UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
 
 FORM
10-Q
 
 Quarterly
Report Under Section 13 or 15(d) of
 The
Securities Exchange Act of 1934
 
 
 
 For
      quarter ended: September 30, 2008
              Commission
      File No. 0-11178
 
 
 UTAH MEDICAL PRODUCTS,
INC.
 (Exact
name of Registrant as specified in its charter)
 
 
 UTAH
              87-0342734(State
      or other jurisdiction of
              (I.R.S.
      Employerincorporation
      or organization)
              Identification
      No.)
 
 
 7043
South 300 West
 Midvale,
Utah  84047
 Address
of principal executive offices
 
 
 Registrant's
telephone number:  (801)
566-1200
 
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and; (2) has been subject to such filing requirements for
the past 90 days.   Yes x   No o
 
 Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company.  See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
 Large
      accelerated filer o
              Accelerated filer x
              Non-accelerated filer o
              Smaller reporting company o
 
 Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the
Act).  Yes o   No x
 
 Indicate the number of shares
outstanding of each of the issuer’s classes of common stock as of November 6,
2008: 3,825,000.
  
  UTAH MEDICAL PRODUCTS,
INC.
 INDEX TO FORM
10-Q
 
 
 
 
 PART
      I - FINANCIAL INFORMATION
              PAGEItem
      1.
              Financial
      StatementsConsolidated
      Condensed Balance Sheets as ofSeptember
      30, 2008 and December 31, 2007
              1Consolidated
      Condensed Statements of Income for the threeand
      nine months ended September 30, 2008 and September 30,
2007
              2Consolidated
      Condensed Statements of Cash Flows for thenine
      months ended September 30, 2008 and September 30, 2007
              3Notes
      to Consolidated Condensed Financial Statements
              4Item
      2.
              Management’s
      Discussion and Analysis ofFinancial
      Condition and Results of Operations
              7Item
      3.
              Quantitative
      and Qualitative Disclosures about Market Risk
              12Item
      4.
              Controls
      and Procedures
              12PART
      II – OTHER INFORMATIONItem
      1A.
              Risk
      Factors
              13Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              13Item
      6.
              Exhibits
              14SIGNATURES
              14
  
 
 PART I - FINANCIAL INFORMATION
 Item 1. Financial Statements UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED BALANCE SHEETS AS OFSEPTEMBER 30, 2008 AND DECEMBER 31, 2007(in thousands)(unaudited)(audited)ASSETSSEPTEMBER 30, 2008DECEMBER 31, 2007Current assets:Cash$883$1,251Investments, available-for-sale21,51221,121Accounts & other receivables - net3,6943,905Inventories3,6153,153Other current assets501502Total current assets30,20529,931Property and equipment - net8,2788,606Goodwill7,1917,191Other intangible assets2,6462,640Other intangible assets - accumulated amortization(2,420)(2,382)Other intangible assets - net226258TOTAL$45,900$45,986LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable$544$393Accrued expenses2,3022,349Current portion of note payable298423Total current liabilities3,1443,165Note payable2,2963,689Deferred income taxes379343Total liabilities5,8197,197Stockholders' equity:Preferred stock - $.01 par value; authorized - 5,000shares; no shares issued or outstandingCommon stock - $.01 par value; authorized - 50,000shares; issued - September 30, 2008, 3,857 sharesand December 31, 2007, 3,905 shares3939Accumulated other comprehensive income(975)(789)Retained earnings41,01739,539Total stockholders' equity40,08138,789TOTAL$45,900$45,986see notes to consolidated condensed financial statements
 1
  UTAH MEDICAL PRODUCTS,
      INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED
      STATEMENTS OF INCOME FOR THETHREE AND NINE MONTHS
      ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007(in
      thousands, except per share amounts - unaudited)THREE
      MONTHS ENDED
                
                
                NINE
      MONTHS ENDEDSEPTEMBER
      30,
                
                
                SEPTEMBER
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Sales,
      net
                
                $
                7,181
                
                
                $
                7,097
                
                
                $
                21,185
                
                
                $
                21,426Cost
      of goods sold
                
                
                3,244
                
                
                
                3,124
                
                
                
                9,578
                
                
                
                9,511Gross
      profit
                
                
                3,937
                
                
                
                3,973
                
                
                
                11,608
                
                
                
                11,915Operating
      expenseSelling,
      general and administrative
                
                
                897
                
                
                
                1,165
                
                
                
                3,147
                
                
                
                3,494Research
      & development
                
                
                100
                
                
                
                88
                
                
                
                282
                
                
                
                293Total
                
                
                997
                
                
                
                1,253
                
                
                
                3,429
                
                
                
                3,787Operating
      income
                
                
                2,940
                
                
                
                2,720
                
                
                
                8,178
                
                
                
                8,128Other
      income (expense)
                
                
                (213
                )
                
                
                365
                
                
                
                179
                
                
                
                979Income
      before provision for income taxes
                
                
                2,727
                
                
                
                3,085
                
                
                
                8,357
                
                
                
                9,107Provision
      for income taxes
                
                
                908
                
                
                
                1,064
                
                
                
                2,729
                
                
                
                3,157Net
      income
                
                $
                1,820
                
                
                $
                2,021
                
                
                $
                5,628
                
                
                $
                5,950Earnings
      per common share (basic)
                
                $
                0.47
                
                
                $
                0.52
                
                
                $
                1.45
                
                
                $
                1.51Earnings
      per common share (diluted)
                
                $
                0.47
                
                
                $
                0.51
                
                
                $
                1.44
                
                
                $
                1.49Shares
      outstanding - basic
                
                
                3,864
                
                
                
                3,918
                
                
                
                3,875
                
                
                
                3,931Shares
      outstanding - diluted
                
                
                3,900
                
                
                
                3,975
                
                
                
                3,915
                
                
                
                3,995see
      notes to consolidated condensed financial statements
  2
  UTAH MEDICAL PRODUCTS,
      INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED
      STATEMENTS OF CASH FLOWSFOR THE NINE MONTHS
      ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007(in
      thousands - unaudited)SEPTEMBER
      30,2008
                
                
                2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                5,628
                
                
                $
                5,950Adjustments
      to reconcile net income to netcash
      provided by operating activities:Depreciation
      and amortization
                
                
                447
                
                
                
                443(Gain)
      loss on investments
                
                
                29
                
                
                
                (780
                )Provision
      for (recovery of) losses on accounts receivable
                
                
                (43
                )
                
                
                (1
                )Deferred
      income taxes
                
                
                (165
                )
                
                
                -(Gain)
      loss on disposale of assets
                
                
                0
                
                
                
                -Stock-based
      compensation expense
                
                
                97
                
                
                
                70Changes
      in operating assets and liabilities:Accounts
      receivable - trade
                
                
                147
                
                
                
                (341
                )Accrued
      interest and other receivables
                
                
                86
                
                
                
                147Inventories
                
                
                (429
                )
                
                
                (342
                )Prepaid
      expenses and other current assets
                
                
                9
                
                
                
                (29
                )Accounts
      payable
                
                
                151
                
                
                
                (4
                )Accrued
      expenses
                
                
                (35
                )
                
                
                204Total
      adjustments
                
                
                292
                
                
                
                (634
                )Net
      cash provided by operating activities
                
                
                5,920
                
                
                
                5,316CASH
      FLOWS FROM INVESTING ACTIVITIES:Capital
      expenditures for:Property
      and equipment
                
                
                (189
                )
                
                
                (214
                )Intangible
      assets
                
                
                (6
                )
                
                
                (30
                )Purchases
      of investments
                
                
                (2,250
                )
                
                
                (1,500
                )Proceeds
      from the sale of investments
                
                
                1,908
                
                
                
                1,570Net
      cash provided by (used in) investing activities
                
                
                (536
                )
                
                
                (174
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of common stock - options
                
                
                224
                
                
                
                151Common
      stock purchased and retired
                
                
                (1,908
                )
                
                
                (1,570
                )Tax
      benefit attributable to exercise of stock options
                
                
                51
                
                
                
                46Repayments
      of note payable
                
                
                (1,502
                )
                
                
                (687
                )Payment
      of dividends
                
                
                (2,625
                )
                
                
                (2,562
                )Net
      cash used in financing activities
                
                
                (5,760
                )
                
                
                (4,622
                )Effect
      of exchange rate changes on cash
                
                
                9
                
                
                
                (28
                )NET
      INCREASE (DECREASE) IN CASH
                
                
                (367
                )
                
                
                492CASH
      AT BEGINNING OF PERIOD
                
                
                1,251
                
                
                
                610CASH
      AT END OF PERIOD
                
                $
                883
                
                
                $
                1,102SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the period for income taxes
                
                $
                2,525
                
                
                $
                2,827Cash
      paid during the period for interest
                
                
                167
                
                
                
                203see
      notes to consolidated condensed financial statements
  3


UTAH MEDICAL PRODUCTS, INC.


NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS


(unaudited)





(1)    The
unaudited financial statements have been prepared in accordance with the
instructions to form 10-Q and do not include all of the information and note
disclosures required by accounting principles generally accepted in the United
States.  These statements should be read in conjunction with the
financial statements and notes included in the Utah Medical Products, Inc.
("UTMD" or "the Company") annual report on form 10-K for the year ended December
31, 2007.  In the opinion of management, the accompanying financial
statements include all adjustments (consisting only of normal recurring
adjustments) necessary to summarize fairly the Company's financial position and
results of operations.  Dollar amounts are in thousands except
per-share amounts, and where noted.





(2)    Inventories
at September 30, 2008 and December 31, 2007 consisted of the
following:





September
      30,
            
            
            December
      31,2008
            
            
            2007Finished
      goods
            
            $
            1,085
            
            
            $
            1,245Work-in-process
            
            
            909
            
            
            
            694Raw
      materials
            
            
            1,621
            
            
            
            1,214Total
            
            $
            3,615
            
            
            $
            3,153







(3)    The
Company adopted the provisions of FIN 48 on January 1, 2007.  UTMD did
not make any adjustment to opening retained earnings as a result of the
implementation.  The Company recognizes interest accrued related to
unrecognized tax benefits in interest expense.  The Company recognizes
any applicable penalties in its income tax provision.  During the
three and nine month periods ended September 30, 2008 and 2007, the Company did
not recognize any interest or penalties related to income taxes.  UTMD
did not have any accrual for the payment of interest and penalties at September
30, 2008 or December 31, 2007.





(4)    Stock-Based
Compensation.  At September 30, 2008 the Company had stock-based
employee compensation plans, which authorized the grant of stock options to
eligible employees and directors.  Effective January 1, 2006, the
Company adopted Statement of Financial Accounting Standards (SFAS) 123R, Share-Based Payment, using
the modified prospective method.  This statement requires the Company
to recognize compensation cost based on the grant date fair value of options
granted to employees and directors.  In the quarters ended September
30, 2008 and 2007, the Company recognized $33 and $25, respectively, in
compensation cost related to adoption of the statement.   In the
nine months ended September 30, 2008 and 2007, the Company recognized $97 and
$70, respectively, in compensation cost related to adoption of the
statement.





(5)    Comprehensive
Income.  Comprehensive income for the third quarter (3Q) and first
nine months (9M) of 2008 was $1,935 and $5,531, net of taxes,
respectively.  The components used to calculate comprehensive income
were foreign currency translation adjustments of ($185) and ($139) in 3Q and 9M
2008, respectively, and unrealized holding gains of $300 and $42 in 3Q and 9M
2008, respectively.





(6)    Warranty
Reserve.   The Company accrues provisions for estimated costs
that may be incurred for product warranties.  The amount of the
provision is adjusted, as required, to reflect historical
experience.  The following table summarizes changes to UTMD’s warranty
reserve during 3Q 2008:





Beginning
      Balance, July 1, 2008
            
            $
            80Changes in Warranty
      Reserve during 3Q 2008:Aggregate
      reductions for warranty repairs
            
            
            -Aggregate
      changes for warranties issued during reporting period
            
            
            -Aggregate
      changes in reserve related to preexisting warranties
            
            
            (80
            )Ending
      Balance, September 30, 2008
            
            $
            0








4







(7)    Investments.  As
of September 30, 2008, the Company’s investments were held in Fidelity Cash
Reserves (FDRXX), Citigroup common stock (C) and Washington Mutual common stock
(WM).  As noted in MD&A, UTMD wrote off the WM investment
following WM’s liquidity failure.  Changes in the unrealized holding
gain/loss on investment securities available-for-sale and reported as a separate
component of accumulated other comprehensive income are as follows:





3Q 2008
            
            
            
            3Q 2007Balance,
      beginning of period
            
            $
            (415
            )
            
            $
            -Realized
      loss from securities included in beginning balance
            
            
            266
            
            
            
            -Gross
      unrealized holding gains (losses), in equity securities
            
            
            56
            
            
            
            -Deferred
      income taxes on unrealized holding loss
            
            
            (21
            )
            
            
            -Balance,
      end of period
            
            $
            (114
            )
            
            $
            -





(8)    Fair
Value Measurements.  In September 2006, the Financial Accounting
Standards Board (“FASB”) issued Statement of Financial Accounting Standards
(“SFAS”) No. 157 “Fair Value Measurements.”   This
statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles and expands disclosures about fair
value measurements.  SFAS 157 is effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal
years.  UTMD adopted the requirements of SFAS 157 on January 1,
2008.







The
following table provides financial assets carried at fair value measured as of
September 30, 2008:




Fair
      Value Measurements UsingDescription
            
            Total Fair Value at
      9/30/2008
            
            
            Quoted
      Prices in Active Markets for Identical Assets
              (Level
      1)
            
            
            Significant
      Other Observable Inputs
              (Level
      2)
            
            
            Significant
              Unobservable
      Inputs
              (Level 3
      )Available-for-sale
      securities
            
            $
            21,512
            
            
            $
            21,512
            
            
            $
            0
            
            
            $
            0







(9)   Forward-Looking
Information.   This report may contain certain forward-looking
statements and information relating to the Company that are based on the beliefs
of management as well as assumptions made by, and information currently
available to, management.  When used in this document, the words
“anticipate,” “believe,” “should,”  “project,” “estimate,” “expect,”
“intend” and similar expressions, as they relate to the Company or its
management, are intended to identify forward-looking statements.  Such
statements reflect the current view of the Company respecting future events and
are subject to certain risks, uncertainties, and assumptions, including the
risks and uncertainties noted throughout this document.  Although the
Company has attempted to identify important factors that could cause the actual
results to differ materially, there may be other factors that cause the forward
statement not to come true as anticipated, believed, projected, expected, or
intended.  Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may differ materially from those described herein as anticipated, believed,
projected, estimated, expected, or intended.  Financial estimates are
subject to change and are not intended to be relied upon as predictions of
future operating results, and the Company assumes no obligation to update or
disclose revisions to those estimates.




General risk factors that may impact
the Company’s revenues include the general economic conditions affecting, among
other things, the financial solvency of customers and their ability to continue
to afford purchasing medical devices, market acceptance of competitive products;
administrative practices of group purchasing organizations; obsolescence caused
by new technologies; the possible introduction by competitors of new products
that claim to have many of the advantages of UTMD’s products at lower prices;
the timing and market acceptance of UTMD’s own new product introductions;
changes in clinical practices; UTMD’s ability to efficiently and responsively
manufacture its products; including the possible effects of lack of performance
of suppliers; opportunities in gaining access to important global distribution
channels; budgetary constraints; the timing of regulatory approvals for newly
introduced products; regulatory intervention in current operations; government
intervention in the economy and third party reimbursement of health care costs
of patients.





5





Negative factors that may adversely
impact future performance include managed care reforms or hospital group buying
agreements that may limit physicians’ ability to choose certain products or
procedures, new products introduced by other companies that displace UTMD’s
products, new product regulatory approval delays, changes in the Company’s
relationships with distribution partners, and loss of key
personnel.




The length of time and number of
administrative steps required in adopting new products for use in hospitals has
grown substantially in recent years.  As a potential negative factor
to future performance, as UTMD introduces new products it believes are safer and
more effective, it may find itself excluded from certain customers because of
the existence of long term supply agreements for preexisting
products.  UTMD may also be unable to establish viable relationships
with other medical device companies that do have access to users but lack an
interest in the Company’s approach or present unreasonable burdens.




Risk factors, in addition to the risks
outlined in the previous paragraphs and elsewhere in this report that may impact
the Company’s assets and liabilities, as well as cash flows, include: risks
inherent to companies manufacturing products used in healthcare, including
claims resulting from the improper use of devices and other product liability
claims; defense of the Company’s intellectual property or claims of patent
infringement by others; productive use of assets in generating revenues;
management of working capital, including inventory levels required to meet
delivery commitments at a minimum cost; and timely collection of accounts
receivable.




Additional risk factors that may affect
non-operating income include: the continuing viability of the Company’s
technology license agreements; actual cash and investment balances; performance
of investments; prevailing interest rates, asset dispositions; and acquisition
activities that may or may not require external funding.







6





Item 2.  Management's Discussion and Analysis
of Financial Condition and Results of Operations





General




UTMD
manufactures and markets a well-established range of primarily single-use
specialty medical devices.  The Company’s Form 10-K Annual Report for
the year ended December 31, 2007 provides a detailed description of products,
technologies, markets, regulatory issues, business initiatives, resources and
business risks, among other details, and should be read in conjunction with this
report.  Because of the relatively short span of time, results for any
given three month period in comparison with a previous three month period may
not be indicative of comparative results for the year as a
whole.  Dollar amounts in the report are in thousands, except
per-share amounts or where otherwise noted.




Given the
recent crisis in credit markets, the dramatic change in the value of the EURO
vis-à-vis the U.S. Dollar and the apparent serious concern regarding a
significant recession that may affect the order patterns of customers, UTMD is
not able to provide a projection for the remainder of 2008 in this
report.





Analysis
of Results of Operations




a)
            Overview




In third
quarter (3Q) 2008, UTMD’s consolidated global sales were 1% higher than in 3Q
2007, and represented the highest sales for a calendar quarter to date in
2008.  3Q 2008 earnings per share (EPS) were $.467 compared to $.508
EPS in 3Q 2007.  UTMD achieved the following profitability measures
for 3Q 2008 and 3Q 2007:


3Q
      08
            3Q
      07Gross
      Profit Margin:
            54.8%
            56.0%Operating
      Profit Margin:
            40.9%
            38.3%Net
      Income Margin:
            25.3%
            28.5%





The most
significant difference in performance comparing 3Q 2008 with 3Q 2007 was due to
a change in non-operating income. In 3Q 2008, UTMD recorded non-operating expense of $213,
compared to non-operating income of $365 in 3Q
2007.  The $578 difference was due to realizing a net capital loss of
$428 on investments and lower interest rates on cash balances.  As an
offset to the capital loss, UTMD reduced the management bonus reserve for 2008
by $250, representing an estimate of the CEO’s annual bonus. The income
statement effect reduced G&A expenses as part of operating expenses, thus
increasing operating income by $250.  From an income tax perspective,
the capital loss will be offset by capital gains achieved in the prior three
years.




The
following table compares certain 3Q 2008 and 3Q 2007 income statement categories
according to GAAP, with adjusted 3Q 2008 income statement categories omitting
the 3Q 2008 net capital loss and the 3Q 2008 management bonus
adjustment:


Income
      Statement Categories
            
            3Q
      2008
              As
      Reported per GAAP
            
            
            3Q
      2008
              without
      Net Capital Loss on Investments and Management Bonus Reserve
      Adjustment
            
            
            3Q
      2007
              As
      Reported per GAAPGross
      Profit
            
            $
            3,937
            
            
            $
            3,937
            
            
            $
            3,973G&A
      Expense
            
            
            (439
            )
            
            
            (689
            )
            
            
            (620
            )Operating
      Income
            
            
            2,940
            
            
            
            2,690
            
            
            
            2,720Non-Operating
      Income/ (Expense)
            
            
            (213
            )
            
            
            215
            
            
            
            365Income
      before Tax
            
            
            2,727
            
            
            
            2,905
            
            
            
            3,085Net
      Income
            
            
            1,820
            
            
            
            1,931
            
            
            
            2,021Earnings
      per Share
            
            $
            .467
            
            
            $
            .495
            
            
            $
            .508




In
management’s opinion, the unfavorable net capital loss on investments and the
favorable accrued bonus expense adjustment have an impact on the 3Q 2008 income
statement that does not allow a meaningful comparison with 3Q 2007, or what is
likely to occur in the future.




For the
first nine months (9M) of 2008, UTMD’s total sales were down 1% compared to 9M
2007. 9M 2008 EPS were $1.438 compared to $1.489 EPS in 9M 2007.  UTMD
achieved the following profitability as a ratio of sales in 9M 2008 and 9M
2007:




9M
      08
            9M
      07Gross
      Profit Margin:
            54.8%
            55.6%Operating
      Profit Margin:
            38.6%
            37.9%Net
      Income Margin:
            26.6%
            27.8%







7





b)
            Revenues




The
Company recognizes revenue at the time of shipment as title generally passes to
the customer at that time.  Revenue recognized by UTMD is based upon
documented arrangements and fixed contracts in which the selling price is fixed
prior to completion of an order.  Revenue from product and service
sales is generally recognized at the time the product is shipped or service
completed and invoiced, and collectibility is reasonably
assured.  There are circumstances under which revenue may be
recognized when product is not shipped, which meet the criteria of SAB
104:  the Company provides engineering services, for example, design
and production of manufacturing tooling that may be used in subsequent UTMD
manufacturing of custom components for other companies.  This revenue
is recognized when UTMD’s service has been completed according to a fixed
contractual agreement.




Total
sales were 1% higher in 3Q 2008 compared to 3Q 2007.  International
sales were 3% higher while domestic sales were less than 1%
higher.  Domestic sales were comprised of domestic OEM sales (sales of
components to other companies for use in their products) up 24% and domestic
direct sales (sales of finished devices to users or distributors) down
1%.  Domestic OEM sales and international sales have an uneven
quarter-to-quarter sales pattern because customers tend to purchase several
months’ supply of products at a time to minimize costs.




Domestic
direct sales excluding obstetrics products were up 8% in 3Q 2008 from 3Q
2007.  Domestic obstetrics product sales, which products are sold to
L&D units of hospitals, were down 14% as a result of loss of market share
due to significant price reductions offered by competitors in 2008 and the
continued trend of administrative arrangements limiting physician choice of
devices used in L&D. UTMD’s objective is to replace sales lost due to
increased competition by continued development of unique products that provide
significant improvements in patient safety and effectiveness of
care.




Total 9M
2008 sales were 1% lower than in 9M 2007.  9M 2008 international sales
increased 4% while domestic sales decreased 3%.  International sales
were 32% of total sales in 9M 2008 compared to 30% in 9M 2007.  9M
2008 trade shipments from UTMD’s Ireland facility were down 6% in US Dollar
terms and 17% in EURO terms compared to 9M 2007, as UTMD shifted some of its
international work to lower cost centers in the U.S.




The
following table provides the actual sales dollar amounts by general product
category for total sales and the subset of international sales:





Global
revenues by product category:


3Q 2008
            
            
            
            3Q 2007
            
            
            
            9M 2008
            
            
            
            9M 2007Obstetrics
            
            $
            1,771
            
            
            $
            2,157
            
            
            $
            5,393
            
            
            $
            6,460Gynecology/
      Electrosurgery/ Urology
            
            
            1,573
            
            
            
            1,540
            
            
            
            4,730
            
            
            
            4,665Neonatal
            
            
            1,942
            
            
            
            1,761
            
            
            
            5,457
            
            
            
            5,253Blood
      Pressure Monitoring and Accessories*
            
            
            1,895
            
            
            
            1,639
            
            
            
            5,605
            
            
            
            5,048Total:
            
            $
            7,181
            
            
            $
            7,097
            
            
            $
            21,185
            
            
            $
            21,426


*includes molded components sold to
OEM customers.





International
revenues by product category:


3Q 2008
            
            
            
            3Q 2007
            
            
            
            9M 2008
            
            
            
            9M 2007Obstetrics
            
            $
            116
            
            
            $
            237
            
            
            $
            403
            
            
            $
            703Gynecology/
      Electrosurgery/ Urology
            
            
            524
            
            
            
            538
            
            
            
            1,693
            
            
            
            1,541Neonatal
            
            
            211
            
            
            
            162
            
            
            
            625
            
            
            
            487Blood
      Pressure Monitoring and Accessories*
            
            
            1,320
            
            
            
            1,172
            
            
            
            3,965
            
            
            
            3,693Total:
            
            $
            2,171
            
            
            $
            2,109
            
            
            $
            6,686
            
            
            $
            6,423


*includes molded components sold to OEM
customers.





c)
            Gross
      Profit




UTMD’s
average gross profit margin (GPM), gross profits as a percentage of sales, was
54.8% in both 3Q and 9M 2008, compared to 56.0% and 55.6% in 3Q and 9M 2007,
respectively.  The lower GPM in 2008 has been due to higher direct
materials, transportation and labor costs in addition to a mix shift in
distribution channels. The substantially higher cost of crude oil impacts costs
of raw materials for plastic devices, as well as substantially higher freight
costs.





8





OEM sales
are sales of UTMD components and subassemblies that are marketed by other
companies as part of their product offerings.  UTMD utilizes OEM sales
as a means to help optimize utilization of its capabilities established to
satisfy its direct sales business.  As a general rule, prices for OEM
sales expressed as a multiple of direct variable manufacturing expenses are
lower than for direct sales because, in the OEM and international channels,
UTMD’s business partners incur significant expenses of sales and
marketing.  Because of UTMD’s small size and period-to-period
fluctuations in OEM business, fixed manufacturing overhead expenses cannot be
meaningfully allocated between direct and OEM sales. Therefore, UTMD does not
report GPM by sales channels.





d)
            Operating
      Profit




Operating
Profit, or income from operations, is the profit remaining after subtracting
operating expenses from gross profits.  Operating expenses include
sales and marketing (S&M), research and development (R&D) and general
and administrative (G&A) expenses.  Operating expenses in 3Q 2008
were $257 lower than in 3Q 2007, and $358 lower in 9M 2008 than in 9M
2007.  The lower operating expenses were a result of a $250 reduction
in the management bonus accrual and proportionately lower sales expenses when
selling through international distributors.




Because
UTMD sells internationally through third party distributors, its S&M
expenses are predominantly for U.S. business activity where it sells directly to
clinical users.  S&M expenses in 3Q 2008 were $88 lower than in 3Q
2007, and $206 lower in 9M 2008 than in 9M 2007.




R&D
expenses in 3Q 2008 were $12 higher than in 3Q 2007, and $11 lower in 9M 2008
than in 9M 2007.  For the full year of 2008, UTMD expects that R&D
expenses will be about the same as in 2007.




G&A
expenses in 3Q 2008 were $181 lower than in 3Q 2007, and $141 lower in 9M 2008
than in 9M 2007.  The 3Q 2008 G&A expense decrease was primarily
due to a $250 reduction in the management bonus accrual as an offset for the
non-operating loss (from the capital loss) of UTMD’s investment in Washington
Mutual common stock.  The most significant G&A expense categories
which were higher in 3Q 2008 compared to 3Q 2007 were legal and accounting, up
$37 due in part to expenses for filing the SEC Form S-3 “shelf” registration,
and salaries and benefits up $19 including a higher stock option compensation
expense than in the prior year.  Option compensation expense included
in G&A expenses in 3Q 2008 was $33 compared to $25 in 3Q 2007, and $97 in 9M
2008 compared to $70 in 9M 2007.




UTMD’s
operating profit margin in 3Q 2008 was 40.9% compared to 38.3% of sales in 3Q
2007, and 38.6% in 9M 2008 compared to 37.9% of sales in 9M 2007.




The
division of operating expenses by major subcategory are provided
below:


3Q
    2008
            
            
            
            3Q
    2007
            
            
            
            9M
    2008
            
            
            
            9M
    2007S&M
      Expense
            
            $
            457
            
            
            $
            545
            
            
            $
            1,365
            
            
            $
            1,571R&D
      Expense
            
            
            100
            
            
            
            88
            
            
            
            282
            
            
            
            293G&A
      Expense
            
            
            439
            
            
            
            620
            
            
            
            1,782
            
            
            
            1,923Total
      Operating Expenses:
            
            $
            996
            
            
            $
            1,253
            
            
            $
            3,429
            
            
            $
            3,787





e)
            Non-operating
      income (expense)




Non-operating
income (expense) 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 or losses from the sale of assets, offset by
non-operating expenses which include interest on the Ireland bank loan and bank
service fees.   Non-operating expense in 3Q 2008
was $(213) compared to income of $365 in 3Q
2007, and income of $179 in 9M 2008 compared to income of $979 in 9M
2007.  As described above, the expense in 3Q 2008 resulted from a net
realized capital loss on investments of $428 due to a write-off of UTMD’s
investment in Washington Mutual (WM) common stock. partially offset by gains
from sales of Spartan S/T Treas Bd Fid Advantage Class (FSBAX), compared to a
capital gain of $19 in 3Q 2007.




UTMD
received interest and dividends of $154 from investing its cash balances in 3Q
2008, compared to interest and dividends of $258 in 3Q 2007, and $419 in 9M 2008
compared to $777 in 9M 2007. The lower interest income was due to lower interest
rates in 2008 than in 2007. Royalty income, $112 in 3Q and $337 in 9M, was the
same in both years.  The royalty which generated the income in both
years concludes at the end of 2008.  Rental income was $5 in 3Q 2008
and $61 in 9M 2008, compared to $56 in 3Q 2007 and $87 in 9M
2007.  The drop in rental income was due to weakening demand for UTMD
Ireland’s excess warehouse space due to slowing economic activity in 3Q
2008.









9




f)
            Earnings
      Before Income Taxes




Earnings
before income taxes (EBT) in 3Q 2008 were $2,727 compared to $3,085 in 3Q
2007.  EBT in 9M 2008 were $8,357 compared to $9,107 in 9M
2007.  EBT margins (EBT divided by sales) were 38.0% and 39.5% in 3Q
and 9M 2008, respectively, compared to 43.5% and 42.5% in 3Q and 9M 2007,
respectively.





g)
            Net
      Income and Earnings per Share




UTMD’s
net income was $1,820 in 3Q 2008 compared to $2,021 in 3Q 2007, and $5,628 in 9M
2008 compared to $5,950 in 9M 2007.  Net profit margins (NPM), which
are net income (after tax) expressed as a percentage of sales, were 25.3% in 3Q
2008 compared to 28.5% in 3Q 2007, and 26.6% in 9M 2008 compared to 27.8% in 9M
2007.  The income tax provision rates in 3Q and 9M 2008 were 33.3% and
32.7% of EBT, respectively, compared to 34.5% and 34.7% in 3Q and 9M
2007.  The lower tax provision rate resulted primarily from refunds on
amended 2004-2006 income tax returns in Ireland.




UTMD’s
net income divided by weighted average outstanding shares for the applicable
reporting period, diluted for unexercised employee and director options,
provides earnings per share (EPS) as follows:




3Q 2008
            
            
            
            3Q 2007
            
            
            
            9M 2008
            
            
            
            9M 2007Earnings
      Per Share (EPS)
            
            $
            .467
            
            
            $
            .508
            
            
            $
            1.438
            
            
            $
            1.489Shares
      (000), Diluted
            
            
            3,900
            
            
            
            3,975
            
            
            
            3,915
            
            
            
            3,995




The
Company repurchased 20,200 and 66,800 of its shares in the open market in 3Q
2008 and in 9M 2008 respectively.   Exercises of employee options
added 6,100 and 20,200 shares in 3Q and 9M 2008 (net of 1,800 shares swapped in
9M by individuals in payment of the exercise price of the options)
respectively.  Options outstanding at September 30, 2008 were 210,400
shares at an average exercise price of $23.10 per share.




Increases
and decreases in UTMD’s stock price impact EPS as a result of the dilution
calculation for unexercised options with exercise prices below the average stock
market value during each period.  The dilution calculation added
36,100 and 39,200 shares to actual weighted average shares outstanding in 3Q and
9M 2008 respectively, compared to 57,300 and 63,800 in 3Q and 9M
2007.  The decrease in dilution is due to a lower average market price
of UTMD shares in addition to fewer unexercised options
outstanding.  Actual outstanding common shares as of the end of 3Q
2008 were 3,856,900 compared to 3,915,900 at the end of 3Q 2007.





h)
            Return
      on Equity




Return on
equity (ROE) is the portion of net income retained by UTMD (after payment of
dividends) to internally finance its growth, divided by the average accumulated
shareholder equity for the applicable time period.  Annualized ROE
(after payment of dividends) for 9M 2008 was 10% compared to 12% for 9M
2007.  The lower ROE in 9M 2008 was due to 5% lower net profits, 2%
higher dividends and 6% higher average equity to date in 2008.  Share
repurchases have a beneficial impact on ROE as long as the Company sustains net
profit performance, because shareholder equity is reduced by the cost of the
shares repurchased.  Payment of dividends reduces ROE because net
income is reduced by the dividends paid to shareholders.  ROE before
payment of dividends was 19% in 9M 2008 compared to 22% in 9M 2007.





Liquidity
and Capital Resources




i)
            Cash
      flows




Net cash
provided by operating activities, including adjustments for depreciation and
other non-cash operating expenses along with changes in working capital totaled
$5,920 in 9M 2008 compared to $5,316 in 9M 2007.  A $809 smaller gain
on investments and a $488 smaller increase in accounts receivable were the most
significant differences in the two periods.




The
Company’s use of cash for investing activities was primarily as a result of
purchases of short-term investments, in an effort to maximize returns on excess
cash balances while maintaining safety and liquidity.  Capital
expenditures for property and equipment were $189 in 9M 2008 compared to $214 in
9M 2007.  This investment in new property and equipment was required
to keep facilities, equipment and tooling in good working
condition.





10





In 9M
2008, UTMD received $224 and issued 18,400 shares of stock upon the exercise of
employee stock options.  Option exercises in 9M 2008 were at an
average price of $13.78 per share.  Employees exercised a total of
20,200 option shares in 9M 2008, with 1,800 shares immediately being retired as
a result of the individuals trading the shares in payment of the exercise price
of the options.  For comparison, the Company received $151 from
issuing 23,000 shares of stock on the exercise of employee stock options in 9M
2007, net of 6,400 shares retired upon employees trading those shares in payment
of the stock option exercise price.  The Company repurchased 66,800
shares of its stock in the open market at a cost of $1,908 during 9M 2008, an
average cost of $28.58 per share including commissions and fees.  For
comparison, UTMD repurchased 50,700 shares of stock in the open market at a cost
of $1,570 during 9M 2007.




UTMD Ltd.
(Ireland subsidiary) made payments of $1,502 on its note payable during 9M
2008.  In 9M 2007, UTMD made loan repayments of $687.  UTMD
paid $2,625 in cash dividends in 9M 2008 compared to $2,562 in 9M 2007, a 2%
increase in cash dividends paid, although shares in 9M 2008 which received the
dividends were about 1% fewer than in 9M 2007.




Management believes that future
income from operations and effective management of working capital will provide
the liquidity needed to finance internal growth plans.  Planned
capital expenditures during the remainder of 2008 are expected to be less than
$200 to keep facilities, equipment and tooling in good working
order.  In addition, UTMD may use cash in 2008 for selective infusions
of technological, marketing or product manufacturing rights to broaden the
Company's product offerings; for continued share repurchases when the price of
the stock is undervalued; and if available for a reasonable price, acquisitions
that may strategically fit UTMD’s business and are accretive to
performance.





j)
            Assets
      and Liabilities




September
30, 2008 total assets were about the same as at December 31,
2007.  The most significant changes included a $462 increase in
inventories, a $328 decrease in US Dollar-denominated net property and
equipment, and a $211 decrease in accounts receivable.  Inventories
increased as a result of bulk purchases of raw materials to offset incrementally
rising direct materials costs.  Since the end of 2007, cash and
investment balances have increased slightly despite paying out $2,625 in cash
dividends to shareholders, repurchasing $1,908 in UTMD shares in the open
market, repaying $1,502 on the Ireland loan principle balance, and incurring a
$428 net capital loss in 3Q 2008.




Working
capital was $27,062 at September 30, 2008, $296 higher than at 2007
year-end.  Working capital continues substantially in excess of UTMD’s
normal operating needs.  As a result of the working capital changes,
UTMD’s current ratio increased to 9.6 on September 30, 2008 from 9.5 at year-end
2007, and 8.4 on September 30, 2007.




Net
property and equipment decreased $328 in 9M 2008 after additions of $189, offset
by depreciation of $409 and a decrease in the dollar-denominated value of
Ireland P&E.  Goodwill resulting from prior acquisitions remained
the same. Net intangible assets excluding goodwill decreased $32 as a result of
amortization of intellectual property of $38 offset by additions of intangibles
of $6.  At September 30, 2008, net intangible assets including
goodwill were 16% of total assets, the same as at year-end 2007.




UTMD’s
long term liabilities are comprised of the Ireland note payable ($2,296 on
September 30, 2008) and deferred income taxes ($379 on September 30,
2008).  As of December 31, 2007, the respective long term liabilities
were $3,689 and $343.  In EURO, the Ireland loan balance (including
the short term portion) declined 36% from €2,791 to €1,800 (both in thousands)
during 9M 2008.   As of September 30, 2008, UTMD’s total debt
ratio (total liabilities/ total assets) decreased to 13% from 16% on December
31, 2007, and 17% on September 30, 2007.




UTMD does
not have any off-balance sheet arrangements that have or are reasonably likely
to have a current or future effect on its financial condition, changes in
financial condition, revenues or expenses.





k)
            Management's
      Outlook.




Due to
the recent crisis in credit markets, the dramatic change in the value of the
EURO vis-à-vis the U.S. Dollar and the apparent serious concern of customers
regarding a significant recession that may affect their order patterns for
UTMD’s devices, management is not able to provide a projection for the remainder
of 2008 in this report.





l)
            Accounting
      Policy Changes.




UTMD
adopted SFAS No. 157 “Fair Value Measurements” on January 1,
2008.  Please see note 8 above.





11





Item 3.  Quantitative and Qualitative
Disclosures about Market Risk





UTMD has
manufacturing operations, including related assets, in Ireland denominated in
the EURO, and sells products under agreements denominated in various Western
European currencies.  The EURO and other currencies are subject to
exchange rate fluctuations that are beyond the control of UTMD.  The
exchange rate was 0.6940 EURO per USD as of September 30, 2008, and 0.7055 EURO
per USD as of September 30, 2007.  Only a month later, as of November
1, 2008, the EURO had declined to 0.7875 per USD.  UTMD manages its
foreign currency risk without separate hedging transactions by converting
currencies to USD as transactions occur.








Item
4.  Controls and Procedures





The
company’s management, under the supervision and with the participation of the
Chief Executive Officer and the Principal Financial Officer, evaluated the
effectiveness of the company’s disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of
September 30, 2008. Based on this evaluation, the Chief Executive Officer and
Principal Financial Officer concluded that, as of September 30, 2008, the
company’s disclosure controls and procedures were effective.




There
were no changes in the company’s internal controls over financial reporting that
occurred during the quarter ended September 30, 2008, that have materially
affected, or are reasonably likely to materially affect, the company’s internal
controls over financial reporting.




In August
2008, UTMD’s board of directors updated the charters of its standing committees,
and established a formal Governance and Nominating Committee.  The new
Governance and Nominating Committee is constituted by all of the outside
directors and the CEO. The charters of the committees are provided on UTMD’s
website,www.utahmed.com.




12





PART II -
OTHER INFORMATION





Item
1A.       Risk Factors





In addition to the other information
set forth in this report, investors should carefully consider the factors
discussed in Part I, “Item 1A. Risk Factors” in UTMD’s Annual Report on Form
10-K for the year ended December 31, 2007, which could materially affect its
business, financial condition or future results.  The risks described in
the Annual Report on Form 10-K are not the only risks facing the Company. 
Additional risks and uncertainties not currently known to UTMD or currently
deemed to be immaterial also may materially adversely affect the Company’s
business, financial condition and/or operating results.








Item
2.          Unregistered Sales
of Equity Securities and Use of Proceeds





The
following table details purchases by UTMD of its own securities during 3Q
2008.





ISSUER
PURCHASES OF EQUITY SECURITIES





Period
            
            Total
      Number of Shares Purchased (1)
            
            
            Average
      Price Paid per Share
            
            
            Total
      Number of Shares Purchased as Part of Publicly Announced Plans or Programs
      (1)
            
            Maximum
      Number (or Approximate Dollar Value) of Shares that May be Purchased Under
      the Plans or Programs (1)7/01/08
      - 7/31/08
            
            
            5,049
            
            
            $
            27.59
            
            
            
            5,0498/01/08
      - 8/31/08
            
            
            1,189
            
            
            
            27.47
            
            
            
            1,1899/01/08
      - 9/30/08
            
            
            13,982
            
            
            
            27.66
            
            
            
            13,982Total
            
            
            20,220
            
            
            $
            27.63
            
            
            
            20,220





(1)    In
3Q 2008 UTMD repurchased the above shares pursuant to a continued open market
repurchase program initially announced in August 1992.  Since 1993
through 3Q 2008, the Company has repurchased 6.5 million shares at an average
cost of $12.02 per share including broker commissions and fees in open market
transactions.  In addition, the Company conducted tender offer
transactions in which it purchased an additional 2.8 million shares at an
average cost of $9.76 per share including fees and administrative
costs.  In total, UTMD has repurchased 9.2 million of its shares at an
average price of $11.34 per share since 1993.  To complete the picture
relating to current shares outstanding, since 1993 the Company’s employees and
directors have exercised and purchased 1.6 million option shares at an average
price of $9.02 per share.  All options were awarded at the market
value of the stock on the date of the award.





The frequency of UTMD’s open market
share repurchases depends on the availability of sellers and the price of the
stock.  The board of directors has not established an expiration date
or a maximum dollar or share limit for UTMD’s continuing and long term
consistent pattern of open market share repurchases.





The purpose of UTMD’s ongoing share
repurchases is to maximize the value of the Company for its continuing
shareholders, and maximize its return on shareholder equity by employing excess
cash generated by effectively managing its business.  UTMD does not
intend to repurchase shares that would result in terminating its Nasdaq Global
Market listing.




13




Item
6.  Exhibits





Exhibit
      #
            SEC
              Reference
      #
            Title of
      Document1
            31
            Certification
      of CEO pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 20022
            31
            Certification
      of Principal Financial Officer pursuant to Rule 13a-14(a) as adopted
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  20023
            32
            Certification
      of CEO pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 20024
            32
            Certification
      of Principal Financial Officer pursuant to 18 U.S.C. §1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002








SIGNATURES





Pursuant
to the requirements of the Securities Exchanges Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





UTAH MEDICAL PRODUCTS,
      INC.REGISTRANTDate: 11/7/08
            By:
            /s/ Kevin L.
      CornwellKevin
      L. CornwellCEODate: 11/7/08
            By:
            /s/ Paul O.
      RichinsPaul
      O. RichinsPrincipal
      Financial Officer


14