Full Press Release Details
City, Utah - In the fourth quarter (4Q) of 2006, Utah Medical Products, Inc.'s
(Nasdaq: UTMD) consolidated sales were up 5%, gross profits up 3%, operating
profits up 32%, net income up 9% and earnings per share (eps) up 11%, compared
full calendar year of 2006, UTMD's consolidated sales were up 4%, gross profits
up 3%, operating profits up 17%, net income up 8% and earnings per share (eps)
up 12%, compared to 2005.
increase in 2006 sales resulted primarily from a 16% increase in international
sales. International sales were about 26% of total 2006 sales. Management
expects that international sales will continue to lead sales growth in 2007.
Domestic Direct sales remained about the same as the prior year, as increases
UTMD's gynecology/ electrosurgery/ urology product sales and neonatal product
sales were offset by decreases in labor & delivery product sales. Domestic
OEM sales, which represent only 5% of total sales, increased 6%.
rate of increase in gross profits relative to sales reflected significant
inflation in wages and raw materials costs, particularly in Ireland operations.
While inflation in Ireland manufacturing costs outstripped the rate of increase
in the U.S., the value of the U.S. Dollar decreased relative to the EURO,
yielding a double-whammy dilution effect on UTMD's gross profit margins (GPMs).
In addition, increased 2006 sales were more heavily weighted in products and
sales channels with lower unit prices. UTMD's average gross profit margin (GPM)
declined from 56.9% in 2005 to 56.2% in 2006. The GPM for 4Q 2006 was 55.6%.
increased direct labor and materials costs were mitigated somewhat by greater
production activity accomplished without proportionate increases in
manufacturing overhead costs. The Company retains an excellent infrastructure
which is capable of supporting continued higher product sales without a
proportionate increase in overhead costs. UTMD does not have short-term
flexibility to increase its prices to customers because of fixed long-term
pricing agreements, as well as competitive pressures in a very price-sensitive
U.S. hospital-user marketplace. A key management objective for 2007 is to
achieve an average GPM of at least 56%.
profits in 2006 were up $1,598,000, a 17% increase over 2005 operating profits.
While higher gross profits contributed $394,000 to the increase, the majority
the substantial increase was caused by operating expenses as a whole that were
$1,203,000 lower than in 2005. Operating expenses include legal and other
litigation expenses. In 2005, legal/ litigation expenses were $1,426,000 higher
than in 2006 because of expenses of the FDA's unwarranted lawsuit. On the other
side of the coin, 2006 operating profits were reduced by $140,000 from recording
employee option expense as required by new accounting rules which was not part
of operating expenses in 2005. The 2Q 2006 $130,000 write-off of intellectual
property was recouped in 4Q 2006, resulting in no impact to R&D expenses for
the year. 2006 operating expenses as a percentage of revenues were 18.5%, within
management's beginning of year stated objective of 19% of sales. The Company has
a history of tightly controlling its operating expenses, and plans to do it
again in 2007. UTMD also met its beginning-of-year stated objective to achieve
2006 operating profit margin about 38%, in spite of the increased incremental
manufacturing cost pressures. The Company will provide more details relative
its 2006 financial results and plan for 2007 in the MD&A section of its 2006
SEC Form 10-K which will be filed by March 16.
beginning of 2006, UTMD projected non-operating income, resulting primarily
the investment of excess cash and royalties from licensing UTMD's technology to
others, about the same as in the prior year. In fact, the company was able
achieve 2006 non-operating income $606,000 higher than in 2005 because investing
its excess cash yielded $521,000 in capital gains that were not planned, in
addition to interest and dividend income which exceeded the prior year.
Royalties remained the same. Adding operating income that was up 17% compared
the prior year with better than expected non-operating income yielded earnings
before income taxes (EBT) that were 22% higher than in 2005. As the Company's
excess cash now all resides in short-term money market instruments, management
does not expect a similar capital gain to benefit 2007 results.
income did not increase at the rapid pace of EBT because the income tax
provision in 2006 was 34.2% of EBT compared with only 26.1% of EBT in 2005.
lower 2005 income tax provision resulted primarily from The American Jobs
Creation Act of 2004 (the Act) enacted in October 2004. The Act allowed a
temporary tax deduction on accumulated foreign earnings repatriated in 2005
resulting in a permanent deferred tax liability adjustment related to foreign
earnings in prior years, as well as a domestic tax deduction on manufacturing
related income. As a reminder for shareholders, the note payable on UTMD's
balance sheet was taken out as a loan by UTMD's Ireland subsidiary to allow the
repatriation of accumulated foreign earnings which resulted in the favorable
provision in 2005. This loan will be repaid as profits are generated in Ireland
several highlights regarding changes in UTMD's Balance Sheet during
and investments balance increased by $3.6 million even though the Company spent
$2.9 million in paying dividends to shareholders and $2.1 in repurchasing shares
in the open market. The dividend paid to shareholders in 2006 was $.74/ share
compared to $.61/ share in 2005, representing a 21% increase. Actual dividends
paid only increased 19% because of the share repurchases. UTMD repurchased
68,600 shares in 2006 at an average cost of $31.00/ share including commissions.
inventories declined 8% despite 4% higher sales, achieving the company's goal of
4.0 average inventory turns for the year.
Ireland loan balance declined $0.5 million or 10% in U.S. Dollar terms despite
the fact that the loan obligation is held in EUROs. In EURO terms, 18% of the
increase in PP&E (fixed assets) was due to currency exchange, i.e. the
increase in U.S. Dollar-denominated value of property, plant & equipment in
Ireland. From the end of 2005 to the end of 2006, the EURO increased in value
relative to the dollar by about 11%. In EURO terms, the fixed asset value in
Ireland decreased 4%.
ratios which may be of interest to shareholders follow:
Days in Accounts Receivable (based on 4Q sales activity) = 43
Average Inventory Turns (based on 4Q CGS and average inventory) =
2006 ROE = 24% (excluding payment of dividends)
ROE = 15% (after subtracting the dividends paid from net profits)
to CEO Kevin Cornwell,
accomplished substantially all of its financial objectives for 2006 including
continued excellent returns to shareholders. We appreciate the continued
confidence that our shareholders demonstrate in the Company's prospects for
future success. We look forward to new products and other initiatives in 2007
that will help provide the basis for continued excellent growth in eps and
shareholder returns."
dilution from unexercised option shares added to actual weighted-average
outstanding shares for purposes of calculating diluted eps was 87,100 in 4Q