SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Period Ended March 31, 2004 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 May 3, 2004
- ---------------------------------------- ---------------------------------
Common stock, Par Value $0.10 per share 1,708,107
ATRION CORPORATION AND SUBSIDIARIES
-----------------------------------
TABLE OF CONTENTS
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PART I. Financial Information 2
Item 1. Financial Statements
Consolidated Statements of Income (Unaudited)
For the Three Months Ended
March 31, 2004 and 2003 3
Consolidated Balance Sheets
March 31, 2004 (Unaudited) and December 31, 2003 4
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended
March 31, 2004 and 2003 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
1
PART I
FINANCIAL INFORMATION
2
Item 1. Financial Statements
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31
----------------------------------
2004 2003
----------------- ----------------
Revenues $ 16,789 $ 15,721
Cost of goods sold 10,834 10,125
-------------- --------------
Gross profit 5,955 5,596
-------------- --------------
Operating expenses:
Selling 1,428 1,409
General and administrative 2,081 1,934
Research and development 545 529
-------------- --------------
4,054 3,872
-------------- --------------
Operating income 1,901 1,724
-------------- --------------
Other income:
Interest income 11 19
Interest expense (27) (60)
Other income 6 9
-------------- --------------
(10) (32)
-------------- --------------
Income before provision for income taxes 1,891 1,692
Provision for income taxes 604 542
-------------- --------------
Net income $ 1,287 $ 1,150
============== ==============
Income per basic share $ 0.76 $ 0.65
============== ==============
Weighted average basic shares outstanding 1,703 1,765
Income per diluted share $ 0.70 $ 0.61
============== ==============
Weighted average diluted shares outstanding 1,843 1,871
The accompanying notes are an integral part of these statements.
3
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
2004 2003
Assets (unaudited)
- ------ ------------- --------------
Current assets:
Cash and cash equivalents $ 218 $ 298
Accounts receivable 8,462 6,226
Inventories 11,612 11,314
Prepaid expenses 1,065 1,894
Other 760 760
--------- ---------
22,117 20,492
--------- ---------
Property, plant and equipment 46,148 45,767
Less accumulated depreciation and amortization 22,467 21,578
--------- ---------
23,681 24,189
--------- ---------
Other assets and deferred charges:
Patents 1,899 2,099
Goodwill 9,730 9,730
Other 3,490 3,540
--------- ---------
15,119 15,369
--------- ---------
$ 60,917 $ 60,050
========= =========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 5,360 $ 6,038
Accrued income and other taxes 836 651
--------- ---------
6,196 6,689
--------- ---------
Line of credit 4,456 4,287
Other non-current liabilities 4,420 4,470
Stockholders' equity:
Common shares, par value $0.10 per share;
authorized 10,000 shares, issued 3,420
shares 342 342
Paid-in capital 9,765 9,673
Retained earnings 69,983 68,900
Treasury shares,1,712 at March 31, 2004
and 1,720 at December 31, 2003, at cost (34,245) (34,311)
--------- ---------
Total stockholders' equity 45,845 44,604
--------- ---------
$ 60,917 $ 60,050
========= =========
The accompanying notes are an integral part of these statements.
4
ATRION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
--------------------------
2004 2003
------------- ------------
(In thousands)
Cash flows from operating activities:
Net income $ 1,287 $ 1,150
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,391 1,101
Deferred income taxes (70) 17
Tax benefit related to stock plans 24 114
Other 1 3
------------- ------------
2,633 2,385
Changes in operating assets and liabilities:
Accounts receivable (2,236) (1,344)
Inventories (297) (769)
Prepaid expenses 829 669
Other non-current assets 50 33
Accounts payable and current liabilities (678) 313
Accrued income and other taxes 185 188
Other non-current liabilities 20 84
------------- ------------
Net cash provided by continuing operations 506 1,559
Cash flows from investing activities:
Property, plant and equipment additions (684) (1,053)
Property, plant and equipment sales - 1
------------- ------------
(684) (1,052)
------------- ------------
Cash flows from financing activities:
Net change in line of credit 169 (2,093)
Issuance of common stock 134 1,979
Dividends (205) -
------------- ------------
98 (114)
------------- ------------
Net change in cash and cash equivalents (80) 393
Cash and cash equivalents at beginning of period 298 353
------------- ------------
Cash and cash equivalents at end of period $ 218 $ 746
============= ============
Cash paid for:
Interest $ 28 $ 65
Income taxes $ - $ 28
The accompanying notes are an integral part of these statements.
5
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 2003 Annual Report on Form 10-K.
(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):
March 31, December 31,
2004 2003
--------------------------------------------------------------------------
Raw materials $ 5,882 $ 5,641
Finished goods 3,987 4,044
Work in process 1,743 1,626
--------------------------------------------------------------------------
Total inventories $ 11,612 $ 11,314
--------------------------------------------------------------------------
(3) Income per share
The following is the computation for basic and diluted income per share
from continuing operations:
Three months ended March 31,
2004 2003
----------------- ---------------
(in thousands,
except per share amounts)
Net Income
$ 1,287 $ 1,150
================= ===============
Weighted average basic shares outstanding
1,703 1,765
Add: Effect of dilutive securities (options)
140 106
----------------- ---------------
Weighted average diluted shares outstanding
1,843 1,871
================= ===============
Income per share:
Basic $ 0.76 $ 0.65
================= ===============
Diluted $ 0.70 $ 0.61
================= ===============
Outstanding options that were not included in the diluted income per share
calculation because their effect would be anti-dilutive totaled 52,000 and
61,500 for the three month periods ended March 31, 2004 and March 31, 2003,
respectively.
6
ATRION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(4) Stock-Based Compensation
At March 31, 2004, the Company had three stock-based employee compensation
plans. The Company accounts for those plans under the recognition and
measurement provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. No
stock-based employee compensation cost is reflected in net income, as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. The following
table illustrates the effect on net income and income per share if the
Company had applied the fair value recognition provisions of FASB SFAS No.
123, "Accounting for Stock-Based Compensation," to stock-based employee
compensation:
Three Months ended March 31,
-------------------------------
2004 2003
------------- -------------
(in thousands, except per share
amounts)
Net income, as reported $ 1,287 $ 1,150
Deduct: Total stock-based employee
compensation expense determined
under fair value-based methods
for all awards, net of tax effects 146 106
------------- -------------
Pro forma net income $ 1,141 $ 1,044
============= =============
Income per share:
Basic - as reported $ 0.76 $ 0.65
============= =============
Basic - pro forma $ 0.67 $ 0.59
============= =============
Diluted - as reported $ 0.70 $ 0.61
============= =============
Diluted - pro forma $ 0.62 $ 0.56
============= =============
(5) Pension Benefits
The components of net periodic pension cost are as follows for the three
months ended March 31, 2004 and March 31, 2003 (in thousands):
Three Months ended
March 31,
-------------------------------
2004 2003
------------- -------------
Service cost $ 60 $ 53
Interest cost 78 74
Expected return on assets (106) (87)
Prior service cost amortization (9) (9)
Actuarial loss 26 32
Transition amount amortization (11) (11)
------------- -------------
Net periodic pension cost $ 38 $ 52
============= =============
7
ATRION CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company designs, develops, manufactures, markets, sells and distributes
products and components, primarily for the medical and health care
industry. The Company markets components to other equipment manufacturers
for incorporation in their products and sells finished devices to
physicians, hospitals, clinics and other treatment centers. The Company's
products and services primarily range from ophthalmology and cardiovascular
products to fluid delivery devices, contract manufacturing and kitting
services. The Company's products are used in a wide variety of applications
by numerous customers. The Company encounters competition in all of its
markets and competes primarily on the basis of product quality, price,
engineering, customer service and delivery time. For the three months ended
March 31, 2004, the Company reported revenues of $16.8 million, operating
income of $1.9 million and net income of $1.3 million, up 7 percent, 10
percent and 12 percent, respectively, from the three months ended March 31,
2003.
Results for the three months ended March 31, 2004
Consolidated net income totaled $1.3 million, or $0.76 per basic and $0.70
per diluted share, in the first quarter of 2004. This is compared with
consolidated net income of $1.2 million, or $0.65 per basic and $0.61 per
diluted share, in the first quarter of 2003. The income per basic share
computations are based on weighted average basic shares outstanding of
1,703,153 in the 2004 period and 1,764,977 in the 2003 period. The income
per diluted share computations are based on weighted average diluted shares
outstanding of 1,843,310 in the 2004 period and 1,870,673 in the 2003
period.
Consolidated revenues of $16.8 million for the first quarter of 2004 were
higher than revenues of $15.7 million for the first quarter of 2003. This 7
percent increase in revenues for the first quarter of 2004 over the first
quarter of 2003 is primarily attributable to an approximate 20 percent
increase in each of the revenues of the Company's fluid delivery products,
cardiovascular products and other products. These increases are generally
attributable to higher sales volumes. These increases were partially offset
by an approximate 20 percent decrease in the revenues of the Company's
ophthalmic products following the fulfillment of a customer's requirements
in late 2003. Cost of goods sold of $10.8 million for the first quarter of
2004 was 7 percent higher than in the comparable 2003 period. The increase
in cost of goods sold is primarily attributable to increased revenues.
Gross profit of $6.0 million in the first quarter of 2004 was $359,000, or
6 percent, higher than in the comparable 2003 period. The Company's gross
profit percentage in the first quarter of 2004 was 35.5 percent of revenues
compared with 35.6 percent of revenues in the first quarter of 2003.
The Company's first quarter 2004 operating expenses of $4.1 million were
$182,000 higher than the operating expenses for the first quarter of 2003,
resulting from a $146,000 increase in general and administrative (G&A)
8
expenses, a $20,000 increase in selling expenses and a $16,000 increase in
research and development (R&D) expenses. The increase in G&A expenses for
the first quarter of 2004 is primarily attributable to a write-off of
$124,000 for the impairment of a patent related to a discontinued product.
Operating income in the first quarter of 2004 increased $177,000, or 10
percent, to $1.9 million from $1.7 million in the first quarter of 2003.
Operating income margin was 11.3 percent of revenues in the first quarter
of 2004 compared to 11.0 percent of revenues in the first quarter of 2003.
The improvement in operating income is primarily attributable to the
previously mentioned gross profit improvement partially offset by the
increase in G&A expenses.
Interest expense for the first quarter of 2004 was $27,000 compared to
interest expense of $60,000 for the same period in the prior year. The
decrease in the 2004 period from the 2003 period is primarily attributable
to the Company's lower average borrowing level in the current-year period
combined with a slight decrease in interest rates in 2004 as compared to
2003.
Income tax expense for the first quarter of 2004 was $604,000 compared to
income tax expense of $542,000 for the same period in the prior year. The
effective tax rate for the first quarter of 2004 was 31.9 percent compared
with 32.6 percent for the first quarter of 2003.
Liquidity and Capital Resources
At March 31, 2004, the Company had cash and cash equivalents of $218,000
compared with $298,000 at December 31, 2003. The Company had outstanding
borrowings of $4.5 million under its $25 million revolving credit facility
("Credit Facility") at March 31, 2004 and $4.3 million at December 31,
2003. The increase in the outstanding balance under the Credit Facility in
the first three months of 2004 is primarily attributable to borrowings to
fund planned capital expenditures. The Credit Facility, which expires
November 12, 2006, and may be extended under certain circumstances,
contains various restrictive covenants, none of which is expected to impact
the Company's liquidity or capital resources. At March 31, 2004, the
Company was in compliance with all financial covenants.
As of March 31, 2004, the Company had working capital of $15.9 million,
including $218,000 in cash and cash equivalents. The $2.1 million increase
in working capital during the first three months of 2004 was primarily
related to an increase in accounts receivable. The increase in accounts
receivable during the first three months of 2004 is directly related to the
increase in revenues for the first quarter of 2004 as compared to the
fourth quarter of 2003. Cash flows from continuing operations generated
$506,000 for the three months ended March 31, 2004 as compared to $1.6
million for the three months ended March 31, 2003. The previously mentioned
increase in accounts receivable was the primary contributor to this change.
During the first three months of 2004, the Company expended $684,000 for
the addition of property and equipment. The Company received net proceeds
of $134,000 from the exercise of employee stock options during the first
three months of 2004. During the first quarter of 2004 the Company paid
dividends totaling $205,000 to its stockholders.
The Company believes that its existing cash and cash equivalents, cash
flows from operations, borrowings available under the Company's credit
facility, supplemented, if necessary, with equity or debt financing, which
9
the Company believes would be available, will be sufficient to fund the
Company's cash requirements for 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
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. These
statements involve risks and uncertainties. The following are some of the
factors that could cause actual results to differ materially from those
expressed in or underlying the Company's forward-looking statements:
changing economic, market and business conditions; market acceptance of the
Company's products; the effects of governmental regulation; acts of war or
terrorism; 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 liability claims and 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.
Item 3.. Quantitative and Qualitative Disclosures About Market Risk
For the quarter ended March 31, 2004, The Company did not experience any
material changes in market risk exposures that affect the quantitative and
qualitative disclosures presented in the Company's 2003 Annual Report on
Form 10K.
Item 4. Controls and Procedures
With the participation of management, the Company's Chief Executive Officer
and its Chief Financial Officer evaluated the effectiveness of the
Company's disclosure controls and procedures as of March 31, 2004. Based
upon this evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be disclosed
by the Company in the reports that the Company files with the Securities
and Exchange Commission.
There has been no change in the Company's internal controls over financial
reporting during the Company's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
10
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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
(b) Reports on Form 8-K
On February 12, 2004, the Company filed a report on Form 8-K with the
SEC regarding the public dissemination of a press release announcing
its financial results for the fourth quarter and year ended December
31, 2003 (Item 12).
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Atrion Corporation
------------------
(Registrant)
Date: May 13, 2004 /s/ Emile A. Battat
-----------------------
Emile A. Battat
Chairman, President and
Chief Executive Officer
Date: May 13, 2004 /s/ Jeffery Strickland
-----------------------
Jeffery Strickland
Vice President and
Chief Financial Officer
12