ITEM 2 - PROPERTIES.
Office and Manufacturing Facilities.
The Company's current operations are located in one 100,000 square foot facility in Midvale, Utah, a suburb of Salt Lake City, and one 77,000 square foot facility in Athlone, Ireland. UM owns its property and facilities, with the exception of a long-term lease on one section of its Midvale parking lot. The Ireland facility operates as a wholly-owned subsidiary under the name Utah Medical Products Ltd. In addition, the Company owns a building in Lehi, Utah which previously housed its molding operations and is currently leased to an unrelated party.
UM is a vertically-integrated manufacturing company. Capabilities include a machine shop for mold-making and building assembly tools and fixtures; plastics- forming including thermoplastic forming, injection molding and extrusion; sensor production; assembly of mechanical, electrical and electronic components; testing; and advanced packaging in clean room conditions. Facilities also include a well-equipped R&D lab, communications and information systems networked internationally, and administrative offices.
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS.
The Company may be a party from time to time in ordinary routine litigation incidental to its business. The outcomes of lawsuits which are currently pending are not projected to have a materially adverse effect on UM's financial condition or results of operations.
ITEM 4.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders through the solicitation of proxies or otherwise during the fourth quarter of the fiscal year covered by this report.
PART II.
ITEM 5
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
The Registrant's common stock began trading on the New York Stock Exchange (symbol: UM) on December 26, 1996. It previously traded on the National Market System of the National Association of Securities Dealers Automated Quotation System (symbol UTMD). The following table sets forth the high and low sales price information as reported by NASDAQ and NYSE for the periods indicated:
High Low
First Quarter ............. $21.50 $31.875 Second Quarter ............ 18.875 11.625 Third Quarter ............. 13.125 11.00 Fourth Quarter ............ 14.75 11.25
First Quarter ............. $11.00 8.50 Second Quarter ............ 13.625 9.50 Third Quarter ............. 17.50 11.625 Fourth Quarter ............ 21.375 13.375
Stockholders:
The approximate number of beneficial stockholders of the Registrant's common stock as of March 10, 1997 was 8,000.
Dividends.
The Company does not currently intend to pay cash dividends on its common stock in the foreseeable future. It is the present intention of the Company to use earnings to finance future growth, for selective infusions of technological, marketing or product manufacturing rights to broaden the Company's product offerings, and for continued share repurchases when the price of the stock remains extremely undervalued. ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA.
ITEM 7
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
The following comments should be read in conjunction with accompanying financial statements.
Productivity of Assets and Working Capital.
a) Assets. Total UM asset turns (ratio of sales to total assets) declined in 1996 because sales decreased 8% while average total assets increased 2.6% from the prior year. Year-ending 1996 total assets declined because the 22% increase in non- cash assets, due primarily to the investment in Ireland manufacturing facilities, was more than offset by the use of excess cash generated from profitable operations to repurchase the Company's shares. Until UM expands sales of new Ob/Gyn products to offset lost sales of blood pressure monitoring transducers to Baxter, which prior to 1996 represented about 39% of total sales, total asset productivity will remain below the targeted turn rate of 1.4.
1996 net (after accumulated depreciation) property, plant and equipment assets (PP&E) in Utah decreased $300,000, but in Ireland increased $4.8 million. Utah PP&E asset turns based on ending PP&E asset balances were 5.0, still an excellent ratio for a vertically-integrated manufacturing company. Consolidated PP&E asset turns were 2.9 based on year-ending balances, as more than $4.4 million in Ireland facilities was invested without significant contribution by those assets in generating revenues in 1996.
Inventory turns declined in 1996 due to lower sales with 10% higher average inventory balances. Higher average inventory balances resulted from UM not shutting off its suppliers as rapidly as Baxter reduced its purchases of UM products, maintaining higher balances as a contingency as certain production operations were transferred to Ireland, and ramping up production of newer products, especially Deltran IV and Cordguard, in anticipation of better sales results. The 1996 year-ending accounts receivable (A/R) balance declined almost $2.7 million, allowing calculated days in receivables to improve to 40, based on 4Q 1996 shipments' volume. The calculation overstates the improvement because of the decline in Baxter business. Ignoring 4Q Baxter sales, days in receivables improved to 45. At the end of 1996, aged A/R over 90 days from invoice date were about 3% of total accounts receivable.
Working capital declined almost $9.3 million in 1996, caused by the cash investment of $4.8 million in Ireland PP&E and the repurchase of stock that exceeded net income by $5.8 million. Components of the change included ending cash & equivalents down about $8.7 million, total receivables down about $1.7 million, inventories up $1.5 million, and other miscellaneous working capital items down $0.4 million. Current liabilities (C/L) were up 10% because of $0.7 million still due the Ireland contractor. Otherwise C/L were down in proportion to lower sales activity. Through its excellent profitability, UM can internally finance its planned non-cash working capital growth that is needed to support new sales growth. In 1997, operations are expected to continue to generate after-tax cash at a rate similar to 1996.
b) Liabilities. UM has no long term debt obligations. Current liabilities are expected to grow in conjunction with the increase in expenses associated with higher sales. The total debt ratio (which is made up almost entirely of current liabilities) at the end of 1996 was about 16%.
Results of Operations.
a) Revenues. In 1996, revenues were down 8.0% from 1995. On a quarter-to-previous-year's quarter basis, 1996 revenues were respectively up 2.2%, down 5.8%, down 6.7% and down 20.6%.
UM divides revenues into three product-line categories: 1) critical care, which is comprised primarily of components used in invasive blood pressure monitoring, but also includes components for other types of pressure monitoring, as well as disposable respiratory products used in hospitals; 2) obstetrics, which is comprised mainly of devices for monitoring intrauterine pressure during labor and delivery, although to a lesser extent electrodes for fetal heart rate monitoring as well as other labor and delivery supplies, and a new product which unifies and improves clinician safety in, the multiple step procedure of cutting, clamping and drawing blood samples from the umbilical cord immediately following childbirth; and 3) gynecology, which is comprised of an electrosurgery system and electrodes used in a procedure called LETZ(R) as well in other types of electrosurgeries, tools used in other minimally invasive surgical procedures including diagnostic laparoscopies, and a device for conservative treatment of urinary incontinence. In these three areas, UM's primary revenue contributors generally enjoy a dominant market share and have important product features protected by patents.
In 1997, UM intends to expand sales of its new products EpitomeTM, LibertyTM, Cordguard(R), Filtresse(R) and Lumin(R) which were launched in 1995 and 1996, as well as introduce other products in areas of focus including fetal monitoring, electrosurgery and incontinence therapy.
Critical care revenues represented 50.0% of total 1996 sales, and declined 15.3% from 1995. In the U.S., critical care blood pressure monitoring is a mature business dominated by two large suppliers, Baxter and Abbott. For several years until 1996, Baxter purchased nearly 3 million disposable pressure transducers ("DPT") and accessories annually from UM, representing about 39% of UM's sales. In 1996, sales to Baxter declined by $3.9 million, and sales to Baxter represented only 29% of UM's total sales. Baxter OEM revenues (all of which are included in UM's critical care category) represented 58% of critical care revenues compared to 66% of critical care revenues in 1995. Sales of critical care products in 1996 were $19,336,510 compared to $22,827,753 in 1995, and $23,559,239 in 1994. Sales to Baxter in 1996 were $11,131,944 compared to $14,996,246 in 1995 and $15,299,369 in 1994.
Sales in the obstetrics sales category declined 2.6% in 1996 and represented 40.9% of total sales, after growing almost 21% in 1995. New competition and distributor overstocking in the previous year limited INTRAN(R) sales growth in 1996. Despite a high level of initial physician enthusiasm, UM's new product Cordguard(R) did not generate expected sales to cost conscious hospitals. Sales of obstetrics products in 1996 were $15,802,300 compared to $16,228,061 in 1995, and $13,429,690 in 1994.
Gynecology category revenues grew 18.5% in 1996, and represented 9.1% of total revenues. Gynecology product sales were $3,533,822 in 1996 compared to $2,982,268 in 1995, and $2,655,755 in 1994. Several new products contributed modestly to sales growth, including Liberty(R) and Lumin(R) which were introduced in 1995, and EpitomeTM, UM's unique electrosurgical scalpel introduced in mid-1996. UM's success with its new gynecology products depends heavily on providing physician training and support for specific procedures. Marketing of new products represent significant challenges for UM's resources, and will require innovative distribution approaches.
UM divides its sales channels into "direct" and "OEM" channels. "Direct sales" are sales of UM's products by its own employed sales representatives, by independent commissioned representatives, or by stocking distributors in a particular geographic region. "OEM sales" are sales of UM products by other medical device manufacturers either as a component of a kit, or as a repackaged stand alone product into markets not served by UM's own direct sales resources. In 1996, direct sales represented about 63% of total sales compared to about 58% in 1995 and 52% in 1994. In the U.S., 1996 direct sales represented 73% of sales compared to 68% in 1995 and 64% in 1994.
Dividing sales into the two channels of direct sales and OEM sales for the product categories of critical care products and obstetrics combined with gynecology products, yields the following split: direct sales in 1996 represented 27% and 99%, respectively, compared to 22% and 99% in 1995 and 20% and 99% in 1994.
1996 foreign sales were $9,738,958 compared to $10,343,192 in 1995 and $10,756,552 in 1994. Practically all international sales have been of critical care products, for which sales the Company has relied heavily on the efforts of other medical device companies including Baxter (OEM sales channel). Critical care products represented 91% of international sales in 1996 compared to 96% in 1995 and 97% in 1994. Sales through Baxter represented 51% of international sales in 1996 compared to 58% in 1995 and 56% in 1994. Sales through other (than Baxter) OEM companies represented 16% of total international sales in 1996 compared to 16% in 1995 and 23% in 1994.
UM believes it has substantial sales potential for its existing products in international markets, and therefore plans to continue to commit its resources to international business expansion.
b) Gross profit. Gross profit margins (profit after subtracting costs of manufacturing products from revenues) in 1996 were 49.4% compared to 46.4% in 1995 and 44.6% in 1994. The 1996 improvement in average gross profit margin was achieved because of the percentage increase in sales of UM's Ob/Gyn products from 45.7% of total sales in 1995 to 50.0% of sales in 1996, combined with a 56% decrease in sales of UM's least profitable product, the Baxter Summit DPT. Given expected faster sales growth in the obstetrics and gynecology product lines which have higher margins relative to UM's critical care products, the trend in improved gross margins is expected to continue in 1997, even though Baxter sales will likely decline by a further $10 million, reducing absorption of fixed manufacturing overhead costs. UM has improved its gross margins as a percentage of sales every year for the last eleven years. In recent years, the improvement has come from improved manufacturing efficiencies, for example, as a result of assembly process automation, and increased direct sales through UM's own employed representatives instead of distributors.
c) Operating Profit. Operating profits, or income from operations, are the profits achieved after subtracting operating expenses from gross profits. Operating expenses are subdivided into sales, general and administrative expenses (SG&A) and research and development expenses (R&D). UM further divides SG&A into the two categories of sales and marketing expenses (S&M) and general and administrative expenses (G&A). In 1996, despite the 8% decline in sales, operating profits increased 1.0% to $11,809,395 from $11,693,377 in 1995 and $10,041,372 in 1994. Operating expenses were 18.9% of sales in 1996 compared to 18.5% of sales in 1995, and 19.2% in 1994. In dollar terms, 1996 operating expenses were lower than in any of the previous three years. Because of the expected large decrease in Baxter sales in 1997 compared to 1996, operating expenses in 1997 as a percentage of total sales are likely to increase substantially.
SG&A expenses in 1996 increased to 15.3% of revenues from 14.3% of 1995 revenues, although in dollar terms SG&A expenses declined to $5.93 million in 1996 from $6.01 million in 1995. Although total SG&A expenses declined, the G&A expenses portion increased to $2.52 million in 1996 from $2.38 million in 1995 due to incremental administrative costs in starting up a new Ireland subsidiary. Even though 1997 G&A expenses in dollar terms are budgeted lower than 1996 actuals, they are expected to increase as a percentage of sales.
UM's S&M expenses pertain primarily to the "direct sales" portion of its business (see previous page). Global direct sales increased about 1% in 1996 while S&M expenses decreased 6%, increasing the productivity of S&M resources. In 1997, UM's S&M expense ratio is expected to change substantially for two reasons: 1) the expected decline in Baxter business will reduce total sales; and 2) two additional U.S. distributors previously representing about 25% of domestic direct sales were terminated at the beginning of 1997 in favor of adding directly employed sales representatives. The change in distribution will increase incremental sales due to elimination of distributor discounts, and improve gross profits, but will also increase S&M expenses.
R&D expenses in 1996 were 3.6% of sales compared to 4.3% of sales in 1995, and 3.9% in 1994. Although R&D expenses decreased 22% from 1995, UM made six new product 510(k) premarketing submissions to the FDA, consistent with submission activity for the previous two years. The Company employs specialist R&D resources not only to internally develop its own new product ideas, but also, through joint development agreements, licensing of technology, acquisitions and other arrangements, to enhance and complete to commercialization projects initiated by others. UM expects to continue R&D expenses at approximately the same dollar level in 1997.
d) Non-operating income. Non-operating income includes primarily royalties from licensing UM's technology to other companies, interest and capital gains from investing the Company's cash, and gains/losses from the sale of assets. Non-operating income increased $675,809 in 1996 from 1995, and was $919,222 higher than in 1994. The increase was due to an extraordinary payment in the first quarter of 1996 relating to the use of UM's technology, which is subject to a confidentiality agreement. Otherwise, royalties remained about the same as in the prior year. Interest and investment income from cash balances in 1996 was $131,042 lower than in 1995 due to lower average cash balances. Given no change in interest rates and no extraordinary acquisition or other non-interest bearing investment opportunities, 1997 investment income on cash balances is expected to be about the same as 1996. Royalties received vary from period to period depending on the desire and/or success of other companies in selling products licensed by UM. Royalties and other income in 1997 are expected to remain about the same as in 1996, after subtracting the extraordinary payment in the first quarter of 1996 related to the use of UM's pressure monitoring technology.
e) Earnings before income taxes. Earnings before income taxes (EBIT) result from adding UM's non-operating income to its operating profits. 1996 EBIT, as a percentage of sales, were 35.3% compared to 30.6% and 27.6% in 1995 and 1994, respectively. Gross margin improvements, lower operating expenses, and higher non-operating income all contributed to improved EBIT.
f) Net income and earnings per share. Net income is EBIT minus income taxes. UM's net income expressed as a percentage of sales ranks in the top tier of all U.S. publicly-traded companies at 23%, 20% and 18% for 1996, 1995 and 1994, respectively. After income taxes, 1996 net income was $8,753,891, a new record for the Company, compared to $8,353,738 in 1995 and $7,109,360 in 1994. The effective income tax rate in 1996 was 35.8% compared to 35.0% in 1995 and 35.1% in 1994. Year to year fluctuations in the tax rate have resulted from 1) the use of a foreign sales corporation starting in mid-1992, 2) differing balances in tax-exempt securities investments, 3) differences in distribution of state income taxes, and 4) other factors such as R&D tax credits. Consolidated net income (UM U.S. plus Ireland subsidiary) in 1997 will be incrementally helped by the 10% income tax rate on profits added in Ireland, compared to the approximate 36% tax rate in the U.S.
Earnings per share (EPS) is net income divided by the number of shares of stock outstanding (fully-diluted to take effect for stock options awarded which have exercise prices below the current market value). Fully diluted 1996 EPS were up 13% to $.93 compared to $.82 in 1995. 1995 EPS were up 21% from $.68 in 1994. 1996 ending weighted average number of common shares assuming full dilution (the number used to calculate fully-diluted EPS) were 9,451,581 compared to 10,172,329 and 10,453,583 shares in 1995 and 1994, respectively. Actual outstanding common shares as of December 31, 1996 were 8,785,736. Future EPS can be increased by investing current net income to increase future net profits through expanded marketable product offerings and profitable business operations, or also by repurchasing stock from the marketplace, thereby reducing the number of outstanding shares. Shareholder value is improved primarily by consistently increasing EPS. Although UM's EPS increased 13% in 1996, the price of its stock decreased 32%. In contrast, the Dow Jones Industrial Average increased 26%, the S&P 500 Index increased 20%, the NASDAQ Composite Index increased 23%, and the MDDI Index of small medical device companies decreased 9%. Small medical device companies were out of favor compared with the rest of the stock market in 1996. Historically, UM's stock price has followed closely its institutional ownership percentage, which declined in 1996.
Return on shareholders' equity (ROE) is the portion of net income retained by UM to internally finance its growth, divided by average accumulated shareholders' equity during the period. This ROE ratio determines how fast the Company can afford to grow without any external financing that would dilute shareholder interests. For example, a 30% ROE will support 30% growth in revenues. Achieving growth in revenues and EPS without diluting shareholder interests maximizes shareholders' value. ROE in 1996 was almost 33%, and has averaged over 30% for the last ten years.
Cash Flows and Capital Resources.
Cash (and equivalent) balances were $4.5 million at the end of 1996, a decrease of $8.7 million from December 31, 1995. Cash provided by operating activities, including adjustments for depreciation and other non-cash operating expenses, along with changes in working capital, totaled $11,192,927, up from $11,108,155 in 1995, and $8,831,152 in 1994.
EBDIT (profits from operations and non-operating income, adjusted for non-cash depreciation and amortization expenses and asset write-offs, before taxes) are a measure of UM's ability to generate cash. 1996 EBDIT were $15.4 million, or as a ratio of sales, 40%. EBDIT have grown at a 10% compounded annual rate for the last three years. Since 1987, EBDIT have grown at a 31% compounded annual rate. Cash of $5,618,000 was used in 1996 for capital expenditures (less receipts from disposal) for property and equipment. $320,000 was used for the purchase of intangible assets, including new patent filings. Remaining 1996 investing activities were the purchases and sales of investments which increased cash by a net $6,701,000.
Capital expenditures that occurred during 1996 should help the Company maintain its competitive position and provide the cost-effectiveness needed to support growth in new markets. Projects included: i) a $4,425,000 investment for completion of the new Ireland manufacturing facility, including enhancements to the Company's computer and communications systems, ii) about $584,000 in molds and other tooling for new products, and iii) about $611,000 to maintain and continuously upgrade pre-existing Utah facilities, equipment and tooling. Planned 1997 capital expenditures in new facilities, equipment and tooling, and intangible assets will be funded from cash generated from 1997 operations. 1996 financing activities used cash of $13,982,000 compared to $3,080,000 in 1995, and $8,393,000 in 1994. Stock repurchases continued to comprise by far the largest use of cash from all categories. The Company repurchased its own common stock during 1996 in the amount of $14,583,000, compared to $4,154,000 in 1995, and $8,532,000 in 1994. In the four years of 1993 through 1996, UM has invested $34,433,543 in repurchasing 3,422,909 of its common shares. In 1996, UM received $602,000 from the issuance of 68,599 shares of stock due to exercises of employee options. In the four years of 1993 through 1996, the Company has issued 360,030 new shares previously awarded under option plans, for which it has received $2,415,000.
Management believes that current cash balances plus future income from operations will provide the liquidity needed to finance internal growth plans. In addition to the capital expenditures outlined above, UM plans to use cash in 1997 for selective infusions of technological, marketing or product manufacturing rights to broaden the Company's product offerings, and for continued share repurchases when the price of the stock remains extremely undervalued.
Although UM did not enter into any long term debt agreements in 1996, in 1997, the Company will open an unsecured line of credit with its bank for up to $10,000,000 to facilitate its ability to move rapidly in the event of an opportunity to acquire another company with established revenues and market position complementary to UM's.
Management's Outlook.
Although the decline in blood pressure monitoring transducer sales to Baxter accelerated much more rapidly than expected in 1996, the full impact of the Baxter change will be realized in 1997. Sales to Baxter in 1997 are projected to decline by another $10 million, unless Baxter modifies its current direction or UM can find replacement OEM customers. The financial impact of the change will be primarily lack of absorption of UM's fixed manufacturing overhead, thus limiting the growth in gross profit margins that would otherwise occur with new product sales. To find other OEM customers, UM will continue to pursue U.S. and foreign distribution partners, in addition to those enlisted in 1996, who are interested in adding blood pressure monitoring transducers to their critical care product lines. UM believes Deltran to be the recognized best transducer product available at the lowest cost of production.
In 1997, UM needs to do a better job in effectively implementing its value- added Ob/Gyn marketing strategies. We believe the fundamental driving needs for our new Ob/Gyn products, Cordguard, Liberty, LUMIN, Epitome and Filtresse are real, and the resulting potential markets total about $600 million, ten times the market potential of UM's previously established Ob/Gyn products. However, value-added products only become successful in the marketplace if users understand and accept their value. In that regard, we intend to redouble our marketing efforts in 1997. We also will seek distribution relationships, acquisition of complementary product lines and other innovative marketing approaches that may help expand the use of our new products.
Access to hospital customers is increasingly constrained by group purchasing decisions. Proprietary products considered essential by physicians are the best competitive vehicle for UM's hospital supplies business when broad product offerings and distribution leverage are limited. Therefore, with respect to cornerstone fetal monitoring (FM) products used in hospitals' labor & delivery departments, UM must actively defend its existing IUPC patents and continue to develop new products representing a quantum improvement in care. It is management's hope that the fetal pH monitoring product, under development for the past four years, may become such a product. Recently, physicians in hospitals have had limited input to purchasing decisions. Decisions regarding patient care may be dominated by immediate purchase cost rather than long-term total costs which are often related to the risk of bad outcomes. However, UM will continue to maintain a long-term perspective and strengthen its disease management focus with Ob/Gyn physicians who we believe are ultimately responsible for their patients' well-being.
UM's growing number of gynecology practice tools are intended to create opportunities to sell to physicians outside the hospital. In addition to broadening the urinary incontinence product line, we will work on doctors' office gynecology products which address abnormal uterine bleeding, infertility and potential malignancies, in addition to applying the Company's expertise in electrosurgery to other clinical areas where a specialized approach will provide excellent benefits.
In terms of UM's undervalued share price, which has historically tracked UM's institutional ownership percentage, we feel the time is opportune to introduce the Company to potential foreign investors, especially given the recent listing on the New York Stock Exchange and new operations in Ireland. Of course, we expect the continued use of UM's technology by other medical device companies to continue to further enhance shareholder returns.
Accounting Policy Changes
The Company has, during 1996, adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation". Accordingly, no compensation cost has been recognized in the financial statements. Note 7 of the Notes to Consolidated Financial Statements presents net income and earnings per share as if the fair value provisions of SFAS No. 123 had been applied.
Effective January 1, 1994 the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Under SFAS No. 115, the Company's investments are classified as available-for-sale which results in an adjustment to stockholders' equity for unrealized gains and losses.
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See index to financial statements and financial statement schedule at page.
ITEM 9
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III.
ITEM 10
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information from the definitive proxy statement of the registrant under the caption, "PROPOSAL NO. 1. ELECTION OF DIRECTORS: General," "Directors and Nominees," "Executive Officers," and "Compliance with Exchange Act Requirements," is incorporated herein by reference, expressly excluding the material set forth under the subcaptions "Report of the Compensation and Option Committee" and "Stock Performance Chart."
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION.
The information from the definitive proxy statement of the registrant under the caption, "PROPOSAL NO. 1. ELECTION OF DIRECTORS: Executive Compensation," "Compensation and Option Committee Interlocks and Insider Participation," "Employment Agreements, Termination of Employment, and Change in Control," and "Director's Compensation" is incorporated herein by reference, expressly excluding the material set forth under the subcaptions "Report of the Compensation and Option Committee" and "Stock Performance Chart."
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information from the definitive proxy statement of the registrant under the caption, "PROPOSAL NO. 1. ELECTION OF DIRECTORS: Security Ownership of Management and Certain Persons" is incorporated herein by reference.
ITEM 13
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None.
PART IV.
ITEM 14
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report or incorporated herein by reference.
1.Financial Statements. (See Index to Financial Statements and Supplemental Schedule at page.)
2.Supplemental Schedule. (See Index to Financial Statements and Supplemental Schedule at page.)
3.Exhibits.
SEC Exhibit Reference Title of Document Location No. No.
1 3 Articles of Restatement of Incorporated by the Articles of Incorporation Reference(1)
2 3 Bylaws Incorporated by 3 4 Rights Agreement dated as of Reference(1) October 28, 1994, between Incorporated by Utah Medical Products, Inc., Reference(1) and First Security Bank
4 4 Designation of Rights, Incorporated by Privileges, and Preferences Reference(1) of Series "A" Preferred Stock
5 10 Employment Agreement dated Incorporated by December 21, 1992, Reference(2) with Kevin L. Cornwell*
6 10 Utah Medical Products, Inc., Incorporated by 1986 Incentive Reference(2) Stock Option Plan*
7 10 Asset Purchase Agreement with Incorporated by OB Tech, Inc., Reference(3) dated January 4, 1994
8 10 Utah Medical Products, Inc., Incorporated by 1994 Employee Incentive Reference(1) Stock Option Plan*
9 10 Utah Medical Products, Inc., Incorporated by 1993 Directors' Stock Reference(1) Option Plan
10 10 Utah Medical Products, Inc., Incorporated by Performance Option Plan* Reference(1)
11 10 Amendment to Asset Purchase Incorporated by Agreement effective Reference(4) February 8, 1996
12 21 Subsidiaries of Utah Medical Incorporated by Products, Inc. Reference(4)
13 23 Consent of Deloitte & Touche This Filing LLP, Company's independent auditors
14 27 Financial Data Schedule This Filing
* Management contract or compensatory plan or arrangement required to be filed pursuant to Item 14(c).
(1) Incorporated by reference from the Company's registration statement on form S-8 filed with the Commission effective February 10, 1995.
(2) Incorporated by reference from the Company's annual report on form 10- K filed with the Commission for the year ended December 31, 1992.
(3) Incorporated by reference from the Company's annual report on form 10- K filed with the Commission for the year ended December 31, 1993.
(4) Incorporated by reference from the Company's annual report on form 10- K filed with the Commission for the year ended December 31, 1995.
(b) Reports on Form 8-K. None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned this 28th day of March, 1997.
UTAH MEDICAL PRODUCTS, INC.
By: /s/ Kevin L. Cornwell Chairman and CEO
By: /s/ Kevin L. Cornwell Secretary and CFO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on this 28th day of March, 1997.
By: Stephen W. Bennett Director
By: /s/ Kevin L. Cornwell Director
By: /s/ Ernst G. Hoyer Director
By: /s/ Perry L. Lane Director
By: /s/ Lori A. Sessions Director
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARY Consolidated Financial Statements as of December 31, 1996 and 1995 and for Each of the Three Years in the Period Ended December 31, 1996 and Independent Auditors' Report
UTAH MEDICAL PRODUCTS, INC. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE
CONSOLIDATED FINANCIAL STATEMENTS: Independent Auditors' Report
Consolidated Balance Sheets, December 31, 1996 and 1995 -
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995, and 1994
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995, and 1994 -
Notes to Consolidated Financial Statements -
FINANCIAL STATEMENT SCHEDULE: Financial Statement Schedule for the Years Ended December 31, 1996, 1995, and 1994: Schedule II - Valuation and Qualifying Accounts
Financial statement schedules other than those listed above are omitted because of the absence of conditions under which they are required or because the information is shown in the financial statements.
INDEPENDENT AUDITORS' REPORT
Utah Medical Products, Inc.:
We have audited the accompanying consolidated balance sheets of Utah Medical Products, Inc. and subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the preceding index to financial statements and financial statement schedule. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Utah Medical Products, Inc. and subsidiary as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP Salt Lake City, Utah January 24, 1997
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995 CURRENT ASSETS: ------------ ----------- Cash $ 3,038,956 $ 5,064,913 Investments available-for-sale (cost: 1996, $1,364,673 and 1995, $8,121,001) (Note 2) 1,458,543 8,173,500 Accounts receivable: Trade (less allowance for doubtful accounts: 1996, $82,086 and 1995, $83,021) 3,804,857 6,473,810 Grant claims receivable 961,408 Accrued interest and other 244,577 221,662 Inventories (Note 3) 4,750,442 3,277,982 Prepaid expenses and other current assets 91,273 244,675 Deferred income taxes (Note 6) 595,639 372,899 ------------ -----------
Total current assets 14,945,695 23,829,441 ------------ -----------
PROPERTY AND EQUIPMENT (Note 4): Land 1,126,662 1,113,478 Building and improvements 8,288,750 3,458,829 Furniture, equipment, and tooling 10,066,608 8,868,461 Construction-in-progress 900,622 1,456,837 ------------ -----------
Total 20,382,642 14,897,605 Less accumulated depreciation and amortization (7,015,045) (6,031,246) ------------ ----------- property and equipment - net 13,367,597 8,866,359
OTHER ASSETS - Intangible assets (less accumulated amortization: 1996, $810,171 and 1995, $443,561) 602,393 634,579 ------------ ----------- TOTAL $ 28,915,685 $33,330,379 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES: Accounts payable $ 1,885,743 $ 1,783,840 Accrued expenses: Payroll and payroll taxes 1,132,309 1,197,692 Reserve for litigation costs (Note 5) 649,840 314,619 Income taxes payable (Note 6) 105,024 Other 271,947 220,750 Deferred revenue (Note 8) 135,600 85,600 ------------ ----------- Total current liabilities 4,075,439 3,707,525
DEFERRED INCOME TAXES (Note 6) 369,759 245,289
DEFERRED REVENUE (Note 8) 87,492 173,208 ------------ ----------- Total liabilities 4,532,690 4,126,022 ------------ -----------
COMMITMENTS AND CONTINGENCIES (Notes 5, 7, 8, and 9) STOCKHOLDERS' EQUITY (Note 7): Preferred stock - $.01 par value; authorized - 5,000,000 shares; no shares issued or outstanding Common stock - $.01 par value; authorized - 50,000,000 shares; issued - 8,785,736 shares in 1996 and 9,790,937 shares in 1995 87,857 97,909 Unrealized gain on investments available-for- sale, net of tax (Note 2) 58,494 32,707 Cumulative foreign currency translation adjustments 217,444 Retained earnings 24,019,200 29,073,741 ------------ ----------- Total stockholders' equity 24,382,995 29,204,357 ------------ ----------- TOTAL $28,915,685 $33,330,379 ============ ===========
See notes to consolidated financial statements.
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994 ----------- ----------- ----------- NET SALES (Notes 8 and 10) $38,672,632 $42,038,082 $39,644,684
COST OF SALES (Note 8) 19,549,252 22,549,039 21,978,638 ----------- ----------- ----------- GROSS MARGIN 19,123,380 19,489,043 17,666,046 ----------- ----------- ----------- EXPENSES: Selling, general, and administrative 5,926,897 6,006,499 6,096,198 Research and development 1,387,088 1,789,167 1,528,476 ----------- ----------- ----------- Total 7,313,985 7,795,666 7,624,674 ----------- ----------- ----------- INCOME FROM OPERATIONS 11,809,395 11,693,377 10,041,372 ----------- ----------- ----------- OTHER INCOME (EXPENSE): Dividend and interest income 453,918 584,960 352,406 Royalty income 703,352 652,894 650,992 Other, net 677,067 (79,326) (88,283) ----------- ----------- -----------
Total 1,834,337 1,158,528 915,115 ----------- ----------- ----------- INCOME BEFORE INCOME TAX EXPENSE 13,643,732 12,851,905 10,956,487
INCOME TAX EXPENSE (Note 6) 4,889,841 4,498,167 3,847,127 ----------- ----------- ----------- NET INCOME $8,753,891 $8,353,738 $7,109,360 =========== =========== =========== EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE (Note 7) $.93 $.83 $.68 =========== =========== =========== EARNINGS PER COMMON SHARE ASSUMING FULL DILUTION (Note 7) $.93 $.82 $.68 =========== =========== ===========
See notes to consolidated financial statements.
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
See notes to consolidated financial statements
See notes to consolidated financial statements.
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Utah Medical Products, Inc. and its wholly owned subsidiary, Utah Medical Products Ltd. which operates a manufacturing facility in Ireland, (the Company) are in the business of producing cost-effective devices for the health care industry. The Company's broad range of products includes those used in critical care areas and the labor and delivery department of hospitals, as well as outpatient clinics and physician's offices. Products are sold in both domestic U.S. and international markets.
The accounting policies of the Company conform to generally accepted accounting principles (GAAP). The preparation of financial statements in conformity with GAAP requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities and reported amounts of revenues and expenses. Actual amounts could differ from these estimates.
The following is a summary of the more significant of the Company's accounting policies:
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include those of the Company and its subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1995 consolidated financial statements to conform to classifications adopted in 1996.
INVESTMENTS AVAILABLE-FOR-SALE - Investments consist of mutual funds, bonds, and equities. The Company complies with the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Under SFAS No. 115, the Company's investments are classified as available-for-sale which results in an adjustment to stockholders' equity for unrealized gains and losses (see Note 2). Realized gains and losses are determined on the specific identification method.
GRANT CLAIMS RECEIVABLE - Grant claims receivable consists of amounts due from the Industrial Development Agency (Ireland) under capital and employment grant agreements for the construction and operation of the Company's Ireland manufacturing facility.
INVENTORIES - Finished products, work-in-process, and raw materials and supplies inventories are stated at the lower of cost (computed on a first-in, first-out method) or market (see Note 3).
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over estimated useful lives as follows:
Building and improvements 30 - 40 years Furniture, equipment, and tooling 3 - 10 years
INTANGIBLE ASSETS - Costs associated with the acquisition of patents, trademarks, goodwill, and license rights are capitalized and amortized using the straight-line method over periods ranging from 5 to 17 years.
INCOME TAXES - The Company accounts for income taxes under SFAS No. 109, Accounting for Income Taxes, whereby deferred taxes are computed under the liability method (see Note 6).
DEFERRED REVENUE - Amounts received in advance from customers for the sale of product rights and price reductions are recognized as revenue as the related products are sold considering the future marketability of the products.
EARNINGS PER SHARE - Earnings per share are based on the following weighted average number of shares outstanding:
1996 1995 1994 --------- ---------- ---------- Weighted average number of 9,451,581 10,042,430 10,436,094 common and common equivalent shares
Weighted average number of common shares assuming full dilution 9,451,581 10,172,329 10,453,583
The computation of earnings per common and common equivalent share is based on the weighted average number of shares outstanding during each year plus the common stock equivalents which would arise from the exercise of stock options and warrants outstanding using the treasury stock method and the average market price per share during the year.
The computation of earnings per common share assuming full dilution is based on the weighted average number of shares outstanding during the year plus the common stock equivalents which would arise from the exercise of stock options and warrants outstanding using the treasury stock method and the market price per share at the end of the year.
STATEMENTS OF CASH FLOWS - For purposes of the consolidated statements of cash flows, the Company considers cash on deposit and short-term investments with original maturities of three months or less to be cash and cash equivalents.
TRANSLATION OF FOREIGN CURRENCIES - Assets and liabilities of the Company's foreign subsidiary are translated into U.S. dollars at the applicable exchange rates at year-end. Net exchange gains or losses resulting from the translation of the Company's assets and liabilities are reflected as a separate component of stockholders' equity. Income and expense items are translated at the average rate of exchange during the year and included in other income or expense.
2. INVESTMENTS The amortized cost and estimated market values of investment securities as of December 31, 1996 were as follows:
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ----------- --------- --------- ---------- Municipal bonds $ 521,040 $ (411) $ 520,629 Equities and other 843,633 $104,286 (10,005) 937,914 ----------- --------- --------- ---------- Total $ 1,364,673 $104,286 $ (10,416) $1,458,543 =========== ========= ========== ==========
The amortized cost and estimated market value of investments at December 31, 1995 were as follows:
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ----------- ---------- --------- ---------- Municipal bonds $ 5,646,994 $ 13,620 $ (961) $5,659,653 Taxable bonds 1,499,844 466 1,500,310 Equities and other 974,163 67,634 (28,260) 1,013,537 ----------- --------- --------- ---------- Total $ 8,121,001 $ 81,720 $ (29,221) $8,173,500 =========== ========= ========== ==========
Debt securities amortized cost of $521,040 and estimated market value of $520,629 at December 31, 1996 are due in one year or less. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
During the years ended December 31, 1996 and 1995, there were $10,015,766 and $4,483,010, respectively, in proceeds from the sale of investment securities resulting in gross realized losses of $28,476 and $8,328, respectively, and gross realized gains of $15,341 and $59,187, respectively. The net unrealized gain on investment securities available-for-sale included in stockholders' equity for the years ended December 31, 1996 and 1995 is $58,494 and $32,707, respectively, which are net of the deferred tax liability of $35,376 and $19,792, respectively (see Note 6).
3. INVENTORIES
Inventories at December 31, 1996 and 1995 consisted of the following:
1996 1995 ---------- ---------- Finished products $1,000,438 $ 872,419 Work-in-process 1,010,086 687,746 Raw materials 2,739,918 1,717,817 ---------- ---------- Total $4,750,442 $3,277,982 ========== ==========
4. PROPERTY AND EQUIPMENT
Included in the Company's consolidated balance sheets are the assets of its manufacturing facility in Ireland. Property and equipment, by location, as of December 31, 1996, are as follows:
U.S. IRELAND TOTAL ---------- ---------- ---------- Land $ 678,447 $ 448,215 $1,126,662 Building and improvements 3,551,139 4,737,611 8,288,750 Furniture, equipment, and tooling 9,735,395 331,213 10,066,608 Construction-in-progress 662,514 238,108 900,622 ---------- ---------- ---------- Total 14,627,495 5,755,147 20,382,642 Accumulated depreciation and amortization (6,896,623) (118,422) (7,015,045) ---------- ---------- ---------- Property and equipment, net $7,730,872 $5,636,725 $13,367,597 ========== ========== ===========
At December 31, 1995, assets included in the consolidated balance sheet attributable to the Ireland facility consisted of $435,000 land and $390,000 construction-in-progress.
5. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company has an operating lease agreement for land adjoining the Company's U.S. facilities for a term of forty years commencing
on September 1, 1991. On September 1, 1996 and subsequent to each fifth lease year, the basic rental is adjusted for published changes in a price index. Rent expense under the operating lease agreement was $33,225, $32,400, and $32,400 for the years ended December 31, 1996, 1995, and 1994, respectively.
Future minimum lease payments under the operating lease obligation as of December 31, 1996 were as follows:
Year ending December 31: 1997 $ 34,874 1998 34,874 1999 34,874 2000 34,874 2001 34,874 Thereafter 1,034,597 ---------- Total minimum lease payments $1,208,967 ==========
PRODUCT LIABILITY - The Company is self-insured for product liability risk.
LITIGATION - The Company is involved in lawsuits which are an expected consequence of its operations and in the ordinary course of business. The Company believes that pending litigation will not have a materially adverse effect on its financial condition or results of operations.
6. INCOME TAXES
Deferred tax assets and liabilities as of December 31, 1996 and 1995 consisted of the following temporary differences:
1996 1995 ------------------ ----------------- LONG- LONG- ASSETS CURRENT TERM CURRENT TERM ------- ------- -------- ------ Inventory write-downs not currently deductible for tax purposes $199,477 $102,038
Allowance for doubtful accounts not deductible for tax purposes until written off 30,946 31,382
Accrued liabilities not deductible for tax purposes until paid 349,471 226,915
Deferred revenue previously recognized
for tax purposes 51,121 $32,941 32,356 $65,473
Other 9,732 65,026 ------- ------- Total 631,015 42,673 392,691 130,499 ======= ======= ======= ======= LIABILITIES
Unrealized gain on investments available- for-sale (35,376) (19,792)
Accelerated depreciation and amortization for tax purposes (412,432) (375,788) --------- ---------
Deferred income taxes - net $595,639 $(369,759) $372,899 $(245,289) ======== ========= ======== =========
The components of income tax expense for the years ended December 31, 1996, 1995, and 1994 were as follows:
1996 1995 1994 ---------- ---------- ---------- Current $5,003,695 $4,572,460 $3,926,496 Deferred (113,854) (74,293) (79,369) ---------- ---------- ----------
Total $4,889,841 $4,498,167 $3,847,127 ========== ========== ==========
Income tax expense differed from amounts computed by applying the statutory Federal rate to pretax income as follows:
1996 1995 1994 ---------- ---------- ---------- Computed Federal income tax expense at the statutory rate of 34% $4,638,869 $4,369,648 $3,725,206
Non-taxable investment income (76,512) (124,604) (94,266) State income taxes 718,724 642,638 561,967 Foreign sales corporation (223,376) (228,760) (251,262) Other (167,864) (160,755) (94,518) ---------- ---------- ---------- Total $4,889,841 $4,498,167 $3,847,127 ========== ========== ==========
7. STOCKHOLDERS' EQUITY
OPTIONS - The Company has stock option plans which authorize the grant of stock options to eligible employees, directors, and other individuals to purchase up to an aggregate 4,722,500 shares of common stock. All options
granted under the plans may be exercised from between one and ten years following the date of grant. The plans are intended to advance the interest of the Company by attracting and ensuring retention of competent directors, employees, and executive personnel, and to provide incentives to those individuals to devote their utmost efforts to the advancement of the Company.
Changes in stock options were as follows:
PRICE RANGE 1996 SHARES PER SHARE ------- --------------- Granted 451,500 $14.25 -$20.50 Expired or canceled 276,620 7.25 - 20.50 Exercised 68,599 7.25 - 11.33 Total outstanding at December 31 692,600 7.25 - 14.25 Total exercisable at December 31 295,996 7.25 - 11.33
Granted $ 9.50 - $10.63 Expired or canceled 39,517 6.58 - 10.00 Exercised 124,840 6.33 - 10.00 Total outstanding at December 31 586,319 7.25 - 11.33 Total exercisable at December 31 198,500 7.25 - 11.33
Granted 325,000 $ 7.25 - $10.00
Expired or canceled 73,836 6.58 - 10.00 Exercised 19,785 5.25 - 6.58 Total outstanding at December 31 550,676 6.33 - 11.33 Total exercisable at December 31 184,605 6.33 - 11.33
PURCHASE RIGHTS - The Company adopted an Employees' Stock Purchase Program in December 1990 whereby employees of record on December 21, 1990 were granted rights to purchase a maximum of 120,000 shares of common stock at the grant date market value of $6.58. These purchase rights were exercised or expired prior to December 21, 1995.
Changes in stock purchase rights were as follows:
PRICE RANGE SHARES PER SHARE ------- ---------------
Granted None Expired or cancelled 1,054 $6.58 Exercised 39,668 6.58 Outstanding at December 31 None Exercisable None
Granted None Expired or cancelled 1,945 $6.58
Exercised 3,338 6.58 Outstanding at December 31 40,722 6.58 Exercisable 40,722 6.58
For the years ended December 31, 1996, 1995, and 1994, the Company reduced current income taxes payable and increased additional paid-in capital by $163,164, $355,779, and $11,761, respectively, for the income tax benefit attributable to appreciation of common stock related to stock options and purchase rights.
STOCK-BASED COMPENSATION - The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. Accordingly, no compensation cost has been recognized in the financial statements. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant date for awards in 1995 and 1996 consistent with the provisions of SFAS No. 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:
1996 1995 ---------- ---------- Net earnings - as reported $8,753,891 $8,353,738 Net earnings - pro forma 8,580,509 8,240,947 Earnings per share assuming full dilution $ .93 $ .82 - - as reported Earnings per share assuming full dilution .91 .81 - - pro forma
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: 1996 1995 ---------- ---------- Expected dividend yield 0.0% 0.0% Expected volatility 48.7% 48.7% Risk free interest rate (weighted average) 6.57% 7.4% Expected life of options 3.6 years 3.6 years
The per-share weighted average fair value of options granted during 1996 and 1995 is $4.67 and $4.14, respectively.
8. PRODUCT SALE AND PURCHASE COMMITMENTS The Company had exclusive and nonexclusive agreements to sell certain products to Baxter Healthcare Corporation (Baxter) under license agreements and had sales to Baxter of approximately $11,132,000, $14,996,000, and $15,299,000 during the years ended December 31, 1996, 1995, and 1994, respectively.
The Company has license agreements with other unrelated companies to provide exclusive and non-exclusive rights to purchase, market, distribute, or manufacture the Company's products. The Company received royalties and license fees, some of which were received in advance and have been deferred and amortized over the terms of the respective agreements. The Company has license agreements for the rights to develop and market certain products owned by unrelated parties. Under the terms of such agreements, the Company is required to pay royalties ranging from 1.5% to
5.0% of sales, and in one case certain payments to the developer contingent upon the product achieving certain annual revenue thresholds.
9. EMPLOYEE BENEFIT PLAN
The Company has a contributory 401(k) savings plan for employees who work 30 hours or more each week, who are at least 21 years of age, and have a minimum of one year of service with the Company. The Company's contribution is determined annually by the Board of Directors and was approximately $78,800, $57,200, and $52,100 for the years ended December 31, 1996, 1995, and 1994, respectively.
10.EXPORT SALES Sales to customers in foreign countries were approximately $9,739,000, $10,343,000, and $10,757,000 for the years ended December 31, 1996, 1995, and 1994, respectively. ******
SCHEDULE II
UTAH MEDICAL PRODUCTS, INC.
VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 - -----------------------------------------------------
ADDITIONS BALANCE CHARGED BALANCE AT TO AT DESCRIPTION BEGINNING COSTS AND END OF OF YEAR EXPENSES DEDUCTIONS YEAR - ----------- --------- --------- ---------- ------- ACCUMULATED AMORTIZATION OF INTANGIBLE ASSETS:
1996 $443,561 $366,610 $810,171 ======== ======== ======== 1995 $102,078 $342,333 $850 $443,561 ======== ======== ======= ======== 1994 $55,208 $46,870 $102,078 ======== ======== ========
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
1996 $83,021 $935 $82,086 ======== ======= ======== 1995 $77,662 $(5,359) $83,021 ======== ======= ======== 1994 $47,396 $32,665 $2,399 $77,662 ======== ======== ======= ========
ALLOWANCE FOR SALES RETURNS:
1996 $24,545 $24,545 ======== ======== 1995 $24,545 $24,545 ======== ======== 1994 $12,545 $12,000 $24,545 ======== ======== ========
(1) Deductions represent accounts written off against the allowance. (2) Amount represents recoveries which increased the allowance.