $58,471 at the end of 2020.

Total liabilities increased $229.

Total liabilities declined $425.

The Company remained without debt.

UTMD’s total debt ratio (total liabilities to total assets) was 8% at the end of both 2020 and 2019.

Stockholders’ Equity increased to $102,822 from $101,092 at the end of 2019, despite the $4,116 in 2020 cash dividends to stockholders and use of $6,976 for 2020 share repurchases, both of which reduce Stockholders’ Equity.

UTMD’s total debt ratio (total liabilities to total assets) was 7% at the end of 2021 compared to 8% at the end of 2020.

Stockholders’ Equity at the end of 2021 increased to $107,138 from $102,822 at the end of 2020, despite the $11,465 in 2021 cash dividends to stockholders which reduce Stockholders’ Equity.

Productivity of Fixed Assets and Working Capital Assets .

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This compares to $111,745 total assets at the end of 2020 comprised of $62,262 in current assets, $11,326 in consolidated net PP&E and $38,157 in net intangible assets.

Total asset turns (total consolidated sales divided by average total assets for the year) in 2020 were 38% compared to 45% in 2019, as sales declined while assets increased.

Current assets increased $7,377 due to an $8,804 increase in year-end cash and investments, offset by $638 lower accounts and other receivables and $691 lower year-end inventories.

Total asset turns (total consolidated sales divided by average total assets for the year) in 2021 were 43% compared to 38% in 2020, as sales increased faster than the increase in average assets.

Current assets increased $10,896 due to the $9,384 increase in year-end cash and investments, $1,028 higher accounts and other receivables, $374 higher year-end inventories and $110 higher other current assets, all due to the higher sales activity.

Year-end 2021 and 2020 cash and investment balances were $60,974 and $51,590, representing 53% and 46% of total assets, respectively.

Net (after allowance for doubtful accounts) year-end trade accounts receivable (A/R) balances were $592 lower at the end of 2020 compared to 2019.

This was in spite of the fact that 4Q 2020 sales were higher than in 4Q 2019.

Average days in A/R from date of invoice on December 31, 2020 was 31 compared to 36 days at December 31, 2019, based on 4Q 2020 and 4Q 2019 shipments respectively.

A/R over 90 days from invoice date declined to less than 2% of total A/R at the end of 2020 from 3% at the end of 2019.

Net (after allowance for doubtful accounts) year-end trade accounts receivable (A/R) balances were $1,025 higher at the end of 2021 compared to 2020.

This due to 4Q 2021 sales $903 higher than in 4Q 2020, and average days in A/R of 36 days based on 4Q trade sales instead of 31 days at the end of 2020.

Average days in A/R from date of invoice of 36 days is well within UTMD’s objective.

A/R over 90 days from invoice date rose from 1.7% of total A/R at the end of 2020 to 2.4% at the end of 2021.

The Company believes any older A/R will be collected or are within its reserve balances for uncollectible amounts.

Although reducing inventories is difficult with a sudden decline in sales, UTMD was able to reduce its 2020 year-end inventories by 10% from the end of 2019, keeping pace with the 10.1% decline in annual sales.

Inventories at 2021 year-end were only 6% higher from the end of 2020, despite a 16% increase in annual shipments.

Working capital (current assets minus current liabilities) at year-end 2021 was 19% higher at $69,412 compared to $58,471 at year-end 2020.

Consistent with Federal and State rules, the TCJA repatriation tax current liability was only $80 at the end of 2020.

The end of 2020 working capital significantly exceeds UTMD’s needs for normal operations, funding future organic growth and timely payment of accrued tax liabilities, in addition to allowing for substantial funding of any future acquisition without diluting stockholder interest, as well as continued payment of stockholder dividends and repurchase of UTMD shares.

December 31, 2020 net $11.3 million total PP&E includes Utah, Ireland and England manufacturing molds, production tooling and equipment, test equipment, and product development laboratory equipment.

Consistent with Federal and State rules, the TCJA repatriation tax current liability at the end of 2021 was $220 compared to $80 at the end of 2020.

The end of 2021 working capital exceeds UTMD’s needs for normal operations in an uncertain economic environment, funding of future organic growth and timely payment of accrued tax liabilities, in addition to allowing for substantial funding of any future acquisition without diluting stockholder interest, as well as continued payment of stockholder dividends and repurchase of UTMD shares.

Despite a negative impact on Return on Stockholders’ Equity of retaining a high cash balance, UTMD believes that in times of high economic uncertainty and change, maintaining substantial cash balances increases its likelihood of being able to take advantage of opportunities that will benefit stockholders in the longer term, and retain key resources that will help ensure continued excellent long term performance.

December 31, 2021 net $11,067 total PP&E includes Utah, Ireland and England manufacturing molds, production tooling and equipment, test equipment, and product development laboratory equipment.

In addition, PP&E includes computers and software, warehouse equipment, furniture and fixtures, facilities and real estate for all five locations in Utah, Ireland, UK, Canada and Australia.

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Management estimates the fair market value of the five owned facilities to be at least $25 million excluding the contents, the fungible value of which increases stockholder enterprise value relative to most of UTMD’s industry peers which lease their facilities.

Ending 2020 net consolidated PP&E (depreciated book value of all fixed assets) increased $598 as a result of the combination of capital expenditures of $860, depreciation of $655 and the effect of FX rates on year-end foreign subsidiary asset balances.

The following end-of-year foreign currency exchange (FX) rates in USD were applied to assets and liabilities of each applicable foreign subsidiary:

Ending 2021 net consolidated PP&E (depreciated book value of all fixed assets) declined $259 as a result of the combination of capital expenditures of $552, depreciation of $636 and the effect of foreign currency exchange (FX) rates on year-end foreign subsidiary asset balances.

The following end-of-year FX rates to USD were applied to assets and liabilities of each applicable foreign subsidiary:

The year-end 2021 net book value (after accumulated depreciation) of consolidated PP&E was 33% of purchase cost.

End-of-year PP&E turns (Net Sales divided by Net PP&E) was 3.7 in 2020 compared to 4.4 in 2019 due to 10% lower 2020 sales, higher USD asset values of foreign subsidiaries and investment in new PP&E assets needed for the future which are not in use yet.

A future leverage in productivity of fixed assets which will not have to be further increased to support new business activity will be a source of incremental profitability.

End-of-year PP&E turns (Net Sales divided by Net PP&E) was 4.4 in 2021 compared to 3.7 in 2020 due to 16% higher 2021 sales and lower USD asset values of foreign subsidiaries, offset by investment in new PP&E assets needed for the future which are not in use yet.

A future leverage in productivity of fixed assets which will not have to be further increased to support new business activity will be a source of continued incremental profitability.

Net intangible assets (after accumulated amortization) are comprised of the capitalized costs of obtaining patents and other intellectual property, as well as the value of identifiable intangible assets (IIA) and goodwill resulting from acquisitions.

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Per US GAAP, intangible assets are categorized as either 1) IIA, which are amortized over the estimated useful life of the assets, or 2) goodwill, which is not amortized or expensed until the associated economic value of the acquired asset becomes impaired.

The two categories of Femcare intangibles at year-end 2020 were net IIA of $11,410 and goodwill of $6,972.

Those two categories of Femcare intangibles at year-end 2021 were net IIA of $9,064 and goodwill of $6,907.

The accumulated amortization of Femcare IIA as of December 31, 2021 since the March 18, 2011 acquisition was $23,419.

The remaining Femcare IIA will be fully amortized in 4 more years.

The goodwill portion of intangible assets resulting from the Femcare acquisition, which is not amortized, increased $202 due to a stronger GBP at year-end.

The GBP FX rate at December 31, 2020 increased 3.0% from December 31, 2019.

The goodwill portion of intangible assets resulting from the Femcare acquisition, which is not amortized, declined $65 due to a weaker GBP at year-end, i.e.

the different FX rate on fixed goodwill in GBP terms.

In early 2019, UTMD acquired an additional $21,000 IIA from the purchase of the remaining life of exclusive U.S.

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The remaining CSI IIA will be fully amortized in less than 2 more years.

UTMD’s goodwill balance from prior acquisitions including Femcare, Columbia Medical, Gesco and ABCorp was $14,163 at the end of 2020, 37% of total net intangibles.

UTMD’s goodwill balance from prior acquisitions including Femcare, Columbia Medical, Gesco and Abcorp was $14,098 at the end of 2021.

Because the products associated with UTMD’s acquisitions of Columbia Medical in 1997, Gesco in 1998, Abcorp in 2004 and Femcare in 2011 continue to be viable parts of UTMD’s overall business, UTMD does not expect the current goodwill value associated with the four acquisitions to become impaired in 2022.

Amortization of IIA was $6,645 in 2021 compared to $6,515 in 2020.

The difference was essentially a full year of amortization of the $21,000 IIA resulting from the acquisition of CSI remaining Filshie Clip System exclusive U.S.

distribution rights compared to 11 months of amortization in 2019.

The 2020 non-cash amortization expense of Femcare IIA was $2,049 (£1,595) compared to $2,037 (£1,595) in 2019.

The Femcare IIA amortization USD difference was again due to the change in USD/GBP FX rate.

The difference was due to £5 lower Femcare IIA amortization and the GBP FX difference on all Femcare IIA amortization.

Specifically, the 2021 non-cash amortization expense of Femcare IIA was $2,189 (£1,590) compared to $2,049 (£1,595) in 2020.

The 2022 non-cash amortization expense (included as part of consolidated G&A operating expenses) of Femcare IIA will be £1,589, or $2,161 if the USD/GBP average FX rate is 1.36.

In other words, the 2021 Femcare IIA amortization expense, despite a slightly lower GBP amount, will be about $100 higher because of a projected stronger GBP relative to the USD.

The 2020 non-cash amortization expense of CSI IIA was $4,421 compared to $4,053 in 2019.

In other words, the 2022 Femcare IIA amortization expense is expected to be about $28 lower because of a slightly lower GBP amount and a projected weaker GBP relative to the USD.

Both the 2021 and 2020 non-cash amortization expense of CSI IIA was $4,421.

The 2022 operating expense resulting from amortization of CSI IIA will again be $4,421.

Liabilities .

The remaining $2,074 balance of UTMD’s $2,792 total repatriation tax liability from the TCJA is 74% instead of 76% (after the allowed 24% in the first three years of eight years’ pay out), because the initial Federal and State payments were based on an initial estimate which was conservatively too high at $6,288 compared to the final adjusted estimate of $2,792.

The Federal and State REPAT tax payment requirement is 8% of the respective REPAT tax liability per year for the first five years, 15% in the sixth year, 20% in the seventh year and 25% in the eighth year.

Year-end 2020 current liabilities were $343 higher than at the end of 2019.

Ending accrued liabilities were $653 higher due to higher taxes payable and higher customer deposits.

Total liabilities were $229 higher at the end of 2020 compared to the end of 2019.

The resulting 2020 year-end total debt ratio at 8% was the same as at the end of 2019 because total assets in 2020 were proportionately higher.

As a reminder, payments for the Federal and State repatriation (REPAT) tax liability which resulted from the U.S.

TCJA enacted in 2017 is 8% of the respective tax liability per year for the first five years, 15% in the sixth year, 20% in the seventh year and 25% in the eighth year.

Calendar year 2022 represents the fifth year, but the $220 current liability is somewhat less than 8% of UTMD’s $2,792 total REPAT tax liability due to earlier overpayment because earlier Federal and State payments were based on an initial estimate which was conservatively too high at $6,288 compared to the final adjusted estimate of $2,792.

The long term $1,675 REPAT tax liability, to be paid in years 2023-2025, represents 60% of the total liability.

Year-end 2021 current liabilities were $45 lower than at the end of 2020.

Ending accrued liabilities were $159 lower due primarily to $585 higher OEM customer deposits and $279 higher accrued payroll and bonuses offset by $1,038 lower dividends payable.

The $1,038 stockholder dividend declared in 4Q 2020 was paid in January 2021, whereas the $7,309 dividend declared in 4Q 2021 was paid in December 2021.

Total liabilities were $425 lower at the end of 2021 compared to the end of 2020.

The resulting 2021 year-end total debt ratio was 7% compared to 8% at the end of 2020.

The year-end 2021 DTL balance created as a result of the fifteen-year deferred tax consequence of the amortization of Femcare’s IIA was $2,105, down from $2,151 at the end of 2020.

The relatively small decline in this DTL considering the $2,049 in 2020 amortization of IIA was due to a 3% stronger GBP compared to the USD at the end of 2020 and the UK tax law change in 2Q 2020 which increased the remaining DTL $225.

The relatively small $47 decline in this DTL considering the $2,189 in 2021 amortization of IIA was due to the UK tax law change in 2Q 2021 which increased the DTL $390, together with a difference in GBP FX rate at the end of 2021.

Without the tax law change, the theoretical tax effect at the 2021 19% tax rate for the 2021 IIA amortization expense would have been $416.

In addition to liabilities stated on the balance sheet, UTMD has operating lease and purchase obligations described in Note 14 and Note 12, respectively, to the financial statements.

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Revenue recognized by UTMD is based upon documented arrangements and fixed contracts in which the selling price is fixed prior to acceptance and completion of an order.

Revenue from product or service sales is generally recognized at the time the product is shipped or service completed and invoiced, and collectibility is reasonably assured.

Revenue from product or service sales is generally recognized at the time the product is shipped or service completed and invoiced, and collectability is reasonably assured.

Over 99% of UTMD’s revenue is recognized at the time UTMD ships a physical device to a customer’s designated location, where the selling price for the item shipped was agreed prior to UTMD’s acceptance and completion of the customer order.

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This revenue is recognized when UTMD’s service has been completed according to a fixed contractual agreement.

Beginning on January 1, 2018, the Company adopted ASU 2014-09, a new revenue recognition accounting standard.

Management completed an extensive assessment and implementation of the standard, including UTMD’s various contracts with customers and associated performance obligations and the Company’s conclusions regarding its revenue recognition practices and procedures.

Other items like commissions and rights of return were also evaluated by the Company.

Management is confident that the Company has properly evaluated the standard’s requirements and has arrived at appropriate conclusions in recognizing revenue in accordance with the new standard.

Those practices and procedures the Company will use to recognize revenue under the new standard are not significantly different than the methods used previously since UTMD has traditionally recognized revenue upon shipping a physical device to a customer’s designated location, which is also when the Company has met its performance obligations under contracts it has with its customers that represent over 99% of its revenue.

While the Company’s revenue not associated with shipping a physical product is immaterial, management believes the Company’s practices in recognizing that revenue is also in accordance with ASU 2014-09.

Terms of sale are established in advance of UTMD’s acceptance of customer orders.

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Pricing agreements which are documented arrangements with clinical facilities, or groups of affiliated facilities, if applicable, are established in advance of orders accepted or shipments made.

For existing customers, past actual shipment volumes typically determine the fixed price by part number for the next agreement period of one year.

For existing customers, past actual shipment volumes typically determine the fixed price by part number for the next agreement period.

For new customers, the customer’s best estimate of volume is usually accepted by UTMD for determining the ensuing fixed prices for the agreement period.

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Each UTMD entity had 2021 intercompany sales of components and/or finished devices to other UTMD entities.

The following table shows the percent changes in 2020 quarterly revenues by sales channel compared to the same periods of time in 2019.

The following table shows the 2021 USD denominated revenues by sales channel compared to 2020 and 2019.

Australia domestic sales included sales directly to New Zealand medical facilities beginning in 4Q 2020:

Revenues [USD denominated]

Revenue [USD denominated]

2021 Compared to 2020

2021 Compared to 2019

domestic (excluding OEM)

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Worldwide Revenues

Except for Canada, sales in all channel categories rebounded well from 2020.

Whereas UTMD total consolidated sales in 2021 were almost 5% higher than in the pre-pandemic year of 2019, direct sales in Europe and Canada remained 20-30% lower than in 2019, indicating a slower recovery from the pandemic in those regions.

Global consolidated trade sales in 2021 were $49,054 compared to $42,178 in 2020 and $46,904 in 2019.

The $4,726 (10.1%) lower sales in 2020 were primarily the result of restrictions on medical procedures that government officials worldwide deemed nonessential during the COVID-19 pandemic, presumably to conserve medical facility capacity.

domestic sales were down $1,627 (5.9%) in 2020, at $25,866 compared to $27,493 in 2019.

OUS sales were down $3,099 (16.0%) at $16,312 compared to $19,411 in 2019.

The $4,726 (10.1%) lower sales in 2020 from 2019 were primarily the result of restrictions on medical procedures that government officials worldwide deemed nonessential during the COVID-19 pandemic, presumably to conserve medical facility capacity.

domestic sales including OEM were up $4,793 (+18.5%) in 2021, at $30,659 compared to $25,866 in 2020, and $27,493 in 2019.

OUS sales were up $2,083 (+12.8%) at $18,395 compared to $16,312 in 2020, and $19,411 in 2019.

Domestic Sales .

domestic sales in 2020 were $25,866 (61% of total sales) compared to $27,493 (59% of total sales) in 2019.

The components of the $1,627 lower 2020 domestic sales were $484 (7.1%) lower sales of the Filshie Clip System devices in the U.S., $51 (0.8%) lower sales of components and finished devices used in other companies’ products (OEM customers), and $1,092 (7.7%) lower direct sales of all other UTMD non-Filshie finished devices to domestic end-users.

domestic sales in 2021 were $30,659 (63% of total sales) compared to $25,866 (61% of total sales) in 2020, and $27,493 (59% of total sales) in 2019.

The components of the $4,793 higher 2021 domestic sales were $209 (3.3%) lower sales of the Filshie Clip System devices in the U.S., $3,069 (+47.3%) higher sales of components and finished devices used in other companies’ products (OEM customers), and $1,933 (+14.8%) higher direct sales of all other UTMD (non-Filshie) finished devices to domestic end-users.

Domestic sales in 2019 were $27,493.

Domestic Filshie Clip System sales in 2021 were 20% of total U.S.

domestic sales compared to 25% in 2019.

The month of April during 2Q 2020 had dramatically the lowest sales after the initial pandemic scare.

The last seven months of 2020 were more consistent with 2019 monthly sales except for the month of October, at which time another scare seemed to occur.

Looking forward to 2021, UTMD expects U.S.

Filshie device sales will recover to an amount greater than in 2019, as only 11 months out of twelve in 2019 were direct to end-user sales.

Unfortunately, a third scare seemed to occur in January as January 2021 sales took a dip lower than in any prior month in 2020 except for April and May.

domestic sales compared to 24% in 2020 and 25% in 2019.

Filshie sales did not recover as well as the other domestic sales categories.

Looking forward to 2022, despite a continued recovery in overall surgical sterilization procedures including laparoscopic interval procedures, as there is a medical procedure trend in the U.S.

to choose salpingectomy versus tubal ligation for permanent contraception post C-Section, UTMD expects U.S.

Filshie device sales in 2022 will remain about the same as in 2021.

Domestic OEM sales in 2021 were 31% of total U.S.

domestic sales compared to 24% in 2019.

domestic sales compared to 25% in 2020 and 24% in 2019.

UTMD sold components and finished devices to 155 different U.S.

companies in 2020 compared to 147 companies in 2019 for use in their product offerings.

Sales to UTMD’s largest OEM customer represented 75% of total domestic OEM sales in both 2020 and 2019, with the slightly lower sales UTMD projected at the beginning of 2020 due to the customer’s inventory build-up in 2019.

Looking forward based on early fixed orders, UTMD expects that a substantial OEM sales increase will lead its domestic rebound in 2021.

Domestic direct (end-user) sales excluding the Filshie Clip System were about 51% of total U.S.

domestic sales in both 2020 and 2019.

Of UTMD’s three main domestic direct product categories, neonatal products were $4,379 (6% lower), labor & delivery (L&D) products were $3,677 (9% lower), and gynecology/ electrosurgery/ urology products excluding the Filshie Clip System were $4,304 (11% lower).

Sales OUS in 2020 were $16,312 (16.0% lower) compared to $19,411 in 2019.

companies in 2021, compared to 139 different companies in 2020 and 147 companies in 2019, for use in their product offerings.

Sales to UTMD’s largest OEM customer represented 82% of total domestic OEM sales in 2021 compared to 75% of total domestic OEM sales in both 2020 and 2019.

UTMD’s largest OEM customer markets biopharmaceutical manufacturing control systems which exclusively utilize UTMD’s pressure monitoring technology, and for which demand is booming.

If UTMD had had the manufacturing capacity primarily in terms of assembly operators in 2021, OEM sales would have been much higher.

Looking forward to 2022, UTMD again expects substantial growth in OEM sales as engineering projects for manufacturing expansion come to fruition.

Domestic direct end-user sales excluding the Filshie Clip System were 49% of total U.S.

domestic sales in 2021 compared to 51% in both 2020 and 2019.

Of UTMD’s four domestic direct product categories, neonatal products were $5,343 (22% higher), labor & delivery (L&D) products were $3,940 (7% higher), gynecology/ electrosurgery/ urology products excluding the Filshie Clip System were $4,837 (12% higher), and blood pressure monitoring devices were $873 (25% higher).

Sales OUS in 2021 were $18,395 (12.8% higher) compared to $16,312 in 2020.

OUS sales were $19,411 in 2019.

Europe was particularly affected by government restrictions.

In the UK, the region with the greatest decline in sales for the 2020 year, citizens are individually being told by government officials when they can leave their homes.

Because a significant portion of UTMD’s sales are invoiced in foreign currencies, changes in FX rates can potentially have a material effect on period-to-period USD-denominated sales.

Although in recent years a stronger USD was responsible for lower OUS sales, the FX rate impact in 2020 was not a significant factor compared to the impact of the pandemic.

Europe and Canada were particularly affected by government restrictions during the pandemic.

Because a significant portion of UTMD’s OUS sales are invoiced in foreign currencies, changes in FX rates can potentially have a material effect on period-to-period USD-denominated sales.

Although a weaker USD in the first half of the year helped increase foreign currency sales in USD terms, the FX rate impact for the year 2021 was a minor factor compared to the negative impact of the pandemic on OUS sales.

UTMD’s FX rates for income statement purposes are transaction-weighted averages.

The average rates from the applicable foreign currency to USD during 2021 compared to 2020 follow.

Sales weighted FX rate average change:

Consolidated sales in 2020 increased $99 due to the FX rate change.

Fifty-eight percent of (USD denominated) 2020 OUS sales were invoiced in foreign currencies compared to 66% in 2019.

As a portion of total USD consolidated sales, 22% of UTMD’s USD-equivalent sales were invoiced in foreign currencies in 2020 compared to 27% in 2019.

The average FX rates for 2019 are also listed for reference:

The sales weighted FX rate change in 2021 compared to 2020 was +4.9%.

In other words, consolidated USD sales in 2021 were increased $619 from what they would have been using the prior year’s FX rates.

Seventy-two percent of (USD denominated) 2021 OUS sales were invoiced in foreign currencies compared to 58% in 2020 and 66% in 2019.

As a portion of total USD consolidated sales, 27% of UTMD’s USD-equivalent sales were invoiced in foreign currencies in 2021 compared to 22% in 2020 and 27% in 2019.

The GBP, EUR, AUD and CAD converted sales represented 6%, 15%, 3% and 3% of total 2021 USD sales, respectively.

This compares to 8% GBP, 11% EUR, 4% AUD and 4% CAD of total 2019 USD sales.

USD-denominated trade (excludes intercompany) sales of devices to OUS customers by UTMD’s Ireland facility (UTMD Ltd) were $5,347 in 2020 (9% lower) compared to $5,894 in 2019.

As the EUR was 2.4% higher relative to the USD in 2020, the FX impact added $67 to Ireland 2020 sales.

In other words, constant currency sales were $5,279 (10% lower).

In 2020, UTMD’s UK subsidiary, Femcare Ltd., had $3,437 trade sales of devices to domestic UK, domestic France and international distributor customers, down 36% compared to $5,382 in 2019.

The FX impact added $47 in USD terms.

USD-denominated sales of devices to end-users in Australia by Femcare’s Australia distribution subsidiary (Femcare Australia Pty Ltd) were 17% lower in 2020 compared to 2019.

With a slightly weaker AUD (0.6%) in 2020, constant currency sales were down 16%.

USD-denominated sales of devices to end-users in Canada by UTMD’s Canada distribution subsidiary (Utah Medical Products Canada, Inc.) were 30% lower in 2020 compared to 2019.

The CAD was also only slightly weaker (0.3%) in 2020, so that constant currency sales were 29% lower.

This compares to 6%, 10%, 3% and 3% of total 2020 USD sales, and to 8% GBP, 11% EUR, 4% AUD and 4% CAD of total 2019 USD sales.

USD-denominated trade (excludes intercompany) sales of devices to OUS customers (excluding France) by UTMD’s Ireland facility (UTMD Ltd) were $7,439 in 2021 (39% higher) compared to $5,347 in 2020, and were $5,894 in 2019.

In addition, UTMD Ltd also sold devices that it had manufactured directly to France in 2021 due to BREXIT, which in prior years were sold to Femcare Ltd in the UK on an intercompany basis and then sold by Femcare Ltd directly to French medical facilities.

USD-denominated sales to France in 2021 were $1,424 (14% higher) compared to $1,253 in 2020, and were $1,785 in 2019.

Some sales, mostly to Northern Ireland, were invoiced in GBP which was up 6.6% in 2021 compared to the 2020 USD.

In addition, as the 2021 EUR was 3.2% higher relative to the 2020 USD, the total FX impact added $226 to Ireland’s total 2021 sales.

In 2021, UTMD’s UK subsidiary, Femcare Ltd., had $2,451 trade sales of devices to domestic UK and certain international distributor customers, up 12% compared to $2,183 in 2020.

The total FX impact added $170 in USD terms.

Femcare USD-denominated sales excluding France in 2019 were $3,596.

USD-denominated sales of devices to end-users in Australia by Femcare’s Australia distribution subsidiary (Femcare Australia Pty Ltd) were $1,705 (20% higher) in 2021 compared to $1,421 in 2020.

In 4Q 2020, UTMD converted from selling devices by Femcare in the UK to a third party distributor in New Zealand (NZ) to distributing devices directly to NZ medical facilities from Femcare Australia.

In addition, an 8.6% stronger AUD in 2021 added $135 in USD-denominated sales.

Femcare Australia sales in 2019, which did not include sales to NZ, were $1,706.

UTMD’s Canada distribution subsidiary (Utah Medical Products Canada, Inc.) had the weakest sales results of UTMD’s OUS subsidiaries.

USD-denominated sales of devices to end-users in Canada were $1,382 (7% lower) than $1,481 in 2020 despite a CAD which was 6.2% stronger than in the prior year.

The stronger CAD added $88, so 2021 sales were $1,294 (13% lower) in constant currency terms.

Canada sales were $2,107 in 2019.

UTMD groups its sales into four general product categories:

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* includes molded components and finished medical and non-medical devices sold to OEM customers.

Looking forward to 2021, the ability for medical facilities to return to more normal “nonessential” procedure rates remains highly uncertain due to ever changing government policies in combating a continuing coronavirus pandemic.

After recovering well during the last seven months of 2020, U.S.

Filshie device sales had another significant dip in January 2021.

UTMD expects that, except for Canada, higher 2021 FX rates for its subsidiaries’ foreign currency (GBP, EUR, AUD) sales will increase foreign currency sales in USD terms by about 4%.

OEM sales, which have longer lead times due to less frequent larger orders, are more predictable and appear likely to be at least 10% higher in 2021.

Although OUS distributor order patterns vary, UTMD’s largest OUS distributor has placed its 2021 order for BPM devices that is $325 higher than in 2020.

In summary, although UTMD has the capacity and is hoping to return to its $46.9 million consolidated revenue level realized in 2019, management’s best estimate at this time is 2021 consolidated revenues between $45 and $46 million (compared to $42.2 million in 2020).

Looking forward to 2022, continuing government restrictions on so-called “non-essential” medical procedures seems unlikely.

Although there remains much room for pandemic recovery in UTMD’s direct distribution OUS, UTMD projects a 3-4% stronger USD on the average which will offset the unit growth in direct foreign currency sales in USD terms.

OUS distributor order patterns vary and are less predictable, but UTMD’s largest OUS distributor has placed a fixed 2022 order for BPM devices that is $550 higher than in 2021 based on an average EUR FX rate of 1.13 in 2022.

Domestically, OEM sales are projected to be over $700 higher with projected capacity limits, but could be even higher if production worker hiring constraints in Utah become less severe.

A key to sales results will be retaining U.S.

Filshie device sales at a similar level as in 2021.

Except for Filshie devices in the U.S., UTMD raised product prices across the board an average of about 5% in late 4Q 2021, which will benefit 2022 sales in comparison to 2021 assuming customer demand remains relatively inelastic.

In summary, management’s best estimate at this time is that 2022 revenues will be up in the range of mid-single digit percentage growth.

b) Gross Profit (GP) .

UTMD’s 2020 consolidated GP, the surplus after subtracting costs of manufacturing, which includes purchasing raw materials, forming components, assembling, inspecting, testing, packaging and sterilizing products, from net revenues, was $25,548 (60.6% of sales) compared to $29,466 in 2019 (62.8% of sales) and $26,306 (62.6% of sales) in 2018.

GP in 2020 declined $3,918 (13.3%) with a 10.1% decline in revenues.

The greater decline in GP than in sales was a result of UTMD’s decision to not cut important manufacturing overhead resources in the same proportion as the decline in sales, which would sacrifice future capabilities just to maintain a short term GP margin (GPM).

GPM = GP divided by sales.

Although lower, the 60.6% GPM in 2020 margin remains healthy.

With higher sales in 2021 and fewer costs associated with the pandemic, UTMD expects its consolidated 2021 GPM to improve to closer to that of 2019 and 2018.

In addition to the lower absorption of fixed manufacturing overhead costs in 2020, there were two other categories of increased costs that reduced the 2020 GPM by more than one percentage point:

1) marginal costs associated with the coronavirus pandemic including personal protective equipment for employees, cleaning supplies, extra pay to encourage employees to come to work, pay continuation beyond normal sick pay and accrued vacation pay for those quarantined with symptoms or exposed to someone with symptoms, lower productivity as a result of social distancing and higher prices levied by some suppliers and service providers, and 2) an unusually unfavorable year for UTMD’s self-insured health care plan in the U.S.

UTMD’s Ireland subsidiary’s (UTMD Ltd’s) GP was EUR 4,198 in 2020 compared to EUR 2,908 in 2019 and EUR 3,606 in 2018.

UTMD’s 2021 consolidated GP, the surplus after subtracting costs of manufacturing, which includes purchasing raw materials, forming components, assembling, inspecting, testing, packaging and sterilizing products, from net revenues, was $30,917 (63.0% of sales) compared to $25,548 (60.6% of sales) in 2020 and $29,466 in 2019 (62.8% of sales).

GP in 2021 increased $5,369 (+21.0%) with a 16.3% increase in revenues.

The Gross Profit Margin (GPM), which is GP divided by sales, expanded primarily due to the fact that a large portion of UTMD’s manufacturing expenses were fixed compared to the prior year.

Another way to say this is that in 2020, a greater decline in GP than in sales was a result of UTMD’s decision to not cut important manufacturing overhead resources in the same proportion as the decline in sales, which would sacrifice future capabilities just to maintain a short term GPM.

In addition to the lower absorption of fixed manufacturing overhead costs in 2020, there were two other categories of increased costs that reduced the 2020 GPM compared to 62.8% in 2019:

1) marginal costs associated with the COVID-19 pandemic including personal protective equipment for employees, cleaning supplies, extra pay to encourage employees to come to work, pay continuation beyond normal sick pay and accrued vacation pay for those quarantined with symptoms or exposed to someone with symptoms, lower productivity as a result of social distancing and higher prices levied by some suppliers and service providers, and 2) an unusually unfavorable year for UTMD’s self-insured health care plan in the U.S.

Self-insured health care plan costs in 2021 returned to be more consistent with prior years’ levels.

Despite higher variable costs in 2021, particularly freight on incoming materials and a cost of living adjustment for Utah and Ireland production workers, the GPM in 2021 recovered to be consistent with the pre-pandemic year of 2019.

In 2022, UTMD plans to help manage inflationary manufacturing cost pressures with administering higher prices for its devices, as and when necessary.

Nevertheless, management expects that manufacturing costs in 2022 will increase faster than revenues resulting in a lower GPM.

However, UTMD also expects that GP will still be higher than in 2021.

If sales increase as a mid-single digit percentage, then GP are projected to increase as a low single-digit percentage.

UTMD’s Ireland subsidiary’s (UTMD Ltd’s) GP was EUR 6,788 compared to EUR 4,198 in 2020 and EUR 2,908 in 2019.

The associated GPMs were 61.2% in 2021, 54.4% in 2020 and 43.1% in 2019.

Femcare UK GP was GBP 1,495 in 2020 compared to GBP 3,884 in 2019 and GBP 5,010 in 2018.

Femcare UK 2021 GP was GBP 913 compared to GBP 1,495 in 2020 and GBP 3,884 in 2019.

The UK 2021 GPM was 46.3% compared to 56.0% in 2020 and 70.2% in 2019.

Femcare Australia and Femcare Canada are purely distribution facilities for UTMD finished devices in their respective countries.

GP is the result of subtracting intercompany purchase prices of devices from sales.

Australia GP was AUD 1,194 in 2020 (58.1% of sales) compared to AUD 1,415 in 2019 (57.7% of sales) and AUD 1,526 in 2018 (58.7% of sales).

Canada GP was CAD 1,128 in 2020 (57.2% of sales), CAD 1,670 in 2019 (54.5% of sales) and CAD 1,999 in 2018 (60.0% of sales).

The transfer from the UK to Ireland of direct sales to France primarily explains the GP changes for both Ireland and the UK.

Femcare Australia and Femcare Canada are simply distribution facilities for UTMD finished devices in their respective countries.

GP is the result of subtracting intercompany purchase prices of devices plus freight from sales.

Australia GP was AUD 1,399 (61.6% of sales) compared to AUD 1,194 (58.1% of sales) in 2020 and AUD 1,415 (57.7% of sales) in 2019.

Canada GP was CAD 907 (52.4%of sales) in 2021 compared to CAD 1,128 (57.2% of sales) in 2020 and CAD 1,670 (54.5% of sales) in 2019.

In the U.S., GP was $20,100 in 2021, $17,043 in 2020 and $19,180 in 2019.

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Operating Income in 2021 was $18,880 (38.5% of sales) compared to $13,708 (32.5% of sales) in 2020 and $17,632 (37.6% of sales) in 2019.

On top of a lower GPM, the lower 2020 Operating Income margin additionally primarily reflected IIA amortization expense, included in General and Administrative (G&A) operating expenses, which was 15.3% of sales in 2020 compared to 13.0% in 2019.

Excluding the non-cash Femcare and CSI IIA amortization expenses, UTMD consolidated operating expenses were $5,370 (12.7% of sales) in 2020 compared to $5,744 (12.2% of sales) in 2019 and $5,478 (13.0% of sales) in 2018.

Even though UTMD was able to reduce 2020 operating expenses (excluding the IIA amortization) substantially, the lower operating expenses still diluted UTMD’s Operating Income Margin slightly as they did not decline as much as sales declined.

On top of benefitting from a higher GPM, the higher 2021 Operating Income margin (Operating Income divided by sales) additionally reflected better absorption of relatively fixed IIA amortization expense, included in General and Administrative (G&A) operating expenses, which was 13.5% of sales in 2021 compared to 15.3% of sales in 2020 and 13.0% of sales in 2019.

Excluding the non-cash Femcare and CSI IIA amortization expenses, UTMD consolidated operating expenses were $5,427 (11.1% of sales) compared to $5,370 (12.7% of sales) in 2020 and $5,744 (12.2% of sales) in 2019.

In other words, holding operating expense (excluding the IIA amortization expense) growth to 1% while sales increased 16% and GP increased 21%, leveraged the overall growth in Operating Income to almost 38% compared to 2020.

The UTMD Ltd (Ireland) Operating Income margin in 2021 was 57.8% compared to 50.5% in 2020 and 38.5% in 2019.

Femcare UK’s 2020 Operating Income margin per US GAAP, which includes the IIA amortization expense of the 2011 acquisition, was negative compared to 27.8% in 2019 and 38.1% in 2018.

Femcare UK’s Operating Income margin per US GAAP, which includes the IIA amortization expense of the 2011 acquisition, was negative in both 2021 and 2020 compared to 27.8% in 2019.

Femcare Australia’s 2021 Operating Income margin was 45.9% compared to 41.7% in 2020 and 38.6% in 2019.

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d) stock option compensation

e) management bonus accrual

e) profit-sharing bonus accrual

f) outside accounting audit/tax

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i) S&M expenses:

S&M expenses in 2020 were $1,554 (3.7% of 2020 sales) compared to $1,738 in 2019 (3.7% of 2019 sales) and $1,708 in 2018 (4.1% of 2018 sales).

Due to social distancing, UTMD’s trade show and associated travel expenses were $140 lower in 2020 than in 2019.

S&M expenses in 2021 were $1,414 (2.9% of sales) compared to $1,554 (3.7% of sales) in 2020 and $1,738 (3.7% of sales) in 2019.

UK sales salaries were $130 lower in 2021 than in 2020 due to a reduction in the UK sales force.

S&M expenses are the costs of communicating UTMD’s differences and product advantages, providing training and other customer service in support of the use of UTMD’s solutions, attending clinical meetings and medical trade shows, administering customer agreements, advertising, processing orders, shipping, and paying commissions to outside independent representatives.

In markets where UTMD sells directly to end-users, which in 2018-2020 included the U.S., Ireland, UK, Australia, France and Canada, the largest components of S&M expenses were the cost of employing direct sales representatives, including associated costs of attending trade shows, travel, subsistence and communications;

the cost of customer service required to timely process orders;

and the distribution costs associated with shipping products.

A trade-off for the higher GP obtained from selling directly at end-user prices is higher S&M expenses.

In markets where UTMD sells directly to end-users, which in 2019-2021 included the U.S., Ireland, UK, Australia, France and Canada plus New Zealand in 2021, the largest components of S&M expenses were the cost of customer service required to timely process orders and the distribution costs associated with shipping products.

S&M expenses include all customer support costs including training.

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ii) R&D expenses:

R&D expenses were $486 (1.2% of sales) in 2020 compared to $483 (1.0% of sales) in 2019 and $454 (1.1% of sales) in 2018.

R&D expenses in 2021 were $526 (1.1% of sales) compared to $486 (1.2% of sales) in 2020 and $483 (1.0% of sales) in 2019.

R&D expenses include the costs of investigating clinical needs, developing innovative concepts, testing concepts for viability, validating methods of manufacture, completing any necessary premarketing clinical trials, regulatory documentation and other activities required for design control, responding to customer requests for product enhancements, and assisting manufacturing engineering on an ongoing basis in developing new processes or improving existing processes.

Although no new UTMD devices were launched in 2020, R&D played a significant and continuing role in manufacturing process improvements that were needed to support fast growing OEM product sales, in addition to continuing work on new product projects.

Although no new UTMD devices were launched in 2021, UTMD continued to customize configurations of its existing devices based on specific clinical requests and R&D played a significant role in manufacturing process improvements that were needed to support fast growing OEM product sales, in addition to continuing work on new product projects.

UTMD does not pre-announce new devices that are being developed.

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The table above helps identify certain specific categories of G&A expenses which might be of interest to stockholders.

The management bonus expense in 2020 also included accruals for special bonuses paid during the year related to the COVID-19 pandemic, particularly to encourage employees to come to work in early 2020 when government incentives and media pressure was high for employees to stay at home.

Actual management bonuses paid at the end of the year were on the average 25% lower than in 2019, which reflected a 23% lower consolidated EBT.

Amortization of the 2011 acquired Femcare IIA is part of G&A expenses.

Although the IIA GBP amortization expense in 2020 was the same as in 2019, because of a slightly stronger GBP for the year as a whole, the USD 2020 IIA amortization expense was $12 higher than in 2019.

The main impact was less absorption of the fixed GBP expense because of 10% lower sales in 2020.

The resulting G&A noncash amortization expense of Femcare IIA was 4.9% of 2020 total consolidated sales compared to 4.3% of total consolidated 2019 sales and 5.1% of total 2018 sales.

As indicated in the table above, amortization of the Femcare IIA acquired in 2011 is part of G&A expenses.

The IIA GBP amortization expense in 2021 was £1,590 compared to £1,595 in 2020, practically the same.

However, because of a stronger GBP for the year as a whole, the USD 2021 IIA amortization expense was $140 higher than in 2020.

But 16.3% higher consolidated sales allowed better absorption of the resulting 6.8% higher USD Femcare IIA expense, i.e.

Femcare IIA amortization expense was 4.5% of sales in 2021 compared to 4.9% of 2020 sales.

The G&A noncash amortization expense of Femcare IIA was 4.3% of 2019 total consolidated sales.

The Femcare IIA amortization expense will continue until March 2026 (or until the value of any remaining IIA becomes impaired).

UTMD estimates that the Femcare IIA amortization expense in 2021 may be as much as $100 higher due to a stronger GBP.

UTMD estimates that the Femcare IIA amortization expense in 2022 may be $25 lower due to an average stronger USD in 2022 compared to 2021.

The early 2019 $21,000 purchase of CSI exclusive Filshie Clip System U.S.

distribution rights also represents an IIA which is being amortized on a straight line basis over the remaining life of the Femcare distribution agreement with CSI which would have been through 3Q 2023.

distribution rights also represents an IIA which is being amortized on a straight line basis over the remaining life of the Femcare distribution agreement with CSI which will be through 3Q 2023 (unless it becomes impaired before that, which is unlikely).

This CSI IIA amortization expense is included in U.S.

G&A expenses.

In 2020, the CSI IIA amortization expense was $4,421 (10.5% of sales) compared to $4,053 in 2019 (8.6% of total sales), lowering UTMD’s Operating Income margin by almost two full percentage points.

This was the result of 10% lower sales in 2020 and one month less amortization expense in 2019.

In 2021, the CSI IIA amortization expense will again be $4,421, but hopefully diluted by higher sales.

d) Non-operating income/Non-operating expense, and Earnings Before Taxes (EBT) .

In 2021 and 2020, the CSI IIA amortization expense was the same at $4,421.

But again, due to the 16.3% higher consolidated sales, the CSI IIA amortization expense represented only 9.0% of sales compared to 10.5% of sales in 2020.

The CSI IIA amortization expense in 2019, which was a partial year due to the timing of the acquisition, was $4,053 (8.6% of 2019 annual sales).

In 2022, the constant $4,421 CSI IIA amortization expense will lower as a percentage of sales if further diluted by projected higher sales.

It seems worth noting that the combined Filshie Clip System and Femcare non-cash IIA amortization expenses represented more than half of all of UTMD’s total consolidated operating expenses during the three years of 2019-2021;

54.9% in 2021, 54.6% in 2020 and 51.5% in 2019.

d) Non-operating income/Non-operating expense, and Income Before Taxes (EBT) .

Non-operating income includes royalties from licensing UTMD’s technology, rent from leasing underutilized property to others, income earned from investing the Company’s excess cash and gains from the sale of assets.

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Also, the period-to-period remeasured value of EUR cash balances held in the UK, and GBP balances held in Ireland, generates a gain or loss which is booked at reporting period end as non-operating income or expense, as applicable.

Net non-operating income (combination of non-operating income and non-operating expense) was $132 in 2020 compared to $252 in 2019 and $761 in 2018.

The non-operating income in 2018 included a $450 gain from the sales of assets which did not recur in 2019 or 2020.

The lower non-operating income in 2020 compared to 2019 was essentially due to lower interest rates on UTMD’s cash balances.

Net non-operating income (combination of non-operating income and non-operating expense) was $181 in 2021, $132 in 2020 and $252 in 2019.

The higher non-operating income in 2021 compared to 2020 was due to $142 higher rent income in Ireland from renting unneeded warehouse space.

A description of components of UTMD’s non-operating income or expense follows:

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2) Investment of excess cash.

Consolidated investment income (including gains and losses on sales of investments) was $64 in 2020 compared to $255 in 2019 and $248 in 2018.

Interest rates in 2020 were practically zero.

UTMD is not expecting this to change much in 2021.

Consolidated investment income (including gains and losses on sales of investments) was $46 in 2021, $64 in 2020 and $255 in 2019.

Interest rates in 2021 remained practically zero, and UTMD had to pay negative interest on EUR bank balances in Ireland.

UTMD is expecting interest rates to improve marginally in 2022.

3) Royalties.

Royalties in 2021 were $15 compared to $20 in 2020, and $5 in 2019.

Femcare received a royalty from licensing the use of the Filshie Clip System intangibles to CSI as part of its U.S.

exclusive distribution agreement which was terminated in 2019.

UTMD did not receive any royalty in 2019 after January because of the purchase of the CSI distribution agreement.

Presently, there is one other arrangement which began in 2020 under which UTMD is receiving royalties on its technology.

Presently, there is only one arrangement which began in 2020 under which UTMD is receiving royalties on its technology.

4) Gains/ losses from remeasured currency in bank accounts.

UTMD recognized $45 non-operating income in 2020 compared to an expense of $76 in 2019 and income of $13 in 2018 from gains or losses on remeasured foreign currency bank balances.

EUR and AUD currency cash balances in the UK, and GBP currency cash bank balances in Ireland, are subject to remeasured currency translation gains/ losses as a result of period to period changes in FX rates.

UTMD recognized a $23 loss in 2021 compared to a $45 gain in 2020 and a $76 loss in 2019 from gains or losses on remeasured foreign currency bank balances.

EUR currency cash balances in the UK, and GBP currency cash bank balances in Ireland, are subject to remeasured currency translation gains/ losses as a result of period to period changes in FX rates.

5) Other non-operating income or expense.

Income received from renting unused warehouse space in Ireland and parking lot space in Utah for a cell phone tower, offset by bank fees, and other miscellaneous non-operating expenses resulted in a net non-operating expense of $10 in 2020 compared to $85 in 2019 and $3 in 2018.

Income received from renting unused warehouse space in Ireland and parking lot space in Utah for a cell phone tower, offset by bank fees, and other miscellaneous non-operating expenses resulted in net non-operating income of $124 in 2021 compared to a net non-operating expense of $10 in 2020 and $85 in 2019.

EBT results from adding net non-operating income or subtracting net non-operating expense from Operating Income.

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(Ireland) was €6,277 (56.6% of sales) compared to €3,728 (48.3% of sales) in 2020 and €2,577 (38.2% of sales) in 2019.

Femcare UK’s 2020 EBT was (£593) compared to £1,566 (28.3% of sales) in 2019 and £2,896 (41.5% of sales) in 2018.

Femcare Ltd’s (UK) 2021 EBT was (£1,003) compared to (£593) in 2020 and £1,566 (28.3% of sales) in 2019.

Femcare Ltd, as the legal manufacturer of the Filshie Clip System, supports worldwide regulatory requirements in addition to absorbing the IIA amortization expense of the 2011 Femcare Group acquisition.

Femcare AUS’s 2021 EBT was AUD 1,042 (45.9% of sales) compared to AUD 857 (41.8% of sales) in 2020 and AUD 952 (38.8% of sales) in 2019.

Femcare Canada’s 2021 EBT was CAD 592 (34.2% of sales) compared to CAD 798 (40.5% of sales) in 2020 and CAD 1,280 (41.8% of sales) in 2019.

As a side note for clarity of financial results, UTMD’s EBT, as well as all other income statement measures above the EBT line in the Income Statements, were unaffected by 2018 and 2019 adjustments to tax estimates of the repatriation tax and associated GILTI tax and FDII tax credit, all of which resulted from the TCJA enacted in December 2017, or the income tax rate change in the UK enacted in 2Q 2020 which increased UTMD’s long term deferred tax liability.

As a side note for clarity of financial results, UTMD’s EBT, as well as all other income statement measures above the EBT line in the Income Statements, were unaffected by 2019-2021 adjustments to income tax provisions as a result of income tax rate changes in the UK enacted in 2Q 2020 and 2Q 2021, which increased UTMD’s long term deferred tax liability, and the 2019 corrected estimate of the repatriation tax and associated GILTI tax and FDII tax credit, all of which resulted from the U.S.

TCJA enacted in December 2017.

EBITDA is a non-US GAAP metric that UTMD management believes is of interest to investors because it provides meaningful supplemental information to both management and investors that represents profitability performance without factoring in effects of financing, accounting decisions regarding non-cash expenses, capital expenditures or tax environments.

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UTMD non-US GAAP EBITDA:

In summary, UTMD’s 2020 non-US GAAP EBITDA declined 15.2% compared to 2019, more in line with the change in GP than with the change in Operating Income or Net Income.

This metric will also grow faster than an increase in sales in 2021.

In summary, UTMD’s 2021 non-US GAAP EBITDA increased 25.6% compared to 2020 and 6.5% compared to 2019, when 2021 sales were 16.3% higher than in 2020 and 4.6% higher than in 2019.

This metric is expected to also grow faster than the projected increase in sales in 2022.

e) Net Income, Earnings Per Share (EPS) and Return on Equity (ROE) .

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UTMD’s US GAAP Net Income in 2021 was $14,788 (30.1% of sales) compared to $10,798 (25.6% of sales) in 2020 and $14,727 (31.4% of sales) in 2019.

Because of changes in tax estimates for the years 2018-2019 due to the TCJA enacted in December 2017, as well as an UK income tax change enacted in 2020, management does not believe either that the estimated tax provisions have a direct relationship to sales in the same periods, or that the year-to-year changes in US GAAP Net Income is indicative of UTMD’s financial performance.

Because of changes in UTMD’s repatriation tax estimate in the year 2019 due to the TCJA enacted in December 2017, as well as UK income tax changes enacted in 2020 and 2021, management does not believe either that the tax provision adjustments have a direct relationship to sales in the same periods, or that the year-to-year changes in US GAAP Net Income is an accurate measure of UTMD’s bottom-line financial performance in the applicable time periods.

Ignoring the income tax adjustments, 2021 non-US GAAP Net Income was $15,178 (30.9% of sales) compared to $11,023 (26.1% of sales) in 2020 and $14,145 (30.2% of sales) in 2019.

Please see the table below which presents Net Income both according to US GAAP and also prior to recognition of the various tax estimate adjustments.

The US GAAP consolidated income tax provision rate for 2020 was 22.0% compared to 17.7% of EBT in 2019 and 4.6% of EBT in 2018.

The non-US GAAP consolidated combined income tax provision rate for 2020 was 20.4% compared to 20.9% of EBT in 2019 and 20.3% of EBT in 2018.

For clarity, the UK income tax rate change in 2020 from 17% to 19% added $225 to UTMD’s 2020 income tax provision, representing the increased tax which will be due over the remaining life of amortization of Femcare’s IIA, which is not a tax deductible expense in the UK.

The income tax adjustment in 2019 subtracted $582 from UTMD’s 2019 income tax provision, and the tax adjustment in 2018 subtracted $3,051 from UTMD’s 2018 income tax provision.

As described in more detail in last year’s SEC Form 10-K, the favorable 2018 and 2019 adjustments were due to UTMD’s initial estimates of the income tax impact of the TCJA which were too high.

More normally and in general, year-to-year fluctuations in the combined tax provision rate will result from variation in EBT contribution from subsidiaries in jurisdictions with different corporate income tax rates.

The US GAAP consolidated income tax provision rate for 2021 was 22.4% compared to 22.0% in 2020 and 17.7% of EBT in 2019.

The estimated tax provision adjustments in 2019 reduced the 2019 average rate, whereas the adjustments in 2020 and 2021 increased the average rates.

The non-US GAAP consolidated combined income tax provision rate for both 2021 and 2020 was 20.4% compared to 20.9% of EBT in 2019.

For clarity, the UK income tax rate change in 2021 from 19% to 25% beginning in April 2023 added $390 to UTMD’s 2021 income tax provision, representing the increased tax which will be due over the remaining life of amortization of Femcare’s IIA, which is not a tax deductible expense in the UK.

Similarly, the UK income tax rate change in 2020 from 17% to 19% added $225 to UTMD’s 2020 income tax provision, representing the increased tax which will be due over the remaining life of amortization of Femcare’s IIA, which is not a tax deductible expense in the UK.

The income tax adjustment in 2019 subtracted $582 from UTMD’s 2019 income tax provision due to UTMD’s initial estimates of taxes due under the TCJA being too high.

More normally and in general, year-to-year fluctuations in the combined average tax provision rate will result from variation in EBT contribution from subsidiaries in jurisdictions with different corporate income tax rates.

Taxes in foreign subsidiaries are based on taxable EBT in those sovereignties, which can be different from the contribution to consolidated EBT per US GAAP.

For the three years 2018-2020, the non-US GAAP combined income tax rates ranged from 20.3% to 20.9%.

UTMD expects, barring any new tax law changes which are currently unknown, that its combined income tax rate for 2022 will be within the (non-GAAP) 20.4%-20.9% range of the three years of 2019-2021.

The UK had an income tax rate of 19% for all three years 2019-2021.

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EBT, however, as income taxes paid to the State are a deductible expense for Federal tax purposes, other expenses are not deductible and there remains an R&D tax credit along with other credits, not to mention a GILTI tax related to foreign income and FDII tax credit related to profits on export sales.

The State income tax rate declined to 4.95% from 5% prior to the TCJA, and the State enacted income apportionment rules that provide for additional tax relief.

The Utah state income tax rate declined to 4.95% from 5% prior to the TCJA, and the State enacted income apportionment rules that provide for additional tax relief.

Earnings Per Share (EPS)

EPS are Net Income divided by the number of shares of stock outstanding (diluted to take into consideration stock option awards which are “in the money,” i.e., have exercise prices below the applicable period’s weighted average market value).

Diluted EPS in 2020 per US GAAP were $2.941 ($3.002 prior to the UK deferred tax liability adjustment) compared to $3.939 ($3.784 prior to the State TCJA tax correction) in 2019 and $4.950 ($4.136 prior to the TCJA tax corrections) in 2018.

Due to the COVID-19 pandemic, the 2020 non-US GAAP EPS result did not meet management’s projection at the beginning of the year.

Diluted EPS in 2021 per US GAAP were $4.041 ($4.147 prior to the UK deferred tax liability adjustment) compared to $2.941 ($3.002 prior to the UK deferred tax liability adjustment) in 2020 and $3.939 ($3.784 prior to the Utah state TCJA tax correction) in 2019.

The 2021 non-US GAAP EPS result exceeded management’s projection at the beginning of the year.

The 2021-ending weighted average number of diluted common shares (the number used to calculate diluted EPS) was 3,660 (in thousands) compared to 3,672 in 2020 and 3,739 in 2019.

Dilution for “in the money” unexercised options for the year 2020 was 14 (in thousands) compared to18 shares in both 2019 and 2018.

Dilution for “in the money” unexercised options for the year 2021 was 13 (in thousands) shares compared to 14 shares in 2020 and 18 shares in 2019.

Actual outstanding common shares as of December 31, 2021 were 3,655.

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Net Income Margin

Non-US GAAP (excluding 2020 UK DTL change and TCJA tax adjustments in 2019 and 2018) :

Non-US GAAP (excluding 2020 and 2021 UK DTL changes and TCJA tax adjustments in 2019) :

Net Income Margin

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The non-US GAAP financial measures disclosed by UTMD should not be considered a substitute for or superior to financial measures calculated in accordance with US GAAP, and the financial results calculated in accordance with US GAAP and reconciliations to those financial statements should be carefully evaluated.

To summarize 2020 financial results, UTMD realized a substantial decline in revenues due to government restrictions of medical procedures in which UTMD’s devices are used, particularly OUS.

UTMD remained operating throughout the pandemic in 2020, without government subsidies (except in the UK), while incurring significant marginal expenses.

Management decided to not cut overhead expenses in proportion to (what it has perceived as a relative short-term) decline in 2020 sales in order to protect the longer term interests of employees, suppliers, customers and stockholders.

Looking forward to 2021, because the COVID-19 and its variants do not recognize time periods, a significant lack of predictability of demand for UTMD’s medical devices remains.

Nevertheless, management believes that 2021 sales are likely to be higher than in 2020 but probably not as high as in 2019.

Higher sales will allow an expansion of UTMD’s GPM, and better absorption of the fixed IIA amortization expenses, giving leverage to profits.

For the sake of specificity and as an example, UTMD estimates that an 8% increase in sales in 2021 will yield an 18% increase in EBT compared to 2020 results.

In short, UTMD realized a substantial recovery in 2021 revenues from 2020, and profitability returned to pre-pandemic levels.

Looking forward to 2022, there remains a significant lack of predictability of demand for UTMD’s medical devices due to governments’ now entrenched desire to control people’s health care as a result of the pandemic.

Nevertheless, management believes that 2022 sales are likely to be higher than in 2021 due to UTMD having to raise prices of its devices, offset by a slower recovery OUS combined with a stronger USD reducing foreign currency sales.

Because the high rate of inflation in costs and the difficulty in hiring people which resulted from uncontrolled government spending continues to grow at a rate that is likely to exceed the rate of growth in sales, the Company also expects that the rate of growth in Gross Profit in 2021 will be lower than the growth in sales.

A lower GPM will be partially offset by better absorption of UTMD’s high fixed IIA amortization expenses.

For the sake of specificity and as an example, UTMD estimates that a 5% increase in sales in 2022 will yield a 1% increase in EBT compared to 2021 results.

Maintaining a high ROE remains a key management objective for UTMD in order to grow without diluting stockholder interest.

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Before dividends, UTMD’s 2021 ROE (using non-US GAAP Net Income) was 14.5% compared to 10.8% in 2020 and 14.9% in 2019, excluding the effect of the tax adjustments on Net Income.

The lower 2020 ROE was the result of 22.1% lower non-US GAAP Net Income and 7.3% higher average Stockholders’ Equity.

The higher 2021 ROE compared to 2020 was the result of 37.7% higher non-US GAAP Net Income with 3.0% higher average Stockholders’ Equity.

Average Stockholders’ Equity was $104,980 in 2021 compared to $101,957 in 2020 and $95,042 in 2019.

UTMD’s Stockholders’ Equity has tripled over the last ten years despite being reduced by $37 million in dividends and $14 million in share repurchases over that same period of time.

UTMD’s Stockholders’ Equity has more than doubled over the last ten years despite being reduced by $46 million in dividends and $14 million in share repurchases over that same period of time.

Maintaining a high ROE with the dilutive effect of rapidly growing Average Stockholders’ Equity (despite reductions from dividends and stock repurchases), while maintaining excellent Net Income results, suggests an excellent increase in stockholder value.

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Liquidity and Capital Resources

Although Net Profit was $3,930 lower in 2020 compared to 2019, net cash provided by operating activities in 2020, including adjustments for depreciation and other non-cash operating expenses, along with changes in working capital and the tax benefit attributable to exercise of employee incentive stock options, was $3,080 higher than in 2019.

Net cash provided by operating activities totaled $20,136 in 2020 compared to $17,056 in 2019 and $16,834 in 2018.

Changes in 2020 cash from operating activities compared to 2019 changes (second order derivative) were largely related to the lower business activity resulting from restrictions on nonessential medical procedures during the pandemics, i.e.

1) a $1,354 higher amount of cash provided in 2020 compared to 2019 as a result of reducing trade accounts receivable (A/R) $617 instead of the $737 increase in 2019, and 2) a $2,609 higher amount of cash provided as a result of reducing inventories $923 instead of the $1,686 increase in 2019.

Also related to less business activity, but offsetting cash provided by lower inventories and A/R, was a $422 reduction in cash provided as a result of a $308 decline in accounts payable instead of a $114 increase in 2019.

Other activities which provided more cash in 2020 than in 2019 were 1) $371 higher noncash amortization expense, 2) $369 less reduction of deferred income taxes, 3) a $330 smaller reduction in the long term repatriation tax payable, and 4) $47 higher noncash stock-based compensation expense.

A $607 increase in accrued expenses at the end of 2020 instead of a $1,651 decrease in 2019 also helped provide $2,259 more cash than in 2019.

In investing activities, during 2020 UTMD used $860 to purchase new molds and manufacturing equipment for new capabilities as well as to maintain and improve existing operating capabilities, compared to using $540 in 2019.

On the other hand, in 2019 UTMD used $21,000 to purchase the remaining life of CSI’s exclusive U.S.

distribution rights for the Filshie Clip System.

There was no similar acquisition in 2020.

In 2020 UTMD received $358 and issued 8,278 shares of stock upon the exercise of employee and director stock options.

Net cash provided by operating activities totaled $21,203 compared to $20,137 in 2020 and $17,056 in 2019.

Net Profit at $3,990 higher in 2021 compared to 2020 allowed net cash provided by operating activities in 2020, including adjustments for depreciation and other non-cash operating expenses, along with changes in working capital and the tax benefit attributable to exercise of employee incentive stock options, to be $1,066 higher than in 2020.

Total cash provided by operating activities was not in the magnitude of increased Net Profit as a result of changes in 2021 cash required for operating activities compared to 2020 changes (second order derivative), which were a function of the higher 2021 business activity related to recovering from restrictions on nonessential medical procedures during the pandemic, i.e.

1) a $1,705 higher use of cash as a result of increasing trade accounts receivable (A/R) $1,088 instead of the $617 decrease in 2020, and 2) a $1,408 higher use of cash as a result of increasing inventories $485 instead of the $923 decrease in 2020.

Additional changes that consumed more cash in 2021 than in 2020 included a $66 greater reduction in deferred income taxes, a $42 reduction in interest and other receivables instead of a $45 increase in 2020 and an $81 reduction in prepaid expenses and other current assets instead of a $108 increase in 2020.

In addition to higher Net Profit, greater cash was provided in 2021 compared to 2020 from $129 higher non-cash amortization expense, a $32 higher tax benefit attributable to exercise of employee stock options and a $106 higher increase in accrued expenses.

In investing activities, during 2021 UTMD used $552 in capital expenditures to purchase new molds and manufacturing equipment for new capabilities as well as to maintain, improve or expand existing operating capabilities, compared to investing $860 in 2020.

In 2021 UTMD received $560 and issued 11,702 shares of stock upon the exercise of employee stock options.

Employees exercised a total of 13,711 option shares in 2021, with 2,009 shares immediately being retired as a result of optionees trading the shares in payment of the exercise price of the options.

Option exercises in 2021 were at an average price of $57.40 per share.

The Company received a $39 tax benefit from option exercises in 2021.

UTMD repurchased 87,000 shares of its stock in the open market during 2020 at an average cost of $80.19 per share.

UTMD did not repurchase shares of its stock in the open market during 2021.

In comparison, in 2020 UTMD received $358 and issued 8,278 shares of stock upon the exercise of employee and director stock options.

Employees and directors exercised a total of 7,110 option shares in 2019, with 68 shares immediately being retired as a result of optionees trading the shares in payment of the exercise price of the options.

Option exercises in 2020 were at an average price of $43.26 per share.

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UTMD repurchased 87,000 shares of its stock in the open market during 2020 at an average cost of $80.19 per share.

In 2018 UTMD received $454 and issued 13,283 shares of stock upon the exercise of employee and director stock options.

In further comparison, in 2019 UTMD received $283 and issued 7,042 shares of stock upon the exercise of employee and director stock options.

Option exercises in 2019 were at an average price of $40.80 per share.

The Company received a $49 tax benefit from option exercises in 2018, which is reflected in net income as a result of adopting a new accounting standard in 2017.

The Company received a $23 tax benefit from option exercises in 2019.

UTMD repurchased 5,000 shares of its stock in the open market during 2019 at an average cost of $79.52 per share.

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Cash dividends paid to stockholders were $11,465 in 2021 compared to $4,116 in 2020 and $4,096 in 2019.

Management believes that future income from operations and effective management of working capital will provide the liquidity needed to finance internal growth plans.

Management believes that future income from operations and effective management of working capital will continue to provide the liquidity needed to finance internal growth plans.

In an uncertain economic environment, UTMD’s cash balances allow management to operate with the long-term best interest of stockholders in mind.

Planned 2021 capital expenditures for ongoing operations are expected to be about the same in magnitude as depreciation of PP&E.

Planned 2022 capital expenditures for ongoing operations are expected to be about the same in magnitude as depreciation of PP&E, although additional capital expenditure opportunities are being considered.

Management plans to utilize cash not needed to support normal operations in one or a combination of the following:

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The safety, reliability and performance of UTMD’s medical devices are high and represent significant clinical benefits while providing minimum total cost of care.

UTMD will continue to leverage its reputation as a device innovator which will responsively take on challenges to work with clinicians who use its specialty devices.

UTMD will continue to leverage its reputation as a device innovator and reliable manufacturer which will responsively take on challenges to work with clinicians who use its specialty devices.

In doing so, UTMD will continue to differentiate itself, especially from commodity-oriented competitors.

In 2022, UTMD again plans to

1) exploit distribution and manufacturing synergies by further integrating capabilities and resources in its multinational operations;

2) focus on effectively direct marketing the benefits of the Filshie Clip System in the U.S.;

3) introduce additional products helpful to clinicians through internal new product development;

1) leverage distribution and manufacturing synergies by further integrating capabilities and resources in its multinational operations;

2) expand manufacturing capacity at a time when resources are particularly scarce;

3) focus on effectively differentiating the benefits of the Filshie Clip System in the U.S.;

4) introduce additional products helpful to clinicians through internal product development;

5) continue to achieve excellent overall financial operating performance;

6) utilize positive cash generation to continue providing cash dividends to stockholders and make open market share repurchases if/when the UTMD share price seems undervalued;

6) be vigilant for accretive acquisition opportunities which may be brought about by difficult burdens on small, innovative companies.

7) remain vigilant for affordable accretive acquisition opportunities which may be brought about by difficult burdens on small, innovative companies.

The Company has a fundamental focus to do an excellent job in meeting clinicians’ and patients’ needs, while providing stockholders with excellent returns.

In 2020, the value of UTMD’s stock declined 22%, ending the year at $84.30/ share, while $1.12 in cash dividends/ share were paid.

In comparison, the DJIA, S&P 500 and NASDAQ (where UTMD is traded) indices were up 7%, 16% and 44% respectively in 2020.

In comparison, in 2019 the value of UTMD’s stock increased 30%, ending the year at $107.90/ share, while $1.10 in cash dividends/ share were paid.

In the combined form of cash dividends and share repurchases, UTMD “returned” $11,465 (78% of Net Income) to stockholders in 2021 compared to $11,092 (103% of Net Income) in 2020 and $4,494 (31% of Net Income in 2019).

In 2021, the value of UTMD’s stock improved 19%, ending the year at $100.00/ share, while $3.14 in cash dividends/ share were paid.

The DJIA, S&P 500 and NASDAQ (where UTMD is traded) indices were up 19%, 27% and 27% respectively in 2021.

In comparison, in 2020, the value of UTMD’s stock declined 22%, ending the year at $84.30/ share, while $1.12 in cash dividends/ share were paid.

The DJIA, S&P 500 and NASDAQ (where UTMD is traded) indices were up 7%, 16% and 44% respectively in 2020.

In further comparison, in 2019 the value of UTMD’s stock increased 30%, ending the year at $107.90/ share, while $1.10 in cash dividends/ share were paid.

The DJIA, S&P 500 and NASDAQ indices were up 22%, 29% and 35% respectively in 2019.

The UTMD stock price has declined during a calendar year only 5 other times in the last 22 years.

The average compounded appreciation in UTMD stock value for the last 22 years, including the 2020 decline, was 12.3% per year, outpacing all of the major indices.

Adding dividends, UTMD stockholder value increased at an annually compounded rate of 13.2% over the last 22 years.

Taking a longer term view, as of the end of 2019 from the end of 1998, UTMD’s share price increased 1,544%, representing a 14.3% annually compounded share price increase over the twenty-one year time span.

If additional returns to stockholders from cash dividends are added, stockholder value increased 1,780% over the twenty-one year time span, representing 15.0% annually compounded growth in value.

In comparison to UTMD’s 1,544% increase in stock value over the past twenty-one years, the NASDAQ Composite Index was up 309%, the S&P 500 Index was up 163% and the DJIA was up 211%.

Combining share price appreciation as a result of a long term profitable financial performance and a capital allocation strategy that includes opportunistic share repurchases with steadily growing quarterly cash dividends paid to stockholders since 2004, longer term UTMD stockholders have experienced excellent returns.

The average compounded appreciation in UTMD stock value for the last 23 years was 12.6% per year, substantially outpacing all of the major indices.

Adding dividends, UTMD stockholder value increased at an annually compounded rate of 13.4% over the last 23 years since 1998.

Combining share price appreciation as a result of a long term financial performance and a capital allocation strategy that includes opportunistic share repurchases with steadily growing quarterly cash dividends paid to stockholders since 2004, longer term UTMD stockholders have experienced excellent returns.

Management is committed to continue that performance.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis