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 March 31, 2024

or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended September 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

☐

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

Atrion Corporation

(Exact Name of Registrant as Specified in its Charter)

Delaware

63-0821819

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

One Allentown Parkway, Allen, Texas 75002

(Address of Principal Executive Offices) (Zip Code)

(972) 390-9800

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock, Par Value $0.10 per share

ATRI

The Nasdaq Global Select  Market

Indicate by check mark 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 mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Registration S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark 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,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

Act.

Large accelerated filer

 ☐

☒

Accelerated filer

 ☑

☐

Non-accelerated filer

☐

Smaller reporting company

☐

 Non-accelerated filer
 ☐

Emerging growth company

☐

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 ActAct. ☐

Indicate by check mark 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.

Title of Each Class

Number of Shares Outstanding at

October 20, 2017

April 26, 2024

Common stock, Par Value $0.10 per share

1,759,954

 
1,851,842

ATRION CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

PART I. Financial Information

3

2

Item 1.

Financial Statements

3

Condensed Consolidated Statements of Income (Unaudited) For the Three Months Ended  March 31, 2024 and Nine months Ended September 30, 2017 and 2016March 31, 2023

3

Consolidated Statements of Comprehensive Income (Unaudited) For the Three and Nine months Ended September 30, 2017 and 2016
4

Condensed Consolidated Balance Sheets (Unaudited) September 30, 2017March 31, 2024 and December 31, 20162023

 5

4

Condensed Consolidated Statements of Cash Flows (Unaudited) For the Nine monthsThree Months Ended September 30, 2017March 31, 2024 and 2016March 31, 2023

 6

5

Condensed Consolidated StatementStatements of Changes in Stockholders’ Equity (Unaudited) September 30, 2017For the Three Months Ended March 31, 2024 and DecemberMarch 31, 20162023

 7

6

Notes to Condensed Consolidated Financial Statements (Unaudited)

 8

7

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

13

Item 3.3.

Quantitative and Qualitative Disclosures About Market Risk

18

17

Item 4.

Controls and Procedures

17

PART II. Other Information

17

Item 1.

Legal Proceedings

17

Item 1A.

Risk Factors

17

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

17

Item 6.

Exhibits

18

SIGNATURES

19

 
Item 4. Controls and Procedures
181

Table of Contents

PART I

FINANCIAL INFORMATION

 
PART II. Other Information
19
2

Item 1. Legal Proceedings
19Table of Contents
Item 1A. Risk Factors
19
Item 6. Exhibits
19
SIGNATURES
20
Exhibit Index
21
2
PART I
FINANCIAL INFORMATION

Item 1.   Financial Statements

Statements.

ATRION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 
 
Three Months Ended
September 30,
 
 
Nine Months Ended
September 30,
 
 
 
2017
 
 
2016
 
 
2017
 
 
2016
 
 
 
(in thousands, except per share amounts)
 
Revenues
 $37,903 
 $37,835 
 $112,571 
 $110,193 
Cost of goods sold
  19,498 
  20,211 
  57,841 
  57,789 
Gross profit
  18,405 
  17,624 
  54,730 
  52,404 
Operating expenses:
    
    
    
    
Selling
  1,691 
  1,471 
  5,303 
  4,871 
General and administrative
  4,086 
  3,613 
  12,390 
  11,442 
Research and development
  1,149 
  1,564 
  4,056 
  4,576 
 
  6,926 
  6,648 
  21,749 
  20,889 
Operating income
  11,479 
  10,976 
  32,981 
  31,515 
 
    
    
    
    
Interest and dividend income
  287 
  106 
  806 
  315 
Other income (expense), net
  -- 
  1 
  1 
  (309)
 
  287 
  107 
  807 
  6 
 
    
    
    
    
Income before provision for income taxes
  11,766 
  11,083 
  33,788 
  31,521 
Provision for income taxes
  (3,795)
  (3,469)
  (5,841)
  (9,511)
 
    
    
    
    
Net income
 $7,971 
 $7,614 
 $27,947 
 $22,010 
 
    
    
    
    
Net income per basic share
 $4.30 
 $4.17 
 $15.16 
 $12.07 
Weighted average basic shares outstanding
  1,852 
  1,825 
  1,844 
  1,823 
 
    
    
    
    
 
    
    
    
    
Net income per diluted share
 $4.29 
 $4.10 
 $15.06 
 $11.86 
Weighted average diluted shares outstanding
  1,857 
  1,858 
  1,856 
  1,856 
 
    
    
    
    
Dividends per common share
 $1.20 
 $1.05 
 $3.30 
 $2.85 

 

 

Three Months Ended

March 31,

 

 

 

2024

 

 

2023

 

 

 

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

Revenues

 

$47,334

 

 

$39,993

 

Cost of goods sold

 

 

34,983

 

 

 

24,912

 

Gross profit

 

 

12,351

 

 

 

15,081

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling

 

 

2,772

 

 

 

2,727

 

General and administrative

 

 

4,787

 

 

 

6,254

 

Research and development

 

 

1,650

 

 

 

1,630

 

 

 

 

9,209

 

 

 

10,611

 

Operating income

 

 

3,142

 

 

 

4,470

 

 

 

 

 

 

 

 

 

 

Interest and dividend income

 

 

156

 

 

 

240

 

Other investment income/(losses)

 

 

(109)

 

 

(721)

Other income

 

 

14

 

 

 

10

 

 

 

 

61

 

 

 

(471)

 

 

 

 

 

 

 

 

 

Income before provision for income taxes

 

 

3,203

 

 

 

3,999

 

Provision for income taxes

 

 

(411)

 

 

(514)

 

 

 

 

 

 

 

 

 

Net income

 

$2,792

 

 

$3,485

 

 

 

 

 

 

 

 

 

 

Net income per basic share

 

$1.59

 

 

$1.98

 

Weighted average basic shares outstanding

 

 

1,760

 

 

 

1,762

 

 

 

 

 

 

 

 

 

 

Net income per diluted share

 

$1.59

 

 

$1.98

 

Weighted average diluted shares outstanding

 

 

1,761

 

 

 

1,763

 

 

 

 

 

 

 

 

 

 

Dividends per common share

 

$2.20

 

 

$2.15

 

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.


3

Table of Contents

ATRION CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

BALANCE SHEETS

(Unaudited)

 
 
Three Months Ended
September 30,
 
 
Nine Months Ended
September 30,
 
 
 
2017
 
 
2016
 
 
2017
 
 
2016
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income
 $7,971 
 $7,614 
 $27,947 
 $22,010 
Other Comprehensive Income (Loss)
    
    
    
    
  Unrealized income (loss) on investments, net of tax expense (benefit) of $23, ($273), $58 and ($445)
  43 
  (506)
  109 
  (827)
 
    
    
    
    
Comprehensive Income
 $8,014 
 $7,108 
 $28,056 
 $21,183 

 

 

March 31,

2024

 

 

December 31,

2023

 

Assets

 

(in thousands)

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$7,135

 

 

$3,565

 

Short-term investments

 

 

2,760

 

 

 

2,691

 

Accounts receivable

 

 

25,116

 

 

 

23,029

 

Inventories

 

 

75,000

 

 

 

82,307

 

Prepaid expenses and other current assets

 

 

2,503

 

 

 

3,173

 

 

 

 

112,514

 

 

 

114,765

 

 

 

 

 

 

 

 

 

 

Long-term investments

 

 

8,853

 

 

 

8,165

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

289,054

 

 

 

286,445

 

Less accumulated depreciation and amortization

 

 

164,446

 

 

 

161,098

 

 

 

 

124,608

 

 

 

125,347

 

 

 

 

 

 

 

 

 

 

Other assets and deferred charges:

 

 

 

 

 

 

 

 

Patents and licenses

 

 

1,043

 

 

 

1,072

 

Goodwill

 

 

9,730

 

 

 

9,730

 

Other

 

 

1,879

 

 

 

1,746

 

 

 

 

12,652

 

 

 

12,548

 

 

 

 

 

 

 

 

 

 

Total assets

 

$258,627

 

 

$260,825

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$11,112

 

 

$12,515

 

Accrued income and other taxes

 

 

1,140

 

 

 

106

 

 

 

 

12,252

 

 

 

12,621

 

 

 

 

 

 

 

 

 

 

Other non-current liabilities

 

 

4,452

 

 

 

5,315

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, par value $0.10 per share; authorized 10,000 shares, issued 3,420 shares

 

 

342

 

 

 

342

 

Additional paid-in capital

 

 

67,472

 

 

 

67,331

 

Retained earnings

 

 

380,665

 

 

 

381,754

 

Treasury shares,1,660 at March 31, 2024 and 1,660 at December 31, 2023, at cost

 

 

(206,556)

 

 

(206,538)

Total stockholders’ equity

 

 

241,923

 

 

 

242,889

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$258,627

 

 

$260,825

 

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.


4

Table of Contents

ATRION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

STATEMENTS OF CASH FLOWS

(Unaudited)

Assets
 
September 30,
2017
 
 
December 31,
2016
 
 
 
(in thousands)
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 $20,995 
 $20,022 
Short-term investments
  38,959 
  24,080 
Accounts receivable
  19,585 
  17,166 
Inventories
  29,924 
  29,015 
Prepaid expenses and other current assets
  3,001 
  3,181 
 
  112,464 
  93,464 
 
    
    
Long-term investments
  10,112 
  9,945 
 
    
    
Property, plant and equipment
  167,148 
  160,413 
Less accumulated depreciation and amortization
  100,630 
  95,148 
 
  66,518 
  65,265 
 
    
    
Other assets and deferred charges:
    
    
Patents
  1,808 
  1,929 
Goodwill
  9,730 
  9,730 
    Other
  1,494 
  1,609 
 
  13,032 
  13,268 
 
    
    
    Total assets
 $202,126 
 $181,942 
Liabilities and Stockholders’ Equity
    
    
Current liabilities:
    
    
Accounts payable and accrued liabilities
 $10,382 
 $8,663 
Accrued income and other taxes
  2,312 
  410 
 
  12,694 
  9,073 
 
    
    
Line of credit
  -- 
  -- 
 
    
    
Other non-current liabilities
  10,981 
  9,881 
 
    
    
Stockholders’ equity:
    
    
Common stock, par value $0.10 per share; authorized10,000 shares, issued 3,420 shares
  342 
  342 
Paid-in capital
  48,360 
  37,448 
Accumulated other comprehensive (loss) income
  (365)
  (474)
Retained earnings
  261,777 
  239,946 
Treasury shares,1,584 at September 30, 2017 and 1,596 at December 31, 2016, at cost
  (131,663)
  (114,274)
Total stockholders’ equity
  178,451 
  162,988 
 
    
    
 
    
    
    Total liabilities and stockholders’ equity
 $202,126 
 $181,942 

 

Three Months Ended

March 31,

 

 

 

2024

 

 

2023

 

(In thousands)

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$2,792

 

 

$3,485

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,943

 

 

 

3,509

 

Deferred income taxes

 

 

(135)

 

 

(1,394)

Stock-based compensation

 

 

235

 

 

 

407

 

Net change in unrealized gains and losses on investments

 

 

109

 

 

 

721

 

Net change in accrued interest, premiums, and discounts on investments

 

 

(5)

 

 

(77)

 

 

 

6,939

 

 

 

6,651

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,087)

 

 

4,527

 

Inventories

 

 

7,307

 

 

 

(9,300)

Prepaid expenses

 

 

345

 

 

 

979

 

Other non-current assets

 

 

192

 

 

 

382

 

Accounts payable and accrued liabilities

 

 

(1,504)

 

 

167

 

Accrued income and other taxes

 

 

1,034

 

 

 

984

 

Other non-current liabilities

 

 

(728)

 

 

(62)

Cash flows from operating activities

 

 

11,498

 

 

 

4,328

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Property, plant and equipment additions

 

 

(3,175)

 

 

(7,543)

Purchase of investments

 

 

(3,608)

 

 

(4,160)

Proceeds from sale of investments

 

 

228

 

 

 

52

 

Proceeds from maturities of investments

 

 

2,519

 

 

 

11,574

 

Cash flows from investing activities

 

 

(4,036)

 

 

(77)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Purchase of treasury stock

 

 

-

 

 

 

(613)

Shares tendered for employees’ withholding taxes on stock-based compensation

 

 

(20)

 

 

(22)

Dividends paid

 

 

(3,872)

 

 

(3,784)

Cash flows from financing activities

 

 

(3,892)

 

 

(4,419)

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

3,570

 

 

 

(168)

Cash and cash equivalents at beginning of period

 

 

3,565

 

 

 

4,731

 

Cash and cash equivalents at end of period

 

$7,135

 

 

$4,563

 

 

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Income taxes

 

$11

 

 

$146

 

The accompanying notes to the condensed consolidated financial statements are an integral part of these financial statements.


statements

5

Table of Contents

ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWS

CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 
 
 Nine Months Ended
September 30,  
 
 
 
2017
 
 
2016
 
 
 (In thousands)    
Cash flows from operating activities:
 
 
 
 
 
 
Net income
 $27,947 
 $22,010 
Adjustments to reconcile net income tonet cash provided by operating activities:
    
    
Depreciation and amortization
  6,458 
  6,655 
Deferred income taxes
  1,002 
  (116)
Stock-based compensation
  1,240 
  1,323 
Bond impairment
  -- 
  345 
Net change in accrued interest, premiums, and discounts
    
    
    on investments
  (167)
  (5)
Other
  (2)
  -- 
 
  36,478 
  30,212 
 
    
    
Changes in operating assets and liabilities:
    
    
Accounts receivable
  (2,419)
  (3,504)
Inventories
  (909)
  (285)
Prepaid expenses
  180 
  754 
Other non-current assets
  115 
  (633)
Accounts payable and accrued liabilities
  1,719 
  265 
Accrued income and other taxes
  1,902 
  1,405 
Other non-current liabilities
  39 
  195 
 
  37,105 
  28,409 
 
    
    
Cash flows from investing activities:
    
    
Property, plant and equipment additions
  (7,590)
  (8,836)
Purchase of investments
  (46,712)
  (21,798)
Proceeds from sale of investments
  -- 
  210 
Proceeds from maturities of investments
  32,000 
  5,000 
 
  (22,302)
  (25,424)
 
    
    
Cash flows from financing activities:
    
    
Shares tendered for employees’ withholding taxes on stock-based compensation
  (7,735)
  (1,112)
Purchase of treasury stock
  -- 
  (1,276)
Dividends paid
  (6,095)
  (5,196)
 
  (13,830)
  (7,584)
 
    
    
Net change in cash and cash equivalents
  973 
  (4,599)
Cash and cash equivalents at beginning of period
  20,022 
  28,346 
Cash and cash equivalents at end of period
 $20,995 
 $23,747 
 
    
    
 
    
    
Cash paid for:
    
    
Income taxes
 $2,411 
 $7,568 
 
    
    
Non-cash financing activities:
    
    
Non-cash effect of stock option exercises
 $10,237 
  -- 

For the Three Months Ended

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional

 

 

 

 

 

 

 

Shares Outstanding

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-in

Capital

 

 

Retained Earnings

 

 

Total

 

Balances, January 1, 2023

 

 

1,761

 

 

$342

 

 

 

1,659

 

 

$(204,830)

 

$66,347

 

 

$377,682

 

 

$239,541

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,485

 

 

 

3,485

 

Stock-based compensation transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

35

 

 

 

 

 

 

 

37

 

Shares surrendered in stock transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22)

 

 

 

 

 

 

 

 

 

 

(22)

Purchase of treasury stock

 

 

(1)

 

 

 

 

 

 

1

 

 

 

(613)

 

 

 

 

 

 

 

 

 

 

(613)

Dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,787)

 

 

(3,787)

Balances, March 31, 2023

 

 

1,760

 

 

$342

 

 

 

1,660

 

 

$(205,463)

 

$66,382

 

 

$377,380

 

 

$238,641

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, January 1, 2024

 

 

1,760

 

 

$342

 

 

 

1,660

 

 

$(206,538)

 

$67,331

 

 

$381,754

 

 

$242,889

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,792

 

 

 

2,792

 

Stock-based compensation transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

141

 

 

 

 

 

 

 

143

 

Shares surrendered in stock transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20)

 

 

 

 

 

 

 

 

 

 

(20)

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,881)

 

 

(3,881)

Balances, March 31, 2024

 

 

1,760

 

 

$342

 

 

 

1,660

 

 

$(206,556)

 

$67,472

 

 

$380,665

 

 

$241,923

 

The accompanying notes to the condensed consolidated financial statements are an integral part of these financial statements.


statements

6

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ATRION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
 
 
Common Stock
 
 
Treasury Stock
 
   
   
   
   
 
 
Shares Outstanding
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Additional Paid-in Capital
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
Retained Earnings
 
 
Total
 
Balances, January 1, 2017
  1,824 
 $342 
  1,596 
 $(114,274)
 $37,448 
 $(474)
 $239,946 
 $162,988 
 
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
  27,947 
  27,947 
    Other comprehensive income (loss)
    
    
    
    
    
  109 
    
  109 
    Stock-based compensation transactions
  46 
    
  (46)
  583 
  10,912 
    
    
  11,495 
    Shares surrendered in stock transactions
  (34)
    
  34 
  (17,972)
    
    
    
  (17,972)
    Dividends
    
    
    
    
    
    
  (6,116)
  (6,116)
Balances, September 30, 2017
  1,836 
 $342 
  1,584 
 $(131,663)
 $48,360 
 $(365)
 $261,777 
 $178,451 
The accompanying notes are an integral part of these financial statements
7
ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1)

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Atrion Corporation and its subsidiaries (collectively referred to herein as “Atrion,” the “Company,” “we,” “our,” or “us”) have been prepared in accordance with accounting principles generally accepted in the United States (US GAAP) 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 StatesUS GAAP 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 StatesUS GAAP requires management to make estimates and assumptions that affectcan have a significant impact on our revenue, operating income, and net income, as well as on the reported amounts invalue of certain assets and liabilities on our consolidated balance sheets. We base our assumptions, judgments, and estimates on historical experience and various other factors that we believe to be reasonable under the financial statementscircumstances. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of May 10, 2024, the date of issuance of this Quarterly Report on Form 10-Q. However, these estimates may change as new events occur and notes.additional information is obtained. Actual results could differ materially from those estimates. these estimates under different assumptions or conditions. At least quarterly, we evaluate our assumptions, judgments, and estimates, and make changes as we deem necessary.

This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and notes included in itsour Annual Report on Form 10-K/A10-K for the fiscal year ended December 31, 20162023 ("20162023 Form 10-K/A"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.net realizable value. Cost is determined by using the first-in, first-out method. The following table details the major components of inventories (in thousands):

 
 
September 30,
 
 
December 31,
 
 
 
2017
 
 
2016
 
Raw materials
 $13,334 
 $12,984 
Work in process
  7,174 
  6,230 
Finished goods
  9,416 
  9,801 
Total inventories
 $29,924 
 $29,015 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

           2023

 

Raw materials

 

$36,518

 

 

$37,770

 

Work in process

 

 

17,756

 

 

 

17,462

 

Finished goods

 

 

20,726

 

 

 

27,075

 

Total inventories

 

$75,000

 

 

$82,307

 

The decrease in inventories is partially due to a $2.3 million one-time inventory write-off at one of our subsidiaries attributable to a correction of a prior-year immaterial error related to our 2023 10-K.

7

Table of Contents

ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3)

Income per share

The following is the computation for basic and diluted income per share:

 
 
Three Months Ended September 30,
 
 
Nine Months Ended September 30,
 
 
 
2017
 
 
2016
 
 
2017
 
 
2016
 
 
 
(in thousands, except per share amounts)
 
Net income
 $7,971 
 $7,614 
 $27,947 
 $22,010 
Weighted average basic shares outstanding
  1,852 
  1,825 
  1,844 
  1,823 
Add: Effect of dilutive securities
  5 
  33 
  12 
  33 
Weighted average diluted shares outstanding
  1,857 
  1,858 
  1,856 
  1,856 
Earnings per share:
    
    
    
    
Basic
 $4.30 
 $4.17 
 $15.16 
 $12.07 
Diluted
 $4.29 
 $4.10 
 $15.06 
 $11.86 
8
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

 

Three Months Ended

March 31,

 

 

 

2024

 

 

2023

 

 

 

(in thousands, except per share amounts)

 

Net income

 

$2,792

 

 

$3,485

 

Weighted average basic shares outstanding

 

 

1,760

 

 

 

1,762

 

Add: Effect of dilutive securities

 

 

1

 

 

 

1

 

Weighted average diluted shares outstanding

 

 

1,761

 

 

 

1,763

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$1.59

 

 

$1.98

 

Diluted

 

$1.59

 

 

$1.98

 

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. DilutivePotential dilutive securities representing 447 and 41 shares of common stock for the quarters ended September 30, 2017 and 2016, respectively, were excluded from the computation of weighted average diluted shares outstanding because their effect would have been excluded when their inclusion would be anti-dilutive.

(4)

Investments

As of September 30, 2017,March 31, 2024, we held investments in certificates of deposit, commercial paper, corporate bonds, money market accounts, mutual funds, and equity securities that are required to be measured for disclosure purposes at fair value on a recurring basis.securities. 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.sheets. The money market accounts, equity securities, and mutual funds are considered available for sale and recorded at fair value in the accompanying consolidated balance sheet with the unrealized gainssheets. The fair values of these investments were estimated using recently executed transactions and losses recorded as a component of other comprehensive income. These investments are considered Level 2 investments.market price quotations. 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 securitieswhich we intend to hold longer than 12 months.

8

Table of Contents

ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The components of the Company’s cash and cash equivalents and our short- and long-term investments are as follows (in thousands):

 

 

March 31,

 2024

 

 

December 31,

2023

 

Cash and cash equivalents:

 

 

 

 

 

 

Money market funds

 

$7,133

 

 

$3,563

 

Cash deposits

 

 

2

 

 

 

2

 

Total cash and cash equivalents

 

$7,135

 

 

$3,565

 

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

Bonds (held-to-maturity)

 

$2,618

 

 

$2,552

 

Equity securities (available for sale)

 

 

142

 

 

 

139

 

Total short-term investments

 

$2,760

 

 

$2,691

 

Long-term investments:

 

 

 

 

 

 

 

 

Equity securities (available for sale)

 

$4,227

 

 

$4,354

 

Bonds (held-to-maturity)

 

 

3,307

 

 

 

3,575

 

Mutual funds (available for sale)

 

 

1,319

 

 

 

236

 

Total long-term investments

 

$8,853

 

 

$8,165

 

Total cash, cash equivalents and short and long-term investments

 

$18,748

 

 

$14,421

 

We utilize a lifetime “expected credit loss” measurement objective for the recognition of credit losses for held-to-maturity securities at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. During the first quarter of 2024, our allowance for credit losses was immaterial.

9

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ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes the amortized cost of our held-to-maturity bonds at March 31, 2024 aggregated by credit quality indicator (in thousands):

Held-to-Maturity Bonds

Credit Quality Indicators

 

Fed Govt. Bonds/Notes

 

 

Corporate Bonds

 

 

Totals

 

AAA/AA/A

 

$2,384

 

 

$500

 

 

$2,884

 

BBB/BB

 

 

-

 

 

 

3,041

 

 

 

3,041

 

TOTAL

 

$2,384

 

 

$3,541

 

 

$5,925

 

Our investments are required to be measured for disclosure purposes at fair value on a recurring basis. Our investments are considered Level 1 or Level 2 as detailed in the table below. 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):

 
 
 
 
 
Gross Unrealized
 
 
 
 
 
 
Cost
 
 
Gains
 
 
Losses
 
 
Fair Value
 
As of September 30, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
Short-term Investments:
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of Deposit
 $9,096 
 $-- 
 $(1)
 $9,095 
Commercial Paper
 $29,833 
 $62 
 $(4)
 $29,891 
Corporate bonds
 $30 
 $-- 
 $-- 
 $30 
 
    
    
    
    
Long-term Investments
    
    
    
    
Corporate bonds
 $5,000 
 $-- 
 $(36)
 $4,964 
Equity investments
 $5,675 
 $-- 
 $(563)
 $5,112 
9
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
 
 
 
Gross Unrealized
 
 
 
 
 
 
Cost
 
 
Gains
 
 
Losses
 
 
Fair Value
 
As of December 31, 2016:
 
 
 
 
 
 
 
 
 
 
 
 
Short-term Investments:
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of Deposit
 $24,000 
 $9 
 $-- 
 $24,009 
Corporate bonds
 $80 
 $-- 
 $-- 
 $80 
 
    
    
    
    
Long-term Investments
    
    
    
    
Corporate bonds
 $5,000 
 $-- 
 $(287)
 $4,713 
Equity investments
 $5,675 
 $-- 
 $(730)
 $4,945 

 

 

 

 

 

 

Gross Unrealized

 

 

 

 

 

Level

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

As of March 31, 2024:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market

 

 

1

 

 

 

7,133

 

 

$-

 

 

$-

 

 

$7,133

 

Bonds

 

 

2

 

 

 

5,925

 

 

$1

 

 

$(86)

 

$5,840

 

Mutual funds

 

 

1

 

 

 

1,347

 

 

$-

 

 

$(28)

 

$1,319

 

Equity investments

 

 

2

 

 

 

6,054

 

 

$-

 

 

$(1,685)

 

$4,369

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2023:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market

 

 

1

 

 

 

3,563

 

 

$-

 

 

$-

 

 

$3,563

 

Bonds

 

 

2

 

 

 

6,127

 

 

$1

 

 

$(82)

 

$6,046

 

Mutual funds

 

 

1

 

 

 

279

 

 

$-

 

 

$(43)

 

$236

 

Equity investments

 

 

2

 

 

 

6,054

 

 

$-

 

 

$(1,561)

 

$4,493

 

The above long-term corporatecarrying value of our investments is reviewed quarterly for changes in circumstances or the occurrence of events that suggests an investment may not be fully recoverable. The bonds represent an investmentinvestments in one issuervarious issuers at September 30, 2017.March 31, 2024. The unrealized losslosses for this investment relates to a risesome of these bond investments reflect changes in interest rates which resulted in a lower market price for that security. This investment has not beenfollowing their acquisition. As of March 31, 2024, we had four bond investments in a loss position for more than 12 months.

The certificates

At March 31, 2024, the length of deposit have maturitiestime to maturity for the bonds we held ranged from greater than two weeks12 to less than eight24 months. The commercial paper securities have maturities from two days to less than eleven months. The corporate bonds will mature in 44.5 months.

10

Table of Contents

ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(5)

Patents and Licenses
Purchased patents

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):

 
September 30, 2017
 
 
December 31, 2016
 
 
Weighted Average Original Life (years)
 
 
Gross Carrying Amount
 
 
Accumulated Amortization
 
 
Weighted Average Original Life (years)
 
 
Gross Carrying Amount
 
 
Accumulated Amortization
 
  15.67 
 $13,840 
 $12,032 
  15.67 
 $13,840 
 $11,911 
Aggregate

March 31, 2024

 

 

December 31, 2023

 

Weighted Average

Original Life

(years)

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Weighted Average

Original Life

(years)

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

15.67

 

 

$13,840

 

 

$12,797

 

 

 

15.67

 

 

$13,840

 

 

$12,768

 

Aggregated amortization expense for patents and licenses was $30,000$29 thousand and $63,000 for$28 thousand in the three monthsthree-month period ended September 30, 2017March 31, 2024 and 2016, respectively, and $121,000 and $188,000 for the nine months ended September 30, 2017 and 2016,March 31, 2023, respectively.

Estimated future amortization expense for each of the years set forth below ending December 31 is as follows (in thousands):

2018                                           $119
2019                                           $119
2020                                           $119
2021                                           $119
2022                                           $117
10

2025

 

$112

 

2026

 

$112

 

2027

 

$108

 

2028

 

$108

 

2029

 

$108

 

(6) Revenues

We recognize revenue when performance obligations under the terms of a contract with our customer are satisfied. This occurs with the transfer of control of our products to customers when products are shipped. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services. Sales and other taxes we may collect concurrent with revenue-producing activities are excluded from revenue.

A summary of revenue by geographic area, based on shipping destination, for the three months ended March 31, 2024 and 2023 is as follows (in thousands):

 

 

           2024

 

 

               2023

 

United States

 

$31,087

 

 

$24,868

 

European Union

 

 

6,313

 

 

 

8,085

 

All other regions

 

 

9,934

 

 

 

7,040

 

Total

 

$47,334

 

 

$39,993

 

A summary of revenue by product line for the three months ended March 31, 2024 and 2023 is as follows (in thousands):

 

 

2024

 

 

2023

 

Fluid Delivery

 

$19,537

 

 

$17,585

 

Cardiovascular

 

 

20,016

 

 

 

15,665

 

Ophthalmology

 

 

1,476

 

 

 

1,359

 

Other

 

 

6,305

 

 

 

5,384

 

Total

 

$47,334

 

 

$39,993

 

11

Table of Contents

ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


(6)            
Recent Accounting Pronouncements
In March 2016,

More than 98 percent of our total revenue in the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-09,Stock Compensation (Topic 718): Improvementsperiods presented herein is pursuant to Employee Share-Based Payment Accounting(ASU 2016-09).The objective of this update is to simplify several aspectsshipments initiated by a purchase order (our “contract”) and recognized at a single point in time when the performance obligation of the accounting for employee share-based payments. Under this guidance all excess tax benefits (“windfalls”)product being shipped is satisfied, rather than recognized over time, 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.No tax benefit was recorded in the third quarter of 2017. In the first nine months of 2017 we recorded a tax benefit of $5.3 million, reflecting the excess tax benefits, resulting in a $2.83 per share favorable 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 changespresented as a result of this standard when effective.
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 noncurrentreceivable on the balance sheet. The current requirement that deferred tax liabilities and assetsPayment is typically due within 30 days.

We maintain an allowance for credit losses to reflect estimated losses resulting from the failure of customers to make required payments. We calculate our credit loss allowance for our trade receivables following a tax-paying component of an entitylifetime “expected credit loss” measurement objective. An account is written off when we determine the receivable will not 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.  collected. Historically, bad debt has been immaterial.

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.

11
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


In May 2014, the FASB issued ASU 2014-09,Revenue from Contracts with Customers(ASU 2014-09). ASU 2014-09 requires an entityelected to recognize the cost of shipping as an expense in cost of sales when control over the product has transferred to the customer.

We do not make any material accruals for product returns and warranty obligations because our returns and warranty obligations have been very low due to our focus on quality control.

We do not disclose the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount for which we have the right to invoice. We believe that the complexity added to our disclosures by the inclusion of a large amount of revenueinsignificant detail in attempting 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 Accepteddisclose information about immaterial contracts would potentially obscure more useful and important information.

(7) Recent 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. Based on our evaluation, we will adopt the requirements of the new standard on January 1, 2018, but have not yet selected a transition method for adoption. Presented below is the status of the process we have utilized for the adoption of the new standard and the significant implementation matters addressed:

●
We established a cross-functional project management implementation team to assess all potential impacts of this standard. This team identified significant contracts and relationships and assessed the impact of the new standard on those contracts.
●
We evaluated the contract provisions and performed a comparison of historical accounting policies and practices to the requirements of the new standard (including the related qualitative disclosures regarding the potential impact of the effects of the accounting policies we expect to apply), and a comparison to our current revenue recognition policies is in process.
●
We are currently reviewing our current accounting policies and practices to identify potential differences that would result from the application of this standard.
●
We are determining key factors from the five step process to recognize revenue as prescribed by the new standard that may be applicable to our business.
We expect to complete this process prior to the filing of, and make disclosures in, our Form 10-K for the fiscal year ended December 31, 2017.
Based on our evaluation, we determined no significant changes are required to our business processes, systems and controls to effectively report revenue recognition under the new standard. Adoption of the new standard is not expected to materially change the timing or amount of revenue recognized in our Consolidated Financial Statements.
Pronouncements

From time to time, new accounting standards updatespronouncements applicable to us are issued by the FASB which we willFinancial Accounting Standards Board or other standards-setting bodies. We generally adopt these standards 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.


12

Table of Contents

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 business strategy is to provide hospitals, physicians, and other healthcare providers with the tools they need to improve the lives of the patients they serve. To do so, we provide a broad selection of products in the areas of our expertise. We have diverse product lines serving primarily the fluid delivery, cardiovascular, and ophthalmic markets, and this diversity has served us well as we encounter changing market conditions. Research and development, or R&D, efforts are focused on improving current products and developing highly-engineered products that meet customer needs and serve niche markets with meaningful sales potential. 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 or eliminate indebtedness, to fund capital expenditures, to make investments, 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.

·

Focusing on customer needs;

·

Expanding existing product lines and developing new ones;

·

Investing in our future growth, while balancing the need to sensibly control cost; and

·

Preserving and fostering a collaborative, entrepreneurial management culture.

For the three months ended September 30, 2017,March 31, 2024, we reported revenues of $37.9$47.3 million, up 18 percent, operating income of $11.5$3.1 million, down 30 percent, and net income of $8.0$2.8 million, up less than 1down 20 percent up 5 percent and up 5 percent, respectively, fromas compared to the three months ended September 30, 2016. For the nine months ended September 30, 2017, we reported revenues of $112.6 million, operating income of $33.0 million and net income of $27.9 million, up 2 percent, up 5 percent and up 27 percent, respectively, from the nine months ended September 30, 2016.

March 31, 2023.

Results for the three months ended September 30, 2017

March 31, 2024

Consolidated net income totaled $8.0$2.8 million, or $4.30$1.59 per basic and $4.29 per diluted share, in the thirdfirst quarter of 2017.2024. This is compared with consolidated net income total of $7.6$3.5 million, or $4.17$1.98 per basic and $4.10 per diluted share, in the thirdfirst quarter of 2016.2023. The income per basic share computations are based on weighted average basic shares outstanding of 1,852,0001,760 thousand in the 20172024 period and 1,825,0001,762 thousand in the 20162023 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,857,0001,761 thousand in the 20172024 period and 1,858,0001,763 thousand in the 20162023 period.


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Consolidated revenues of $37.9$47.3 million for the thirdfirst quarter of 20172024 were less than 118.4 percent higher than revenues of $37.8$40.0 million for the thirdfirst quarter of 2016.

2023. Our first quarter 2024 results were favorably impacted by a 27.8 percent increase in Cardiovascular revenue, an 11.1 percent increase in Fluid Delivery revenue, an 8.6 percent increase in Ophthalmic revenue, and a 17.1 percent increase in Other product line revenue as compared to the first quarter of 2023.

Revenues by product line were as follows (in thousands):

 
 
Three Months ended September 30,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Fluid Delivery
 $16,083 
 $16,573 
Cardiovascular
  12,837 
  11,389 
Ophthalmology
  3,595 
  4,386 
Other
  5,388 
  5,487 
Total
 $37,903 
 $37,835 

 

 

Three Months Ended

March 31,

 

 

 

2024

 

 

2023

 

 

 

 

 

 

 

 

Fluid Delivery

 

$19,537

 

 

$17,585

 

Cardiovascular

 

 

20,016

 

 

 

15,665

 

Ophthalmology

 

 

1,476

 

 

 

1,359

 

Other

 

 

6,305

 

 

 

5,384

 

Total

 

$47,334

 

 

$39,993

 

Cost of goods sold of $19.5$35.0 million for the thirdfirst quarter of 20172024 was 440.4 percent lowerhigher than our cost of goods sold of $20.2$24.9 million for the thirdfirst quarter of 20162023, primarily due to increased revenue, and higher manufacturing costs, including a favorable product sales mix, improved manufacturing efficiencies and the impact$2.3 million one-time inventory write-off at one of continued cost improvement projects.our subsidiaries attributable to a correction of a prior-year immaterial error related to our 2023 10-K. Our cost of goods sold in the thirdfirst quarter of 20172024 was 51.473.9 percent of revenuesrevenue compared with 53.4to 62.3 percent of revenuesrevenue in the thirdfirst quarter of 2016.

2023.

Gross profit of $18.4$12.4 million in the thirdfirst quarter of 20172024 was $781,000,$2.7 million or 418.1 percent higherlower than in the comparable 20162023 period. Our gross profit percentage in the thirdfirst quarter of 20172024 was 48.626.1 percent of revenues compared with 46.637.7 percent of revenues in the thirdfirst quarter of 2016.2023. The increasedecrease in gross profit percentage in the 20172024 period compared to the 20162023 period was primarily related to the favorable product saleshigher manufacturing costs mentioned above, as well as mix improved manufacturing efficiencies and cost improvement projects mentioned above.

of products sold.

Our thirdfirst quarter 20172024 operating expenses of $6.9$9.2 million were $278,000 higher$1.4 million lower than the operating expenses for the thirdfirst quarter of 2016.2023. This increasedecrease was attributable to a $473,000 increase$1.5 million decrease in Generalgeneral and Administrative, or G&A,administrative expenses, and a $220,000 increase in Selling expenseslargely driven by reduced compensation costs, partially offset by an increase in selling expense of $44.7 thousand driven by commissions. There was also a $415,000slight increase of $20.7 thousand in research and development expenses driven by supplies, which was offset by a decrease in Research and Development, or R&D, expenses. The increaseoutside services.

Operating income of $3.1 million in G&A expenses for the thirdfirst quarter of 2017 was principally attributable to increased compensation and outside services. The increase in Selling expenses was principally attributable to increased commissions, compensation, outside services and travel costs. The2024 represented a $1.3 million, or 29.7 percent, decrease in R&D expenses was primarily related to decreased outside services.

Operatingoperating income in the third quarter of 2017 increased $503,000 to $11.5 million, a 5 percent increaseas compared to ourfirst quarter 2023 operating income inincome. This decrease was due to the quarter ended September 30, 2016.gross profit decrease discussed above. Operating income was 306.6 percent of revenues for the thirdfirst quarter of 2017 compared to 292024 and 11.2 percent of revenues for the thirdfirst quarter of 2016.

2023.

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Interest and dividend income in the thirdfirst quarter of 20172024 was $287,000,$156 thousand compared with $106,000 for the same period in the prior year. Increased levels of investment, increased interest rates and higher dividends were the primary reasons for the increase.

Income tax expense for the third quarter of 2017 was $3.8 million compared to income tax expense of $3.5 million$240 thousand for the same period in the prior year. The effective tax rate for the thirddecrease in interest and dividend income was due to a decrease in interest income as compared to first quarter of 2017 was 32.3 percent, compared with 31.3 percent for the third quarter of 2016. We expect the effective tax rate for the remainder of 2017 to be approximately 32.0 percent.
Results for the nine months ended September 30, 2017
Consolidated net2023.

Other investment income totaled $28.0 million, or $15.16 per basic and $15.06 per diluted share, in the first nine months of 2017. This is compared with consolidated net income of $22.0 million, or $12.07 per basic and $11.86 per diluted share, in the first nine months 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 1,823,000 in the 2016 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,856,000 in both the 2017 and 2016 periods.

Consolidated revenues of $112.6 million for the first nine months of 2017 were 2 percent higher than revenues of $110.2 million for the first nine months of 2016. This increase was primarily attributable to increased volumes of our fluid delivery and cardiovascular products.
Revenues by product line were as follows (in thousands):
 
 
Nine Months ended September 30,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Fluid Delivery
 $49,718 
 $47,183 
Cardiovascular
  36,523 
  35,649 
Ophthalmology
  11,030 
  12,417 
Other
  15,300 
  14,944 
Total
 $112,571 
 $110,193 
Cost of goods sold of $57.8 million for the first nine months of 2017 was $52,000 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 partially offset by2024 was a favorable product sales mix. Our cost of goods sold in the first nine months of 2017 was 51.4 percent of revenues$109 thousand loss compared with 52.4 percent of revenues in the first nine months of 2016.
Gross profit of $54.7 million in the first nine months of 2017 was $2.3 million, or 4 percent, higher than in the comparable 2016 period. Our gross profit percentage in the first nine months of 2017 was 48.6 percent of revenues compared with 47.6 percent of revenues in the first nine 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$721 thousand loss in the first quarter of 2017.

Our first nine months 2017 operating expenses of $21.7 million2023. These amounts were $860,000 higher than the operating expenses for the first nine months of 2016. This increase was comprised of a $948,000 increase in G&A and a $432,000 increase in Selling expenses partially offset by a $520,000 decrease in R&D expenses. The increase in G&A expenses for the first nine months of 2017 was principally attributable to increased compensation and outside services partially offset by decreased travel and depreciation. The increase in Selling expenses was 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 incomeunrealized losses on equity investments resulting from changes in the first nine monthsmarket values of 2017 increased $1.5 million to $33.0 million, a 5 percent increase from our operating incomethe investments in the nine months ended September 30, 2016. Operating incomeeach quarter.

Income tax expense was 29 percent of revenues in the first nine months of both 2017 and 2016.

Interest and dividend income$411 thousand for the first nine months of 2017 was $806,000, compared with $315,000 for the same period in the prior year. Increased levels of investment, increased interest rates and higher dividends 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 further declined. 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 expense2024 compared with $514 thousand for the first nine monthsquarter of 2017 was $5.8 million compared to income tax expense of $9.5 million for the same period in the prior year.2023. The effective tax rate for the first nine monthsquarter of 20172024 was 17.312.8 percent compared with 30.212.9 percent for the first nine monthsquarter of 2016. The effective tax rate for the first nine 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.
2023.

Liquidity and Capital Resources

At December

As of March 31, 2016,2024, we had a $40.0$25.0 million revolving credit facility with a money centermoney-center bank that could be utilized forpursuant to which the fundinglender is obligated to make advances until December 21, 2026. The credit facility is secured by substantially all of operationsour inventories, equipment, and for major capital projectsaccounts receivable. Interest under the credit facility is assessed at 30-day, 60-day, or acquisitions, subject to certain limitations90-day Adjusted Term SOFR, as selected by us, plus 1.0 percent, and restrictions.is payable monthly. We had no outstanding borrowings under ourthe credit facility at DecemberMarch 31, 2016. At December 31, 2016,2024, and we were in compliance with all financial covenants in the credit facility.

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 September 30, 2017. The new credit facility contains various restrictive covenants, none of which is expected to impact our liquidity or capital resources. covenants.

At September 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 September 30, 2017,March 31, 2024, we had a total of $70.1$18.7 million in cash and cash equivalents, short-term investments, and long-term investments, an increase of $16.0 million frominvestments. At December 31, 2016. The principal contributor to this increase was operating results.
2023, cash and cash equivalents, short-term investments, and long-term investments totaled $14.4 million.

Cash flows from operating activities of $37.1$11.5 million for the ninethree months ended September 30, 2017March 31, 2024 were primarily comprised of net income plus the net effect of non-cash expenses, increases to accrued incomea decrease in inventory, and other taxes, accounts payable and accrued expenses partially offset by increases toan increase in accounts receivable. During the first ninethree months of 2017,2024, we expended $7.6used $3.8 million to pay dividends, $3.6 million to purchase investments, and $3.2 million for the addition of property and equipment. During the same period, our maturities and sales of investments generated $2.7 million in cash. For the three months ended March 31, 2023, cash flows from operating activities of $4.3 million were primarily comprised of net income plus the net effect of non-cash expenses, an increase in inventory, and a decrease in accounts receivable. During the first three months of 2023, we used $7.5 million for the addition of property and equipment, $46.7$4.2 million for the purchase of investments, $7.7$3.8 million for shares tendered on stock-based compensationdividends, and $613 thousand for tax withholding and $6.1 million for dividends. the purchase of treasury stock. During the same period, maturities and sales of investments generated $32.0 million.

$11.6 million in cash.

At September 30, 2017,March 31, 2024, we had working capital of $99.8$100.3 million, including $21.0$7.1 million in cash and cash equivalents and $39.0$2.8 million in short-term investments.investments, compared to working capital of $102.1 million at December 31, 2023. The $14.7$1.8 million increasedecrease in working capital during the first ninethree months of 20172024 was primarily related to increasesa decrease in short-term investments, accounts receivableinventory and cash and cash equivalents. This increase wasprepaid expenses, partially offset by increases in accrued income and other taxes and increases in accounts payable and accrued liabilities. The netan increase in cash and short-term investments was primarily related to operating results. The increase incash equivalents and accounts receivable was primarily related to increased revenues for the third quarter of 2017 as compared to the fourth quarter of 2016. The increase in accrued income and other taxes is primarily related to accrued state income taxes. The increase in accounts payable and accrued liabilities is primarily related to timing of payments for replenishment of inventories, and operating expenditures. 

receivable.

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We believe that our $70.1$18.7 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$25.0 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.future. We believe that our strong financial position would allow us to access equity or debt financing should that be necessary. Additionally, we

COVID-19 Impact

We believe the impact of COVID-19 on our business has largely diminished at this time; however, uncertainties continue, particularly around disruptions to the global economy, supply chains, and healthcare systems. Even with the public health actions that our cash and cash equivalents, short-term investments and long-term investments, as a whole,have been taken to date, the disease may pose future risks with the emergence of new variants. We will continue to increase during the remainder of 2017.

monitor COVID-19 as well as resulting legislative and regulatory changes to manage our response and assess and seek to mitigate potential adverse impacts on our business. For additional discussion regarding COVID-19 and our related risks, see Part I, Item 1A, “Risk Factors” included in our 2023 Form 10-K.

Forward-Looking Statements

Statements in this Management’s Discussion and Analysis and elsewhere in this Quarterly Report on Form 10-Q that are forward lookingforward-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 plans to hold certain investments for longer than 12 months, our belief that the impact of standards recently issued by the Financial Accounting Standards Board, or other standard-setting bodies, that are not yet effective, tax rate for the remainder of 2017,will not have a material impact on our consolidated financial statements upon adoption, and 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 of the restrictive covenants in our credit facility, on our liquidity and capital resources, our access to equity and debt financing,financing. Implementing control and procedure improvements will address the increase in cash, cash equivalents, and investments during the remainder of 2017.material weakness described below. 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: the risk that COVID-19 leads to further material delays and cancellations of, or reduced demand for, procedures in which our products are utilized; curtailed or delayed capital spending by hospitals and other healthcare providers; disruption to our supply chain; closures of our facilities; delays in training; delays in gathering clinical evidence; diversion of management and other resources to respond to COVID-19; the impact of global and regional economic and credit market conditions on healthcare spending; the risk that COVID-19 further disrupts local economies and causes economies in our key markets to enter prolonged recessions; 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.


The forward-looking statements in this Quarterly Report on Form 10-Q are made as of the date hereof, and we do not undertake any obligation, and disclaim any duty, to supplement, update or revise such statements, whether as a result of subsequent events, changed expectations or otherwise, except as required by applicable law.

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Table of Contents

Item 3.Quantitative3. Quantitative and Qualitative Disclosures About Market Risk

Risk.

For the quarter ended September 30, 2017,March 31, 2024, we did not experience any material changes in market risk exposures that affect the quantitative and qualitative disclosures presented in our 20162023 Form 10-K/A.

10-K.

Item 4.

Controls and Procedures
Procedures.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2017.March 31, 2024. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.not effective due to the material weakness described in our 2023 Form 10-K. There were no changes in our internal control over financial reporting for the quarter ended September 30, 2017March 31, 2024 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.


However, as reported in our 2023 Form 10-K, we are planning, initiating, and implementing control and procedure improvements and anticipate that these improvements will address the material weakness.

PART II - OTHER INFORMATION

Item 1.Legal Proceedings

FromProceedings.

We have no pending legal proceedings of the type described in Item 103 of Regulation S-K.

Item 1A. Risk Factors.

As of the date of this Report, there has been no material change in the risk factors described in our 2023 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

On May 21, 2015, our Board of Directors approved a stock repurchase program pursuant to which we can repurchase up to 250,000 shares of our common stock from time to time wein open market or privately-negotiated transactions. Our stock repurchase program has no expiration date but may be involved in claims or litigation that arise interminated by our Board of Directors at any time. No repurchases of our stock were made during the normal coursethree months ended March 31, 2024. As of business. We are not currently a party to any legal proceedings, which, if decided adversely, would have a material adverse effect onMarch 31, 2024, we had repurchased 121,247 shares of our business, financial condition, or resultscommon stock authorized under the program and the number of operations.

Item 1A. Risk Factors
There were no material changes toshares still available for repurchase under the risk factors disclosed in our 2016 Form 10-K/A.
Item 6. Exhibits
program was 128,753.

Exhibit Number
Description
10.1
Atrion Corporation Nonqualified Deferred Compensation Plan17
10.2
Amended and Restated Atrion Corporation 2006 Equity Incentive Plan (As last amended on August 14, 2017)

Table of Contents

Item 6. Exhibits.

Exhibit Index

Exhibit

Number

Description

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

18

Table of Contents

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)

(Registrant)

Date: November 7, 2017May 10, 2024

By:

/s/David A. Battat

David A. Battat

President and

Chief Executive Officer

Date: November 7, 2017

By:  

/s/ Jeffery Strickland

Jeffery Strickland

Date: May 10, 2024

By:

/s/ Cindy Ferguson

Cindy Ferguson

Vice President and

Chief Financial Officer

(Principal Accounting and Financial Officer)

 


Exhibit Index
Exhibit Number
Description
19
10.1
Atrion Corporation Nonqualified Deferred Compensation Plan
10.2
Amended and Restated Atrion Corporation 2006 Equity Incentive Plan (As last amended on August 14, 2017)
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
21