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 JUNE 30, 2000 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 Identification No.)
Incorporation or Organization)
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 X 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 AUGUST 5, 2000
----------------------------------------- --------------------------------
COMMON STOCK, PAR VALUE $0.10 PER SHARE 2,035,593
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ATRION CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION 2
ITEM 1. Financial Statements
Consolidated Statements of Income (Unaudited)
For the Three and Six Months Ended
June 30, 2000 and 1999 3
Consolidated Balance Sheets (Unaudited)
June 30, 2000 and December 31, 1999 4-5
Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended
June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements (Unaudited) 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders 11
ITEM 6. Exhibits and Reports on
Form 8-K 12
SIGNATURES 13
1
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PART I
FINANCIAL INFORMATION
2
<PAGE>
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------------------- ----------------------------------
2000 1999 2000 1999
(In thousands, except per share data) (In thousands, except per share data)
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ 13,042 $ 12,737 $ 26,027 $ 24,318
Cost of goods sold 7,903 7,527 15,907 14,483
-------------- -------------- -------------- --------------
Gross profit 5,139 5,210 10,120 9,835
-------------- -------------- -------------- --------------
Operating expenses:
Selling expense 1,901 1,822 3,833 3,489
General and administrative 1,696 1,796 3,339 3,448
Research and development 498 679 1,040 1,379
-------------- -------------- -------------- --------------
4,095 4,297 8,212 8,316
-------------- -------------- -------------- --------------
Operating income 1,044 913 1,908 1,519
-------------- -------------- -------------- --------------
Other income (expense):
Interest expense, net (185) (78) (323) (72)
Other (expense) income (15) - (12) 10
-------------- -------------- -------------- --------------
(200) (78) (335) (62)
-------------- -------------- -------------- --------------
Income from continuing operations before
provision for income taxes 844 835 1,573 1,457
Provision for income taxes 205 215 402 444
-------------- -------------- -------------- --------------
Income from continuing operations 639 620 1,171 1,013
Gain on disposal of discontinued operations,
net of income taxes 99 165 99 165
-------------- -------------- -------------- --------------
Net income $ 738 $ 785 $ 1,270 $ 1,178
============== ============== ============== ==============
Earnings per basic share:
Continuing operations $ 0.31 $ 0.24 $ 0.57 $ 0.37
Gain on disposal of discontinued operations 0.05 0.06 0.05 0.06
------------- ------------- ------------- -------------
$ 0.36 $ 0.30 $ 0.62 $ 0.43
============= ============= ============= =============
Weighted average basic shares outstanding 2,044 2,582 2,072 2,750
============= ============= ============= =============
Earnings per diluted share:
Continuing operations $ 0.30 $ 0.23 $ 0.53 $ 0.36
Gain on disposal of discontinued operations 0.05 0.06 0.05 0.06
------------- ------------- ------------- -------------
$ 0.35 $ 0.29 $ 0.58 $ 0.42
============= ============= ============= =============
Weighted average diluted shares outstanding 2,134 2,640 2,194 2,787
============= ============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
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ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 2000 1999
------ ---------------------- ----------------------
Current assets: (In thousands)
<S> <C> <C>
Cash and cash equivalents $ 90 $ 70
Accounts receivable 8,684 8,522
Inventories 10,233 9,106
Prepaid expenses and other 1,098 1,004
-------------- --------------
20,105 18,702
-------------- --------------
Property, plant and equipment:
Original cost 35,874 34,417
Less accumulated depreciation and amortization 9,539 7,999
-------------- --------------
26,335 26,418
-------------- --------------
Deferred charges:
Patents 3,164 3,316
Goodwill 13,092 13,393
Other 2,820 2,811
-------------- --------------
19,076 19,520
-------------- --------------
$ 65,516 $ 64,640
============== ==============
</TABLE>
The accompanying notes are an integral part of these Consolidated Balance
Sheets.
4
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ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
------------------------------------ --------------------- ---------------------
Current liabilities:
<S> <C> <C>
Accounts payable and accrued liabilities $ 5,085 $ 3,957
-------------- --------------
5,085 3,957
-------------- --------------
Long-term debt, less current maturities 10,047 10,417
-------------- --------------
Other noncurrent liabilities 7,327 7,693
-------------- --------------
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 6,403
Retained earnings 50,384 49,114
Treasury shares, 1,384,360 shares in 2000 and
1,322,360 shares in 1999, at cost (14,072) (13,286)
-------------- --------------
Total stockholders' equity 43,057 42,573
-------------- --------------
$ 65,516 $ 64,640
============== ==============
</TABLE>
The accompanying notes are an integral part of these Consolidated Balance
Sheets.
5
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ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
---------------------------------------------
2000 1999
------------------- -------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 1,270 $ 1,178
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on disposal of discontinued operations (99) (165)
Depreciation and amortization 1,993 1,869
Deferred income taxes (432) 146
Other 56 (235)
------------- --------------
2,788 2,793
Change in current assets and liabilities:
(Increase) in accounts receivable (162) (1,367)
(Increase) in other current assets (1,221) (1,220)
Increase in accounts payable 661 1,980
Increase in other current liabilities 467 229
------------- -------------
Net cash provided by continuing operations 2,533 2,415
Net cash provided by discontinued operations 99 165
------------- -------------
2,632 2,580
------------- -------------
Cash flows from investing activities:
Property, plant and equipment additions (1,457) (9,523)
------------- -------------
(1,457) (9,523)
------------- -------------
Cash flows from financing activities:
(Decrease) increase in long-term indebtedness (370) 6,022
Issuance of common stock 23 -
Repurchase of common stock (808) (4,613)
------------- -------------
(1,155) 1,409
------------- -------------
Net change in cash and cash equivalents 20 (5,534)
Cash and cash equivalents at beginning of period 70 5,635
------------- -------------
Cash and cash equivalents at end of period $ 90 $ 101
============= =============
Cash paid for:
Interest (net of capitalized amounts) $ 374 $ 60
Income taxes (net of refunds) $ 162 $ 132
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
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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 1999 Annual Report on
Form 10-K.
7
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ATRION CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2000
The Company's consolidated net income for the quarter ended June 30,
2000 was $738,000, or $.36 per basic and $.35 per diluted share,
compared with $785,000, or $.30 per basic and $.29 per diluted share,
for the second quarter of 1999. Income from continuing operations for
the second quarter of 2000 was $639,000, or $.31 per basic and $.30 per
diluted share, compared with $620,000, or $.24 per basic and $.23 per
diluted share, for the second quarter of 1999. The earnings per basic
share computations are based on weighted average basic shares
outstanding of 2,043,780 in 2000 and 2,582,342 in 1999. The earnings
per diluted share computations are based on weighted average diluted
shares outstanding of 2,133,642 in 2000 and 2,639,815 in 1999.
Consolidated revenues of $13.0 million for the second quarter of 2000
were $.3 million or 2 percent higher than revenues for the second
quarter of 1999. Gross profit of $5.1 million in the second quarter of
2000 was $71,000 or 1 percent lower than that in the comparable 1999
period. The Company's gross profit for the second quarter of 2000 was
39 percent of sales, which was lower than the gross profit percentage
for the same period in 1999 of 41 percent of sales. The lower gross
profit percentage in 2000 is primarily the result of product mix and
manufacturing inefficiencies at certain of the Company's operations.
The Company's second quarter 2000 operating expenses of $4.1 million
were $202,000 lower than the operating expenses for the second quarter
of 1999. General and administrative (G&A) expenses for the second
quarter of 2000 were $100,000 lower than G&A expenses for the same
period in 1999 primarily as a result of lower spending on outside
services. Research and development (R&D) expenses were $181,000 lower
for the three months ended June 30, 2000 as compared with the same 1999
period. This reduction is primarily the result of decreased costs
associated with the development of the Company's MPS during the
current-year period. Selling expenses for the three months ended June
30, 2000 were $78,000 higher than in the comparable 1999 period.
Operating income in the second quarter of 2000 totaled $1,044,000
compared with $913,000 in the second quarter of 1999.
Net interest expense for the second quarter of 2000 was $185,000
compared with net interest expense of $78,000 for the same period in
1999. This change is primarily attributable to additional borrowings
under the Company's revolving credit facility to fund its repurchases
of outstanding common stock of the Company during 1999 and 2000.
Under the terms of the Company's sale of its natural gas operations in
1997, certain annual contingent payments of up to $250,000 per year may
be paid to the Company over an eight-year period that began in 1999.
Pursuant to such arrangement, the Company received payments of $250,000
each in the second quarters of 2000 and 1999. During the three months
ended June 30, 2000, the Company recorded a write-down of $100,000
related to certain natural gas properties held for sale. After taking
that write-down into account, the Company recorded a gain on the
disposal of discontinued operations of $99,000 after tax, or $.05 per
basic and diluted share, for the three months ended June 30, 2000
compared with a gain of $165,000 after tax, or $.06 per basic and
diluted share, for the three months ended June 30, 1999.
8
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The Company anticipates that earnings per share from continuing
operations for the third and fourth quarters of 2000 will exceed the
comparable 1999 periods. The Company also believes that 2000 earnings
per share from continuing operations will exceed the 1999 level by at
least 25%.
RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2000
The Company's consolidated net income for the six-month period ended
June 30, 2000 was $1.3 million, or $.62 per basic and $.58 per diluted
share, compared with $1.2 million, or $.43 per basic and $.42 per
diluted share, for the first six months of 1999. Income from continuing
operations for the first six months of 2000 was $1.2 million, or $.57
per basic and $.53 per diluted share, compared with $1.0 million, or
$.37 per basic and $.36 per diluted share. The earnings per basic share
computations are based on weighted average basic shares outstanding of
2,071,527 in 2000 and 2,750,266 in 1999. The earnings per diluted share
computations are based on weighted average diluted shares outstanding
of 2,194,493 in 2000 and 2,787,270 in 1999.
Consolidated revenues of $26.0 million for the six months ended June
30, 2000 were $1.7 million or 7 percent higher than revenues for the
six months ended June 30, 1999. Gross profit of $10.1 million for the
first six months of 2000 was $285,000 or 3 percent higher than that in
the comparable period of 1999. The Company's gross profit for the six
months ended June 30, 2000 was 39 percent of sales, which was lower
than the gross profit percentage for the same period in 1999 of 40
percent of sales. The lower gross profit percentage in 2000 is
primarily related to manufacturing inefficiencies at certain of the
Company's operations.
The Company's operating expenses of $8.2 million for the first six
months of 2000 were $104,000 lower than operating expenses for the
first six months of 1999. G&A expenses for the first six months of 2000
were $109,000 lower than G&A expenses for the same period in 1999. R&D
expenses were $339,000 lower for the six months ended June 30, 2000 as
compared with the same 1999 period primarily as a the result of
decreased costs associated with the development of the Company's MPS
during the current period. Selling expenses for the six months ended
June 30, 2000 were $344,000 higher than the comparable 1999 period.
This increase is primarily attributable to the expansion of marketing
efforts associated with the Company's MPS product line. Operating
income in the six months ended June 30, 2000 totaled $1.9 million
compared with $1.5 million in the same period of 1999.
Net interest expense for the six months ended June 30, 2000 was
$323,000 compared with net interest expense of $72,000 for the same
period in 1999. This change is primarily attributable to additional
borrowings under the Company's revolving credit facility to fund its
repurchases of outstanding common stock of the Company. Increases in
benefits from the Company's foreign sales corporation and tax credits
attributable to the Company's research and development activities
resulted in a lower effective income tax rate, and contributed to
improved earnings, in the first six months of 2000 as compared to the
six months ended June 30,1999.
As discussed above, the Company recorded a gain on the disposal of
discontinued operations relating to the sale of its natural gas
operations of $99,000 after tax, or $.05 per basic and diluted share,
for the six months ended June 30, 2000 compared with a
9
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gain of $165,000 after tax, or $.06 per basic and diluted share, for
the six months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had cash and cash equivalents of $90,000
compared with $70,000 at December 31, 1999. The Company had long-tem
debt of $10.1 million under its $18.5 million revolving credit facility
at June 30, 2000 compared with long-term debt of $10.4 million at
December 31, 1999. This reduction in long-term debt from December 31,
1999 to June 30, 2000 was primarily funded by net cash from operating
activities remaining after capital expenditures and repurchases of
outstanding common stock of the Company.
In April 2000, the Company's Board of Directors authorized a program
under which the Company may repurchase up to 200,000 shares of its
common stock in open market or negotiated transactions at such times
and at such prices as management may from time to time decide.
The Company believes that its existing cash and cash equivalents, cash
flows from operations, borrowings available under the Company's
revolving credit 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 foreseeable future.
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 earnings per share from continuing operations for the third
and fourth quarters of 2000 and for the year 2000, as well as future
liquidity and capital resources. 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, market acceptance of the Company's products, 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 or
availability of raw materials, changes in product mix, product recalls,
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.
10
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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
The Company held its 2000 Annual Meeting of Stockholders on April
25, 2000 at its offices in Allen, Texas. At such meeting, the
Company's stockholders ratified the Board of Director's
appointment of Arthur Andersen LLP as independent accountants with
1,633,657 shares voted for ratification, 11,771 voted against and
4,910 abstentions. The voting with respect to the nominees for
election as directors was as follows:
NOMINEE VOTES FOR VOTES WITHHELD
------- --------- --------------
Richard O. Jacobson 1,613,507 36,831
Jerome J. McGrath 1,612,907 37,431
Hugh J. Morgan, Jr. 1,613,507 36,831
The terms of the following directors continued after the meeting:
Roger F. Stebbing, John P. Stupp, Jr., Emile A. Battat and John
H. P. Maley.
ITEM 5. OTHER INFORMATION
None
11
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedules (filed electronically only)
(b) No reports on Form 8-K have been filed during the quarter
ended June 30, 2000.
12
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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: August 10, 2000 /S/ EMILE A. BATTAT
-------------------
Emile A. Battat
Chairman, President and
Chief Executive Officer
Date: August 10, 2000 /S/ JEFFERY STRICKLAND
----------------------
Jeffery Strickland
Vice President and
Chief Financial Officer
13
