(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 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 for the fiscal year ended December 31, 2012 ("2012 Form 10-K"). References herein to "Atrion," the "Company," "we," "our," and "us" refer to Atrion Corporation and its subsidiaries.
(2) Inventories
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):
| |
|
June 30,
|
|
December 31,
|
| |
|
2013
|
|
2012
|
|
Raw materials
|
|
$ |
11,299 |
|
|
$ |
10,017 |
|
|
Work in process
|
|
|
5,686 |
|
|
|
5,268 |
|
|
Finished goods
|
|
|
8,198 |
|
|
|
8,494 |
|
|
Total inventories
|
|
$ |
25,183 |
|
|
$ |
23,779 |
|
(3) Income per share
The following is the computation for basic and diluted income per share:
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
(in thousands, except per share amounts)
|
|
Net income
|
|
$ |
6,506 |
|
|
$ |
6,099 |
|
|
$ |
13,140 |
|
|
$ |
11,476 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding
|
|
|
2,015 |
|
|
|
2,016 |
|
|
|
2,017 |
|
|
|
2,015 |
|
|
Add: Effect of dilutive securities
|
|
|
4 |
|
|
|
3 |
|
|
|
4 |
|
|
|
8 |
|
|
Weighted average diluted shares outstanding
|
|
|
2,019 |
|
|
|
2,019 |
|
|
|
2,021 |
|
|
|
2,023 |
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
3.23 |
|
|
$ |
3.03 |
|
|
$ |
6.51 |
|
|
$ |
5.70 |
|
|
Diluted
|
|
$ |
3.22 |
|
|
$ |
3.02 |
|
|
$ |
6.50 |
|
|
$ |
5.67 |
|
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 6,711 and 6,547 shares of common stock for the quarters ended June 30, 2012 and 2013, respectively, were excluded from the computation of weighted average diluted shares outstanding because their effect would have been anti-dilutive.
(4) Investments
As of June 30, 2013, we held certain investments that are required to be measured for disclosure purposes at fair value on a recurring basis. These investments are considered Level 2 investments and are all considered to be held-to-maturity securities. We consider as current assets those investments which will mature in the next 12 months. The remaining investments are considered non-current assets. The amortized cost and fair value of our investments, and the related gross unrealized gains and losses, were as follows as of June 30, 2013 (in thousands):
| |
|
|
|
|
Gross Unrealized
|
|
|
|
| |
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
Short-term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$ |
12,574 |
|
|
$ |
188 |
|
|
$ |
(4 |
) |
|
$ |
12,758 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$ |
20,124 |
|
|
$ |
349 |
|
|
$ |
-- |
|
|
$ |
20,473 |
|
At June 30, 2013, the length of time until maturity of these securities ranged from half a month to 22.5 months.
Our effective tax rate for the second quarter of 2013 was 33.9 percent, compared with 34.6 percent for the second quarter of 2012. Our effective tax rate for the first six months of 2013 was 32.9 percent, compared with 34.7 percent for the first six months of 2012. The decrease in our effective tax rate for both the second quarter and the first six months of 2013 was primarily related to the extension of the federal research tax credit provisions included in the American Taxpayer Relief Act of 2012, which was signed into law on January 2, 2013. Additionally, retroactive benefits from tax incentives for 2012 research and development expenditures were included in the calculation of income taxes for the first six months of 2013.
(6) Recent Accounting Pronouncements
From time to time, new accounting standards updates applicable to us are issued by the Financial Accounting Standards Board, or 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.
|
|
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;
|
| |
● |
Maintaining a culture of controlling cost; and
|
| |
● |
Preserving and fostering a collaborative, entrepreneurial management structure.
|
For the three months ended June 30, 2013, we reported revenues of $32.6 million, operating income of $9.5 million and net income of $6.5 million, up 6 percent, 6 percent and 7 percent, respectively, from the three months ended June 30, 2012. For the six months ended June 30, 2013, we reported revenues of $66.1 million, operating income of $18.9 million and net income of $13.1 million, up 10 percent, 12 percent and 15 percent, respectively, from the six months ended June 30, 2012.
Results for the three months ended June 30, 2013
Consolidated net income totaled $6.5 million, or $3.23 per basic and $3.22 per diluted share, in the second quarter of 2013. This is compared with consolidated net income of $6.1 million, or $3.03 per basic and $3.02 per diluted share, in the second quarter of 2012. The income per basic share computations are based on weighted average basic shares outstanding of 2,015,000 in the 2013 period and 2,016,000 in the 2012 period.
The income per diluted share computations are based on weighted average diluted shares outstanding of 2,019,000 in both the 2013 and the 2012 period.
Consolidated revenues of $32.6 million for the second quarter of 2013 were 6 percent higher than revenues of $30.7 million for the second quarter of 2012. This increase was primarily attributable to higher sales volumes.
Revenues by product line were as follows (in thousands):
| |
|
Three Months ended
June 30,
|
| |
|
2013
|
|
2012
|
| |
|
|
|
|
|
|
|
Fluid Delivery
|
|
$ |
13,036 |
|
|
$ |
13,394 |
|
|
Cardiovascular
|
|
|
10,143 |
|
|
|
9,515 |
|
|
Ophthalmology
|
|
|
5,016 |
|
|
|
3,653 |
|
|
Other
|
|
|
4,410 |
|
|
|
4,127 |
|
|
Total
|
|
$ |
32,605 |
|
|
$ |
30,689 |
|
Cost of goods sold of $17.0 million for the second quarter of 2013 was $955,000 higher than in the comparable 2012 period. Our cost of goods sold in the second quarter of 2013 was 52.1 percent of revenues compared with 52.2 percent of revenues in the second quarter of 2012.
Gross profit of $15.6 million in the second quarter of 2013 was $961,000, or 7 percent, higher than in the comparable 2012 period. Our gross profit percentage in the second quarter of 2013 was 47.9 percent of revenues compared with 47.8 percent of revenues in the second quarter of 2012. The increase in gross profit percentage in the 2013 period compared to the 2012 period was primarily related to improved manufacturing capacity utilization, and the impact of continued cost improvement initiatives partially offset by increased compensation and depreciation.
Our second quarter 2013 operating expenses of $6.1 million were $433,000 higher than the operating expenses for the second quarter of 2012. This increase was comprised of a $108,000 increase in Research and Development, or R&D, expenses, a $16,000 increase in Selling expenses and a $309,000 increase in General and Administrative, or G&A, expenses. The increase in R&D costs was primarily related to increased supplies, outside services and compensation. The increase in Selling expenses for the second quarter of 2013 was primarily related to increased outside services partially offset by reduced commissions, compensation and other miscellaneous expenses. The increase in G&A expenses for the second quarter of 2013 was principally attributable to increased compensation and outside services.
Operating income in the second quarter of 2013 increased $528,000 to $9.5 million, a 6 percent increase from our operating income in the quarter ended June 30, 2012. Operating income was 29 percent of revenues in both the second quarter of 2013 and the second quarter of 2012.
Income tax expense for the second quarter of 2013 was $3.3 million compared to income tax expense of $3.2 million for the same period in the prior year. The effective tax rate for the second quarter of 2013 was 33.9 percent, compared with 34.6 percent for the second quarter of 2012. The lower second quarter 2013 effective rate benefited from the extension of the federal research tax credit provisions included in the American Taxpayer Relief Act of 2012, which was signed into law on January 2, 2013. We expect the effective tax rate for the remainder of 2013 to be approximately 34.0 percent.
Results for the six months ended June 30, 2013
Consolidated net income totaled $13.1 million, or $6.51 per basic and $6.50 per diluted share, in the first six months of 2013. This is compared with consolidated net income of $11.5 million, or $5.70 per basic and $5.67 per diluted share, in the first six months of 2012. The income per basic share computations are based on weighted average basic shares outstanding of 2,017,000 in the 2013 period and 2,015,000 in the 2012 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 2,021,000 in the 2013 period and 2,023,000 in the 2012 period.
Consolidated revenues of $66.1 million for the first six months of 2013 were 10 percent higher than revenues of $59.9 million for the first six months of 2012. This increase was primarily attributable to higher sales volumes.
Revenues by product line were as follows (in thousands):
| |
|
Six Months ended
June 30,
|
| |
|
2013
|
|
2012
|
| |
|
|
|
|
|
|
|
Fluid Delivery
|
|
$ |
25,748 |
|
|
$ |
24,774 |
|
|
Cardiovascular
|
|
|
20,294 |
|
|
|
18,825 |
|
|
Ophthalmology
|
|
|
10,811 |
|
|
|
7,311 |
|
|
Other
|
|
|
9,244 |
|
|
|
9,019 |
|
|
Total
|
|
$ |
66,097 |
|
|
$ |
59,929 |
|
Cost of goods sold of $34.8 million for the first six months of 2013 was $3.3 million higher than in the comparable 2012 period. Our cost of goods sold in the first six months of 2013 was 52.6 percent of revenues compared with 52.4 percent of revenues in the first six months of 2012.
Gross profit of $31.3 million in the first six months of 2013 was $2.8 million, or 10 percent, higher than in the comparable 2012 period. Our gross profit percentage in the first six months of 2013 was 47.4 percent of revenues compared with 47.6 percent of revenues in the first six months of 2012. The decrease in gross profit percentage in the 2013 period compared to the 2012 period was primarily related to increased depreciation, increased compensation and lower manufacturing efficiencies partially offset by a favorable product mix and continued cost improvements.
Our first six months 2013 operating expenses of $12.5 million were $856,000 higher than the operating expenses for the first six months of 2012. This increase was comprised of a $265,000 increase in R&D expenses, a $159,000 increase in Selling expenses and a $432,000 increase in G&A expenses. The increase in R&D costs was primarily related to increased outside services, compensation, supplies and depreciation.
The increase in Selling expenses for the first six months of 2013 was primarily related to increased compensation, travel and outside services partially offset by reduced commissions, promotion and advertising. The increase in G&A expenses for the first six months of 2013 was principally attributable to increased compensation partially offset by reduced outside services.
Operating income in the first six months of 2013 increased $2.0 million to $18.9 million, a 12 percent increase from our operating income in the six months ended June 30, 2012. Operating income was 29 percent of revenues in the first six months of 2013 compared to 28 percent of revenues in the first six months of 2012. The major contributor to the increase in operating income for the first six months of 2013 was the previously mentioned increase in revenues.
Income tax expense for the first six months of 2013 was $6.5 million compared to income tax expense of $6.1 million for the same period in the prior year. The effective tax rate for the first six months of 2013 was 32.9 percent, compared with 34.7 percent for the first six months of 2012. The lower first six months 2013 effective rate benefited from the retroactive extension of the federal research tax credit provisions included in the American Taxpayer Relief Act of 2012, which was signed into law on January 2, 2013. Benefits from tax incentives for 2012 research and development expenditures were included in the calculation of income taxes for the first six months of 2013. We expect the effective tax rate for the remainder of 2013 to be approximately 34.0 percent.
Liquidity and Capital Resources
We have a $40.0 million revolving credit facility with a money center bank that can be utilized for the funding of operations and for major capital projects or acquisitions, subject to certain limitations and restrictions. Borrowings under the credit facility bear interest that is payable monthly at 30-day, 60-day or 90-day LIBOR, as selected by us, plus one percent. From time to time prior to October 1, 2016 and assuming an event of default is not then existing, we can convert outstanding advances under the revolving line of credit to term loans with a term of up to two years. We had no outstanding borrowings under our credit facility at June 30, 2013 or at December 31, 2012. The credit facility contains various restrictive covenants, none of which is expected to impact our liquidity or capital resources. At June 30, 2013, we were in compliance with all financial covenants. We believe that the bank providing the credit facility is highly-rated and that the entire $40.0 million under the credit facility is currently available to us. If that bank were unable to provide such funds, we believe that such inability would not impact our ability to fund operations.
At June 30, 2013, we had a total of $53.0 million in cash and cash equivalents, short-term investments and long-term investments, an increase of $8.4 million from December 31, 2012, which was principally attributable to increased operational results.
Cash flows from operating activities generated $16.5 million for the six months ended June 30, 2013 as compared to $10.9 million for the six months ended June 30, 2012. The increase in the 2013 period was primarily attributable to increased operational results as compared to the 2012 period and decreased cash requirements for working capital items, specifically accounts payable and accrued liabilities for the 2013 period. During the first six months of 2013, we expended $2.7 million for the addition of property and equipment, $2.9 million for treasury stock and $2.3 million for dividends. During that same period, maturities of investments generated $3.6 million.
At June 30, 2013, we had working capital of $67.7 million, including $20.3 million in cash and cash equivalents and $12.6 million in short-term investments. The $18.2 million increase in working capital during the first six months of 2013 was primarily related to increases in cash and cash equivalents, short-term investments, accounts receivable and inventories partially offset by increases in accounts payable and accrued liabilities. The net increase in cash and short-term investments was primarily related to increases in accounts payable and accrued liabilities and decreases in long-term investments.
We believe that our $53.0 million in cash, cash equivalents, short-term investments and long-term investments, along with cash flows from operations and available borrowings of up to $40.0 million under our credit facility will be sufficient to fund our cash requirements for at least the foreseeable future. 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 2013.
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 2013, 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, our access to equity and debt financing, and the increase in cash, cash equivalents, and investments in the remainder of 2013. 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.
|
|
Quantitative and Qualitative Disclosures About Market Risk
|
For the quarter ended June 30, 2013, we did not experience any material changes in market risk exposures that affect the quantitative and qualitative disclosures presented in our 2012 Form 10-K.
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, 2013. 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, 2013 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
OTHER INFORMATION
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 2012 Form 10-K.
The table below sets forth information with respect to our purchases of our common stock during each of the three months in the period ended June 30, 2013.
|
Period
|
|
Total Number of
Shares
Purchased
|
|
Average Price
Paid per Share
|
|
Total Number of Shares Purchased as Part of
Publicly Announced
Plans or Programs
|
|
Maximum
Number of Shares
that May Yet Be Purchased Under the Plans or Programs (1)
|
|
4/1/2013 through 4/30/2013
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
160,408 |
|
|
5/1/2013 through 5/31/2013
|
|
|
1,500 |
|
|
$ |
209.01 |
|
|
|
1,500 |
|
|
|
158,908 |
|
|
6/1/2013 through 6/30/2013
|
|
|
7,262 |
|
|
$ |
219.13 |
|
|
|
7,262 |
|
|
|
151,646 |
|
|
Total
|
|
|
8,762 |
|
|
$ |
217.40 |
|
|
|
8,762 |
|
|
|
151,646 |
|
|
(1)
|
On August 16, 2011, our Board of Directors approved our current stock repurchase program pursuant to which we can repurchase up to 200,000 shares of our common stock from time to time in open market or privately-negotiated transactions. Our current stock repurchase program has no expiration date but may be terminated by our Board of Directors at any time.
|
| |
Exhibit
Number |
Description
|
| |
|
|
| |
3.1 |
Certificate of Incorporation of Atrion Corporation, dated December 30, 1996 (1)
|
| |
|
|
| |
3.2 |
Bylaws of Atrion Corporation (as last amended on February 20, 2012)(2)
|
| |
|
|
| |
31.1 |
Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer
|
| |
|
|
| |
31.2 |
Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer
|
| |
|
|
| |
32.1 |
Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes – Oxley Act Of 2002
|
| |
|
|
| |
32.2 |
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
|
|
Notes
|
|
|
(1)
|
Incorporated by reference to Appendix B to the Definitive Proxy Statement of Atrion Corporation filed January 10, 1997. |
|
(2)
|
Incorporated by reference to Exhibit 3.1 to the Form 8-K of Atrion Corporation filed February 23, 2012. |
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: July 31, 2013
|
By: |
/s/ David A. Battat |
|
| |
|
David A. Battat
|
|
| |
|
President and
|
|
| |
|
Chief Executive Officer
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
|
Date: July 31, 2013
|
By: |
/s/ Jeffery Strickland |
|
| |
|
Jeffery Strickland
|
|
| |
|
Vice President and
|
|
| |
|
Chief Financial Officer
|
|
| |
|
(Principal Accounting andFinancial Officer)
|
|