<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED MARCH 31, 1999 COMMISSION FILE NUMBER 0-10763
ATRION CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 63-0821819
-------------------------------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
ONE ALLENTOWN PARKWAY, ALLEN, TEXAS 75002
(Address of Principal Executive Offices) (Zip Code)
(972) 390-9800
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant: (1) has filed all reports required to
be filed by Section 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 xx NO
---- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
NUMBER OF SHARES OUTSTANDING AT
TITLE OF EACH CLASS MAY 5, 1999
- --------------------------------------- ---------------------------------
COMMON STOCK, PAR VALUE $0.10 PER SHARE 2,524,429
<PAGE> 2
ATRION CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION 2
ITEM 1. Financial Statements
Consolidated Statements of Income (Unaudited)
For the Three Months Ended
March 31, 1999 and 1998 3
Consolidated Balance Sheets (Unaudited)
March 31, 1999 and December 31, 1998 4-5
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended
March 31, 1999 and 1998 6
Notes to Consolidated Financial Statements (Unaudited) 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
PART II. OTHER INFORMATION 12
ITEM 6. Exhibits and Reports on
Form 8-K 12
SIGNATURES 13
</TABLE>
1
<PAGE> 3
PART I
FINANCIAL INFORMATION
2
<PAGE> 4
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------------
1999 1998
---------- ----------
(In thousands, except per share data)
<S> <C> <C>
Revenues $11,580 $10,162
Cost of goods sold 6,956 6,428
------- -------
Gross profit 4,624 3,734
------- -------
Operating expenses:
Selling expense 1,666 962
General and administrative 1,652 1,641
Research and development 700 552
------- -------
4,018 3,155
------- -------
Operating income 606 579
------- -------
Other income:
Interest income, net 6 193
Other income 11 28
------- -------
17 221
------- -------
Income before provision for income taxes 623 800
Provision for income taxes 229 302
------- -------
Net income $ 394 $ 498
======= =======
Earnings per basic share $ 0.13 $ 0.15
======= =======
Weighted average basic shares outstanding 2,920 3,234
======= =======
Earnings per diluted share: $ 0.13 $ 0.15
======= =======
Weighted average diluted shares outstanding 2,944 3,238
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE> 5
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1999 1998
- ------ ----------- -----------
(In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 181 $ 5,635
Accounts receivable 7,763 7,278
Inventories 9,129 8,568
Prepaid expenses and other 1,878 1,358
------- -------
18,951 22,839
------- -------
Property, plant and equipment:
Original cost 29,539 22,315
Less accumulated depreciation and amortization 5,620 4,921
------- -------
23,919 17,394
------- -------
Deferred charges:
Patents 3,544 3,620
Goodwill 13,833 13,986
Other 2,822 2,576
------- -------
20,199 20,182
------- -------
$63,069 $60,415
======= =======
(CONTINUED)
</TABLE>
The accompanying notes are an integral part of these Balance Sheets.
4
<PAGE> 6
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
---------- -------------
(In thousands)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ -- $ 203
Accounts payable and accrued liabilities 5,224 3,929
-------- --------
5,224 4,132
-------- --------
Long-term debt, less current maturities 2,170 --
-------- --------
Other noncurrent liabilities 6,965 6,914
-------- --------
Stockholders' equity:
Common shares, par value $0.10 per share; authorized
10,000,000 shares, issued 3,419,953 shares 342 342
Paid-in capital 6,403 6,394
Retained earnings 47,215 46,821
Treasury shares, at cost (5,250) (4,188)
-------- --------
Total stockholders' equity 48,710 49,369
-------- --------
$ 63,069 $ 60,415
======== ========
</TABLE>
The accompanying notes are an integral part of these Balance Sheets.
5
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ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
----------------------------------------
1999 1998
----------------- ----------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 394 $ 498
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 927 708
Deferred income taxes 66 139
Other (252) 13
------------- -------------
1,135 1,358
Change in current assets and liabilities:
Increase in accounts receivable (485) (936)
Increase in other current assets (1,081) (800)
Increase in accounts payable 1,384 558
Decrease in other current liabilities (88) (450)
------------- -------------
865 (270)
------------- -------------
Cash flows from investing activities:
Property, plant and equipment additions (7,224) (259)
Acquisition of subsidiary -- (23,861)
------------- -------------
(7,224) (24,120)
------------- -------------
Cash flows from financing activities:
Increase (decrease) in long-term indebtedness 1,967 (352)
Issuance of common stock -- 20
Repurchase of common stock (1,062) (485)
------------- -------------
905 (817)
------------- -------------
Net change in cash and cash equivalents (5,454) (25,207)
Cash and cash equivalents at beginning of period 5,635 32,172
------------- -------------
Cash and cash equivalents at end of period $ 181 $ 6,965
============= =============
Cash paid for:
Interest (net of capitalized amounts) $ 1 $ 10
Income taxes (net of refunds) $ 42 $ 19
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE> 8
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
In the opinion of management, all adjustments necessary for a fair
presentation of results of operations for the periods presented have
been included in the accompanying unaudited consolidated financial
statements of Atrion Corporation (the "Company"). Such adjustments
consist of normal recurring items. The accompanying financial
statements have been prepared in accordance with the instructions to
Form 10-Q and include the information and notes required by such
instructions. Accordingly, the consolidated financial statements and
notes thereto should be read in conjunction with the financial
statements and notes included in the Company's 1998 Annual Report on
Form 10-K.
(2) PURCHASE OF CERTAIN QUEST MEDICAL, INC. ASSETS.
On January 30, 1998, the Company, through a wholly owned Texas
subsidiary then known as "QMI Medical, Inc.," acquired the
cardiovascular and intravenous fluid products division of Advanced
Neuromodulation Systems, Inc. (formerly known as Quest Medical, Inc.
and herein referred to as "ANS") and all rights to the name "Quest
Medical, Inc." The Company paid $22,922,000 (after taking into account
certain postclosing adjustments and excluding $276,000 of related
acquisition costs) in cash for the net assets acquired from ANS. As
part of the transaction, the Company also obtained a one-year lease on
ANS's facility in Allen, Texas, along with an option to buy the
facility. This acquisition was accounted for using the purchase method
of accounting. Accordingly, the purchase price was allocated to the
assets and liabilities acquired based on their estimated fair value at
the date of acquisition. The excess of the consideration paid over the
estimated fair value of the net assets acquired of $9.7 million was
recorded as goodwill and is being amortized over 25 years. The Company
changed the name of QMI Medical, Inc. to "Quest Medical, Inc." in June
1998, and that subsidiary is herein referred to as "Quest Medical." On
February 1, 1999, the Company purchased the Allen, Texas facility for
$6.5 million pursuant to the option mentioned above.
The following table presents unaudited consolidated selected financial
data on a pro forma basis assuming the purchase of these assets had
occurred as of January 1, 1998. The unaudited consolidated pro forma
data reflect certain assumptions, which are based on estimates. The
unaudited consolidated pro forma combined results presented have been
prepared for comparative purposes only and are not necessarily
indicative of actual results that would have been achieved had the
acquisition occurred at the beginning of the period presented, or of
future results.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
------------------
(In thousands)
<S> <C>
Revenues $ 11,283
Income from continuing
operations $ 521
Net income $ 521
Net income per basic and diluted share
$ 0.16
</TABLE>
7
<PAGE> 9
For further information regarding the acquisition of these assets,
refer to the Company's Report on Form 8-K, filed with the Securities
and Exchange Commission on February 17, 1998, as amended on April 15,
1998.
8
<PAGE> 10
ATRION CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1999
The Company's consolidated income for the quarter ended March 31, 1999
was $394,000 or $.13 per basic and diluted share, compared with
$498,000, or $.15 per basic and diluted share, for the first quarter of
1998. The earnings per basic share computations are based on weighted
average basic shares outstanding of 2,920,055 in 1999 and 3,234,414 in
1998. The earnings per diluted share computations are based on weighted
average diluted shares outstanding of 2,943,766 in 1999 and 3,237,747
in 1998.
Consolidated revenues of $11.6 million for the first quarter of 1999
were $1.4 million or 14% higher than revenues for the first quarter of
1998. The increase in revenues in the first quarter of 1999 was
primarily a result of the inclusion of three full months of the
operations of Quest Medical in the current-year period compared with
the inclusion of Quest Medical operations for the two months subsequent
to its acquisition in 1998. This acquisition was recorded using the
purchase method of accounting. Accordingly, only results from
operations subsequent to the acquisition date are reflected in the
Company's financial statements, and results for prior periods are not
included.
Gross profit of $4.6 million in the first quarter of 1999 was $890,000
or 24 percent higher than that in the comparable 1998 period. Increased
manufacturing efficiencies at two of the Company's operations and the
inclusion of the operations of Quest Medical for the full quarter in
1999 were the primary contributors to this increase. First quarter 1998
operations included only the two months of Quest Medical operations
subsequent to its acquisition.
The Company's first quarter 1999 operating expenses of $4.0 million
were $863,000 higher than the operating expenses for the first quarter
of 1998. This increase is primarily the result of the inclusion of the
operating expenses of Quest Medical for the full quarter in 1999 as
opposed to the two months of operating expenses incurred subsequent to
the Quest Medical acquisition in 1998. Operating expenses for 1999
include increased costs associated with the development and marketing
of the Myocardial Protection System during the current year. While
first quarter 1999 operating expenses were higher than in the
comparable 1998 period, spending at the parent company level for the
1999 period was lower than in the same period in 1998. Operating income
in the first quarter of 1999 totaled $606,000 compared with $579,000 in
the first quarter of 1998.
Net interest income of $6,000 for the first quarter of 1999 was
$187,000 less than net interest income for the same period in the prior
year. This change is primarily attributable to the Company's use of
cash and cash equivalents in late 1998 to fund repurchases of
outstanding common stock of the Company and in February 1999 to fund
the purchase of its Allen, Texas facility and borrowings by the Company
to fund its repurchase of outstanding common stock of the Company
during the first quarter of 1999. Additionally, in January 1998, prior
to the consummation of the Quest Medical acquisition, the Company
earned interest income on the funds used by the Company to effect such
acquisition.
9
<PAGE> 11
The Company believes that revenues, cost of goods sold and gross profit
for the nine months ending December 31, 1999, will be higher than
comparable 1998 period amounts. The Company also anticipates 1999
earnings per share from continuing operations will significantly exceed
the 1998 level.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had cash and cash equivalents of
$181,000 compared with $5.6 million at December 31, 1998. The decrease
in cash and cash equivalents from December 31, 1998 to March 31, 1999
was primarily attributable to the Company's February 1, 1999 purchase
of its headquarters facility in Allen, Texas for $6.5 million. The
Company had $2.2 million of long-term debt, borrowed under its $20
million revolving loan facility, at March 31, 1999 compared with no
long-term debt at December 31, 1998. This increase in long-term debt
from December 31, 1998 to March 31, 1999 was primarily attributable to
the above mentioned headquarters purchase and the repurchase of
outstanding common stock of the Company.
The Company believes that its existing cash and cash equivalents, cash
flows from operations, borrowings available under the Company's
revolving loan facility and other equity or debt financing, which the
Company believes would be available, will be sufficient to fund the
Company's cash requirements for at least the next two years.
YEAR 2000 ISSUES
In 1998, the Company began, and is now continuing, its assessment of
its information systems, products, facilities and equipment to
determine if they are Year 2000 ready. During 1998, the Company's
operating units were using several different information systems. As a
part of the Company's ongoing efforts to achieve operating synergies,
as well as to assure Year 2000 compliance, the Company has purchased
and has installed new computer systems in one of its units and has
taken steps to determine whether the new and existing systems are Year
2000 compliant. The Company has contacted its major suppliers to
determine whether they are Year 2000 compliant and, where not, is
monitoring their progress and taking appropriate action. The Company is
also contacting other suppliers to determine whether they are Year 2000
compliant and, if not, is monitoring their progress and taking
appropriate actions. In addition, the Company has reviewed its products
that process information that may be date sensitive and believes that
those products are not Year 2000 sensitive products. The Company's
facilities and equipment are also being examined to determine whether
they are Year 2000 ready. The Company feels it is over 90 percent
complete with its assessment of its information systems, products,
facilities and equipment and, accordingly, has not determined the total
costs associated with its efforts to prepare for Year 2000. However, to
date, the Company has incurred costs of approximately $135,000,
including the cost and time for Company employees to address Year 2000
issues, and believes that the additional costs of addressing its Year
2000 transition will not have a material adverse effect on the
Company's financial condition or business operations. Given the
uncertain consequences of failure to resolve significant Year 2000
issues, however, there is no assurance that any one or more of such
failures would not have a material adverse impact on the Company. The
Company is in the process of completing a contingency plan addressing
failure to be Year 2000 ready.
10
<PAGE> 12
FORWARD-LOOKING STATEMENTS
The statements in this Management's Discussion and Analysis that are
forward-looking are based upon current expectations, and actual results
may differ materially. Therefore, the inclusion of such forward-looking
information should not be regarded as a representation by the Company
that the objectives or plans of the Company would be achieved. Such
statements include, but are not limited to, the Company's expectations
regarding future revenues, cost of sales, gross profit and 1999
earnings per share from continuing operations, as well as future
liquidity and capital resources and Year 2000 compliance and impact.
Words such as "anticipates," "believes," "expects," "estimated" and
variations of such words and similar expressions are intended to
identify such forward-looking statements. Forward-looking statements
contained herein involve numerous risks and uncertainties, and there
are a number of factors that could cause actual results to differ
materially including, but not limited to, the following: changing
economic, market and business conditions, the effects of governmental
regulation, the impact of competition and new technologies,
slower-than-anticipated introduction of new products or implementation
of marketing strategies, changes in the prices of raw materials, the
ability to attract and retain qualified personnel and the loss of any
significant customer. In addition, assumptions relating to budgeting,
marketing, product development and other management decisions are
subjective in many respects and thus susceptible to interpretations and
periodic review which may cause the Company to alter its marketing,
capital expenditures or other budgets, which in turn may affect the
Company's results of operations and financial condition.
11
<PAGE> 13
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27--Financial Data Schedules (filed electronically
only)
(b) No reports on Form 8-K have been filed during the quarter
ended March 31, 1999.
12
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Atrion Corporation
------------------
(Registrant)
Date: May 13, 1999 /s/ Emile A. Battat
-----------------------------------
Emile A. Battat
Chairman, President and
Chief Executive Officer
Date: May 13, 1999 /s/ Jeffery Strickland
-----------------------------------
Jeffery Strickland
Vice President and
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ATRION CORPORATION FOR THE THREE MONTHS ENDED DECEMBER
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 181
<SECURITIES> 0
<RECEIVABLES> 7,763
<ALLOWANCES> 0
<INVENTORY> 9,129
<CURRENT-ASSETS> 18,951
<PP&E> 29,539
<DEPRECIATION> 5,620
<TOTAL-ASSETS> 63,069
<CURRENT-LIABILITIES> 5,224
<BONDS> 2,170
0
0
<COMMON> 342
<OTHER-SE> 48,368
<TOTAL-LIABILITY-AND-EQUITY> 63,069
<SALES> 11,580
<TOTAL-REVENUES> 11,580
<CGS> 6,956
<TOTAL-COSTS> 6,956
<OTHER-EXPENSES> 4,018
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6)
<INCOME-PRETAX> 623
<INCOME-TAX> 229
<INCOME-CONTINUING> 394
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 394
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
