Blueprint
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[
x ]
Quarterly
Report Pursuant To Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended June 30,
2017
or
[
]
Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition Period from to
Commission File Number 001-32982
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Atrion Corporation
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(Exact
Name of Registrant as Specified in its Charter)
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Delaware
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63-0821819
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(State
or Other Jurisdiction of Incorporation or
Organization)
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(I.R.S.
Employer Identification No.)
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One
Allentown Parkway, Allen, Texas 75002
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(Address
of Principal Executive Offices) (Zip
Code)
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(972)
390-9800
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(Registrant’s
Telephone Number, Including Area Code)
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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
☐ No
Indicate
by check whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See definitions of
“accelerated filer,” “large accelerated
filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act (Check one):
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Large
accelerated filer ☐
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Non-accelerated
filer ☐
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Smaller reporting
company ☐
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Emerging growth
company ☐
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act ☐
Indicate
by check whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). ☐ Yes ☒
No
Indicate
the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
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Title of Each
Class
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Number of Shares
Outstanding at
July 20,
2017
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Common stock, Par Value $0.10 per share
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1,851,842
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ATRION CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
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PART
I. Financial
Information
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2
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Item
1.
Financial Statements
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Consolidated
Statements of Income (Unaudited) For the Six Months Ended June 30,
2017 and 2016
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3
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Consolidated
Statements of Comprehensive Income (Unaudited) For the Six Months
Ended June 30, 2017 and 2016
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4
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Consolidated
Balance Sheets (Unaudited) June 30, 2017 and December 31,
2016
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5
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Consolidated
Statements of Cash Flows (Unaudited) For the Six Months Ended June
30, 2017 and 2016
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6
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Consolidated
Statement of Changes in Stockholders’ Equity (Unaudited) June
30, 2017 and December 31, 2016
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7
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Notes
to Consolidated Financial Statements (Unaudited)
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8
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Item
2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
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13
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Item 3.
Quantitative and Qualitative
Disclosures About Market Risk
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16
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Item
4.
Controls and
Procedures
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17
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PART II. Other Information
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17
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Item
1.
Legal Proceedings
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17
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Item
1A.
Risk Factors
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17
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Item
6.
Exhibits
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17
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SIGNATURES
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18
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Exhibit Index
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19
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended
June 30,
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Six Months Ended
June 30,
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(in thousands, except per share
amounts)
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Revenues
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$36,164
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$36,143
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$74,669
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$72,358
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Cost
of goods sold
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18,470
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18,928
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38,344
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37,578
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Gross
profit
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17,694
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17,215
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36,325
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34,780
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Operating
expenses:
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Selling
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1,864
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1,664
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3,612
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3,400
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General
and administrative
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4,287
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3,880
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8,304
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7,829
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Research
and development
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1,368
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1,597
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2,907
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3,012
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7,519
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7,141
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14,823
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14,241
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Operating
income
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10,175
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10,074
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21,502
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20,539
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Interest
income
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370
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85
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519
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208
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Other
income (expense), net
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--
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36
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1
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(309)
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370
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121
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520
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(101)
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Income
before provision for income taxes
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10,545
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10,195
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22,022
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20,438
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Provision
for income taxes
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(519)
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(2,745)
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(2,046)
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(6,042)
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Net
income
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$10,026
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$7,450
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$19,976
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$14,396
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Net
income per basic share
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$5.44
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$4.09
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$10.86
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$7.90
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Weighted
average basic shares outstanding
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1,844
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1,822
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1,839
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1,823
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Net
income per diluted share
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$5.40
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$4.02
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$10.76
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$7.76
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Weighted
average diluted shares outstanding
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1,858
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1,853
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1,856
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1,855
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Dividends
per common share
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$1.05
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$0.90
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$2.10
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$1.80
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The accompanying notes are an integral part of these
statements.
ATRION CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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Three Months Ended
June 30,
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Six Months Ended
June 30,
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Net
Income
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$10,026
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$7,450
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$19,976
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$14,396
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Other Comprehensive
Income (Loss)
Unrealized
income (loss) on investments, net of tax expense (benefit) of $204,
($136), $36 and ($172)
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379
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(252)
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66
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(321)
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Comprehensive
Income
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$10,405
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$7,198
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$20,042
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$14,075
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The accompanying notes are an integral part of these
statements.
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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Assets
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Current assets:
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Cash and cash
equivalents
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$20,223
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$20,022
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Short-term
investments
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27,073
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24,080
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Accounts
receivable
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19,690
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17,166
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Inventories
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29,965
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29,015
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Prepaid expenses
and other current assets
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6,022
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3,181
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102,973
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93,464
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Long-term
investments
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10,046
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9,945
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Property, plant and
equipment
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165,571
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160,413
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Less accumulated
depreciation and amortization
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99,015
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95,148
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66,556
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65,265
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Other assets and
deferred charges:
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Patents
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1,837
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1,929
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Goodwill
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9,730
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9,730
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Other
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1,529
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1,609
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13,096
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13,268
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Total
assets
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$192,671
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$181,942
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Liabilities
and Stockholders’ Equity
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Current
liabilities:
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Accounts payable
and accrued liabilities
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$8,111
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$8,663
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Accrued income and
other taxes
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1,272
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410
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9,383
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9,073
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Line of
credit
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--
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--
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Other non-current
liabilities
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10,965
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9,881
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Stockholders’
equity:
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Common stock, par
value $0.10 per share; authorized10,000 shares, issued 3,420
shares
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342
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342
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Paid-in
capital
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48,017
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37,448
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Accumulated other
comprehensive income (loss)
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(408)
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(474)
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Retained
earnings
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256,035
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239,946
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Treasury
shares,1,584 at June 30, 2017 and 1,596 at December 31, 2016, at
cost
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(131,663)
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(114,274)
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Total
stockholders’ equity
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172,323
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162,988
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Total
liabilities and stockholders’ equity
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$192,671
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$181,942
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The accompanying notes are an integral part of these financial
statements.
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Six Months Ended
June 30,
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(In
thousands)
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Cash
flows from operating activities:
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Net
income
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$19,976
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$14,396
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Adjustments
to reconcile net income tonet cash provided by operating
activities:
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Depreciation
and amortization
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4,223
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4,442
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Deferred
income taxes
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1,009
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225
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Stock-based
compensation
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903
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1,081
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Bond
impairment
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--
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345
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Net change in
accrued interest, premiums, and discounts
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on
investments
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(82)
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38
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Other
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(2)
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--
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26,027
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20,527
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Changes
in operating assets and liabilities:
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Accounts
receivable
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(2,524)
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(2,213)
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Inventories
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(950)
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(1,396)
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Prepaid
expenses
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(2,841)
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(881)
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Other
non-current assets
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81
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(130)
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Accounts
payable and accrued liabilities
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(552)
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(1,411)
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Accrued
income and other taxes
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862
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331
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Other
non-current liabilities
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39
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193
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20,142
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15,020
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Cash
flows from investing activities:
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Property,
plant and equipment additions
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(5,422)
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(5,292)
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Purchase
of investments
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(21,911)
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(6,799)
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Proceeds
from sale of investments
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--
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210
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Proceeds
from maturities of investments
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19,000
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5,000
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(8,333)
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(6,881)
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Cash
flows from financing activities:
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Shares tendered for employees’ withholding
taxes on stock-based
compensation
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(7,735)
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(1,112)
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Purchase
of treasury stock
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--
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(1,276)
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Dividends
paid
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(3,873)
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(3,280)
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(11,608)
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(5,668)
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Net
change in cash and cash equivalents
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201
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2,471
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Cash
and cash equivalents at beginning of period
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20,022
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28,346
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Cash
and cash equivalents at end of period
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$20,223
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$30,817
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Cash
paid for:
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Income
taxes
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$2,295
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$5,860
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Non-cash
financing activities:
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Non-cash
effect of stock option exercises
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$10,237
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--
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The accompanying notes are an integral part of these financial
statements.
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’
EQUITY
(Unaudited)
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Additional
Paid-in Capital
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Accumulated
Other Comprehensive Income (Loss)
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Balances, January
1, 2017
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1,824
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$342
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1,596
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$(114,274)
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$37,448
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$(474)
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$239,946
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$162,988
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Net
income
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19,976
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19,976
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Other
comprehensive income (loss)
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66
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66
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Stock-based
compensation transactions
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46
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(46)
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583
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10,569
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11,152
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Shares
surrendered in stock transactions
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(34)
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34
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(17,972)
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(17,972)
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Dividends
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(3,887)
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(3,887)
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Balances, June 30,
2017
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1,836
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$342
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1,584
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$(131,663)
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$48,017
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$(408)
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$256,035
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$172,323
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The accompanying notes are an integral part of these financial
statements
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1)
Basis
of Presentation
The
accompanying unaudited consolidated financial statements of Atrion
Corporation and its subsidiaries have been prepared in accordance
with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form
10-Q. Accordingly, they do not include all of the information and
notes required by accounting principles generally accepted in the
United States for complete financial statements. In the opinion of
management, these statements include all normal and recurring
adjustments necessary to present a fair statement of our
consolidated results of operations, financial position and cash
flows. Operating results for any interim period are not necessarily
indicative of the results that may be expected for the full year.
Preparation of the Company’s financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions
that affect the reported amounts in the financial statements and
notes. Actual results could differ from those estimates. This
Quarterly Report on Form 10-Q should be read in conjunction with
the Company’s consolidated financial statements and notes
included in its Annual Report on Form 10-K/A for the fiscal year
ended December 31, 2016 ("2016 Form 10-K/A"). References
herein to "Atrion," the "Company," "we," "our," and "us" refer to
Atrion Corporation and its subsidiaries.
Inventories
are stated at the lower of cost or market. Cost is determined by
using the first-in, first-out method. The following table details
the major components of inventories (in thousands):
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Raw
materials
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$12,991
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$12,984
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Work in
process
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6,927
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6,230
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Finished
goods
|
10,047
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9,801
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Total
inventories
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$29,965
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$29,015
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The
following is the computation for basic and diluted income per
share:
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Three
Months Ended
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(in thousands, except per share
amounts)
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Net
income
|
$10,026
|
$7,450
|
$19,976
|
$14,396
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|
Weighted
average basic shares outstanding
|
1,844
|
1,822
|
1,839
|
1,823
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Add:
Effect of dilutive securities
|
14
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31
|
17
|
32
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Weighted
average diluted shares outstanding
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1,858
|
1,853
|
1,856
|
1,855
|
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Earnings per share:
|
|
|
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Basic
|
$5.44
|
$4.09
|
$10.86
|
$7.90
|
|
Diluted
|
$5.40
|
$4.02
|
$10.76
|
$7.76
|
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Incremental shares
from stock options and restricted stock units were included in the
calculation of weighted average diluted shares outstanding using
the treasury stock method. Dilutive securities representing 2,342
and 41 shares of common stock for the quarters ended June 30, 2017
and 2016, respectively, were excluded from the computation of
weighted average diluted shares outstanding because their effect
would have been anti-dilutive.
As of
June 30, 2017, we held investments in certificates of deposit,
commercial paper, corporate bonds and equity securities that are
required to be measured for disclosure purposes at fair value on a
recurring basis. The certificates of deposit, commercial paper and
corporate bonds are considered held-to-maturity and are recorded at
amortized cost in the accompanying consolidated balance sheet. The
equity security is considered available for sale and recorded at
fair value in the accompanying consolidated balance sheet with the
unrealized gains and losses recorded as a component of other
comprehensive income. These investments are considered Level 2
investments. We consider as current assets those investments which
will mature in the next 12 months including interest receivable on
the long-term corporate bonds. The remaining investments are
considered non-current assets including our investment in equity
securities we intend to hold longer than 12 months. The fair values of these Level 2
investments were estimated using recently executed transactions and
market price quotations. The amortized cost and fair value
of our investments, and the related gross unrealized gains and
losses, were as follows as of the dates shown below (in
thousands):
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As
of June 30, 2017:
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Short-term
Investments:
|
|
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Certificates of
Deposit
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$18,107
|
$1
|
$(2)
|
$18,106
|
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Commercial
Paper
|
$8,960
|
$--
|
$(4)
|
$8,956
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Corporate
bonds
|
$6
|
$--
|
$--
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$6
|
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Long-term
Investments
|
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Corporate
bonds
|
$5,000
|
$--
|
$(63)
|
$4,937
|
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Equity
investments
|
$5,675
|
$--
|
$(629)
|
$5,046
|
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
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As
of December 31, 2016:
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Short-term
Investments:
|
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|
|
Certificates of
Deposit
|
$24,000
|
$9
|
$--
|
$24,009
|
|
Corporate
bonds
|
$80
|
$--
|
$--
|
$80
|
|
|
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|
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Long-term
Investments
|
|
|
|
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Corporate
bonds
|
$5,000
|
$--
|
$(287)
|
$4,713
|
|
Equity
investments
|
$5,675
|
$--
|
$(730)
|
$4,945
|
The
above long-term corporate bonds represent an investment in one
issuer at June 30, 2017. The unrealized loss for this investment
relates to a rise in interest rates which resulted in a lower
market price for that security. This investment has not been in a
loss position for more than 12 months.
The
certificates of deposit have maturities greater than one month but
shorter than eleven months. The commercial paper securities have
maturities from one month to less than eight months. The corporate
bonds will mature in 47.5 months.
Purchased
patents and license fees paid for the use of other entities’
patents are amortized over the useful life of the patent or
license. The following tables provide information regarding patents
and licenses (dollars in thousands):
|
|
|
Weighted Average
Original Life (years)
|
|
|
Weighted Average
Original Life (years)
|
|
|
|
15.67
|
$13,840
|
$12,003
|
15.67
|
$13,840
|
$11,911
|
Aggregate
amortization expense for patents and licenses was $30,000 and
$63,000 for the three months ended June 30, 2017 and 2016,
respectively, and $92,000 and $125,000 for the six months ended
June 30, 2017 and 2016, respectively.
Estimated future
amortization expense for each of the years set forth below ending
December 31 is as follows (in thousands):
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(6)
Recent
Accounting Pronouncements
In March 2016, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update (ASU)
2016-09, Stock Compensation (Topic718):
Improvements to Employee Share-Based Payment Accounting
(ASU 2016-09). The objective of this update is to simplify
several aspects of the accounting for employee share-based
payments. Under this guidance all excess tax benefits
(“windfalls”) and deficiencies
(“shortfalls”) related to employee stock compensation
are recognized within income tax expense. Under prior guidance
windfalls were recognized in paid-in capital and shortfalls were
only recognized to the extent they exceeded the pool of windfall
tax benefits. The ASU also requires companies to classify cash
flows resulting from employee share-based payments, including the
additional tax benefits or expenses related to the vesting or
settlement of share-based awards, as cash flows from operating
activities. These items were previously included as cash flows from
financing activities. ASU 2016-09 is effective for fiscal years
beginning after December 15, 2016, including interim periods within
those fiscal years. Early adoption is permitted. We elected to
adopt ASU 2016-09 during the second quarter of 2016 and are
therefore required to report the impacts as though the ASU had been
adopted on January 1, 2016. As a result of the adoption, a tax
benefit of $623,000 was recorded in the second quarter of 2016
reflecting the excess tax benefits. The adoption also impacted the
computation of diluted shares outstanding for all 2016 reporting
periods. First quarter of 2016 net income per diluted share was
restated to $3.74 from $3.76. There was no restatement necessary
for cash flows from operating activities or cash flows from
financing activities in the previous 2016 period. The adoption was
on a prospective basis and therefore had no impact on years prior
to 2016. In the second quarter of 2017 we recorded a tax benefit of
$3.0 million resulting in a $1.61 per share effect on net income
per diluted share. In the first six months of 2017 we recorded a
tax benefit of $5.3 million resulting in a $2.83 per share effect
on the net income per diluted share.
In January 2016, the FASB issued ASU
2016-01, Financial Instruments -
Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities. The main objective of this update is to enhance
the reporting model for financial instruments in order to provide
users of financial statements with more decision-useful
information. The new guidance addresses certain aspects of
recognition, measurement, presentation, and disclosure of financial
instruments. This ASU is effective for fiscal years beginning after
December 15, 2017, including interim periods within those fiscal
years. We are currently evaluating the new guidance to determine
the full impact it may have on our consolidated financial
statements. We anticipate any impact in accounting changes to be
limited to our equity investment that is classified as an available
for sale investment in our consolidated balance sheets. We also
anticipate disclosure changes as a result of this standard when
effective.
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In November 2015, the FASB issued ASU
2015-17, Balance Sheet Classification
of Deferred Taxes (ASU 2015-17)
which requires that deferred tax liabilities and assets be
classified as noncurrent on the balance sheet. The current
requirement that deferred tax liabilities and assets of a
tax-paying component of an entity be offset and presented as a
single amount is not affected by this guidance. ASU 2015-17
is effective for annual and interim periods beginning after
December 15, 2016 but early application is permitted and the
guidance may be applied either prospectively to all deferred tax
liabilities and assets or retrospectively to all periods
presented. We elected to adopt this ASU in the first quarter
of 2017 on a retrospective basis. Amounts reclassified from
“Deferred income taxes” to “Other non-current
liabilities” were $651,000 as of December 31, 2016.The
adoption did not have a material impact on our consolidated
financial statements.
In May 2014, the FASB issued ASU 2014-09,
Revenue from
Contracts with Customers (ASU
2014-09). ASU 2014-09 requires an entity to recognize the amount of
revenue to which it expects to be entitled for the transfer of
promised goods or services to customers. ASU 2014-09 will replace
most existing revenue recognition guidance in United States
Generally Accepted Accounting Principles when it becomes effective.
In July 2015, the FASB voted to delay the effective date of ASU
2014-09 by one year, making it effective for fiscal years, and
interim periods within those years, beginning after December 15,
2017, with early adoption permitted as of the original effective
date. ASU 2014-09 permits the use of either the retrospective or
cumulative effect transition method. We plan on adopting the ASU in
the first quarter of the year ending December 31, 2018. The Company
has not yet selected a transition method and is currently
evaluating the effect that our pending adoption of this guidance
will have on our consolidated financial statements and related
disclosures. We anticipate our assessment to be completed by
December 31, 2017. Based on our existing evaluation process, we
have not identified any revenue stream that would be materially
impacted.
From
time to time, new accounting standards updates applicable to us are
issued by the FASB which we will adopt as of the specified
effective date. Unless otherwise discussed, we believe the impact
of recently issued standards updates that are not yet effective
will not have a material impact on our consolidated financial
statements upon adoption.
Item 2.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Overview
We
develop and manufacture products primarily for medical
applications. We market components to other equipment manufacturers
for incorporation in their products and sell finished devices to
physicians, hospitals, clinics and other treatment centers. Our
medical products primarily serve the fluid delivery,
cardiovascular, and ophthalmology markets. Our other medical and
non-medical products include instrumentation and disposables used
in dialysis and valves and inflation devices used in marine and
aviation safety products.
Our
products are used in a wide variety of applications by numerous
customers. We encounter competition in all of our markets and
compete primarily on the basis of product quality, price,
engineering, customer service and delivery time.
Our
strategy is to provide a broad selection of products in the areas
of our expertise. Research and development efforts are focused on
improving current products and developing highly-engineered
products that meet customer needs and have the potential for broad
market applications and significant sales. Proposed new products
may be subject to regulatory clearance or approval prior to
commercialization and the time period for introducing a new product
to the marketplace can be unpredictable. We also focus on
controlling costs by investing in modern manufacturing technologies
and controlling purchasing processes. We have been successful in
consistently generating cash from operations and have used that
cash to reduce indebtedness, to fund capital expenditures, to
repurchase stock and to pay dividends.
Our
strategic objective is to further enhance our position in our
served markets by:
● Focusing on
customer needs;
● Expanding existing
product lines and developing new products;
● Manufacturing
products to exacting quality standards; and
●
Preserving and fostering a collaborative and entrepreneurial
culture.
For the
three months ended June 30, 2017, we reported revenues of $36.2
million, operating income of $10.2 million and net income of $10.0
million, up less than 1 percent, up 1 percent and up 35 percent,
respectively, from the three months ended June 30, 2016. For the
six months ended June 30, 2017, we reported revenues of $74.7
million, operating income of $21.5 million and net income of $20.0
million, up 3 percent, up 5 percent and up 39 percent,
respectively, from the six months ended June 30, 2016.
Results
for the three months ended June 30, 2017
Consolidated net
income totaled $10.0 million, or $5.44 per basic and $5.40 per
diluted share, in the second quarter of 2017. This is compared with
consolidated net income of $7.5 million, or $4.09 per basic and
$4.02 per diluted share, in the second quarter of 2016. The income
per basic share computations are based on weighted average basic
shares outstanding of 1,844,000 in the 2017 period and 1,822,000 in
the 2016 period. The income per diluted share computations are
based on weighted average diluted shares outstanding of 1,858,000
in the 2017 period and 1,853,000 in the 2016 period.
Consolidated
revenues of $36.2 million for the second quarter of 2017 were less
than 1 percent higher than revenues of $36.1 million for the second
quarter of 2016.
Revenues
by product line were as follows (in thousands):
|
|
Three Months ended June 30,
|
|
|
|
|
|
|
|
|
|
Fluid
Delivery
|
$15,630
|
$14,921
|
|
Cardiovascular
|
12,222
|
12,546
|
|
Ophthalmology
|
3,762
|
4,560
|
|
Other
|
4,550
|
4,116
|
|
Total
|
$36,164
|
$36,143
|
Cost of
goods sold of $18.5 million for the second quarter of 2017 was 2
percent lower than cost of goods sold of $18.9 million for the
second quarter of 2016 primarily due to improved manufacturing
efficiencies and the impact of continued cost improvement projects.
Our cost of goods sold in the second quarter of 2017 was 51.1
percent of revenues compared with 52.4 percent of revenues in the
second quarter of 2016.
Gross
profit of $17.7 million in the second quarter of 2017 was $479,000,
or 3 percent, higher than in the comparable 2016 period. Our gross
profit percentage in the second quarter of 2017 was 48.9 percent of
revenues compared with 47.6 percent of revenues in the second
quarter of 2016. The increase in gross profit in the 2017 period
compared to the 2016 period was primarily related to the reduced
costs of goods sold mentioned above.
Our
second quarter 2017 operating expenses of $7.5 million were
$378,000 higher than the operating expenses for the second quarter
of 2016. This increase was attributable to a $407,000 increase in
General and Administrative, or G&A, expenses and a $200,000
increase in Selling expenses partially offset by a $229,000
decrease in Research and Development, or R&D, expenses. The
increase in G&A expenses for the second quarter of 2017 was
principally attributable to increased compensation and outside
services. The increase in Selling expenses was principally
attributable to increased commissions, compensation and travel
costs. The decrease in R&D expenses was primarily related to
decreased outside services.
Operating income in
the second quarter of 2017 increased $101,000 to $10.2 million, a 1
percent increase compared to our operating income in the quarter
ended June 30, 2016. Operating income was 28 percent of revenues in
both the second quarter of 2017 and the second quarter of
2016.
Interest income in
the second quarter of 2017 was $370,000, compared with $85,000 for
the same period in the prior year. Increased levels of investment
and increased interest rates were the primary reasons for the
increase.
Income
tax expense for the second quarter of 2017 was $519,000 compared to
income tax expense of $2.7 million for the same period in the prior
year. The effective tax rate for the second quarter of 2017 was 4.9
percent, compared with 26.9 percent for the second quarter of 2016.
The effective tax rate for the second quarter of 2017 was favorably
impacted by a tax benefit of $3.0 million related to excess tax
benefits from stock compensation as a result of the adoption of ASU
2016-09. We expect the effective tax rate for the remainder of 2017
to be approximately 32.0 percent.
Results
for the six months ended June 30, 2017
Consolidated net
income totaled $20.0 million, or $10.86 per basic and $10.76 per
diluted share, in the first six months of 2017. This is compared
with consolidated net income of $14.4 million, or $7.90 per basic
and $7.76 per diluted share, in the first six months of 2016. The
income per basic share computations are based on weighted average
basic shares outstanding of 1,839,000 in the 2017 period and
1,823,000 in the 2016 period. The income per diluted share
computations are based on weighted average diluted shares
outstanding of 1,856,000 in the 2017 period and 1,855,000 in the
2016 period.
Consolidated
revenues of $74.7 million for the first six months of 2017 were 3
percent higher than revenues of $72.4 million for the first six
months of 2016. This increase is primarily attributable to
increased volumes of our fluid delivery products.
Revenues
by product line were as follows (in thousands):
|
|
Six Months ended June 30,
|
|
|
|
|
|
|
|
|
|
Fluid
Delivery
|
$33,636
|
$30,610
|
|
Cardiovascular
|
23,686
|
24,259
|
|
Ophthalmology
|
7,435
|
8,031
|
|
Other
|
9,912
|
9,458
|
|
Total
|
$74,669
|
$72,358
|
Cost of
goods sold of $38.3 million for the first six months of 2017 was
$766,000 higher than in the comparable 2016 period. The primary
contributors to the increase in our cost of goods sold were
increased sales and manufacturing inefficiencies in the first
quarter of 2017. Our cost of goods sold in the first six months of
2017 was 51.4 percent of revenues compared with 51.9 percent of
revenues in the first six months of 2016.
Gross
profit of $36.3 million in the first six months of 2017 was $1.5
million, or 4 percent, higher than in the comparable 2016 period.
Our gross profit percentage in the first six months of 2017 was
48.6 percent of revenues compared with 48.1 percent of revenues in
the first six months of 2016. The increase in gross profit
percentage in the 2017 period compared to the 2016 period was
primarily related to a favorable product sales mix partially offset
by manufacturing inefficiencies in the first quarter of
2017.
Our
first six months 2017 operating expenses of $14.8 million were
$582,000 higher than the operating expenses for the first six
months of 2016. This increase was comprised of a $475,000 increase
in G&A and a $212,000 increase in Selling expenses expenses
partially offset by a $105,000 decrease in R&D expenses. The
increase in G&A expenses for the first six months of 2017 was
principally attributable to increased compensation, and outside
services partially offset by decreased travel and depreciation. The
increase in Selling expenses is primarily related to increased
travel, commissions, outside services and compensation partially
offset by reduced promotion costs. The decrease in R&D costs
was primarily related to decreased outside services and
supplies.
Operating income in
the first six months of 2017 increased $963,000 to $21.5 million, a
5 percent increase from our operating income in the six months
ended June 30, 2016. Operating income was 29 percent of revenues in
the first six months of 2017 and 28 percent of revenues in the
first six months of 2016.
Interest income for
the first six months of 2017 was $519,000, compared with $208,000
for the same period in the prior year. Increased levels of
investment and increased interest rates were the primary reasons
for the increase.
In
2016, our other income (expense) was primarily related to an
additional impairment loss on one of our previously impaired
long-term corporate bonds. In the first quarter of 2016, the market
value of this corporate bond experienced further declines.
Therefore, we recorded an additional impairment loss on this bond
of $345,000 reducing the carrying value of the bond to its market
value at March 31, 2016. This bond was sold in the second quarter
of 2016.
Income
tax expense for the first six months of 2017 was $2.0 million
compared to income tax expense of $6.0 million for the same period
in the prior year. The effective tax rate for the first six months
of 2017 was 9.3 percent, compared with 29.6 percent for the first
six months of 2016. The effective tax rate for the first six months
of 2017 was favorably impacted by a tax benefit of $5.3 million
related to excess tax benefits from stock compensation as a result
of the adoption of ASU 2016-09.
Liquidity
and Capital Resources
At
December 31, 2016, we had a $40.0 million revolving credit facility
with a money center bank that could be utilized for the funding of
operations and for major capital projects or acquisitions, subject
to certain limitations and restrictions. Interest under the credit
facility was to be assessed at 30-day, 60-day or 90-day LIBOR, as
selected by us, plus one percent and was to be payable monthly. We
had no outstanding borrowings under our credit facility at December
31, 2016. The credit facility contained various restrictive
covenants, none of which was expected to impact our liquidity or
capital resources. At December 31, 2016, we were in compliance with
all financial covenants.
On
February 28, 2017, we replaced the revolving credit facility with a
new $75.0 million revolving credit facility with the same bank. The
new credit facility has similar operational, covenant and
collateral characteristics as the prior facility. Interest under
the new credit facility is to be assessed at one, two, three or
six-month LIBOR, as selected by us, plus .875 percent. The new
credit facility allows us to make advances until February 28, 2022.
We had no outstanding borrowings under our new credit facility at
June 30, 2017. The new credit facility contains various restrictive
covenants, none of which is expected to impact our liquidity or
capital resources. At June 30, 2017, we were in compliance with all
financial covenants. We believe the bank providing the credit
facility is highly-rated and that the entire $75.0 million under
the credit facility is currently available to us.
At June
30, 2017, we had a total of $57.3 million in cash and cash
equivalents, short-term investments and long-term investments, an
increase of $3.3 million from December 31, 2016. The principal
contributor to this increase was operating results.
Cash
flows from operating activities of $20.1 million for the six months
ended June 30, 2017 were primarily comprised of net income plus the
net effect of non-cash expenses partially offset by increases to
accounts receivable and prepaid expenses. During the first six
months of 2017, we expended $5.4 million for the addition of
property and equipment, $21.9 million for the purchase of
investments, $7.7 million for shares tendered on stock-based
compensation for tax withholding and $3.9 million for dividends.
During the same period,
maturities of investments generated $19.0
million.
At June
30, 2017, we had working capital of $93.6 million, including $20.2
million in cash and cash equivalents and $27.1 million in
short-term investments. The $8.6 million increase in working
capital during the first six months of 2017 was primarily related
to increases in short-term investments, accounts receivable and
prepaid expenses. This increase was partially offset by increases
in accrued income and other taxes. The net increase in cash and
short-term investments was primarily related to operating results.
The increase in accounts receivable was primarily related to
increased revenues for the second quarter of 2017 as compared to
the fourth quarter of 2016. The increase in prepaid expenses is
primarily related to overpayment of federal income taxes. The
increase in accrued income and other taxes is primarily related to
accrued state income taxes.
We
believe that our $57.3 million in cash, cash equivalents,
short-term investments and long-term investments, along with cash
flows from operations and available borrowings of up to $75.0
million under our new credit facility, will be sufficient to fund
our cash requirements for at least the foreseeable future,
including the costs associated with the planned expansion of one of
our manufacturing facilities. We believe that our strong financial
position would allow us to access equity or debt financing should
that be necessary. Additionally, we believe that our cash and cash
equivalents, short-term investments and long-term investments, as a
whole, will continue to increase during the remainder of
2017.
Forward-Looking Statements
Statements
in this Management’s Discussion and Analysis and elsewhere in
this Quarterly Report on Form 10-Q that are forward looking are
based upon current expectations, and actual results or future
events may differ materially. Therefore, the inclusion of such
forward-looking information should not be regarded as a
representation by us that our objectives or plans will be achieved.
Such statements include, but are not limited to, our effective tax
rate for the remainder of 2017, our ability to fund our cash
requirements for the foreseeable future with our current assets,
long-term investments, cash flow and borrowings under the credit
facility, the impact that the inability of the bank providing the
credit facility to provide funds thereunder would have on our
ability to fund operations, the impact of the restrictive covenants
in our credit facility on our liquidity and capital resources, our
access to equity and debt financing, and the increase in cash, cash
equivalents, and investments during the remainder of 2017. Words
such as “expects,” “believes,”
“anticipates,” “intends,”
“should,” “plans,” 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 or future events
to differ materially, including, but not limited to, the following:
changing economic, market and business conditions; acts of war or
terrorism; the effects of governmental regulation; the impact of
competition and new technologies; slower-than-anticipated
introduction of new products or implementation of marketing
strategies; implementation of new manufacturing processes or
implementation of new information systems; our ability to protect
our intellectual property; changes in the prices of raw materials;
changes in product mix; intellectual property and product liability
claims and product recalls; the ability to attract and retain
qualified personnel; and the loss of, or any material reduction in
sales to, any significant customers. 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
us to alter our marketing, capital expenditures or other budgets,
which in turn may affect our results of operations and financial
condition.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
For
the quarter ended June 30, 2017, we did not experience any material
changes in market risk exposures that affect the quantitative and
qualitative disclosures presented in our 2016 Form
10-K/A.
Item 4. Controls and
Procedures
Our
management, with the participation of our Chief Executive Officer
and our Chief Financial Officer, evaluated our disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) as of June 30, 2017. Based upon this evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded
that our disclosure controls and procedures are effective. There
were no changes in our internal control over financial reporting
for the quarter ended June 30, 2017 that have materially affected
or are reasonably likely to materially affect our internal control
over financial reporting.
PART II
OTHER INFORMATION
Item 1.
Legal Proceedings
From time to time, we may be involved in claims or
litigation that arise in the normal course of business. We are not
currently a party to any legal proceedings, which, if decided
adversely, would have a material adverse effect on our business,
financial condition, or results of operations.
There
were no material changes to the risk factors disclosed in our 2016
Form 10-K/A.
|
Exhibit
Number
|
Description
|
|
|
|
|
|
Form of Restricted
Stock Award Agreement
|
|
|
|
|
|
Form of Common
Stock Award Agreement
|
|
|
|
|
|
Form of Restricted
Stock Unit Award Agreement
|
|
|
|
|
|
Form of
Non-Qualified Stock Option Award Agreement
|
|
|
|
|
|
Sarbanes-Oxley Act
Section 302 Certification of Chief Executive Officer
|
|
|
|
|
|
Sarbanes-Oxley Act
Section 302 Certification of Chief Financial Officer
|
|
|
|
|
|
Certification
Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section
906 of The Sarbanes – Oxley Act Of 2002
|
|
|
|
|
|
Certification
Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section
906 of The Sarbanes – Oxley Act Of 2002
|
|
|
|
|
101.INS
|
XBRL Instance
Document
|
|
|
|
|
101.SCH
|
XBRL Taxonomy
Extension Schema Document
|
|
|
|
|
101.CAL
|
XBRL Taxonomy
Extension Calculation Linkbase Document
|
|
|
|
|
101.DEF
|
XBRL Taxonomy
Extension Definition Linkbase Document
|
|
|
|
|
101.LAB
|
XBRL Taxonomy
Extension Label Linkbase Document
|
|
|
|
|
101.PRE
|
XBRL Taxonomy
Extension Presentation Linkbase Document
|
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 8, 2017 |
By:
|
/s/
David
A. Battat
|
|
|
|
|
David
A. Battat |
|
|
|
|
President
and
Chief
Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Jeffery
Strickland
|
|
|
|
|
Jeffery
Strickland
|
|
|
|
|
Vice
President and
Chief
Financial Officer (Principal Accounting and Financial
Officer)
|
Exhibit Index
|
Exhibit
Number
|
Description
|
|
|
|
|
|
Form
of Restricted Stock Award Agreement
|
|
|
|
|
|
Form
of Common Stock Award Agreement
|
|
|
|
|
|
Form
of Restricted Stock Unit Award Agreement
|
|
|
|
|
|
Form
of Non-Qualified Stock Option Award Agreement
|
|
|
|
|
|
Sarbanes-Oxley Act
Section 302 Certification of Chief Executive Officer
|
|
|
|
|
|
Sarbanes-Oxley Act
Section 302 Certification of Chief Financial Officer
|
|
|
|
|
|
Certification
Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section
906 of The Sarbanes – Oxley Act Of 2002
|
|
|
|
|
|
Certification
Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section
906 of The Sarbanes – Oxley Act Of 2002
|
|
|
|
|
101.INS
|
XBRL
Instance Document
|
|
|
|
|
101.SCH
|
XBRL Taxonomy
Extension Schema Document
|
|
|
|
|
101.CAL
|
XBRL Taxonomy
Extension Calculation Linkbase Document
|
|
|
|
|
101.DEF
|
XBRL Taxonomy
Extension Definition Linkbase Document
|
|
|
|
|
101.LAB
|
XBRL Taxonomy
Extension Label Linkbase Document
|
|
|
|
|
101.PRE
|
XBRL Taxonomy
Extension Presentation Linkbase Document
|
21