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, 1997
Commission File Number 0-10763
ATRION Corporation
(Exact Name of Registrant as Specified in its Charter)
Alabama 63-0821819
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Post Office Box 918, Florence, Alabama 35631
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code
(205) 383-3631
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 X No _____
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
Outstanding at
Class March 31, 1997
Common Stock, Par Value $0.10 per share 3,214,954 Shares
PART I - FINANCIAL INFORMATION
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands except per share data)
Three Months Ended
March 31,
1997 1996
OPERATING REVENUES:
Industrial sales $ 22,007 $ 25,496
Resale sales 6,244 6,746
Transportation 2,284 3,500
Off-system sales and other 1,863 2,506
Medical products 7,620 3,074
TOTAL OPERATING REVENUES 40,018 41,322
COST OF GOODS SOLD 33,942 35,405
GROSS MARGIN 6,076 5,917
OTHER OPERATING EXPENSES:
Operations 2,882 2,547
Maintenance 53 33
Depreciation and amortization 468 314
3,403 2,894
OPERATING INCOME 2,673 3,023
OTHER INCOME (EXPENSE):
Interest and investment income 20 100
Other income 29 190
Interest expense (142) (26)
(93) 264
INCOME BEFORE TAXES 2,580 3,287
INCOME TAXES 948 1,188
NET INCOME $ 1,632 $ 2,099
EARNINGS PER SHARE $ 0.51 $ 0.66
DIVIDENDS PER SHARE $ 0.20 $ 0.20
AVERAGE SHARES OUTSTANDING 3,215,385 3,179,888
The accompanying notes to consolidated financial statements are an
integral part of these statements.
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
March 31, December 31,
1997 1996
(In thousands)
CURRENT ASSETS:
Cash and temporary cash investments $ 174 $ 144
Accounts receivable 12,408 19,154
Materials and supplies 519 516
Inventories 3,980 4,016
Prepaid expenses and other 750 493
17,831 24,323
PROPERTY, PLANT AND EQUIPMENT:
Original cost 42,682 42,344
Less - accumulated depr. and amort. 17,394 16,935
25,288 25,409
DEFERRED CHARGES:
Patents 4,956 5,066
Goodwill 6,132 6,198
Other 4,062 2,255
15,150 13,519
$ 58,269 $ 63,251
(Continued)
The accompanying notes to consolidated financial statements are an
integral part of these statements.
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31
1997 1996
(In thousands)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 953 $ 703
Accounts payable and accrued liabilities 9,919 17,690
Accrued income and other taxes 1,034 389
11,906 18,782
LONG-TERM DEBT, LESS CURRENT MATURITIES 7,066 6,313
OTHER LIABILITIES AND DEFERRED CREDITS:
Accumulated deferred income taxes 2,448 2,309
Unamortized investment tax credits 223 226
Other 1,218 1,203
3,889 3,738
STOCKHOLDERS' EQUITY
Common shares, par value $0.10 per share;
authorized 10,000,000 shares,
issued 3,420,000 share 342 342
Paid-in capital 6,203 6,204
Retained earnings 30,440 29,451
Treasury shares, at cost (1,577) (1,579)
Total stockholders' equity 35,408 34,418
$ 58,269 $ 63,251
The accompanying notes to consolidated financial statements are an
integral part of these statements.
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
1997 1996
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,632 $ 2,099
Adjustments to reconcile net income
to net cash
provided by operating activities:
Depreciation and amortization 1,358 520
Deferred income taxes 139 73
Take-or-pay recoveries (net of
expenditures) 0 895
Other (2,517) (268)
612 3,319
Change in current assets and liabilities:
(Increase) decrease in accts. receivable 6,746 (2,729)
(Increase) in other current assets (225) (139)
Increase (decrease) in accounts payable (7,820) 3,117
Increase in other current liabilities 694 869
7 4,437
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (338) (1,055)
(338) (1,055)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in long-term
indebtedness 1,003 (102)
Cash dividends paid (643) (636)
Issuance of common stock 10 0
Repurchase of common stock (9) 0
361 (738)
Net increase in cash and temporary cash
investments 30 2,644
Cash and temporary cash investments, beginning
of period 144 2,811
Cash and temporary cash investments, end of
period $ 174 $ 5,455
Cash paid for:
Interest (net of capitalized amounts) $ 93 $ 28
Income taxes (net of refunds) 78 369
The accompanying notes to consolidated financial statements are an
integral part of these statements.
ATRION CORPORATION
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 1996 Annual Report
on Form 10-K.
Because of the seasonal nature of certain of the Company's operations,
among other factors, the results of operations for the periods presented
are not necessarily indicative of the results which will be achieved for
an entire year.
2. Change of Domicile
Atrion Corporation was incorporated in 1996 and is successor to the
former ATRION Corporation as a result of a merger to change the state
of incorporation of ATRION Corporation from Alabama to Delaware.
The predecessor corporation was formerly known as "AlaTenn
Resources, Inc."
3. Proposed Sale of Natural Gas Subsidiaries
On March 19, 1997, the Company entered into a definitive agreement
to sell 100% of the common stock of Alabama-Tennessee Natural Gas
Company, Inc. (Alabama-Tennessee), AlaTenn Energy Marketing
Company, Inc. (ATEMCO) and Tennessee River Intrastate Gas
Company, Inc. (TRIGAS) to Midcoast Energy Resources, Inc. These
subsidiaries conduct substantially all of the Company's natural gas
operations. In connection with this sale, the Company will receive
approximately $39.4 million in cash, subject to certain post-closing
adjustments. It is anticipated that the cash proceeds from this
transaction will be used to reduce long-term debt and fund future
acquisitions. A net gain on the sale of these subsidiaries, estimated at
approximately $17 million, will be recognized upon completion of the
sale. This sale is subject to certain conditions, including the receipt of
stockholder approval. Accordingly, the consolidated financial
statements of the Company and the related notes to consolidated
financial statements have not been adjusted and restated to reflect the
natural gas operations as a discontinued operation.
4. Purchase of Halkey-Roberts Corporation
On May 21, 1996, the Company purchased all the outstanding capital
stock of HRC Acquisition Holding Corp., a Delaware corporation which,
in turn, owned all of the outstanding capital stock of Halkey-Roberts
Corporation, a Florida corporation (Halkey-Roberts), pursuant to the
terms of a Stock Purchase Agreement, dated the same date, between
the Company and Fenway Holdings, L.L.C. The Company paid
Fenway a total of $11,650,000 in cash under the Stock Purchase
Agreement.
The following table presents unaudited consolidated selected financial
data on a pro forma basis assuming the purchase of Halkey-Roberts
had occurred as of January 1, 1996. The unaudited consolidated pro
forma data reflect certain assumptions which are based on estimates.
The unaudited consolidated pro forma combined results presented
have been prepared for comparative purposes only and are not
necessarily indicative of actual results that would have been achieved
had the acquisition occurred at the beginning of the periods presented,
or of future results.
Three Months Ended
March 31,
1997 1996
Operating Revenues (000) $ 40,018 $ 45,198
Net Income (000) $ 1,632 $ 2,230
Net Income Per Share $ 0.51 $ 0.70
For further information regarding the acquisition of Halkey-Roberts,
refer to the Company's 8-K Report, filed with the Securities and
Exchange Commission on June 5, 1996, as amended on August 5,
1996.
5. Stock Split
On November 7, 1996, the Board of Directors authorized a three-for-two
stock split to be effected in the form of a stock dividend of one
share for every two shares of common stock outstanding. The stock
dividend was paid on December 2, 1996 to stockholders of record on
November 20, 1996. All references in the consolidated financial
statements referring to shares and per share amounts have been
restated to reflect the three-for-two stock split for all periods presented.
ATRION CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results For The Three Months Ended March 31, 1996
The Company's consolidated net income for the quarter ended March
31, 1997 was $1,632,000 or $.51 per share, compared with $2,099,000
or $.66 per share, for the first quarter of 1996. The earnings per share
computations are based on shares outstanding of 3,215,385 in 1997
and 3,179,888 in 1996 (after adjustment to reflect the three-for-two
stock split effected in December 1996).
Consolidated revenues of $40.0 million for the first quarter of 1997 were
$1.3 million or 3% lower than revenues of $41.3 million for the first
quarter of 1996. The decrease in total revenues in the first quarter of
1997, compared to the same period in the prior year, was the result of
a decline of $5.9 million in revenues in the Company's pipeline and
energy services segment between years, partially offset by an increase
of $4.6 in the medical products segment. This increase between
periods in the medical products segment resulted primarily from the
inclusion of the operations of Halkey-Roberts Corporation (Halkey-Roberts)
which was acquired by the Company on May 21, 1996. The
decline in revenues in the pipeline and energy services segment
resulted primarily from significant volume decreases related to warmer
weather. The Company has entered into an agreement to sell the stock
of its natural gas pipeline and marketing subsidiaries, Alabama-Tennessee,
TRIGAS and ATEMCO, which contributed approximately
$32.1 million in revenues for the quarter ended March 31, 1997.
Gross margin of $6.1 million in the first quarter of 1997 was $.2 million
or 3% higher than that in the comparable period in 1996. Margins in
the pipeline and energy services segment decreased by $.9 million as
a result of decreased revenues as described above. Also, 1996
margins reflected increased transportation revenues due to a major
industrial customer increasing its natural gas usage because of
equipment failures which reduced its ability to use alternate fuels.
Alabama-Tennessee, TRIGAS and ATEMCO contributed gross margin
of approximately $3.2 million for the quarter ended March 31, 1997.
The decline in energy margins for the current-year period was more
than offset by a $1.1 increase in gross margin in the Company's
medical products segment, primarily due to the inclusion of the
operations of Halkey-Roberts in the current year period.
The cost of goods sold of $33.9 million for the first quarter of 1997 was
$1.5 million or 4% lower than the same period in 1996. This decrease
was consistent with the changes in revenues discussed above.
The Company's operations and maintenance expenses of $2.9 million
for the first quarter of 1997 were $.4 million higher than in the first
quarter of 1996. This increase was primarily attributable to the inclusion
in 1997 of operating costs related to Halkey-Roberts, acquired by the
Company in May 1996, offset by slightly lower operating costs in the
pipeline and energy services segment. Depreciation and amortization
expense of $.5 million for the first quarter of 1997 was $.2 million higher
than the previous year due to the inclusion of Halkey-Roberts.
Operating income in the first quarter of 1997 totaled $2.7 million
compared with $3.0 million in 1996. The pipeline and energy services
segment contributed $2.0 million, including $1.8 million from its natural
gas pipeline and marketing subsidiaries, to operating income in the first
quarter of 1997 compared to $2.7 million in the first quarter of 1996,
while $.7 million was provided by the medical products segment
compared with $.3 million in the first quarter of the previous year.
These changes in operating income were consistent with the changes
in revenue and operations and maintenance expenses discussed
above.
Interest income of $20,000 in the first quarter of 1997 decreased
$80,000 compared to the first quarter of 1996. The decrease was
attributable to a reduction in investment income due to the use of cash
reserves in the acquisition of Halkey-Roberts. Other income declined
by $161,000 in the first quarter of 1997 compared to 1996 due primarily
to a gain of approximately $150,000 from the sale of substantially all of
the assets of a small natural gas distribution subsidiary recorded in the
first quarter of 1996.
Interest expense of $142,000 in the first quarter of 1997 was $116,000
higher than in the comparable prior-year period due to higher
borrowings under the Company's revolving loan agreement to finance
the acquisition of Halkey-Roberts.
Income taxes in the first quarter of 1996 were $240,000 less than in the
comparable period in the prior year due to the decrease in income in
the current period.
Liquidity and Capital Resources
At March 31, 1997, the Company had borrowings of $6.5 million under
its $20.0 million revolving loan facility with a regional bank and had
other long-term debt, including current maturities, of $1.5 million. The
Company's total debt as a percent of total capitalization at March 31,
1997 was 18%. At March 31, 1997, the Company had cash and
temporary cash investments of $.2 million compared with $.1 million at
December 31, 1996.
The Company believes that, whether or not the sale of its natural gas
pipeline and marketing subsidiaries referred to above occurs, existing
cash and temporary cash investments, cash flows from operations,
borrowings available under the Company's revolving loan agreement
and other equity or debt financing, which the Company believes would
be available, will be sufficient to fund operations, potential projects and
budgeted capital expenditures over the next two years.
In the event that the sale of the stock of Alabama-Tennessee,
ATEMCO and TRIGAS is consummated, it is the Company's intent to
use the proceeds from the sale to pay off existing debt under its
revolving loan agreement and to reinvest the remaining proceeds in the
medical products industry. Pending an acquisition or business
combination, the proceeds from such sale will be invested as
management of the Company deems prudent, which may include, but
will not be limited to, certificates of deposit, money-market accounts,
bonds, United States Government or municipal securities or other
short-term instruments.
In March, 1997, the Company's Board of Directors determined that the
quarterly dividend commencing with the dividend payable on
September 1, 1997, will be paid at the rate of $.10 per share rather
than at the current rate of $.20 per share.
Regulatory Matters
As has been previously reported, two of the Company's interstate
pipeline municipal customers, the cities of Decatur and Huntsville,
Alabama, which account for 47% of Alabama-Tennessee's current total
contracted demand, have entered into 20-year contracts with Southern
Natural Gas Company (Southern), for Southern to provide substantially
all of the cities' firm natural gas transportation requirements. Service
by Southern under the contracts is dependent upon Southern's
construction of a new 110-mile pipeline from Tuscaloosa County,
Alabama to northern Alabama. Southern has announced that it is
planning for the new pipeline to be placed in service by late 1997.
Approximately 93% of Decatur's contract volume with Alabama-Tennessee
expires on November 1, 1997 and 86% of Huntsville's
contract volume expires on April 1, 1998. The balance of Decatur's and
Huntsville's contract volumes expire on November 1, 2000. Southern
cannot construct the pipeline until it receives a final certificate of public
convenience and necessity from the FERC and obtains various other
required permits. The FERC has issued orders making preliminary
determinations that issuance of a certificate of public convenience and
necessity was in the public's interest and that the project would not
cause undue environmental harm. Alabama-Tennessee has filed for
rehearing of these orders at the FERC and otherwise continues to
oppose at the FERC the construction of the pipeline. As part of that
opposition, on April 15, 1997, Alabama-Tennessee filed an application
(the Alabama-Tennessee System Alternative) with the FERC to
construct and operate two small compressor units to provide increased
transportation services to Huntsville and Decatur, and to provide new
transportation service to the Marshall County Gas District.
On April 24, 1997, the United States Department of the Interior issued
comments indicating that the Alabama-Tennessee System Alternative
was preferable to all other alternatives for the continued provision of
service to Huntsville and Decatur and that all other alternative courses
of action proposed by Southern failed to comply with the U. S. Fish and
Wildlife Services's policy concerning new rights-of-way in the Wheeler
National Wildlife Refuge. Because of adverse impacts to fish and
wildlife resources, the Department of the Interior made a determination
that the Alabama-Tennessee System Alternative should be selected.
Management views these comments as a favorable development but
is unable to determine what impact, if any, that their issuance will
ultimately have on Southern's proposed construction of its pipeline.
Based on the regulatory delays to date, the Company believes that the
pipeline will not be placed into service at the time originally planned by
Southern.
In an effort to mitigate the anticipated loss of sales to Decatur and
Huntsville, Alabama-Tennessee put 22,044 MMBtu of capacity related
to expiring contracts for Decatur up for bid on May 1, 1997, and has
received bids on all volumes. These bids are subject to withdrawal by
the bidder at any time prior to the close of the bidding period. The
Company will be permitted to put the 33,254 MMBtu of capacity
relating to expiring contracts for Huntsville up for bid on May 21, 1997.
Several municipalities which are not currently customers of Alabama-
Tennessee have expressed interest in contracting with Alabama-Tennessee
for firm transportation service, and Alabama-Tennessee
has had discussions with those municipalities and made proposals to
them to provide such service. Although service to those municipalities
probably would not begin until late 1998 or 1999, if Alabama-Tennessee
could obtain contracts with those municipalities at the rates
and for the volumes currently being discussed and could achieve
certain operating cost reductions or increases in contract demand from
other customers, the Company currently believes that the adverse
impact of the loss of the cities of Decatur and Huntsville as firm
transportation customers, as previously estimated by the Company,
could be significantly reduced or eliminated over the longer term. The
Company also believes that if Alabama-Tennessee does not lose the
cities of Decatur and Huntsville as firm transportation customers, then
Alabama-Tennessee would have to make a substantial capital
investment to expand its pipeline systems in order to have the capacity
to serve the municipalities referred to above along with the cities of
Decatur and Huntsville. There is no assurance that Alabama-Tennessee
will obtain contracts with the several municipalities referred
to above for firm transportation service or, if contracts are entered into
with those municipalities, that they will be at the rates or for the
volumes currently being discussed.
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 will be achieved.
Such statements include, but are not limited to, the Company's
expectations regarding liquidity and capital resources, reductions in
outstanding debt, the impact of losses of customers or contracts and of
actions taken or to be taken to mitigate those losses, and use of
proceeds from the proposed sale described herein. Words such as
"anticipates," "believes," "intends," "expects," " estimated," and
variations of such words and similar expressions are intended to
identify such forward-looking statements. Forward-looking statements
contained herein involve numerous risks and uncertainties that could
cause actual results to differ materially, including, but not limited to, the
effect of changing economic conditions, business conditions and growth
in the medical products industry, and accurately forecasting capital
expenditures. In addition, the Company's future results of operations
and financial conditions described in the description of the Company's
business, operations and financial condition may be adversely
impacted by various factors. Assumptions relating to budgeting,
marketing, product development and other management decisions are
subjective in many respects and thus susceptible to interpretations and
periodic impact which may cause the Company to alter its marketing,
capital expenditures or other budgets, which in turn may affect the
Company's financial position and results of operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no material developments during the first quarter of
1997 in any of the Company's legal proceedings described in the
Company's Form 10-K for the year ended December 31, 1996.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
At a special meeting of the stockholders held on February 21, 1997, the
stockholders voted to approve an Agreement and Plan of Merger to
effect the reincorporation of the Company as a Delaware corporation
with 2,340,712 shares voted for the approval of the Plan, 217,900
shares voted against the Plan and 12,900 abstentions.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27 Financial Data Schedules (Filed electronically only)
(b) Reports on Form 8-K
A Form 8-K reporting the approval of an Agreement and Plan of Merger
to effect the reincorporation of the Company as a Delaware corporation
was filed on March 7, 1997.
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, 1997 s/s Jerry A. Howard
Jerry A. Howard
Chairman, President
& Chief Executive
Officer
Date: May 13, 1997 s/s Jeffery Strickland
Jeffery Strickland
Vice President
& Chief Financial
Officer