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 September 30, 2001 Commission File Number 0-10763
Atrion Corporation
(Exact Name of Registrant as Specified in its Charter)
Delaware 63-0821819
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
One Allentown Parkway, Allen, Texas 75002
(Address of Principal Executive Offices) (Zip Code)
(972) 390-9800
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES _X_ NO ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding at
Title of Each Class November 9, 2001
- --------------------------------------- -------------------------------
Common stock, Par Value $0.10 per share 2,079,050
ATRION CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. Financial Information 2
Item 1. Financial Statements
Consolidated Statements of Income (Unaudited)
For the Three Months and Nine Months Ended
September 30, 2001 and 2000 3
Consolidated Balance Sheets
September 30, 2001 (Unaudited) and December 31, 2000 4-5
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended
September 30, 2001 and 2000 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
PART II. Other Information 12
Item 6. Exhibits and Reports on
Form 8-K 12
SIGNATURES 13
PART I
FINANCIAL INFORMATION
2
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------------- -------------------------------------
2001 2000 2001 2000
(In thousands, except per share data) (In thousands, except per share data)
-------- -------- -------- --------
Revenues $ 15,418 $ 12,459 $ 44,998 $ 38,487
Cost of goods sold 9,577 7,695 27,864 23,603
-------- -------- -------- --------
Gross profit 5,841 4,764 17,134 14,884
-------- -------- -------- --------
Operating expenses:
Selling expense 1,543 1,649 5,027 5,482
General and administrative 2,082 1,546 5,970 4,885
Research and development 483 513 1,479 1,553
-------- -------- -------- --------
4,108 3,708 12,476 11,920
-------- -------- -------- --------
Operating income 1,733 1,056 4,658 2,964
-------- -------- -------- --------
Other income (expense):
Interest expense, net (25) (173) (217) (496)
Other income (expense) 4 2 437 (10)
-------- -------- -------- --------
(21) (171) 220 (506)
-------- -------- -------- --------
Income from continuing operations before
provision for income taxes 1,712 885 4,878 2,458
Provision for income taxes 535 187 1,529 589
-------- -------- -------- --------
Income from continuing operations 1,177 698 3,349 1,869
Gain on disposal of discontinued operations,
net of income taxes 5,326 30 5,492 129
-------- -------- -------- --------
Net income $ 6,503 $ 728 $ 8,841 $ 1,998
======== ======== ======== ========
Earnings per basic share:
Continuing operations $ 0.57 $ 0.34 $ 1.66 $ 0.91
Gain on disposal of discontinued operations 2.60 0.02 2.72 0.06
-------- -------- -------- --------
$ 3.17 $ 0.36 $ 4.38 $ 0.97
======== ======== ======== ========
Weighted average basic shares outstanding 2,048 2,033 2,022 2,059
======== ======== ======== ========
Earnings per diluted share:
Continuing operations $ 0.51 $ 0.33 $ 1.50 $ 0.87
Gain on disposal of discontinued operations 2.33 0.01 2.46 0.06
-------- -------- -------- --------
$ 2.84 $ 0.34 $ 3.96 $ 0.93
======== ======== ======== ========
Weighted average diluted shares outstanding 2,290 2,128 2,234 2,144
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
3
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2001 2000
Assets (unaudited)
- ------ ----------- -----------
(In thousands)
Current assets:
Cash and cash equivalents $ 346 $ 159
Accounts receivable, net 9,124 7,175
Inventories 10,404 10,110
Prepaid expenses and other 633 752
------- -------
20,507 18,196
------- -------
Property, plant and equipment:
Original cost 38,773 37,295
Less accumulated depreciation and amortization 13,576 11,225
------- -------
25,197 26,070
------- -------
Deferred charges:
Patents, net 2,784 3,012
Goodwill, net 12,367 12,803
Other 3,373 3,609
------- -------
18,524 19,424
------- -------
$64,228 $63,690
======= =======
The accompanying notes are an integral part of these Consolidated Balance
Sheets.
4
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2001 2000
Liabilities and Stockholders' Equity (unaudited)
- ------------------------------------ ------------ ------------
(In thousands)
Current liabilities:
Accounts payable and accrued liabilities $ 5,055 $ 4,518
Accrued income and other taxes 817 187
-------- --------
5,872 4,705
-------- --------
Long-term debt 2,387 7,400
-------- --------
Other noncurrent liabilities 2,825 7,571
-------- --------
Stockholders' equity:
Common shares, par value $0.10 per share; authorized
10,000,000 shares, issued 3,419,953 shares in
2001 and 2000 342 342
Paid-in capital 6,501 6,419
Retained earnings 60,747 51,906
Treasury shares,1,363,353 in 2001 and 1,427,660
in 2000, at cost (14,446) (14,653)
-------- --------
Total stockholders' equity 53,144 44,014
-------- --------
$ 64,228 $ 63,690
======== ========
The accompanying notes are an integral part of these Consolidated Balance
Sheets.
5
ATRION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30
-------------------------------
2001 2000
-------------- --------------
(In thousands)
Cash flows from operating activities:
Net income $ 8,841 $ 1,998
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on disposal of discontinued operations (5,492) (129)
Depreciation and amortization 3,429 3,128
Deferred income taxes 203 (396)
Other 69 154
------- -------
7,050 4,755
Change in current assets and liabilities:
(Increase) in accounts receivable (1,949) (458)
(Increase) in other current assets (175) (1,312)
Increase in accounts payable 277 488
Increase in other current liabilities 1,006 722
------- -------
Net cash provided by continuing operations 6,209 4,195
Net cash provided by discontinued operations 165 129
------- -------
6,374 4,324
------- -------
Cash flows from investing activities:
Property, plant and equipment additions (2,068) (1,915)
Property, plant and equipment sales 176 199
Patent sale 428 --
------- -------
(1,464) (1,716)
------- -------
Cash flows from financing activities:
Decrease in long-term indebtedness (5,013) (1,617)
Issuance of common stock 459 23
Repurchase of common stock (169) (999)
------- -------
(4,723) (2,593)
------- -------
Net change in cash and cash equivalents 187 15
Cash and cash equivalents at beginning of period 159 70
------- -------
Cash and cash equivalents at end of period $ 346 $ 85
======= =======
Cash paid for:
Interest $ 314 $ 566
Income taxes (net of refunds) $ 895 $ (382)
The accompanying notes are an integral part of these consolidated statements.
6
ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
In the opinion of management, all adjustments necessary for a fair
presentation of results of operations for the periods presented have been
included in the accompanying unaudited consolidated financial statements of
Atrion Corporation (the "Company"). Such adjustments consist of normal
recurring items. The accompanying financial statements have been prepared
in accordance with the instructions to Form 10-Q and include the
information and notes required by such instructions. Accordingly, the
consolidated financial statements and notes thereto should be read in
conjunction with the financial statements and notes included in the
Company's 2000 Annual Report on Form 10-K.
(2) New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" (effective July 1, 2001) and SFAS No. 142,
"Goodwill and Other Intangible Assets" (effective for the Company on
January 1, 2002). SFAS No. 141 prohibits pooling-of-interests accounting
for acquisitions. SFAS No. 142 establishes accounting and reporting
standards for intangible assets acquired at acquisition. SFAS No. 142
specifies that goodwill will be evaluated for impairment and that
amortization of goodwill will cease. Additionally, upon adoption of SFAS
No. 142, the Company will be required to complete an initial assessment of
goodwill impairment by June 30, 2002 with any impairment loss being
recognized as the cumulative effect of a change in accounting principle,
restating first quarter 2002 results, if necessary. As of September 30,
2001, the Company had goodwill of $12,367,000 and anticipates that goodwill
amortization expense for 2001 will be approximately $600,000, or $400,000
after tax. Any impairment of goodwill could have a material impact on the
Company's financial position or results of operations. The Company has not
determined the impact of initial adoption of SFAS No. 142 on the Company's
financial position or results of operations.
7
ATRION CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results for the three months ended September 30, 2001
The Company's consolidated income from continuing operations for the
quarter ended September 30, 2001 was $1,177,000, or $.57 per basic and $.51
per diluted share, compared with $698,000, or $.34 per basic and $.33 per
diluted share, for the third quarter of 2000. The earnings per basic share
computations are based on weighted average basic shares outstanding of
2,047,535 in 2001 and 2,033,093 in 2000. The earnings per diluted share
computations are based on weighted average diluted shares outstanding of
2,289,880 in 2001 and 2,127,883 in 2000.
Consolidated revenues of $15.4 million for the third quarter of 2001 were
$3.0 million, or 24 percent, higher than revenues for the third quarter of
2000. This improvement is primarily attributable to increased demand for
the Company's products, particularly when measured against the third
quarter of 2000 which was the Company's weakest quarterly period that year.
The Company expects revenue growth in the next several quarters to revert
to more normal levels reflecting conditions in our industry. Gross profit
of $5.8 million in the third quarter of 2001 was $1.1 million, or 23
percent, higher than in the comparable 2000 period. This increase in gross
profit is primarily attributable to the previously mentioned revenue
increase in the third quarter of 2001 over the third quarter of 2000.
The Company's third quarter 2001 operating expenses of $4.1 million were
$400,000 higher than the operating expenses for the third quarter of 2000.
This increase was primarily the result of higher general and administrative
(G&A) expenses partially offset by reductions in selling expenses in the
current year period. G&A expenses for the third quarter of 2001 were
$536,000 higher than G&A expenses for the same period in 2000 primarily as
a result of increased spending on outside services, compensation and
benefit programs. Selling expenses for the third quarter of 2001 were
$106,000 lower than selling expenses for the third quarter of 2000 due to a
partial reorganization of the sales team after September 30, 2000.
Operating income of $1.7 million in the third quarter of 2001 was $677,000,
or 64 percent, higher than operating income in the third quarter of 2000.
Net interest expense of $25,000 for the three months ended September 30,
2001 was $148,000 lower than net interest expense for the comparable 2000
period. This reduction was primarily related to the Company's reduction of
its level of borrowings and lower interest rates in 2001.
Income tax expense for the third quarter of 2001 was $535,000 compared to
income tax expense of $187,000 for the same period in the prior year. The
increase in pretax income in the third quarter of 2001 was the primary
contributor to the increase in income tax expense in that period.
The Company recorded a non-cash gain from discontinued operations of
$5,326,000 after tax, or $2.60 per basic and $2.33 per diluted share, for
the third quarter of 2001 compared with a gain of $30,000 after tax, or
$.02 per basic and $.01 per diluted share, for the third quarter of 2000.
The third quarter 2001 gain resulted from the reversal of a reserve
8
established when the Company disposed of its natural gas operations in
1997. The reversal followed the resolution of an outstanding contingency
related to the sale of those assets.
The third quarter of 2001 was the tenth consecutive quarter in which the
Company's earnings per share from continuing operations exceeded those of
the same period in the prior year. The Company anticipates that diluted
earnings per share from continuing operations for 2001 will exceed the 2000
level by more than 50%.
Results for the nine months ended September 30, 2001
The Company's consolidated income from continuing operations for the nine
months ended September 30, 2001 was $3.3 million, or $1.66 per basic and
$1.50 per diluted share, compared with $1.9 million, or $.91 per basic and
$.87 per diluted share, for the same period of 2000. The earnings per basic
share computations are based on weighted average basic shares outstanding
of 2,021,908 in 2001 and 2,058,622 in 2000. The earnings per diluted share
computations are based on weighted average diluted shares outstanding of
2,233,723 in 2001 and 2,143,606 in 2000.
Consolidated revenues of $45.0 million for the first nine months of 2001
were $6.5 million, or 17 percent, higher than revenues for the same period
of 2000. The increase in revenues for the nine-months ended September 30,
2001 was a result of improved revenues at all operations.
Gross profit of $17.1 million for the nine-months ended September 30, 2001
was $2.3 million, or 15 percent, higher than in the comparable 2000 period.
The previously mentioned increase in revenues was the primary contributor
to this increase.
The Company's operating expenses of $12.5 million for the first nine months
of 2001 were $556,000 higher than the operating expenses for the same
period of 2000. This increase was the result of increased G&A expenses
partially offset by reductions in selling and other expenses in the current
year period. G&A expenses for the first nine months of 2001 were $1.1
million higher than G&A expenses for the same period in 2000 primarily as a
result of increased spending on outside services, compensation and benefit
programs. Selling expenses for the nine-months ended September 30, 2001
were $455,000 lower than selling expenses for the comparable period of 2000
due to a partial reorganization of the sales team after September 30, 2000.
Operating income of $4.7 million in the first nine months of 2001 was $1.7
million, or 57 percent, higher than the operating income in the comparable
period of 2000.
Net interest expense of $217,000 for the nine months ended September 30,
2001 was $279,000 lower than net interest expense for the comparable 2000
period. This reduction was primarily related to the Company's reduction of
its level of borrowings and lower interest rates in 2001. Other income for
the nine-month period ended September 30, 2001 was $437,000 compared to
other expense of $10,000 for the same period in the prior year. This
increase is primarily attributable to a one-time gain of $428,000 resulting
from the sale of a patent that was recorded in the second quarter of 2001.
9
Income tax expense for the nine-month period ended September 30, 2001 was
$1.5 million compared to income tax expense of $589,000 for the same period
in the prior year. The increase in pretax income in the nine-month period
ended September 30, 2001 was the primary contributor to the increase in
income tax expense in that period.
The Company recorded a gain from discontinued operations relating to the
sale of its natural gas operations of $5.5 million after tax, or $2.72 per
basic and $2.46 per diluted share, for the nine months ended September 30,
2001 compared with a gain of $129,000 after tax, or $.06 per basic and
diluted share, for the nine months ended September 30, 2000. The reversal
in 2001 of a reserve established when the Company disposed of its natural
gas operations in 1997, as reported above, is the primary contributor to
the 2001 gain.
Liquidity and Capital Resources
At September 30, 2001, the Company had cash and cash equivalents of
$346,000 compared with $159,000 at December 31, 2000. The Company had $2.4
million of long-tem debt under its $18.5 million revolving credit facility
at September 30, 2001 compared with $7.4 million of long-term debt at
December 31, 2000. This decrease in long-term debt from December 31, 2000
to September 30, 2001 resulted from the Company's use of cash flow from
continuing operations to reduce its borrowing level. The term of the
revolving credit facility was extended two years during the third quarter
of 2002 and expires on November 11, 2004.
As previously discussed, the Company recorded a non-cash gain from
discontinued operations during the third quarter of 2001. The gain had no
affect on the Company's cash position or the balance of its outstanding
indebtedness and, as a result, it will not have any impact on earnings from
continuing operations in future periods.
The Company believes that its existing cash and cash equivalents, cash
flows from operations, borrowings available under the Company's credit
facility and debt financing, which the Company believes would be available,
will be sufficient to fund the Company's cash requirements for at least the
foreseeable future.
Forward-Looking Statements
The statements in this Management's Discussion and Analysis that are
forward-looking are based upon current expectations, and actual results may
differ materially. Therefore, the inclusion of such forward-looking
information should not be regarded as a representation by the Company that
the objectives or plans of the Company would be achieved. Such statements
include, but are not limited to, the Company's expectations regarding
revenue in the next several quarters, regarding diluted earnings per share
from continuing operations for the year 2001, as well as future liquidity
and capital resources.
10
Words such as "anticipates," "believes," "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, and there are a number of
factors that could cause actual results to differ materially including, but
not limited to, the following: changing economic, market and business
conditions, the uncertainties resulting from the events of September 11,
2001, acts of war or terrorism, market acceptance of the Company's
products, the effects of governmental regulation, the impact of competition
and new technologies, slower-than-anticipated introduction of new products
or implementation of marketing strategies, changes in the prices or
availability of raw materials, changes in product mix, product recalls, the
ability to attract and retain qualified personnel and the loss of any
significant customer. In addition, assumptions relating to budgeting,
marketing, product development and other management decisions are
subjective in many respects and thus susceptible to interpretations and
periodic review which may cause the Company to alter its marketing, capital
expenditures or other budgets, which in turn may affect the Company's
results of operations and financial condition.
11
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) No reports on Form 8-K have been filed during the quarter
ended September 30, 2001.
12
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: November 13, 2001 /s/ Emile A. Battat
---------------------------
Emile A. Battat
Chairman, President and
Chief Executive Officer
Date: November 13, 2001 /s/ Jeffery Strickland
---------------------------
Jeffery Strickland
Vice President and
Chief Financial Officer