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, 2008 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. A pictorial display as well as description of UTMD's devices is available on the Company's website www.utahmed.com.
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.

Analysis of Results of Operations
a) Overview In third quarter (3Q) 2009, UTMD's consolidated global sales were 7% lower than in 3Q 2008. 3Q 2009 earnings per share (EPS) were $.443 compared to $.467 EPS in 3Q 2008. UTMD achieved the following profitability as a ratio of sales in 3Q 2009 and 3Q 2008:

                                                 3Q 09       3Q 08
                    Gross Profit Margin:          52.4 %      54.8 %
                    Operating Profit Margin:      35.7 %      40.9 %
                    Net Income Margin:            24.2 %      25.3 %

For the first nine months (9M) of 2009, UTMD's total sales were down 8% compared to 9M 2008. 9M 2009 EPS were $1.300 compared to $1.438 EPS in 9M 2008. UTMD achieved the following profitability as a ratio of sales in 9M 2009 and 9M 2008:

                                                 9M 09       9M 08
                    Gross Profit Margin:          53.2 %      54.8 %
                    Operating Profit Margin:      36.3 %      38.6 %
                    Net Income Margin:            24.3 %      26.6 %


b)   Revenues

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 2009        3Q 2008        9M 2009        9M 2008
     Obstetrics                   $   1,624      $   1,771      $   4,836      $   5,393
     Gynecology/
     Electrosurgery/ Urology          1,573          1,573          4,806          4,730
     Neonatal                         1,902          1,942          5,483          5,457
     Blood Pressure Monitoring
     and Accessories*                 1,574          1,895          4,298          5,605
     Total:                       $   6,673      $   7,181      $  19,424      $  21,185

*includes molded components sold to OEM customers.

International revenues by product category:

                                    3Q 2009        3Q 2008        9M 2009        9M 2008
     Obstetrics                   $     122      $     116      $     344      $     402
     Gynecology/
     Electrosurgery/ Urology            535            524          1,698          1,693
     Neonatal                           255            211            714            625
     Blood Pressure Monitoring
     and Accessories*                 1,005          1,320          2,676          3,966
     Total:                       $   1,916      $   2,171      $   5,432      $   6,686

*includes molded components sold to Int'l OEM customers.

UTMD's sales depend on its continued ability to retain medical staff involvement in purchasing decisions for UTMD's "physician-preference" products used in U.S. hospitals where administrators are increasingly making the product decisions, expanded clinical acceptance of its newer specialty products, release of new products after FDA concurrence with premarketing submissions and continued development of UTMD's international distribution channels.

c) Gross Profit UTMD's average gross profit margin (GPM), gross profits as a percentage of sales, was 52.4% and 53.2% in 3Q and 9M 2009, respectively, compared to 54.8% in both 3Q and 9M 2008. As a result of the combination of lower sales and lower GPM, gross profits declined $437 (11%) in 3Q 2009 and $1,273 (11%) in 9M 2009 compared to the same periods in 2008. The lower GPM were substantially due to lower absorption of fixed costs on lower sales volume. After adjustments which were made in 3Q, the Company is currently targeting gross profits for the year of 2009 as a whole to be down 8-9% from 2008. 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 2009 were $119 higher than in 3Q 2008, because of the $250 reduction in 2008 management bonus accrual representing the elimination of the CEO's 2008 annual bonus which occurred in 3Q 2008. Operating expenses in 9M 2009 were $151 lower than in 9M 2008. The lower 9M operating expenses resulted from lower domestic sales expenses, which were lower in approximately the same proportion as lower sales. 9M G&A and R&D expenses were about the same as in 9M 2008. Please see the table below.

UTMD's operating profit margin in 3Q 2009 was 35.7% compared to 40.9% in 3Q 2008, and 36.3% in 9M 2009 compared to 38.6% in 9M 2008. UTMD is currently targeting an operating profit margin for the whole year of 2009 at 36%.

                                     3Q 2009       3Q 2008       9M 2009       9M 2008
       S&M Expense                 $     389     $     457     $   1,218     $   1,365
       R&D Expense                        97           100           273           282
       G&A Expense                       630           439         1,788         1,782
       Total Operating Expenses:   $   1,116     $     996     $   3,279     $   3,429

Note: Option compensation expense included in G&A expenses in 3Q 2009 was $22 compared to $33 in 3Q 2008, and $75 in 9M 2009 compared to $97 in 9M 2008.

e) Non-operating income (expense) Non-operating income in 3Q 2009 was $61 compared to non-operating expense of $213 in 3Q 2008, and $148 in 9M 2009 compared to $179 in 9M 2008. The $274 difference in 3Q was due primarily to realizing a net capital loss of $428 on investments in 3Q 2008. UTMD did not receive royalty income in 3Q or 9M 2009 compared to $113 in 3Q and $337 in 9M 2008. UTMD received $71 in 3Q 2009 compared to $154 in 3Q 2008, and $194 in 9M 2009 compared to $419 in 9M 2008 in interest, dividends and capital gains/losses income from investing cash balances. The declines were primarily due to the fact that interest rates in the U.S. have declined substantially compared to one year ago. In 3Q and 9M 2009, UTMD had interest expenses of $11 and $40, respectively, compared to $41 and $168 in 3Q and 9M 2008, due to lower interest rates on its loan in Ireland, lower average Ireland loan balances and favorable foreign exchange conversion as a result of a stronger US Dollar. The interest expense resulted from UTMD's Ireland facility borrowing 4,500 EURO (€) in December 2005 to allow the repatriation of profits generated by its Ireland operations between 1996 and 2005. The loan is being paid by the Ireland subsidiary from profits generated there. The loan balance as of September 30, 2009 was €1,182 EURO, so about 74% of the loan has been repaid. Management currently estimates that total 2009 non-operating income will be about $200 lower than in 2008. The actual amount of 2009 non-operating income may be lower if UTMD utilizes current cash and investment balances for an acquisition, unexpected litigation costs or substantial share repurchases.

f) Earnings Before Income Taxes Earnings before income taxes (EBT) in 3Q 2009 were $2,445 compared to $2,727 in 3Q 2008. EBT in 9M 2009 were $7,204 compared to $8,357 in 9M 2008. EBT margins (EBT divided by sales) were 36.6% and 37.1% in 3Q and 9M 2009, respectively, compared to 38.0% and 39.5% in 3Q and 9M 2008, respectively.

g) Net Income and Earnings per Share UTMD's net income was $1,615 in 3Q 2009 compared to $1,820 in 3Q 2008, and $4,711 in 9M 2009 compared to $5,628 in 9M 2008. Net profit margins (NPM), which are net income (after tax) expressed as a percentage of sales, were 24.2% in 3Q 2009 compared to 25.3% in 3Q 2008, and 24.3% in 9M 2009 compared to 26.6% in 9M 2008. The income tax provision rates in 3Q and 9M 2009 were 34.0% and 34.6% of EBT, respectively, compared to 33.3% and 32.7% in 3Q and 9M 2008. The lower tax provision rate in 2008 resulted primarily from refunds on amended 2004-2006 income tax returns in Ireland. UTMD expects its consolidated income tax provision rate for the year of 2009 will be between one and two percentage points higher than for 2008, which was 33.1% for the year. 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 2009       3Q 2008       9M 2009       9M 2008
        Earnings Per Share (EPS)   $    .443     $    .467     $   1.300     $   1.438
        Shares (000), Diluted          3,642         3,900         3,624         3,915

The Company did not repurchase any of its shares in the open market in 3Q 2009, and has repurchased 5,367 shares in 9M 2009. Exercises of employee options added 4,000 and 13,000 shares in 3Q and 9M 2009 respectively (net of 2,100 shares swapped in 9M by individuals in payment of the exercise price of the options). Options outstanding at September 30, 2009 were 243,800 shares at an average exercise price of $23.94 per share, including shares awarded but not vested.

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 33,000 and 17,600 shares to actual weighted average shares outstanding in 3Q and 9M 2009 respectively, compared to 36,100 and 39,200 in 3Q and 9M 2008. Actual outstanding common shares as of the end of 3Q 2009 were 3,610,400 compared to 3,856,900 at the end of 3Q 2008.

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 2009 was 8% compared to 10% for 9M 2008. The lower ROE in 9M 2009 was due primarily to lower net profits. UTMD expects ROE for the remainder of 2009 comparable to the 8% achieved for 9M 2009 as a result of lower net profits, higher dividends and higher average shareholder equity.

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 $5,207 in 9M 2009 compared to $5,920 in 9M 2008. The lower amount is due to lower net income thus far in 2009. Other significant differences were a $466 benefit to cash from higher accrued expenses and a $238 benefit from lower accounts receivable in 9M 2009, partially offset by a $228 higher use of cash from gains on investments. 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 $437 in 9M 2009 compared to $189 in 9M 2008. In addition to investing in new property and equipment required to keep facilities, equipment and tooling in good working condition, UTMD has embarked on some longer term new facilities, equipment and technology investments which will more than double capital spending in 2009 compared to recent years. In 9M 2009, UTMD received $104 and issued 13,027 shares of stock upon the exercise of employee stock options. Option exercises in 9M 2009 were at an average price of $10.42 per share. Employees exercised a total of 15,172 option shares in 9M 2009, with 2,145 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 $224 from issuing 18,369 shares of stock on the exercise of employee stock options in 9M 2008, net of 1,800 shares retired upon employees trading those shares in payment of the stock option exercise price. The Company repurchased 5,367 shares of its stock in the open market at a cost of $116 during 9M 2009, an average cost of $21.58 per share including commissions and fees. For comparison, UTMD repurchased 66,806 shares of stock in the open market at a cost of $1,908 during 9M 2008. UTMD Ltd. (Ireland subsidiary) made payments of $428 on its note payable during 9M 2009, compared to $1,502 in 9M 2008. UTMD paid $1,658 in cash dividends in 9M 2009 compared to $2,625 in 9M 2008. Management believes that future income from operations and effective management of working capital will provide the liquidity needed to finance internal growth plans. The Company may continue to use cash for 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 be accretive to performance.

j) Assets and Liabilities September 30, 2009 total assets were $3,357 higher than at December 31, 2008. Changes include a $2,945 increase in cash and investments, a $587 increase in inventories, a $334 decrease in accounts and other receivables and a $13 decrease in other current assets. Inventories increased substantially compared to the end of 2008 as a result of the first quarter 2009 one-time annual purchases of certain raw materials to take advantage of discounts offered by vendors for purchasing in bulk, and an increase in WIP/FG inventory resulting from keeping excess labor capacity productive during the soft demand first half. Inventory balances during the remainder of 2009 should decline. UTMD management retains a target of 4.0 inventory turns. Working capital was $23,469 at September 30, 2009, $1,957 higher than at 2008 year-end. Working capital continues substantially in excess of UTMD's normal operating needs. UTMD's current ratio was 8.8 on September 30, 2009, compared to 13.2 at year-end 2008 and 9.6 on September 30, 2008.

Net property and equipment increased $190 in 9M 2009 after purchases of $437, offset by depreciation of $409. Goodwill resulting from prior acquisitions remained the same. Net intangible assets excluding goodwill decreased $18 as a result of amortization of intellectual property of $24 offset by additions of intangibles of $6. At September 30, 2009, net intangible assets including goodwill were 18% of total assets, compared to 19% at year-end 2008. UTMD's long term liabilities are comprised of the Ireland note payable ($1,465 on September 30, 2009) and deferred income taxes ($429 on September 30, 2009). As of December 31, 2008, the respective long term liabilities were $1,828 and $420. The note payable, denominated in Euros, declined $363 in USD book value despite actual principal payments of $428 because the USD decreased in value against the Euro. In Euros, the note declined 16% from €1,485 to €1,182 (both in thousands) during the nine month period. As of September 30, 2009, UTMD's total debt ratio (total liabilities/ total assets) was 10% compared to 12% on December 31, 2008.
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. Although UTMD's management objectives for 2009 remain the same as listed in its December 31, 2008 10-K and ensuing 10-Q Reports, the Company currently projects a decline in sales of 6-7%, in gross profit of 8-9%, in operating profit of 10-11%, in net profit of 13-14% and in eps of 7-8% for the 2009 year as a whole compared to the full year of 2008.

l) Accounting Policy Changes. None.